Caterpillar Boosts Outlook as Revenue Jumps -- 3rd Update

By Andrew Tangel and Josh Zumbrun Features Dow Jones Newswires

Caterpillar Inc. signaled cautious optimism about global growth, offering fresh evidence that many markets are in rebound mode after a yearslong slump.

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The world's largest heavy-machinery maker, an economic bellwether, in its second-quarter earnings report Tuesday highlighted growing demand in China's construction sector and a revitalization of the mining industry. The company boosted its earnings outlook for the year, despite sluggish infrastructure spending in the U.S. and weakness in Brazil and the Middle East.

The Peoria, Ill., maker of bulldozers and mining trucks said it expects revenue of $42 billion to $44 billion for 2017, up from a previous forecast of as much as $41 billion.

If that prediction is borne out, it would be Caterpillar's first year-over-year revenue increase since 2012.

The upbeat earnings report was one of many that helped push the Dow Jones Industrial Average up 100.26 points, or 0.5%, to 21613.43. The S&P 500 and Nasdaq Composite both closed at new records.

DuPont Co. and United States Steel Corp. also topped expectations, due to improved demand for products ranging from soybean seeds to flat-rolled steel.

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"This is the first time since the Great Recession ended that we're seeing a synchronized global recovery and that's what the markets are keying on right now," said Scott Anderson, chief economist at the Bank of the West. "In some past years, whenever the U.S. was doing well, Europe wasn't and vice versa. Now everyone seems to be more on the same page."

A stabilization of commodity prices has put major developing economies like China, Brazil, Russia and Nigeria on stronger footing after they were hit by a commodity-price plunge in 2014.

An International Monetary Fund index of global commodity prices has risen nearly 27% since hitting a 12-year low in 2016. The World Bank projected last month that, by next year, global economic growth would reach a seven-year high.

And stability in global manufacturing has been widespread. None of the top-15 trading partners for the U.S. were contracting in June, said Chad Moutray, chief economist for the National Association of Manufacturers.

Industrial output in the U.S. has risen steadily, climbing for the past five months, thanks in part to renewed oil and gas production to feed global demand.

The Federal Reserve's measure of industrial production in June was the strongest since February 2015. That has helped the U.S. economy add 581,000 jobs in the second quarter despite a slowdown in consumer spending and job losses in the retail sector.

Caterpillar's U.S. payroll grew to 48,500 employees by the end of June, an increase of 2,000 over the previous three months, and Caterpillar is hiring at factories in Illinois, Indiana and Arkansas.

But there are doubts the recovery will be sustained. Caterpillar executives noted that revenue increases in some cases followed years of steep declines and that sales were still off their highs from earlier in the decade.

The company said it is expecting strengthening demand for excavators in China in response to government spending on public-works projects, a pickup in the North American natural-gas industry and increasing sales of replacement parts for mining equipment as fewer trucks remain idle.

Geopolitical uncertainty and commodity-price volatility still pose risks to Caterpillar's rosy outlook. Executives declined to speculate how the company might fare next year and beyond.

Caterpillar's second-quarter revenue jumped 10% from the year-earlier period to $11.3 billion, and profit of $802 million beat Wall Street's expectations.

Shares rose $6.36, or 5.9%, to $114.54, contributing about 44 points to the DJIA's gain.

Solid corporate earnings have supported major stock indexes this year, helping them climb to records. Companies in the S&P 500 are poised to report earnings growth of 7.8% in the second quarter from the year-earlier period, according to FactSet, building on gains from the first quarter, when firms posted their strongest results since 2011.

A weakening dollar could further boost profits at multinational corporations and, in turn, lift the stock market through the second half.

Sales of construction equipment in North America, Caterpillar's largest market, rose 3% in the second quarter. But U.S. government spending on roads, bridges and other infrastructure was lackluster, executives said.

"The United States is in need of infrastructure investment," Caterpillar Chief Financial Officer Brad Halverson said.

While Caterpillar's revenue from construction equipment rose 11% overall in the quarter, sales decreased 5% in the region including Europe, the Middle East and Africa. Latin American sales rose 31% as several economies there showed signs of improvement, but Brazil remains a weak spot, executives said.

Signs of turnaround in Caterpillar's retail segment emerged in the first quarter. That trend continued as retail sales of Caterpillar machinery increased 7% world-wide during the three months ended June 30.

Caterpillar reported quarterly earnings per share of $1.35. Analysts polled by Thomson Reuters had expected $1.26 in adjusted earnings per share.

--Akane Otani and Austen Hufford contributed to this article.

Write to Andrew Tangel at Andrew.Tangel@wsj.com and Josh Zumbrun at Josh.Zumbrun@wsj.com

(END) Dow Jones Newswires

July 25, 2017 20:04 ET (00:04 GMT)