Caterpillar Returns to Growth as Global Recovery Continues

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Caterpillar Inc.'s revenue rose 18% in 2017, breaking a four-year streak of declining sales for the world's largest maker of heavy machinery.

This year the Deerfield, Ill.-based manufacturer expects its construction, mining and energy markets around the globe to continue gaining strength.

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Still, Caterpillar reported a loss in the fourth quarter, as it booked a one-time charge related to changes to the U.S. tax code signed into law by President Donald Trump in late December.

The company booked a $2.4 billion charge related to repatriation of foreign profits and write downs of reduced deferred tax assets. Still, the company told investors that it would benefit in the long term through a lower corporate tax rate, greater ability to access overseas cash and a more equal playing field between it and foreign competitors. Caterpillar had $16 billion in overseas profits at the end of 2016.

"After four challenging years, many key markets improved in 2017," Chief Executive Jim Umpleby said.

Shares rose 3.1% in premarket trading.

Caterpillar's mining and construction markets around the world showed signs of turnaround throughout 2017. The company said Wednesday a rolling three-month average of global retail sales of its machinery rose 34% in December, up from 26% in November.

Mr. Umpleby, who took over his current job at that start of 2017, has said a prime focus under his watch would be profitable growth, rather than only increasing revenue.

For 2018, the company expects to report adjusted earnings per share of $8.25 to $9.25, above both the $8.19 that had been expected by Wall Street analysts and the $6.88 in adjusted earnings per share in 2017.

While the company cheered the new tax law's benefits, Caterpillar's earnings report said nothing about a Swiss subsidy that is at the center of a tax structure that has been under criminal investigation. Federal agents raided Caterpillar's headquarters and two other locations last year in the probe, which is focused on taxes and exports. The company hasn't been accused of wrongdoing and has said it believes its tax position is correct.

Overall for the fourth quarter, the company reported a loss of $1.3 billion, or $2.18 per share, compared with a loss of $1.17 billion, or $2 a share, a year ago. On an adjusted basis, which strips out the impact of the tax charge and other factors, the company earned $2.16 a share

Wall Street analysts expected adjusted earnings per share of $1.79, according to Thomson Reuters.

Caterpillar said revenue rose 35% in the quarter to $12.9 billion. Analysts expected $11.98 billion. In 2017, revenue increased to $45.5 billion.

The company added 4,800 jobs in the U.S. last year, a shift following years of deep cuts in its domestic workforce. Caterpillar said its domestic workforce rose to 50,500 employees, up from 49,700 at the end of September.

Austen Hufford contributed to this article.

Write to Andrew Tangel at Andrew.Tangel@wsj.com

Caterpillar Inc., the world's largest maker of heavy machinery, said Thursday it broke a four-year streak of declining sales and signaled optimism about most of its construction and mining markets.

While the Deerfield, Ill.-based manufacturer didn't offer a revenue forecast for 2018, executives said they expect sales to continue their upswing this year.

"The global economy is the strongest it has been in several years, with nearly every region of the world expected to grow in 2018," Chief Financial Officer Brad Halverson told Wall Street analysts.

Annual revenue jumped 18% to $45.5 billion in 2017, following four consecutive years of weak sales of Caterpillar's iconic yellow bulldozers, mining trucks and other equipment.

Caterpillar reported a loss in the fourth quarter, however, as it took a one-time charge related to changes to the U.S. tax code signed into law by President Donald Trump in late December. Much of the charge stemmed from a mandatory tax on stockpiled overseas profit, which at the end of 2016 totaled $16 billion. Earnings excluding the tax charges and other items topped analysts' expectations.

The manufacturer said the largest increase in sales came from North America amid growth in demand for its heavy machines and aftermarket parts. About half of its sales growth in the Asia/Pacific region was attributed to China, due to increased building construction and infrastructure investment.

Caterpillar told investors it would benefit in the long term from the new, lower U.S. corporate tax rate, a greater ability to access overseas cash and a more equal playing field between it and foreign competitors. Caterpillar said it expected an effective tax rate of 24% this year, down from 28% in 2017.

Mr. Halverson said in an interview the company wasn't planning to alter its tax-reduction plan involving a Swiss subsidy that has been under criminal investigation as a result of the tax law. Federal agents raided Caterpillar's headquarters and two other locations last year in the probe, which is focused on taxes and exports. The company hasn't been accused of wrongdoing and has said it believes its tax position is correct.

Asked Thursday whether the new tax law would help resolve Caterpillar's tax dispute, Chief Executive Jim Umpleby said: "It's an ongoing discussion with the government. We're cooperating, and we hope to get to a resolution in an expeditious manner."

Caterpillar had $16 billion in overseas profit at the end of 2016. Mr. Halverson suggested the company use some repatriated cash for share buybacks and dividends, as well as funding its business.

Under Mr. Umpleby, Caterpillar has shifted its focus to profitable growth, rather than only increasing revenue, and placed less emphasis on short-term results. Caterpillar reported a 15% operating margin in 2017, up from 5% the previous year.

"We're really trying to focus on the long term here," said Mr. Umpleby, who took over as CEO at the start of 2017.

Overall for the fourth quarter, Caterpillar reported a loss of $1.3 billion, or $2.18 per share, compared with a loss of $1.17 billion, or $2 a share, a year ago. On an adjusted basis, which strips out the impact of the tax charge and other factors, the company earned $2.16 a share, higher than analyst expectations.

Revenue rose 35% in the quarter to $12.9 billion. Analysts expected $11.98 billion. In 2017, revenue increased to $45.5 billion.

The company added 4,800 jobs in the U.S. last year, a shift following years of deep cuts in its labor force. Caterpillar said its domestic workforce rose to 50,500 employees, up from 45,700 at the end of 2016.

