Caterpillar Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022; comparisons are with the same 2021 periods. Amounts are in U.S. dollars.
Business context and results
Caterpillar designs, manufactures and markets machinery, engines and related products and services through Machinery, Energy & Transportation (ME&T), and provides customer and dealer financing and insurance through Financial Products.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Sales and revenues | $14.994B | $12.397B | $42.830B | $37.173B |
| Operating profit | $2.425B | $1.664B | $6.224B | $5.267B |
| Operating profit margin | 16.2% | 13.4% | 14.5% | 14.2% |
| Profit attributable to common shareholders | $2.041B | $1.426B | $5.251B | $4.369B |
| Diluted profit per share | $3.87 | $2.60 | $9.85 | $7.94 |
Adjusted diluted profit per share, excluding restructuring costs, was $3.95 for Q3 and $9.99 for the first nine months, versus $2.66 and $8.13, respectively, in 2021. Adjusted operating margins were 16.5% for Q3 and 14.7% year to date. These are non-GAAP measures.
Financial position, cash flow and capital
- Nine-month consolidated operating cash flow was $5.027B, down from $5.786B. ME&T operating cash flow was $3.191B, versus $4.899B; management cited incentive compensation and tax payments, including IRS settlement payments, and higher working capital needs.
- Cash and cash equivalents were $6.346B at September 30, down from $9.254B at year-end 2021. Total debt was approximately $36.53B, down $1.26B from year-end. Available credit was $9.445B; no borrowings were outstanding under the global credit facilities.
- Inventories rose to $16.860B from $14.038B at year-end, while current liabilities were $30.202B and current assets $42.577B.
- During the first nine months, Caterpillar paid $1.820B in dividends and repurchased $3.309B of shares. The Board approved maintaining the quarterly dividend at $1.20 per share in October.
Material changes and management commentary
Q3 revenue grew 21% and operating profit rose 46% year over year. Growth reflected favorable price realization and higher sales volume across the three main segments, partly offset by unfavorable foreign exchange. Dealer inventories increased $700M in Q3, compared with a $300M decrease a year earlier; management attributed much of the increase to shipment and delivery timing. For the first nine months, dealers added about $1.6B to inventories.
Higher material and freight costs, supply-chain disruption and manufacturing inefficiencies weighed on results. SG&A and R&D also increased, reflecting strategic investments and higher incentive compensation. All three primary segments reported higher Q3 sales and profit. In the first nine months, Energy & Transportation profit was nearly flat year over year despite higher sales.
Outlook, risks and unusual items
- Management expected Q4 2022 sales to be higher than Q4 2021 and to be the highest quarterly sales of 2022, consistent with seasonality. It expected favorable price realization to more than offset manufacturing cost increases. The filing does not provide a clear full-year consolidated revenue or EPS forecast.
- At quarter-end, firm order backlog was approximately $30.0B, up $1.6B from Q2; about $5.7B was not expected to be filled within 12 months. Long-duration unsatisfied performance obligations totaled $10.9B, about half expected to be completed within 12 months.
- Management expected approximately $800M of restructuring costs in 2022, including about $600M of non-cash foreign-currency translation losses expected to be recognized upon a business sale, potentially in 2023. Year-to-date restructuring costs were $90M.
- The IRS settlement resolved tax years 2007–2016 without penalties. Tax assessed was $490M, primarily paid in the first nine months; estimated related interest of $250M was expected to be paid by year-end. The company recorded a $41M discrete tax benefit related to the settlement.
- Management highlighted supply-chain disruption, inflation, labor and freight pressures, currency movements, and uncertain economic conditions. Cat Financial forecasts noted that inflation and central-bank actions were weakening global growth. $142M of Financial Products cash held in Russia was subject to local restrictions substantially limiting transfers outside the country.
- The company continued to cooperate with a long-running U.S. government investigation involving tax and export matters; it said it could not predict the outcome or estimate potential loss, but did not expect a material adverse effect. Management also said other unresolved legal matters were not expected to be material. No material changes to previously disclosed risk factors were reported.
Most important facts for investors to verify
- Whether pricing continues to offset manufacturing cost inflation and supply-chain inefficiencies.
- How much revenue growth depends on dealer inventory changes, and whether backlog converts to shipments as expected.
- Cash generation, inventory levels, and the effect of tax and restructuring cash payments on liquidity and capital returns.
- Timing and accounting impact of the anticipated business sale and related non-cash restructuring charge, along with developments in the government investigation.