10-QPeriod: Q2 FY2017

CATERPILLAR INC Quarterly Report for Q2 Ended Jun 30, 2017

Filed August 2, 2017For Securities:CAT

Summary

Caterpillar Inc. reported a solid second quarter of 2017, with total sales and revenues increasing by 10% year-over-year to $11.331 billion. This growth was driven by improved sales across its Machinery, Energy & Transportation segments, particularly in Construction Industries due to stronger demand in China. The company also saw a significant 46% increase in profit, reaching $802 million, or $1.35 per diluted share, up from $0.93 in the prior year's quarter. This profitability improvement was attributed to higher sales volume, a favorable product mix, and improved price realization, which more than offset increased period costs and restructuring charges. While many of Caterpillar's end markets remained at low levels, the positive performance suggests a turning point in demand. The company also highlighted strong operating cash flow generation for its Machinery, Energy & Transportation segment and a reduction in its debt-to-capital ratio. However, the company incurred substantial restructuring costs, primarily related to the closure of its Gosselies, Belgium facility, impacting the overall earnings per share. Investors should note the significant increase in short-term incentive compensation expense and anticipate further restructuring costs in the coming periods.

Financial Highlights

49 data points
Beta

Revenue

$11.33B

24.9% Gross Margin

Net Income

$802.00M

7.1% Net Margin

EPS (Diluted)

$1.35

Total Assets

$78.51B

Cash & Equivalents

$10.28B

Free Cash Flow

$2.38B

Financial Statements
Beta
Revenue$11.33B
Cost of Revenue$7.82B
Gross Profit$2.82B
R&D Expenses$458.00M
SG&A Expenses$1.30B
Operating Expenses$10.15B
Operating Income$1.18B
Net Income$802.00M
EPS (Basic)$1.36
EPS (Diluted)$1.35
Shares Outstanding (Basic)590.20M
Shares Outstanding (Diluted)595.40M

Key Highlights

  • 1Total sales and revenues increased by 10% to $11.331 billion, driven by stronger end-user demand, especially in Construction Industries.
  • 2Profit increased by 46% to $802 million, with diluted earnings per share rising to $1.35 from $0.93 in the prior year's quarter.
  • 3Machinery, Energy & Transportation (ME&T) segment operating cash flow significantly improved, reaching $2.029 billion for the quarter.
  • 4The ME&T debt-to-capital ratio improved to 38.6% from 41.0% at the end of 2016.
  • 5Substantial restructuring costs of $169 million were incurred in the quarter, primarily related to programs in Resource Industries and Energy & Transportation, with over $900 million for the six months driven by the Gosselies facility closure.
  • 6The company divested its equity investment in IronPlanet, recognizing an $85 million pretax gain.
  • 7Cat Financial's past due finance receivables decreased year-over-year, and the allowance for credit losses remained stable as a percentage of finance receivables.

Frequently Asked Questions

Sales and revenues increased by 10% to $11.331 billion, primarily due to higher sales volume across the Machinery, Energy & Transportation segments. Construction Industries saw the most significant increase, driven by stronger demand in China. Higher sales of aftermarket parts in Resource Industries and Energy & Transportation also contributed to the growth.

Profitability saw a substantial improvement, with profit increasing by 46% to $802 million, resulting in diluted earnings per share of $1.35, up from $0.93 in the second quarter of 2016. This was driven by higher sales, a favorable product mix, and improved price realization, which helped offset increased period costs and restructuring charges.

Caterpillar incurred significant restructuring costs of $169 million in the second quarter, primarily related to programs in Resource Industries and Energy & Transportation. For the first six months of 2017, total restructuring costs reached $921 million, largely driven by the closure of the Gosselies, Belgium facility. The company anticipates approximately $1.2 billion in restructuring costs for the full year 2017.

Caterpillar's Machinery, Energy & Transportation segment saw an improvement in its debt-to-capital ratio, decreasing to 38.6% at the end of the second quarter of 2017 from 41.0% at the end of 2016. This was attributed to an increase in equity, partly due to favorable foreign currency translation adjustments, and a decrease in debt.

The Construction Industries segment showed strong performance, particularly in China. Resource Industries experienced a significant rebound in profit due to higher aftermarket parts sales and improved dealer inventories, though the company noted that commodity prices need to stabilize for sustained equipment demand. Energy & Transportation also saw improved sales, driven by aftermarket parts. Financial Products' revenues were about flat, with a slight decrease in profit due to factors like the absence of security sale gains and increased SG&A expenses.