CAT Caterpillar Inc

By Bob Tita 

Caterpillar Inc. said on Friday that sales of its construction machinery in China are starting to improve, though still-sluggish global commodity markets forced the company to cut its full-year profit and revenue forecasts.

The world's largest heavy-equipment maker and rivals aggressively expanded production in China after the 2008 recession on a wave of government-directed construction of highways, airports, power plants and skyscrapers, only for spending to dry up in 2012.

Caterpillar Chief Executive Doug Oberhelman, who visited China last month, said modest government stimulus spending on infrastructure projects had lifted the company's spring equipment shipments there for the first time in at least three years. Equipment demand also is rising ahead of China's new emissions standards for engines that are expected cause higher prices for machinery.

"I'm very cautious about how far [the demand] goes," said Mr. Oberhelman on an investor call. "We're going to have to watch this month by month."

He said orders at a big annual trade show in Germany last month were above expectations, and added that feedback from European clients was much more positive than in recent years.

Caterpillar is facing the fourth straight year of falling sales of its trademark yellow bulldozers, excavators, mining trucks and engines. The company is trimming thousands of jobs to cut costs.

And executives cautioned against interpreting some of the brighter market signals as evidence of a sustained recovery in the global equipment market for construction and mining.

Business conditions remain challenging in most of Caterpillar's markets. The rising volume of commercial and residential construction in the U.S. typically drive higher demand for construction machinery, but Caterpillar's North American sales in the sector fell 18% from a year ago, weighed down by a glut of used machinery pulled from idle frack oil and natural gas fields.

The recent uptick in commodity prices also hasn't spurred its mining equipment business, with sales down 26% in the quarter. The energy slowdown and overcapacity in the U.S. rail industry pushed its engine sales down by a third.

Caterpillar expects prices for its equipment to fall about 1% this year, double its previous forecast. With rivals such as Volvo AB and Komatsu Ltd. struggling against excess inventories and weak demand as well, Caterpillar said it won't risk losing market share to rivals.

The company reported a profit of $271 million for the quarter ended March. 31, compared with $1.25 billion a year earlier. Sales fell 26% to $9.5 billion.

Caterpillar expects sales this year of $40 billion to $42 billion after chopping $2 billion from the top end of its forecast. Caterpillar expects per-share profit this year of $3.00, or $3.70 excluding restructuring costs, down from its previous outlook of $3.50 excluding restructuring expenses.

Its stock price, which has rallied by a third from its January low, closed Friday at $78.32 a share, down 34 cents, or 0.4%, from a day earlier.

Write to Bob Tita at robert.tita@wsj.com

(END) Dow Jones Newswires

April 22, 2016 17:08 ET (21:08 GMT)

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