Caterpillar Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; filed May 3, 2023. Caterpillar manufactures and sells machinery, engines and related services through Machinery, Energy & Transportation (ME&T), and provides customer and dealer financing through Financial Products. Figures are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Sales and revenues | $15.862 billion | $13.589 billion |
| Operating profit | $2.731 billion | $1.855 billion |
| Operating profit margin | 17.2% | 13.7% |
| Adjusted operating profit margin | 21.1% | 13.7% |
| Profit attributable to common shareholders | $1.943 billion | $1.537 billion |
| Diluted profit per share | $3.74 | $2.86 |
| Adjusted profit per share | $4.91 | $2.88 |
| Operating cash flow | $1.573 billion | $313 million |
Revenue rose 17%, while reported profit rose 26%. Higher price realization and equipment sales volume supported results; unfavorable currency, higher manufacturing costs and lower services volume were offsets. Adjusted figures are non-GAAP and exclude restructuring costs, including the Longwall divestiture.
- Segment sales: Construction Industries $6.746 billion (+10%); Resource Industries $3.427 billion (+21%); Energy & Transportation $6.254 billion (+24%). Financial Products revenue was $763 million (+9%) on the consolidated statement; segment revenue was $902 million, up 15%.
- Segment profit: Construction Industries $1.790 billion (+69%); Resource Industries $764 million (+112%); Energy & Transportation $1.057 billion (+96%). Financial Products segment profit was $232 million, down 3%.
- Cash and liquidity: Cash and cash equivalents were $6.789 billion at quarter-end, down from $7.004 billion at year-end 2022. Available credit was $8.319 billion, including $3.336 billion allocated to ME&T and $4.983 billion to Financial Products. The company reported no borrowings under its $10.5 billion global credit facilities.
- Debt and balance sheet: Total debt was approximately $37.04 billion, up $45 million from year-end. Total liabilities were $65.479 billion and shareholders’ equity was $18.170 billion. Inventory increased to $17.633 billion from $16.270 billion at year-end.
- Cash uses: Capital expenditures were $750 million; dividends paid were $620 million; share repurchases were $400 million. ME&T free cash flow, a non-GAAP measure, was $1.365 billion versus negative $426 million a year earlier.
- Margins and taxes: Consolidated profit before taxes was $2.634 billion. The effective tax rate was 26.9%, versus 23.4%; the estimated annual rate excluding discrete items was 23% versus 24%.
Material changes and unusual items
- Revenue growth reflected favorable pricing and higher equipment sales, partly offset by adverse foreign exchange effects, particularly for the euro, yen and Australian dollar.
- Q1 2023 results included a $586 million pre-tax loss from the February 1 Longwall business divestiture, primarily non-cash and largely attributable to release of accumulated foreign currency translation. The loss was nondeductible for tax purposes. Adjusted profit per share excludes this and other restructuring costs.
- Total restructuring costs were $611 million, compared with $13 million in Q1 2022. The filing expects about $700 million of restructuring costs in 2023, including the Longwall loss, and separately anticipates about $100 million of costs primarily related to actions involving a small number of products.
- Other income declined to $32 million from $253 million, reflecting unfavorable currency and commodity hedge impacts and higher pension and postemployment benefit costs, partly offset by increased investment and interest income.
- Inventories were a significant operating cash use, increasing cash flow outflow by $1.403 billion. The year-over-year improvement in operating cash flow also reflected higher profit and the non-cash divestiture loss.
- Cat Financial reported past-due receivables of 2.00%, versus 2.05% a year earlier. Management noted an increasing delinquency trend amid persistent inflation and weaker global growth, while describing overall unemployment and delinquency levels as relatively low.
Outlook, risks and contingencies
- Management expects a strong 2023 top line, supported by favorable price realization and higher equipment sales to end users, and expects operating profit to increase versus 2022. It anticipates dealer inventories to be about flat year over year.
- Management expected Q2 2023 sales to exceed Q2 2022 and to rise sequentially from Q1; Q2 operating profit was expected to be substantially stronger year over year. Price realization benefit was expected to moderate as prior-year price increases are lapped.
- Management cited improving supply-chain conditions, a strong backlog and healthy underlying end markets, while highlighting risks from component availability, transport delays, inflation, labor and raw-material costs. Strategic spending on services, digital technology, electrification and autonomy is expected to increase SG&A and R&D expenses.
- End-market outlook was mixed: positive momentum in North American construction and healthy mining demand, but continued weakness in China’s larger excavator market. Energy & Transportation sales were expected to follow seasonal patterns, with stronger sales in the second half.
- Order backlog was approximately $30.4 billion at quarter-end, about flat from Q4 2022; $5.6 billion was not expected to be filled within the next 12 months. Long-term unsatisfied performance obligations were $12.6 billion, about half expected to be completed within 12 months.
- The board maintained the quarterly dividend at $1.20 per share in April 2023. Management anticipated approximately $1.5 billion of ME&T capital expenditures and approximately $372 million of pension and other postretirement plan contributions for 2023.
- Environmental remediation accruals were not material. Caterpillar said the aggregate reasonably possible losses beyond accrued liabilities for unresolved legal matters were not material and that material liability was remotely possible. The Justice Department informed the company in November 2022 that it had no pending criminal tax matter; the government began returning seized and produced materials in January 2023. The filing reported no material change to previously disclosed risk factors.
Important facts for investors to verify
- Whether reported growth and margin improvement persist after separating pricing, volume, currency, cost inflation and the Longwall divestiture impact.
- Whether management’s 2023 outlook is supported by subsequent sales, dealer inventory levels, backlog conversion and end-market conditions.
- How the expected restructuring costs develop, including the distinction between the approximately $700 million estimate and the separately stated approximately $100 million of additional anticipated costs.
- Whether rising delinquencies, interest rates or weaker economic growth affect Cat Financial’s credit losses, funding costs and profitability.
- Whether cash generation, inventory growth, debt levels, capital spending, dividends and repurchases remain consistent with Caterpillar’s liquidity and credit-rating priorities.
- Whether supply-chain, currency, commodity, legal, environmental and other disclosed risks result in material changes to operations or financial results.