10-QPeriod: Q2 FY2003

CATERPILLAR INC Quarterly Report for Q2 Ended Jun 30, 2003

Filed August 14, 2003For Securities:CAT

Summary

Caterpillar Inc. reported a strong second quarter in 2003, with record sales and revenues of $5.93 billion, a 12% increase compared to the prior year. This growth was driven by a favorable currency impact, higher machinery and engine volume, and improved revenue yield. Profitability also saw significant improvement, with net income reaching $399 million, up 99% from $200 million in Q2 2002. This was attributed to improved revenue yield, lower operating costs, and a favorable currency impact, partially offset by higher benefit costs and new emission standards. The company raised its full-year outlook, expecting sales and revenues to increase by about 10% and projecting earnings per share between $2.75 and $2.90. Management highlighted the positive effects of their '6 Sigma' initiatives in driving efficiency and improving processes across the company. Signs of a replacement cycle beginning in the machinery business were also noted, particularly in sales to dealer rental operations.

Key Highlights

  • 1Record Q2 sales and revenues of $5.93 billion, up 12% year-over-year.
  • 2Net income more than doubled to $399 million, a 99% increase from $200 million in Q2 2002.
  • 3Earnings per share (EPS) at $1.15, significantly up from $0.58 in Q2 2002.
  • 4Positive impact from currency fluctuations ($221 million on sales) and improved revenue yield ($107 million).
  • 5Lower core operating costs contributed $138 million to profit improvement.
  • 6Raised full-year sales and revenue growth expectation to approximately 10%.
  • 7Full-year profit per share projected to be in the range of $2.75 to $2.90.

Frequently Asked Questions

The significant profit increase was driven by several factors including improved revenue yield ($107 million), lower core operating costs ($138 million), and a favorable net currency impact ($31 million on operating profit). Higher machinery and engine sales volume also contributed, although this was partially offset by an unfavorable sales mix.

Currency exchange rates had a favorable impact. For sales and revenues, the impact was $221 million, primarily due to stronger euro and Australian dollar. For operating profit, the net favorable currency impact was $31 million, considering both sales and operating costs for Machinery and Engines.

Caterpillar raised its full-year outlook. They now expect sales and revenues to be up about 10% compared to 2002. Full-year profit per share is projected to be in the range of $2.75 to $2.90.

Challenges include higher retiree pension, healthcare, and related benefit costs ($69 million). Additionally, changes in emission standards for on-highway truck and bus engines resulted in a net unfavorable impact of approximately $22 million due to non-conformance penalties (NCPs). The company also noted an unfavorable sales mix, which partially offset the positive impact of higher sales volume.