CAT Caterpillar Inc

By Austen Hufford 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 31, 2018).

Caterpillar Inc. raised its profit outlook for the year, predicting that higher prices and strong machinery sales in a buoyant global economy will cover increased raw-material costs related to tariffs.

The world's largest maker of heavy equipment for mining, construction and energy companies on Monday beat analysts' expectations in reporting a second-quarter profit that more than doubled from a year earlier. Strong demand from oil, natural-gas and mining customers, as well as construction companies in China, pushed Caterpillar's equipment sales up 25%.

Even so, shares in Caterpillar fell 2% to $139.75 -- a 5% swing from their pre-open level -- as the company said it expects to pay more for materials as a result of tariffs this year. Caterpillar also flagged supply-chain constraints that occurred as it boosted production.

Caterpillar, based in Deerfield, Ill., said tariffs the Trump administration has imposed on some metal and component imports would increase its material costs by $100 million to $200 million over the rest of 2018.

While the company buys most of its steel from domestic suppliers, it imports some types of specialized steel. Caterpillar said that trade tensions haven't affected its business in China.

Caterpillar said price increases that went into effect this month would help offset the higher costs. Other manufacturers have also said they are passing on higher costs by raising prices. Caterpillar told investors on Monday that rising material costs would be just "one of many factors" when deciding whether to raise prices again.

Freight costs rose as Caterpillar ramped up production and expanded its use of more expensive expedited shipping to meet demand. Higher fuel costs, as well as a shortage of trucks and truck drivers, have pushed up shipping rates for many companies this year.

Caterpillar has "seen some issues and challenges in our supply base" as production of machinery accelerates and demand for parts and components increases, interim Chief Financial Officer Joseph Creed said in an interview.

The company's engineers have redesigned some parts and processes to ease demands on suppliers. Higher volumes and prices during the quarter helped offset the increased material and freight expenses.

In another sign of increased production levels, Caterpillar added 6,800 full-time workers in the second quarter compared with a year earlier, reaching a total of 101,600 employees at the end of June.

Caterpillar spooked investors in April when it called its first quarter a "high-water mark" for the year. Executives later said they were referring to margins, not sales or profit. On Monday, Caterpillar reported adjusted earnings of $2.97 a share for its second quarter, above the first-quarter results of $2.82 and analyst expectations of $2.73.

Caterpillar said it now expects adjusted earnings per share this year to be between $11 and $12, shifting its previous range up by 75 cents. Caterpillar said the improved outlook didn't take into account the potential for a further increase in trade barriers. Caterpillar sells its machinery in more than 190 countries.

Total second-quarter sales, including revenue from the company's financial products, rose 24% to $14.01 billion.

In all, the company posted a second-quarter profit of $1.71 billion, or $2.82 a share, up from $802 million, or $1.35 a share, a year earlier.

Analysts polled by Thomson Reuters had forecast $13.88 billion in sales.

Caterpillar also disclosed a new $10 billion share-buyback program beginning next year. Its current plan, which expires this year, had $4.5 billion left of an original $10 billion in planned repurchases. Caterpillar repurchased $750 million of shares in the second quarter.

--Bob Tita contributed to this article.

Write to Austen Hufford at austen.hufford@wsj.com

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July 31, 2018 02:47 ET (06:47 GMT)

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