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April 24, 2018 12:15 PM, EDT

Caterpillar Gives Vote of Confidence to Global Economy

Daniel Acker/Bloomberg News

Caterpillar Inc. raised its earnings forecast in a sign that industries from mining to energy are gaining momentum amid a stronger global economy — assuming no trade wars.

The top maker of construction and mining equipment saw its shares surge after lifting its 2018 profit projection by as much as 24%. First-quarter results beat analysts’ estimates on sales and earnings as demand for the signature yellow machines accelerates. Caterpillar saw continued strength for construction in North America and infrastructure in China, the company said April 24.

Caterpillar is reaping the benefits as years of cost cutting boost margins amid a broadening recovery in mining and construction. Last week, the International Monetary Fund predicted the world economy’s strongest upswing since 2011 will continue for the next two years. The outlook comes after worries of a trade war helped send Caterpillar shares to their worst quarterly performance since 2015.

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“Every end market was weaker a year and a half ago, and since then we’ve had markets popping back up,” Melius Research analyst Rob Wertheimer said in an interview in New York before the earnings report. “There’s actually strength in a lot of these markets now, but we’re not yet at a point where we’re fearing there’s a peak.”

The Deerfield, Ill.-based company expects adjusted per-share earnings for 2018 of $10.25 to $11.25, Caterpillar said in the statement. That compares with the $8.25-to-$9.25 range that the manufacturer projected in January, and the $9.27 a share average of analysts’ estimates compiled by Bloomberg News.

The outlook assumes continued global economic growth, Caterpillar said. Any potential impacts from future geopolitical risks and increased trade restrictions have not been included in the outlook.

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IMF left its forecasts for global growth this year and next at the 3.9% it estimated in January. Beyond that horizon, it was more pessimistic, projecting global growth will fade as central banks tighten monetary policy, the U.S. fiscal stimulus subsides and China’s gradual slowdown continues. IMF warned the expansion could be derailed if countries resort to tit-for-tat trade sanctions.

Several analysts have raised their ratings on Caterpillar recently, with Citigroup Inc. this week saying that increased capital returns and better Chinese economic data will underpin the stock in the next six to 12 months.

With assistance by Vivian Li, Brandon Kochkodin, and Andrew Mayeda