Caterpillar Just ‘Can’t Grow That Fast Forever,’ CFO Says
(Bloomberg) -- Caterpillar Inc.’s chief financial officer has a message for investors who dumped shares Tuesday -- we can’t just grow that fast forever.
The company plunged more than 10 percent after disappointing analysts who expected a boost in its 2018 outlook. The world’s largest maker of mining and construction equipment maker reported sales growth of 18 percent in the third quarter, the weakest since the three months ended June 2017. That’s slower than the 25 percent in last year’s third quarter.
“For a company with a $50 billion top line, you can’t grow that fast forever, otherwise you would be one of the largest growth stocks rather than a cyclical industrial,” CFO Andrew Bonfield said in an interview. “That’s just not feasible. So, it just becomes the math in the end.”
Bonfield said no single macroeconomic factor is slowing the company down yet, pointing to trade wars and rising interest rates. Shares partially recovered from an initial drop Tuesday morning, falling 7.6 percent to $118.98 at 4:15 p.m. in New York. That was the second-worst performance on the S&P 500 index.
“I think the market is nervous,” Bonfield said. “I think third-quarter expectations and third-quarter results have been slightly negative in many peoples’ minds, and the amount of outperformance has moderated slightly. So all of those factors I think are impacting the market psychology.”
Caterpillar, considered an economic bellwether, has lost more than a fifth of its market value this month as tariffs boost metal costs and trade frictions fuel demand concerns. The company said it will raise prices to make up for the rise in raw materials. The International Monetary Fund warned this month of “choppy” waters in the global economy, and analysts say some end-user industries may be reaching peaks in their growth cycles.
The heavy-machinery maker isn’t alone. Harley Davidson Inc. slumped after reporting earnings per share that topped analysts’ estimates, and United Rentals Inc. plunged last week even as sales and income exceeded targets. Fastenal Co. slid the most in six months earlier this month after warning that new U.S. tariffs on China-sourced goods are “directly impacting" customers of the distributor of industrial and construction supplies.
Caterpillar’s third-quarter profit excluding one-time items was $2.86 a share, higher than the $2.85 average of 23 estimates compiled by Bloomberg. The company maintained its outlook for 2018 profit of $11 to $12 a share. Analysts had expected it to earn $11.65 a share this year.
Almost a quarter of S&P 500 companies had reported results as of mid-day Tuesday in New York, and even though all but 15 exceeded forecasts, their stocks lost an average 0.5 percent the day after, data compiled by Bloomberg showed.
“There are lots of factors that people are worried about from a macroeconomic perspective -- tariffs, interest rates and so forth -- but no single one of those is having an impact or slowing us down yet,” Bonfield said.
Bonfield said Tuesday in his first earnings conference call since joining the company last month that Caterpillar has more cash than needed, and that it will focus on its share-buyback program. Repurchases at the Deerfield, Illinois-based company are expected to be at least $750 million in the fourth quarter, and will exceed that if the stock is undervalued, he said.
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