Caterpillar Inc. — 2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021, with fourth-quarter results also discussed. Caterpillar manufactures construction and mining equipment, engines, turbines and locomotives, and provides customer and dealer financing through Financial Products.
Key financial metrics
| Metric | 2021 | 2020 |
|---|---|---|
| Sales and revenues | $50.971 billion | $41.748 billion |
| Operating profit | $6.878 billion | $4.553 billion |
| Operating profit margin | 13.5% | 10.9% |
| Profit attributable to common shareholders | $6.489 billion | $2.998 billion |
| Diluted earnings per share | $11.83 | $5.46 |
| Adjusted diluted earnings per share | $10.81 | $6.56 |
| Operating cash flow | $7.198 billion | $6.327 billion |
| Cash and cash equivalents at year-end | $9.254 billion | $9.352 billion |
| Total debt at year-end | $37.79 billion | $37.16 billion |
Investing cash outflow was $3.084 billion and financing cash outflow was $4.188 billion. Machinery, Energy & Transportation (ME&T) free cash flow, a non-GAAP measure, was $6.048 billion, compared with $3.060 billion in 2020. The company reported $8.287 billion of available credit at year-end and said cash, time deposits, ongoing operations and debt-market access should cover cash needs over the next 12 months and beyond.
Fourth-quarter revenue increased 23% to $13.798 billion; profit was $2.120 billion, or $3.91 per diluted share, versus $780 million, or $1.42 per share, in the prior-year quarter. Quarterly operating profit margin decreased to 11.7% from 12.3%.
Business performance and changes versus 2020
- Full-year revenue rose 22%, chiefly from higher sales volume as end-user demand improved, changes in dealer inventories and favorable price realization. Sales increased across all regions and the three primary segments.
- Construction Industries revenue rose 31% to $22.106 billion; Resource Industries rose 26% to $9.963 billion; Energy & Transportation rose 16% to $20.287 billion. Financial Products segment revenue edged up 1% to $3.073 billion.
- Profit improved in each primary machinery segment and Financial Products. Financial Products profit rose 54% to $908 million, aided by lower credit-loss provisions and favorable impacts from returned or repossessed equipment and Insurance Services’ equity securities.
- Higher volume and pricing lifted operating profit, but higher freight, materials, labor, incentive compensation, SG&A and R&D costs partly offset the gains. The effective tax rate excluding specified discrete items declined to 22.9% from 27.8%.
- Reported earnings included an $833 million pension and other postemployment benefit (OPEB) mark-to-market gain, compared with a $383 million loss in 2020. Adjusted results exclude these items and restructuring costs; adjusted measures are non-GAAP.
- Firm order backlog increased to approximately $23.1 billion from $14.2 billion at year-end 2020; about $4.3 billion was not expected to be filled in 2022.
Outlook, risks and unusual items
- Management expected supply-chain challenges, component shortages, transportation delays, inflationary cost pressures and labor inefficiencies to continue in 2022. The company said it was adjusting production and pricing and using contingency plans to address constraints. Dealer inventories were expected to be about flat in 2022 compared with 2021.
- Management expected approximately $600 million of restructuring costs in 2022, primarily for strategic actions addressing selected products, and approximately $75 million of incremental operating-cost benefits from prior restructuring actions. ME&T capital expenditures were expected to be about $1.4 billion; short-term incentive compensation expense was expected to be about $1.0 billion.
- Major risks include COVID-19 and further supply disruptions; cyclical demand and commodity-price changes; inflation and interest-rate or currency movements; competition and pricing pressure; dealer inventory decisions; cybersecurity threats; and credit, funding and residual-value risks in Financial Products. Environmental regulation and emissions-compliance spending are also relevant.
- The IRS proposed approximately $2.3 billion of additional tax and penalties relating to Caterpillar SARL parts transactions for tax years 2007–2012, including a loss carryback to 2005. Caterpillar is contesting the proposal, has recorded no related amount in unrecognized tax benefits, and said it believes the matter will not materially adversely affect its consolidated financial position, liquidity or results.
- Other notable items: Caterpillar repurchased $2.668 billion of shares and paid $2.332 billion in dividends during 2021. The auditor issued an unqualified opinion on the financial statements and internal controls; management also concluded controls were effective.
Important facts for investors to verify
- Whether the backlog converts to revenue on schedule, particularly given supply constraints and the portion not expected to ship in 2022.
- Whether price increases and productivity can offset freight, materials, labor and other cost inflation, and how this affects margins.
- How much of the earnings increase reflects ongoing operations versus the pension/OPEB mark-to-market gain and other excluded items.
- The development and potential financial consequences of the IRS tax dispute, and the adequacy of liquidity and funding for Caterpillar and Cat Financial.
- Whether Financial Products’ improving past-due and credit-loss indicators persist if economic conditions or equipment collateral values weaken.