Caterpillar Inc. — Q3 2023 Form 10-Q Summary
Reporting period: Quarter ended September 30, 2023; year-to-date figures cover the nine months ended that date. Unaudited U.S. GAAP results. Caterpillar reports Machinery, Energy & Transportation (ME&T) and Financial Products, alongside its Construction Industries, Resource Industries and Energy & Transportation operating segments.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Sales and revenues | $16.810B | $14.994B | $49.990B | $42.830B |
| Operating profit | $3.449B | $2.425B | $9.832B | $6.224B |
| Operating profit margin | 20.5% | 16.2% | 19.7% | 14.5% |
| Adjusted operating profit margin | 20.8% | 16.5% | 21.0% | 14.7% |
| Profit attributable to common shareholders | $2.794B | $2.041B | $7.659B | $5.251B |
| Diluted profit per share | $5.45 | $3.87 | $14.85 | $9.85 |
| Adjusted profit per share | $5.52 | $3.95 | $15.98 | $9.99 |
Q3 revenue increased 12%; management attributed the increase to favorable price realization and higher equipment sales to end users, partly offset by dealer-inventory effects and lower services sales volume. Q3 operating profit rose 42% and profit rose 37%. Favorable pricing and volume were partly offset by higher SG&A and R&D, manufacturing costs and foreign-exchange impacts. Adjusted measures are non-GAAP and exclude specified restructuring and tax items.
- Segment trends: Q3 sales rose 12% in Construction Industries, 9% in Resource Industries and 11% in Energy & Transportation. Segment profit increased across those three businesses. Financial Products revenue rose 20%, while its segment profit fell 8% to $203M, mainly because prior-year credit-loss reserve releases did not recur.
- Cash flow: Nine-month operating cash flow was $8.882B, compared with $5.027B a year earlier. ME&T operating cash flow was $7.955B; ME&T free cash flow, a company-defined non-GAAP measure, was $6.847B versus $2.778B.
- Liquidity and debt: Cash and cash equivalents were $6.545B at September 30, down from $7.004B at year-end 2022. Total debt was approximately $37.14B, up $146M from year-end; ME&T debt decreased $99M and Financial Products debt increased $254M. The company reported $9.802B of available credit and no borrowings under its $10.5B global credit facilities.
- Capital returns: Nine-month dividends paid were $1.901B and share repurchases were $2.209B. The company declared $2.50 per share in dividends in the first nine months and approved maintaining a quarterly dividend of $1.30 per share in October.
Material changes and unusual items
- Nine-month sales increased 17% and operating profit increased 58% year over year. Adjusted diluted EPS was $15.98 versus $9.99.
- The February 2023 Longwall business divestiture generated a $586M pretax loss, primarily noncash from releasing accumulated foreign-currency translation. It was included in nine-month restructuring costs and reduced reported diluted EPS by $1.13; the company’s adjusted EPS excludes it.
- Total restructuring costs were $688M for the first nine months, including the Longwall loss. Management expected about $700M of restructuring costs for full-year 2023, including approximately $100M of other restructuring actions.
- Inventory was $17.580B, up from $16.270B at year-end 2022. Dealer inventories increased about $2.9B in the first nine months, compared with about $1.6B in the prior-year period.
- Shares repurchased in the first nine months totaled 9.5M for $2.209B, compared with 17.0M for $3.309B in 2022. The 2022 repurchase authorization had $10.59B remaining at quarter-end.
Outlook, commentary and risks
- Management expected a strong full-year 2023 top line, supported by price realization, equipment sales to end users, improving supply conditions, backlog and demand across most end markets; it expected operating profit to increase versus 2022.
- For Q4 2023, management expected sales and revenues to be slightly higher year over year, favorable price realization to continue but moderate, and equipment sales to end users to remain positive. Dealer-inventory changes were expected to be a headwind, with inventories forecast to decrease versus a year-earlier increase. Incentive compensation was expected to be higher.
- For 2024, management expected continued strength in most key end markets and described the year as expected to be “another good year.” The filing does not provide numerical full-year revenue or EPS guidance.
- End-market outlook was mixed: North American construction and power-generation demand were viewed positively; China construction remained weak, EAME was expected to be slightly down, and mining order rates were somewhat below management’s expectations amid customer capital discipline. Mining utilization and an aging fleet were cited as supports for future demand.
- Backlog was approximately $28.1B at quarter-end, about $2.6B below Q2; approximately $6.1B was not expected to be filled within the next 12 months.
- Management cited supply-chain disruption, inflationary cost and labor pressures, and exposure to components, transportation and raw materials. Other disclosed risks include economic and end-market weakness, currency and interest-rate changes, credit deterioration at Cat Financial, liquidity and ratings access, dealer inventory decisions, legal and regulatory matters, and pension funding. Cat Financial noted industry delinquencies were trending upward amid high inflation and tighter monetary policy, although its Q3 past-due rate was 1.96% versus 2.00% a year earlier.
- The company stated that unresolved legal matters and environmental remediation were not expected to have a material adverse effect. It reported no material change in previously disclosed risk factors and said disclosure controls were effective.
Important facts for investors to verify
- How much of sales and margin growth reflects durable pricing and end-user demand versus dealer inventory movements, and whether Q4 inventory reductions materialized.
- Whether backlog conversion, mining orders and the mixed regional outlook support management’s 2024 expectations.
- Progress in costs and margins as pricing benefits moderate, including materials, manufacturing inefficiencies, incentive compensation and strategic investment spending.
- Cash generation and capital allocation against debt, dividends and buybacks; distinguish consolidated cash flow from ME&T free cash flow and consider Financial Products’ funding needs.
- Developments in Cat Financial delinquencies, credit-loss allowances and the broader economic outlook.
- The final impact of the Longwall divestiture and restructuring, and the assumptions underlying adjusted, non-GAAP results.