The primary driver of the decline in sales and revenues was a $1.2 billion movement in dealers’ inventories. Dealers decreased their inventories about $400 million during the third quarter of 2019, after increasing their inventories about $800 million during the third quarter of 2018.
“Our volumes declined as dealers reduced their inventories, and end-user demand, while positive, was lower than our expectations,” said Caterpillar chairman and CEO Jim Umpleby. “We remain focused on executing our strategy and continuing to achieve our Investory Day targets for margin improvement and free cash flow.”
The company is lowering its full-year profit per share outlook range to $10.90 to $11.40, compared to the previous outlook, which was at the low end of the $12.06 to $13.06 range. Both ranges include the first quarter $0.31 per share discrete tax benefit. The revised guidance now assumes modestly lower sales in 2019. The company remains focused on maintaining a competitive and flexible cost structure, including managing production levels.
“In the fourth quarter, we now expect end-user demand to be flat and dealers to make further inventory reductions due to global economic uncertainty,” said Umpleby. “Caterpillar’s improved lead times, along with these dealer inventory reductions, will enable us to respond quickly to positive or negative developments in the global economy in 2020. We are expanding our offerings and investing in services, including digital capabilities, to drive long-term profitable growth, while continuing to achieve our Investor Day targets for improved financial performance.”
Caterpillar’s Construction Industries segment declined 7 percent in the quarter, while the Resource Industries slipped 12 percent and the Energy & Transportation segment dropped 2 percent. In Construction Industries, North America increased 3 percent and Latin America jumped 12 percent. Europe Africa and Middle East declined by 6 percent while the Asia Pacific business tumbled 29 percent.
In North America, sales increased primarily because of favorable price realization and higher demand for equipment, mostly to support road and non-residential building construction activities.
Sales in Asia/Pacific were lower across most of the region primarily because of lower demand in China, including unfavorable changes in dealer inventories, amid continued competitive pressures.