Caterpillar shares were up slightly in midday trading Thursday to $168.62.

Another U.S. manufacturer, 3M Co., also reported upbeat results Thursday, saying fourth-quarter sales increased 9%, aided by expanding industrial activity globally and strong sales growth overseas, particularly in Asia. After years of lackluster sales growth, 3M is now racking up robust sales increases from its renewed focus on its electronics-and-energy business, whose customers include makers of semiconductors, data centers, automotive electrification and energy grids.

"These investments are paying off," Chief Executive Inge Thulin said Thursday.

The St. Paul, Minn.-based maker of Post-it Notes, Scotch tape and Ace bandages raised its 2018 profit forecast, on the expectation of lower U.S. income taxes, to a range of $10.20 to $10.70 a share, up from $9.60 to $10 a share.

The new federal tax law also took a toll on 3M net income, which fell 55% in the quarter as the company recorded expenses of $762 million to comply with the new code. But overall for the fourth quarter, 3M earned $523 million, or 85 cents a share, compared with $1.15 billion, or $1.88 a share, a year earlier.

Shares of 3M rose 2.5% to $253.87.

Austen Hufford contributed to this article.

Write to Andrew Tangel at Andrew.Tangel@wsj.com and Bob Tita at robert.tita@wsj.com

Caterpillar Inc., the world's largest maker of heavy machinery, said Thursday it broke a four-year streak of declining sales and signaled optimism about most of its construction and mining markets.

While the Deerfield, Ill.-based manufacturer didn't offer a revenue forecast for 2018, executives said they expect sales to continue their upswing this year.

"The global economy is the strongest it has been in several years, with nearly every region of the world expected to grow in 2018," Chief Financial Officer Brad Halverson told Wall Street analysts.

Annual revenue jumped 18% to $45.5 billion in 2017, following four consecutive years of weak sales of Caterpillar's iconic yellow bulldozers, mining trucks and other equipment.

Caterpillar reported a loss in the fourth quarter, however, as it took a one-time charge related to changes to the U.S. tax code signed into law by President Donald Trump in late December. Much of the charge stemmed from a mandatory tax on stockpiled overseas profit. Earnings excluding the tax charges and other items topped analysts' expectations.

The manufacturer said the largest increase in sales came from North America amid growth in demand for its heavy machines and aftermarket parts. About half of its sales growth in the Asia-Pacific region was attributed to China, due to increased building construction and infrastructure investment.

Caterpillar told investors it would benefit in the long term from the new, lower U.S. corporate tax rate, a greater ability to access overseas cash and a more level playing field between it and foreign competitors. Caterpillar said it expected an effective tax rate of 24% this year, down from 28% in 2017.

Mr. Halverson said in an interview the company wasn't planning to alter its tax-reduction plan involving a Swiss subsidiary as a result of the tax law. Federal agents raided Caterpillar's headquarters and two other locations last year in a probe focused on taxes and exports. The company hasn't been accused of wrongdoing and has said it believes its tax position is correct.

Asked Thursday whether the new tax law would help resolve Caterpillar's tax dispute, Chief Executive Jim Umpleby said: "It's an ongoing discussion with the government. We're cooperating, and we hope to get to a resolution in an expeditious manner."

Caterpillar had $16 billion in overseas profit at the end of 2016. Mr. Halverson suggested potential uses of repatriated cash include funding the company's business as well as share buybacks and paying dividends.

Under Mr. Umpleby, Caterpillar has shifted its focus to profitable growth, rather than simply increasing revenue, and placed less emphasis on short-term results. Caterpillar reported a 15% operating margin in 2017, up from 5% the previous year.

"We're really trying to focus on the long term here," said Mr. Umpleby, who took over as CEO at the start of 2017.

Overall for the fourth quarter, Caterpillar reported a loss of $1.3 billion, or $2.18 a share, compared with a loss of $1.17 billion, or $2 a share, a year earlier. On an adjusted basis, which strips out the impact of the tax charge and other factors, the company earned $2.16 a share, higher than analyst expectations.

Revenue rose 35% in the quarter to $12.9 billion. Analysts expected $11.98 billion. In 2017, revenue increased to $45.5 billion.

The company added 4,800 jobs in the U.S. last year, a shift following years of deep cuts in its labor force. Caterpillar said its domestic workforce rose to 50,500 employees, up from 45,700 at the end of 2016.

Caterpillar shares rose slightly in trading Thursday to $169.37.

Another U.S. manufacturer, 3M Co., also reported upbeat results Thursday, saying fourth-quarter sales increased 9%, aided by expanding industrial activity globally and strong sales growth overseas, particularly in Asia. After years of lackluster sales growth, 3M is now racking up robust increases through its renewed focus on its electronics-and-energy business, whose customers include makers of semiconductors, data centers, automotive electrification and energy grids.

"These investments are paying off," Chief Executive Inge Thulin said Thursday.

The St. Paul, Minn.-based maker of Post-it Notes, Scotch tape and Ace bandages raised its 2018 profit forecast, on the expectation of lower U.S. income taxes, to a range of $10.20 to $10.70 a share, up from $9.60 to $10 a share.

The new federal tax law also took a toll on 3M net income, which fell 55% in the quarter on expenses of $762 million to comply with the new code. The company earned $523 million, or 85 cents a share, compared with $1.15 billion, or $1.88 a share, a year earlier.

Shares of 3M rose 1.9% to $252.36.

Austen Hufford contributed to this article.

Write to Andrew Tangel at Andrew.Tangel@wsj.com and Bob Tita at robert.tita@wsj.com

(END) Dow Jones Newswires

January 25, 2018 18:44 ET (23:44 GMT)

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