Caterpillar Inc. said its annual profit will probably be higher than previously expected, as the company reported second-quarter earnings that showed resilience despite growing worries about the global economy.
Caterpillar, one of the world’s biggest producers of heavy machinery, is seen as a bellwether for industrial activity as a key supplier to industries from construction and mining to energy and transportation.
The maker of the iconic yellow diggers said full-year adjusted profits will now be higher than previously forecast and profit margins will top its target range, while warning that sales are expected to be slightly lower.
The company has been benefiting from strong prices and lower-than-expected manufacturing costs which have supported profit margins, executives said on a conference call.
“Caterpillar’s better-than-expected 2Q earnings suggest a more resilient business with structurally higher margins and should alleviate concerns over an economic slowdown,” said Christopher Ciolino, a Bloomberg Intelligence analyst.
Still, sales are expected to end slightly lower for the year and the pricing environment is expected to normalize in the second half, especially in construction. Caterpillar is now expecting a slight reduction in machine dealer inventories for the year. The company says it should continue to benefit from favorable costs.
Caterpillar traded 1.1% higher at 9:36 a.m. in New York.
Profit increased 20% from a year earlier in the energy and transportation segment, while the construction and resources industries both dipped slightly. The construction unit saw higher sales in Latin America, while volumes were flat in North America and lower elsewhere in the world.
The weaker sales in construction and resources is likely to be repeated in the second half, chief executive officer Jim Umpleby said on the call. The mining industry continues to show capital discipline, but the company remains bullish on the sector.
(By Thomas Biesheuvel and Sana Pashankar)
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