01—Abstract
Summary
Summary of the 10-K filed February 15, 2017. Cited figures are marked; the original filing is the authoritative source.
Caterpillar Inc. (CAT) reported a challenging year for 2016, with sales and revenues declining by 18% to $38.5 billiona, reflecting weak demand across its key industries, including construction, oil and gas, and mining.
The company incurred a net loss of $67 millionb, a significant drop from the $2.5 billion profit in 2015, impacted by lower sales volume, unfavorable market-to-market losses on pension and other post-employment benefit plans, and a substantial goodwill impairment charge in the Resource Industries segment. Despite these headwinds, Caterpillar emphasized its strong operating cash flow from its Machinery, Energy & Transportation segment, which was sufficient to cover capital expenditures and dividends, and maintained a robust liquidity position with $7.17 billion in cash at year-end. Management highlighted ongoing restructuring and cost reduction actions aimed at improving efficiency and optimizing the cost structure, with an expectation of further costs in 2017.
The company also noted sequential improvements in aftermarket parts sales for Resource Industries and positive trends in quoting and order activity, suggesting potential stabilization in certain areas. Investors should monitor the company's ability to navigate the ongoing cyclical downturn in its core markets, manage restructuring impacts, and capitalize on any emerging signs of recovery, particularly in commodity-driven sectors.
02—Key points
Key Highlights
- 2016 sales and revenues declined 18% year-over-year to $38.5 billion, driven by weak end-user demand across key industries.
- The company reported a net loss of $67 million in 2016, a reversal from a profit of $2.5 billion in 2015, due to lower sales, pension/OPEB remeasurement losses, and a goodwill impairment charge.
- Significant restructuring costs were incurred in 2016 ($1.019 billion) and 2015 ($898 million), with further costs expected in 2017.
- A goodwill impairment charge of $595 million was recognized in the Resource Industries segment, primarily related to the Surface Mining & Technology reporting unit.
- Machinery, Energy & Transportation (ME&T) operating cash flow was strong at $3.86 billion, covering capital expenditures and dividends.
- Consolidated order backlog decreased to $12.1 billion at year-end 2016 from $13.0 billion at year-end 2015.
- Research and development expenses represented 5.1% of sales and revenues in 2016, down from 4.5% in 2015.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2016, Caterpillar Inc lost $0.00.
- Revenue$38.54B100.0%
- Cost of revenue−$28.31B73.5%
- Gross profit$10.23B26.5%
- Operating costs−$9.07B23.5%
- Operating income$1.16B3.0%
- Interest, other & tax−$1.23B3.2%
- Net income−$67.0M0.2%
Where FY2016 revenue went
$38.54B- Cost of revenue: $28.31B, 73% of revenue
- Operating income: $1.16B, 3.0% of revenue
- R&D: $1.85B, 4.8% of revenue
- SG&A: $4.38B, 11% of revenue
- Other operating costs: $2.83B, 7.3% of revenue
Kept 3.0% as operating incomeOperating income $1.16B · 3.0%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 15, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $38.54B$47.01B | −18.0% |
| Cost of Revenue | $28.31B$33.55B | −15.6% |
| Gross Profit | $10.23B$13.46B | −24.0% |
| R&D Expenses | $1.85B$2.12B | −12.6% |
| SG&A Expenses | $4.38B$4.95B | −11.5% |
| Operating Expenses | $37.38B$43.23B | −13.5% |
| Operating Income | $1.16B$3.79B | −69.3% |
| Net Income | -$67.00M$2.51B | −102.7% |
| EPS (Basic) | $-0.11$4.23 | −102.6% |
| EPS (Diluted) | $-0.11$4.18 | −102.6% |
| Shares Outstanding (Basic) | 584.30M594.30M | −1.7% |
| Shares Outstanding (Diluted) | 584.30M601.30M | −2.8% |
05—Questions
Frequently Asked Questions
What was the primary driver for Caterpillar's financial performance in 2016?
The primary driver for Caterpillar's financial performance in 2016 was a significant decline in sales and revenues (down 18% to $38.5 billion) and a resulting net loss of $67 million. This was mainly attributed to weak end-user demand across its core industries, including construction, resource industries (mining), and energy and transportation, exacerbated by continued low commodity prices and global economic weakness.
How did the company address the challenging market conditions in 2016?
Caterpillar implemented significant restructuring and cost reduction actions throughout 2016, incurring $1.019 billion in restructuring costs. These actions were aimed at lowering the company's cost structure in response to weak economic conditions. The company also focused on maintaining strong operating cash flow and liquidity.
What impact did the Resource Industries segment have on Caterpillar's 2016 results?
The Resource Industries segment was particularly impacted by weak demand, with sales declining 26%. This segment also incurred a significant goodwill impairment charge of $595 million related to the Surface Mining & Technology reporting unit, contributing to the company's overall net loss for the year. However, the company noted sequential improvements in aftermarket parts sales and quoting activity towards the end of the year.
What is the outlook for Caterpillar's capital expenditures and financial position?
Caterpillar expects ME&T capital expenditures in 2017 to be about flat with 2016's $1.21 billion. The company ended 2016 with $7.17 billion in cash and maintained a strong liquidity position, with available credit lines totaling $14.32 billion. Despite a Moody's downgrade in December 2016, management did not expect a material impact on borrowing costs.
06—Continue