Caterpillar Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed February 16, 2024. Caterpillar manufactures construction and mining equipment, engines, turbines and locomotives, and provides customer and dealer financing through Financial Products. Its four reportable segments are Construction Industries, Resource Industries, Energy & Transportation, and Financial Products.
Financial results and key metrics
- Sales and revenues: $67.060 billion, up 13% from $59.427 billion in 2022. Higher price realization and sales volume drove the increase; sales rose in all three primary machinery segments.
- Profit: $10.335 billion, versus $6.705 billion. Diluted profit per share was $20.12, versus $12.64. Adjusted diluted profit per share, a non-GAAP measure, was $21.21 versus $13.84.
- Operating performance: Operating profit was $12.966 billion, up 64%; operating margin was 19.3%, compared with 13.3%. Adjusted operating margin was 20.5%, compared with 15.4%.
- Segment sales and profit: Construction Industries sales were $27.418 billion and profit $6.975 billion; Resource Industries sales were $13.583 billion and profit $2.834 billion; Energy & Transportation sales were $28.001 billion and profit $4.936 billion. Financial Products revenue was $3.785 billion and segment profit $909 million.
- Cash flow: Consolidated operating cash flow was $12.885 billion, up from $7.766 billion. ME&T free cash flow, as defined by the company, was $10.025 billion versus $5.777 billion.
- Cash and liquidity: Year-end cash and cash equivalents were $6.978 billion; ME&T also held $3.85 billion in available-for-sale debt securities and bank time deposits. Available credit was $9.742 billion, with no borrowings under the $10.5 billion global credit facilities.
- Debt: Total debt was approximately $37.88 billion, up $885 million year over year, primarily reflecting Financial Products funding needs. The filing says cash, liquid investments, operating cash flow and market access should be sufficient for cash requirements over the next 12 months and beyond.
- Capital returns: Caterpillar repurchased $4.975 billion of shares and paid $2.563 billion in dividends in 2023. The declared annual dividend was $5.10 per share; $7.8 billion remained under the share repurchase authorization at year-end.
Material changes versus 2022
- Revenue increased 13%, while operating profit rose 64% and diluted profit per share increased from $12.64 to $20.12.
- Price realization was favorable across the primary segments. Energy & Transportation sales increased 18%, with growth in oil and gas and power generation; Construction Industries and Resource Industries sales rose 9% and 10%, respectively.
- Profit growth reflected price realization, higher volume and the absence of the 2022 Rail goodwill impairment. Higher SG&A and R&D, material and other manufacturing costs, and the Longwall divestiture loss partly offset those benefits.
- Operating cash flow increased $5.12 billion, reflecting higher profit before taxes adjusted for non-cash items and lower working-capital requirements. Consolidated cash ended near the prior-year level.
- Firm order backlog declined to approximately $27.5 billion from $30.4 billion; approximately $5.8 billion of year-end 2023 backlog was not expected to be filled in 2024.
Outlook, commentary and risks
- 2024 outlook: Management expects full-year sales and revenues to be broadly similar to 2023, with slightly favorable price realization and another year of services growth. No significant change in machine dealer inventories is expected, versus an increase in 2023.
- Segment outlook: Construction Industries end-user equipment sales are expected to be broadly similar to 2023. Resource Industries sales are expected to decline, mainly on lower off-highway and articulated truck volume, while services revenue is expected to grow. Energy & Transportation sales are expected to be slightly higher, supported by power generation, oil and gas, and transportation; industrial sales are expected to soften.
- Costs and investment: Management expects 2024 restructuring costs of $300 million to $450 million, capital expenditures of $2.0 billion to $2.5 billion, and an effective tax rate of 22.5% to 23.5%, excluding discrete items. It expects incentive compensation expense to fall to about $1.2 billion from $1.7 billion, with the benefit offset by higher strategic SG&A/R&D investment and unfavorable product mix.
- Unusual items: The 2023 Longwall divestiture resulted in a $586 million pretax loss, primarily non-cash and driven by release of accumulated foreign-currency translation. The 2022 results included a $925 million Rail goodwill impairment. Pension and OPEB mark-to-market gains were $97 million in 2023 versus $606 million in 2022.
- Principal risks: Results are exposed to cyclical construction, mining, energy and transportation demand; commodity and input-cost volatility; interest rates and customer financing conditions; dealer inventory changes; supply-chain and labor disruptions; currency movements; competition and pricing; regulation and emissions requirements; cybersecurity; and legal, tax and environmental matters. Management reported no material cybersecurity impact to date and considers environmental remediation accruals and unresolved legal exposures not material, while noting outcomes cannot be assured.
- Credit and finance risks: Cat Financial depends on continued funding-market access and customer/dealer credit quality. The company noted rising industry delinquencies, although its 2023 credit-loss provision declined and the allowance ended at $327 million.
Important facts for investors to verify
- Review the non-GAAP reconciliations and distinguish reported earnings and margins from adjusted measures, especially the Longwall loss and pension/OPEB mark-to-market items.
- Track whether 2024 revenue, pricing and service growth meet management’s broadly flat-sales outlook, particularly against expected lower Resource Industries volume.
- Monitor dealer and end-user demand, backlog conversion, dealer inventory levels, and supply-chain, material-cost and cost-absorption trends.
- Assess debt maturities, funding costs and credit performance at Cat Financial, including delinquency trends and its reliance on capital markets.
- Evaluate the sustainability of cash generation and shareholder returns alongside planned capital spending, restructuring costs and strategic investments.
- Consider the filing’s estimates and contingencies, including warranty liabilities of $1.894 billion, tax positions, guarantees and legal proceedings; the independent auditor identified product warranty liability as a critical audit matter.