Surging economic tide boosts Caterpillar

If you want more evidence of a broadening expansion in the global economy, look no further than Caterpillar Inc.

Surging Chinese demand and an improving U.S. economy have lifted sales of Caterpillar’s signature yellow mining and construction machines. Now, with the pace of growth quickening in Latin America and Europe, the company is projecting higher earnings for 2018 than analysts estimated.

The outlook from Caterpillar, considered an economic bellwether, comes as industries from manufacturing to services report increased sales and orders that have fuelled record equity prices and buoyed investor expectations for this year. This week, the International Monetary Fund raised its estimate for 2018 global growth to the fastest in seven years.

“Caterpillar’s results showed strength across the board in nearly every industry for the first time, which indicated coordinated and synchronized macroeconomic growth,” Larry De Maria, an analyst at William Blair & Co., said in an interview. “It’s a good harbinger for overall economic activity.”

The company’s stock dipped slightly Thursday as U.S. President Donald Trump’s protectionist agenda fuelled worries about the future of global trade, sparking an early drop in broader market indexes, De Maria said.

Deerfield, Ill.-based Caterpillar on Thursday projected growth in its construction and mining-equipment businesses, forecasting increased sales in China and expansion in North America, even without a U.S. infrastructure bill. It forecast 2018 earnings of US$8.25 to US$9.25 a share. The US$8.75 midpoint of that range surpassed the US$8.63 average of estimates compiled by Bloomberg. Sales and earnings in the fourth quarter of 2017 also topped expectations.

Estimates for Caterpillar earnings had risen 16 per cent the past three months, the most in the Dow Jones Industrial Average, amid signs of improving demand across the globe. Caterpillar, which in December capped the biggest annual gain in its shares since 2003, raised its 2017 revenue projections three times last year.

“After four challenging years, many key markets improved in 2017,” Caterpillar chief executive Jim Umpleby said in the statement Thursday.