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Caterpillar profits up, says demand offsets tariffs hit

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Caterpillar reported a jump in third-quarter earnings behind robust industrial demand and lower taxes on Tuesday and said strong economic conditions would more than offset the hit from tariffs.

But shares fell sharply on lingering worries the industrial giant’s prospects were vulnerable due to global growth concerns, in part due to US-China trade tensions.

Net income was $1.7 billion, up 63 percent above the year-ago level.

Revenues were $13.5 billion, up 18.4 percent.

Sales rose in all three businesses of Caterpillar, which manufactures industrial equipment for the construction, resources and energy and transportation industries.

“We feel good about the state of our business,” Chief Executive Jim Umpleby told analysts on a conference call, adding that the just-completed period was an “outstanding quarter.”

Executives gave an upbeat appraisal of conditions in China, where the company derives about five to 10 percent of annual company sales.

“We believe the Chinese market will continue to be healthy,” Umpleby said. “We feel good about China for next year.”

Areas with weakness were Turkey, Argentina and South Africa but executives said the problems remained contained.

Caterpillar said strong order rates and robust pricing would more than offset higher material and freight costs, including tariffs.

The hit from the tariffs on steel would be “at the low end” of the previously given range of $100 to $200 million for all of 2018, the company said.

Results topped analyst expectations for the third-quarter in terms of earnings-per-share and sales but the company’s full-year forecast range was $11 to $12 per share, which was low considering that analysts have an average price of $11.66 per share.

Shares were down 4.9 percent to $122.44, with some investors apparently encouraged by the upbeat commentary on the conference call. Shares were off more than 10 percent prior to the call.

CFRA Research analyst Elizabeth Vermillion said the results were “really solid” but that “people continue to be concerned about China and people continue to be concerned about tariffs.”

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