The American multinational machinery manufacturing company Caterpillar Inc. (CAT, Financial) reported fourth quarter earnings that surpassed estimates on Thursday, Jan. 24. Strong demand for construction, mining and energy machines lifted the company’s sales by 35%. Other factors that contributed to its growth were impressive sales in China and North America led by expansion in the construction and mining-equipment businesses. The company’s shares surged almost 4% after the earnings beat.
Caterpillar’s earnings per share for the quarter were $2.16 a share which was considerably above estimates of $1.79. Revenue came in at $12.9 billion versus $11.98 billion projected.
Caterpillar’s fourth quarter results comprise a charge equal to $2.4 billion on account of passing of the tax reform legislation. For the whole year, profits increased by 53% as compared with 2016 to $586 million. CEO of Caterpillar Jim Umpleby commented in a statement:
“Caterpillar is beginning 2018 with strong sales momentum resulting from strong order rates, lean dealer inventories and an increasing backlog. Additionally, there are positive economic indicators across most of the world and in many of the company’s end markets.”
The equipment maker said that its earnings in the fourth quarter were mainly led by its construction division. As a matter of fact, enhancement of the global economy as well as rising commodity prices is expected to push the company’s other two segments: resource industries; and energy and transportation.
The company looks to dominate the Asian economy, in especially China, where construction demand is likely to be robust in the first six months of the year at least. Moreover, rising gold, iron ore and copper prices would not only perk up machine utilization but also cause demand for replacement and aftermarket parts to rise.
Caterpillar and the global economy swim and sink together. The company ended the year on a splendid note delivering impressive fourth quarter and full-year results. As a result of this, the company remains optimistic about this year, saying that it estimates adjusted profits for 2018 to lie between $8.25 and $9.25 per share.
The company made a great comeback after the weak economic conditions and commodity prices instability that prevailed from 2012 to 2016. Sales plunged more than 40% during this period. The company had to close down 30 plants and lay off 16,000 workers between 2015 and 2016. Things have certainly changed since then as the economic indicators look encouraging at the moment.
Disclosure: I do not hold any position in the stock mentioned in this article.