Caterpillar Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited consolidated financial statements; amounts below are USD unless stated otherwise.
Business context and results
Caterpillar operates through Machinery, Energy & Transportation (ME&T), which designs and sells machinery, engines and related products and services, and Financial Products, which provides customer and dealer financing and insurance.
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Sales and revenues | $14.247bn | $12.889bn | $27.836bn | $24.776bn |
| Operating profit | $1.944bn | $1.789bn | $3.799bn | $3.603bn |
| Operating profit margin | 13.6% | 13.9% | 13.6% | 14.5% |
| Adjusted operating profit margin | 13.8% | 14.1% | 13.8% | 14.9% |
| Profit attributable to common shareholders | $1.673bn | $1.413bn | $3.210bn | $2.943bn |
| Diluted earnings per share | $3.13 | $2.56 | $5.99 | $5.33 |
| Adjusted earnings per share | $3.18 | $2.60 | $6.06 | $5.47 |
Adjusted measures exclude restructuring costs and are non-GAAP. For Q2, restructuring costs were $28 million; first-half costs were $41 million.
Cash flow, liquidity and debt
- First-half operating cash flow was $2.546bn, down from $4.046bn a year earlier. Management cited first-quarter incentive compensation payments and higher working-capital needs, particularly inventory, accounts payable and accrued expenses.
- First-half ME&T operating cash flow was $1.289bn and ME&T free cash flow was $695m, versus $3.799bn and $3.369bn, respectively, in first-half 2021.
- Cash and cash equivalents were $6.014bn at June 30, down $3.240bn from year-end 2021. Total debt was approximately $36.96bn, down $827m from year-end. The balance sheet reported total current assets of $41.982bn and current liabilities of $28.963bn.
- Available credit was $8.588bn, with no borrowings under the $10.5bn global credit facilities. The company reported compliance with applicable credit-facility covenants.
- First-half investing cash outflow was $1.888bn and financing cash outflow was $3.891bn. Caterpillar paid $1.187bn in dividends and repurchased $1.924bn of shares in the first half.
Material changes and drivers
- Q2 revenue increased 11%; first-half revenue increased 12%. Higher price realization and sales volume drove growth, partly offset by unfavorable foreign currency translation. Services contributed to volume growth, while equipment sales to end users were lower.
- Higher material and freight costs pressured manufacturing costs and margins. Management said 2022 price realization was expected to more than offset manufacturing cost increases. SG&A and R&D rose, including from strategic investment and higher short-term incentive compensation.
- Q2 ME&T sales rose 11%; Construction Industries increased 7%, Resource Industries 16%, and Energy & Transportation 15%. However, segment profit declined 4% in Construction Industries and 11% in Energy & Transportation; Resource Industries profit increased 2%.
- Financial Products Q2 revenue increased 3%, but segment profit declined 11%, mainly due to equity-security effects and higher credit-loss provisions. Cat Financial past dues improved to 2.19% from 2.58% a year earlier; second-quarter net write-offs were less than $1m.
- Foreign-currency translation reduced first-half comprehensive income: other comprehensive loss was $946m, including a $774m foreign-currency translation loss.
Outlook, risks and unusual items
- Management reported a firm order backlog of approximately $28.5bn at quarter-end, about $2.0bn above Q1; $5.3bn was not expected to be filled within the next 12 months. It did not provide a specific full-year revenue or EPS forecast in the supplied filing text.
- Management expected 2022 ME&T capital expenditures of about $1.5bn, pension and postretirement contributions of about $357m, and restructuring costs of about $600m. It expected prior restructuring actions to benefit 2022 operating costs by about $75m versus 2021.
- The Board approved an 8% quarterly dividend increase to $1.20 per share in June and a new share-repurchase authorization of up to $15bn, effective August 1, 2022.
- Management cited ongoing COVID-19 effects, supply-chain and transportation disruptions, component and raw-material availability, inflation and labor-cost pressures. It noted contingency plans and price actions, while emphasizing that conditions remained fluid.
- Cat Financial’s credit-loss allowance was $376m, or 1.41% of finance receivables, at June 30; the increase included higher reserves for Russia and Ukraine portfolios. Management described inflation and commodity prices as weakening global growth forecasts.
- The company is contesting approximately $2.3bn of proposed U.S. tax increases and penalties relating to 2007–2012 transactions; it stated that it believes the matter will not materially adversely affect consolidated results, financial position or liquidity. A separate long-running federal investigation remains ongoing; the company said it could not predict the outcome or reasonably estimate potential loss, but did not expect a material adverse effect.
- Guarantee exposure that could be estimated was $380m at June 30, down from $1.221bn at year-end; the recorded liability was $3m. The filing reports no significant expected losses under the guarantees. Other unresolved legal matters were not expected to have a material adverse effect.
Important facts for investors to verify
- Whether pricing continues to offset manufacturing-cost inflation and whether margins stabilize or recover.
- How supply constraints, dealer inventory movements and backlog conversion affect deliveries, sales and cash generation.
- Whether working-capital investment—especially the first-half inventory increase—moderates and operating cash flow improves.
- Credit quality and reserve adequacy at Cat Financial, including exposure to Russia and Ukraine and broader economic deterioration.
- Developments in the $2.3bn tax dispute and the ongoing government investigation, alongside the company’s stated assessments of materiality.