* Q3 $1.71 a share handily beats expectations
* Q3 sales rise 41 pct, a company record
* Sees 2012 sales increasing 10 to 20 pct
* Shares up 5.5 pct, accounts for a third of Dow rise
By John D. Stoll
Oct 24 (Reuters) - Caterpillar Inc muscled through murky economic conditions with a surprising 44 percent jump in quarterly profit, and forecast strong demand through next year in a sign of optimism for the global economy.
The company said on Monday that it expects full-year 2011 profit and revenue to set records on the back of surging sales for mining equipment and construction machinery in most markets around the world -- suggesting the underlying health of the global economy may not be as dire as is widely believed.
Caterpillar executives expect that momentum to carry into next year, with sales rising up to 20 percent above the expected record $58 billion in sales in this year.
"We're having a great year in 2011, and 2012 is shaping up to be better," said Caterpillar Chairman and Chief Executive Officer Doug Oberhelman.
Stronger demand at the world's largest heavy machinery manufacturer means more jobs and investment. Caterpillar said it hired nearly 5,000 people in the quarter.
The company typically breaks out its employment figures on a year-over-year basis, but this time it detailed the improvement from second quarter to third quarter. The comparison showed that Caterpillar is coupling earnings growth with a steady commitment to hiring.
"To the degree that we see continuing increases in demand for our products, it will lead to additional hiring," Chief Financial Officer Ed Rapp said in an interview. Caterpillar's production should continue to rise in the months to come.
The bullish news from the world's largest heavy machinery manufacturer, which follows strong forecasts from the likes of General Electric Co and United Technologies Corp , helped spark an overall rally in the market Monday. The stock gained about 5.5 percent, or $4.77, to $92.16 on the New York Stock Exchange, and accounted for a third of the 125-point gain seen Monday in the Dow Jones industrial average.
"When a big-name company like this reports numbers like these, that will help turn around talk about another recession," said Andrew Bodner, president of Double Diamond Investment Group in Parsippany, New Jersey.
ECONOMY 'NOT AS BAD' AS BILLED
"Record (third quarter) sales and profit results were particularly impressive to us in light of economic challenges in developed nations," Standard & Poor's equity analyst Michael Jaffe said. "Caterpillar's current trends also lead us to expect ongoing demand growth in 2012."
CFO Rapp said the current environment "looks very dissimilar to 2008," when the economy last fell into recession. He said that Caterpillar's finance arm is able to readily fund purchases of machinery, and he said dealers -- many of whom panicked with recession on the horizon a few years ago -- are showing considerable optimism.
"It's just not as bad as people want to make it out to be," Rapp said.
Caterpillar said it ended the third quarter in one of the healthiest positions in its recent history, with backlog orders standing at record levels and higher commodity prices leading to a favorable environment for its growing mining business, which is performing well in a variety of markets in all regions of the world.
"Although there is a good deal of economic and political uncertainty in the world, we are not seeing it much in our business at this point," CEO Oberhelman said. "We believe continued economic recovery, albeit a slow recovery, is the most likely scenario as we move forward."
The construction industry -- influenced by housing, commercial expansion and infrastructure development -- is currently a tale of two sectors. Emerging economies are scrambling to buy enough new equipment to keep up with booming demand. But in mature markets, where construction spending is well below historic trends, customers are simply buying equipment to replace aging machinery.
The company did caution that it is seeing a bit of a slowdown in China's demand levels due to measures the government is taking to tighten the economy. Caterpillar executives, speaking during a conference call with investors, said the slowdown is needed and indicated the company continues to build share in that market.
Rapp said Caterpillar is optimistic about ongoing policy discussions in the U.S. as well. The company expects a glut of "pent-up demand" for new construction to eventually spark new growth in more mature markets.
Caterpillar's forecast outlook indicates the company is successfully "coming to grips with a slower global economy," Longbow Research equity analyst Eli Lustgarten said. Caterpillar is able to succeed in the cloudy environment due to "very big growth outside of the United States and what's been a very strong (machinery) replenishment rate in the U.S.," he said.
Caterpillar reported third-quarter net income attributable to common shareholders of $1.14 billion, or $1.71 per share, compared with $792 million, or $1.22 per share, a year before.
Analysts on average had expected Caterpillar to earn $1.54 per share in the third quarter.
Sales rose 41 percent to $15.7 billion, which is a record, according to the company. Caterpillar earned $1.93 per share on $14.58 billion in sales excluding the impact of the acquisition of the Bucyrus mining business earlier this year.
It now expects annual sales of $58 billion, including the impact of its acquisition of Bucyrus, in 2011. Its previous forecast had been a range of $56 billion to $58 billion.
Profit is now expected to be $6.75 per share for the year, compared with a prior forecast of $6.25 to $6.75. Including the impact of Bucyrus, Caterpillar expects 2011 profit to reach $7.25 per share.