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Caterpillar earnings beat, but shares tumble after CFO sees 1Q as 'high water mark for the year'

The company considered the bellwether of the global economy smashed Wall Street expectations on strong sales
Caterpillar's signature yellow machine
The heavy-equipment maker's shares crashed in afternoon trade

Caterpillar Inc. (NYSE:CAT) initially soared on Tuesday after the heavy machinery maker posted earnings that bested Wall Street analyst expectations but tumbled dramatically after management signaled the first quarter might be about as good as it gets.

Investors had initially cheered the results as Caterpillar had raised its 2018 profit outlook by US$2 per share over the previous quarter. But Bloomberg reported that on a conference call to discuss the results, Caterpillar CFO Brad Halverson said first-quarter adjusted profit per share “will be the high watermark for the year.”

Halverson also spooked industrials by saying that Caterpillar expected "steel and other commodity costs to be a headwind all year."

Caterpillar shares, which had gained as much as 3.6%, tumbled 6.4% to US$144.20 in afternoon trade.

Caterpillar reported stellar first-quarter earnings of US$2.82 per share on revenue of US$12.9bn. The Earnings Whisper number was US$2.25 per share. In a vote of confidence for the global economy, Caterpillar said in its earning statement that it saw continued strength for construction in North America and China.

Caterpillar said it expects 2018 earnings of US$10.25 to US$11.25 per share. The company's previous guidance was earnings of US$8.25 to $9.25 per share and the current consensus earnings estimate is $9.22 per share for the year ending December 31, 2018.

The company cited better-than-expected sales volume as the main driver of its improved full-year guidance.

In a note seen by Reuters, Citi upgraded shares of Caterpillar to Buy from Neutral on Monday, saying the industrial giant will benefit from improvements in the Chinese construction sector.

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