Caterpillar Inc.

Our stable outlook on Caterpillar reflects our view that despite decelerating end market conditions, the company built significant cushion in its credit metrics from past restructuring actions to withstand some end market weakness. We expect ongoing cost discipline will enable the company to maintain funds from operations (FFO) to debt above 60% over the next 12-24 months. We could lower the rating if Caterpillar's operations are pressured to the extent that its FFO-to-debt ratio declines to less than 30%, or if cash flow generation weakens significantly. This could occur if the company's end markets deteriorated significantly or if it incurred sizeable cash outflows to fund potential tax and related penalties. We could also consider a downgrade if the captive's credit

...We expect a global macroeconomic slowdown to dampen Caterpillar's end market demand in 2019 and into 2020. The company's revenues rebounded nicely in 2017 and 2018 after the prior cyclical downturn, with 20% revenue growth in each year. However, customers are becoming increasingly cautious this year due to macroeconomic and trade-related uncertainty (reflected in reduced dealer inventories in third-quarter 2019) and we expect decelerating demand for Caterpillar's products in the next year. Although projects are proceeding, we expect customers will remain disciplined with capital expenditures over the next 12 months, which will likely result in modestly lower sales and EBITDA. A continuation of the U.S.-China trade dispute poses a risk to our forecast. While the direct impact of tariffs has been manageable (the company estimates incurring about $250 million-$350 million of tariff-related costs in 2019), an escalation in retaliatory tariffs could further weigh on global trade and investment....

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