Caterpillar posts record second-quarter profit, raises forecast

Key Points
  • Caterpillar reports record second-quarter profits per share.
  • The big machinery exporter also says it would offset a sizable second-half profit hit from the tariffs by raising prices.
  • Caterpillar bumped up its full-year profit forecast to a range of $11 per share to $12 per share.
Caterpillar beats on top and bottom lines
Caterpillar beats on top and bottom lines

Caterpillar reported record second-quarter earnings per share Monday and bumped up its full-year forecast. The big machinery exporter also said it would offset a sizable second-half profit hit from the tariffs by raising prices.

"Caterpillar delivered record second-quarter profit per share," CEO Jim Umpleby said in a statement. "Based on outstanding results in the first half of the year and continued strength in many of our end markets, Caterpillar is again raising our profit outlook for 2018."

Earnings per share were $2.82, the best second-quarter EPS performance for the Illinois-based heavy equipment manufacturer. It was more than double that from a year earlier, while it's adjusted earnings of $2.97 per share was nearly twice as high as the year-earlier period.

Caterpillar raised its full-year profit forecast to a range of $11 per share to $12 per share, an increase of 75 cents per share from its previous guidance. The company gave this higher forecast despite rising costs due to tariffs, with Caterpillar saying it expects an impact of $100 million to $200 million on its material costs in the second half of this year. Caterpillar said it will offset those impacts with price increases this year.

"Our business in China continues to be strong. We haven't seen an impact of the trade tension on our business," Umpleby said on a conference call with investors.

Shares of Caterpillar closed down nearly 2 percent Monday at $139.75 per share, sliding nearly 10 percent this year. The stock had risen after the company's report, before turning lower as the majority of industrial stocks slipped in trading. 

Expectations vs. results:

  • Earnings: $2.97 per share vs. $2.73 per share expected by Thomson Reuters.
  • Revenue: $14.01 billion vs. $13.89 billion expected by Thomson Reuters.

Caterpillar repurchased $750 million of stock in the second quarter, after repurchasing $500 million in the first quarter. It expects share repurchases in the second half of 2018 to continue at about the same pace. Caterpillar also authorized an increase to its quarterly dividend, raising the payout by 10 percent to 86 cents per share.

Investors have been cautious on the shares since Caterpillar CFO Brad Halverson called the company's first-quarter earnings its "high-water mark" for the year. He had warned that Caterpillar did not expect anything higher than the $2.82 adjusted profits per share for the remaining three quarters due to increase investment later in 2018.

"We expect the targeted investments for future growth to be higher over the remaining three quarters," Halverson said during a conference call with investors on April 24.

The company said the shortage reported by sales dealers is improving. Caterpillar reported demand continues to be strong, with orders through the end of 2019.

Caterpillar's stock slid earlier this month due to concern about the company's business in China, as President Donald Trump unveiled new tariffs on Chinese goods — and threatened to add more levies as the trade war escalates.