Caterpillar Inc reported a stronger-than-expected quarterly profit on Monday and raised its full-year profit and sales forecasts, citing an improving global economy, especially in Asia and Latin America.

The world's largest maker of earth-moving equipment, whose shares rose as much as 5.9 percent after the news, said it was seeing particularly robust orders from mining and energy companies.

Rebounding metals prices have resulted in firm orders for much of the company's available 2010 production of large mining trucks and large track-type tractors, Caterpillar said. Some of its largest mining vehicles are sold out for the year, and it is now taking orders for delivery in 2011.

Economic conditions are definitely improving, particularly in the world's developing economies, Caterpillar said in a statement. Industry activity and orders are significantly higher than last year and are at record levels in some areas.

Caterpillar said demand for parts, which closely tracks equipment usage, was strong and had picked up as the quarter unfolded, an indication of recovery in the global economy.

But the company cut its outlook for 2010 U.S. housing starts by 20 percent, from 1 million to 800,000, saying the weak labor market was the main reason for some lingering pessimism about the U.S. economy.

The volume is beginning to come back, said Longbow Securities analyst Eli Lustgarten. But it's all outside the United States.

Caterpillar, based in Peoria, Illinois, said its first-quarter net profit was $233 million, or 36 cents a share, compared with a year-earlier loss of $112 million, or 19 cents a share.

Stripping out one-time charges, including tax expenses of $90 million related to recently signed U.S. health care legislation, earnings were 50 cents a share.

On that basis, analysts on average expected profit of 39 cents a share, according to Thomson Reuters I/B/E/S.

Sales, including revenue from Caterpillar's financial service arm, fell 11 percent to $8.23 billion, pulled down by a 28 percent decline in its engine and turbine business. Analysts had forecast $8.84 billion, according to Thomson Reuters
I/B/E/S.

S&P UPS PRICE TARGET, CAT RAISES OUTLOOK

Despite lighter-than-expected sales, Caterpillar beat earnings expectations because of lower manufacturing costs and strong pricing.

The company said its manufacturing costs fell $566 million during the quarter because of lower labor, overhead, warranty and material expenses.

Standard & Poor's rating agency raised its target price on Caterpillar to $88 and reiterated its buy recommendation on the company, noting in a statement, Profits were aided by favorable product pricing and well controlled manufacturing costs.

Shares of Caterpillar were up 4.04 percent at $71.56 in afternoon trading on the New York Stock Exchange after moving as high as $72.83.

Caterpillar raised its outlook for 2010 and said it now expects to earn a full-year profit of $2.50 to $3.25 a share, midpoint $2.88 a share, on sales of $38 billion to $42 billion. It had previously forecast earnings of $2.50 a share on sales of between $35.6 billion and $40.5 billion.

Analysts, on average, had been expecting a full-year profit of $2.69 a share and sales of $37 billion, according to Thomson Reuters I/B/E/S.

The company, which laid off nearly 30,000 full-time and contract workers worldwide from late 2008 through 2009, said it had hired 1,500 workers worldwide in the first quarter, most of them outside the United States.

Currently, we are seeing faster recovery in Asia/Pacific and Latin America, Caterpillar said. So, prospects for employment increases in 2010 are best for facilities in those regions.

NEW ERA

The next time Caterpillar reports earnings, it will be under new Chief Executive Doug Oberhelman, 56, who oversees engines and turbines at the company.

Jim Owens, 64, is due to step down as CEO at the June board meeting, ending a career that began in 1972 when he was still finishing his PhD in economics at North Carolina State University.

During Owens' first five years at Caterpillar's helm, sales of the company's iconic yellow construction and mining equipment, and diesel and turbine engines, rose 70 percent to $51.3 billion, and earnings per share and dividends doubled.

The company was walloped by the economic downturn, and sales last year shrank to $32.4 billion, right about where they were when Owens was named CEO in February 2004.

Like Owens, Oberhelman is a lifelong employee. Oberhelman signed on in 1975, working in South America and Asia, and as chief finance officer from 1995 and 1998, a position also held by Owens.

(Reporting by James B. Kelleher, editing by Dave Zimmerman, Derek Caney and Lisa Von Ahn)

Citigroup Energy Manufacturing