The primary driver of the decline in sales and revenues was a US$1.2 billion movement in dealers’ inventories. Dealers decreased their inventories about US$400 million during 3Q19, after increasing their inventories about US$800 million during 3Q18.
During 3Q19, the company made a us$1.5 billion discretionary pension contribution financed from proceeds of a debt issuance. As a result, Machinery, Energy & Transportation (ME&T) operating cash flow was negative US$188 million. The company also repurchased US$1.2 billion of Caterpillar common stock and paid dividends of US$0.6 billion in 3Q19. The enterprise cash balance at the end of 3Q19 was US$7.9 billion.
“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 Investor Day targets for margin improvement and free cash flow.”
The company is lowering its full-year profit per share outlook range to US$10.90 to US$11.40, compared to the previous outlook which was at the low end of the US$12.06 to US$13.06 range. Both ranges include the first-quarter US$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.”
The outlook does not include a mark-to-market gain or loss for remeasurement of pension and other postemployment benefit plans, which will be excluded from adjusted profit per share in 4Q19 along with any other material discrete items.
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