Caterpillar Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; comparisons are with the three months ended March 31, 2012 unless otherwise noted. Caterpillar manufactures machinery, engines and power systems and provides equipment financing and insurance.
Financial performance
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Sales and revenues | $13.210 billion | $15.981 billion | Down 17% |
| Operating profit | $1.218 billion | $2.323 billion | Down 48% |
| Profit attributable to common stockholders | $880 million | $1.586 billion | Down 45% |
| Diluted earnings per share | $1.31 | $2.37 | Down 45% |
| Operating margin | About 9.2% | About 14.5% | Calculated from reported figures |
| Consolidated operating cash flow | $1.424 billion | $315 million | Higher, primarily due to inventory changes |
Revenue weakness reflected a $2.671 billion sales-volume decline, mainly related to dealer inventory movements, plus $171 million from acquisitions and divestitures and $91 million from currency. Improved price realization added $129 million. Machinery and Power Systems sales fell 18%; Financial Products revenues rose 5%.
Operating profit was pressured by lower volume, $317 million of higher manufacturing costs and an unfavorable $128 million impact from acquisitions and divestitures. Higher manufacturing costs chiefly reflected lower production and unfavorable cost absorption as Caterpillar reduced inventory. Favorable pricing, currency and Financial Products results partly offset these pressures.
- Construction Industries sales fell 17% and segment profit fell 61% to $239 million.
- Resource Industries sales fell 23% and segment profit fell 59% to $477 million, reflecting weaker mining-equipment demand and acquisition/divestiture effects.
- Power Systems sales fell 12% and segment profit fell 26% to $598 million, including losses on a power-generation project in EAME.
- Financial Products revenues increased 5% and profit increased 45% to $282 million, helped by higher average earning assets and favorable Cat Insurance claims experience, including reserve adjustments.
Financial position, liquidity and capital
- Cash and short-term investments were $5.982 billion at March 31, up $492 million from year-end 2012. Consolidated current assets were $42.145 billion and current liabilities were $28.974 billion.
- Total debt was $40.49 billion, up $343 million from year-end. Machinery and Power Systems debt-to-capital was 36.4%, down from 37.4% at year-end and within management’s 30%–45% target range.
- Available credit was $9.637 billion; no borrowings were outstanding under the $10 billion global credit facilities. The filing reports covenant compliance at quarter-end.
- Investing cash outflow was $1.459 billion and financing cash inflow was $545 million. Capital expenditures, excluding equipment leased to others, were $896 million; expenditures for leased equipment were a further $336 million.
- Machinery and Power Systems operating cash flow was $1.089 billion, versus $234 million a year earlier. Financial Products operating cash flow was $262 million, versus $237 million.
- Inventory declined about $0.5 billion from year-end to $15.074 billion. Stockholders’ equity was $18.318 billion, compared with $17.582 billion at December 31, 2012.
Outlook, commentary and notable items
- Management expected some further inventory reduction in 2013, primarily mining products, but less than in the prior two quarters; it planned higher production in Q2 than Q1. Capital expenditures for 2013 were expected to be below $3 billion.
- Management described mining customer capital plans and equipment orders as weak despite generally positive commodity-market economics. Firm backlog was approximately $20.4 billion at March 31, slightly above year-end but significantly below Q1 2012; about $4.0 billion was not expected to be filled within 12 months.
- The filing provides no clear full-year sales, profit or EPS guidance.
- Q1 included an $87 million tax benefit, primarily from the retroactive extension of the research and development tax credit. The estimated annual effective tax rate, excluding that item, was 29.5%.
- Bucyrus distribution divestiture activity reduced Q1 after-tax profit by $18 million. Employee separation charges were $7 million. The filing also describes Siwei operating losses and the absence of profit from the divested third-party logistics business.
- On April 25, 2013, after quarter-end, Caterpillar agreed to a $1.0 billion accelerated share repurchase, with approximately 11.1 million shares delivered initially; final shares and cost were to depend on the stock’s volume-weighted average price. No shares were repurchased under the program during Q1.
- Cat Financial past dues were 2.52% at quarter-end versus 2.26% at year-end. Non-performing finance receivables were $517 million, and the allowance for credit losses was $429 million, or 1.49% of net finance receivables.
- Potential risks include global economic and end-market conditions, mining demand, dealer inventory decisions, currency and interest-rate movements, customer credit quality, access to capital, pension funding, acquisitions and divestitures, environmental compliance, and legal matters. Management said unresolved legal actions and recorded environmental remediation were not expected to have a material effect.
- The company revised prior-period cash-flow classifications for certain Cat Financial interest payments: Q1 2012 operating cash flow was reduced by $15 million and financing cash flow increased by the same amount. Management said the revision was not material.
Important facts for investors to verify
- Whether dealer inventory reductions and weaker mining orders continue to constrain equipment sales, backlog and production.
- Whether inventory declines, production changes and improved cost absorption support margins after the sharp Q1 year-over-year decline.
- The sustainability of Financial Products’ higher profit, including the effect of Cat Insurance reserve adjustments, and trends in past dues and credit losses.
- Execution and cash-flow effects of the $1.0 billion accelerated share repurchase, pension contributions and the below-$3-billion capital-spending outlook.
- How the Q1 tax benefit, divestiture and acquisition impacts, and the cash-flow reclassification affect comparisons with future periods.