Inventory Burn From Caterpillar to Coca-Cola Set to Hit U.S. GDP

(Bloomberg) -- U.S. companies including Coca-Cola Co., Whirlpool Corp. and Caterpillar Inc. confront the need to reverse bloated stockpiles of products after inventories surged across corporate America the past three quarters.

At Coca-Cola, the largest soft-drink maker, European customers bought in advance of possible disruptions from the U.K. exit from the European Union. At appliance seller Whirlpool and construction-equipment giant Caterpillar, there are moves to better align stocks with sales.

In the first quarter, surging inventories contributed to 3.2 percent annualized growth in gross domestic product, far more than economists expected, Commerce Department figures showed Friday. Companies built stocks in advance of potential tariffs and trade disruptions and because sales may have been weaker in the quarter. The payback should weigh on the expansion the rest of the year, though the exact timing and amount is uncertain.

“The buildup in inventories over the past several quarters points to a large reversal in the second quarter,” Morgan Stanley economists led by Ellen Zentner wrote in a report Friday.

Inventory Burn From Caterpillar to Coca-Cola Set to Hit U.S. GDP

Bottlers stocking up ahead of a potentially disruptive Brexit added to Coke’s first-quarter profits. “As we move forward we expect this to reverse this year,” John Murphy, chief financial officer, said on a call. “This is a fluid situation, but our current estimate is that our bottlers withhold their safety stock through the second and third quarter.”

Caterpillar said its dealers built inventories in the past quarter. “We are making sure that we work closely with our dealers to make sure we align their inventory with current market demands,” CFO Andrew Bonfield said on a conference call.

At Whirlpool, “we plan to reduce production volumes to right-size inventory levels and increase marketing investments in support of product launches,” CFO James Peters said.

Air-conditioner maker Lennox International Inc. said it was building inventories before the summer selling season. “There’s still some room to go” to get stocks lower, Chief Executive Officer Todd Bluedorn said on a call.

Recent White House threats to close the Mexican border also plays a role for Lennox, which makes products in Mexico. The company is “looking at different options about buffering inventory and different ways to get across the border,” he said.

Medical-products maker Baxter International Inc. had about 107 days of inventory on hand at the end of the first quarter and expects to cut that by 10 days, company officials said on a call. “The inventory build up as a result of different sales mix than we anticipated has been a real problem and something that we focused on correcting,” CFO James Saccaro said.

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