10-QPeriod: Q2 FY2020

CATERPILLAR INC Quarterly Report for Q2 Ended Jun 30, 2020

Filed August 5, 2020For Securities:CAT

Summary

Caterpillar Inc. reported a significant decline in sales and profitability for the second quarter and first half of 2020 compared to the same periods in 2019, primarily due to the global economic slowdown exacerbated by the COVID-19 pandemic. Total sales and revenues decreased by 31% in the second quarter and 26% year-to-date. This was driven by lower end-user demand across all regions and segments, coupled with dealers reducing their inventory levels. Consequently, diluted earnings per share fell substantially, with Q2 2020 at $0.84 compared to $2.83 in Q2 2019. The company has implemented cost reduction measures, including suspending short-term incentive compensation, which helped mitigate some of the impact on operating profit margin, though it still declined significantly. Despite the challenging environment, Caterpillar maintained a strong liquidity position, with substantial cash on hand and available credit facilities. The company also continued its strategic focus on long-term profitable growth through services and expanded offerings. Management expects dealer inventories to decline further throughout 2020. While facing significant headwinds, the company's proactive cost management and liquidity focus are key takeaways for investors.

Financial Highlights

53 data points
Beta

Revenue

$10.00B

22.0% Gross Margin

Net Income

$458.00M

4.6% Net Margin

EPS (Diluted)

$0.84

Total Assets

$76.57B

Cash & Equivalents

$8.79B

Free Cash Flow

$1.22B

Financial Statements
Beta
Revenue$10.00B
Cost of Revenue$7.11B
Gross Profit$2.20B
R&D Expenses$341.00M
SG&A Expenses$1.18B
Operating Expenses$9.21B
Operating Income$784.00M
Net Income$458.00M
EPS (Basic)$0.84
EPS (Diluted)$0.84
Shares Outstanding (Basic)541.50M
Shares Outstanding (Diluted)544.50M

Key Highlights

  • 1Total sales and revenues for Q2 2020 were $9.997 billion, a decrease of 31% compared to $14.432 billion in Q2 2019.
  • 2Diluted earnings per share (EPS) for Q2 2020 were $0.84, a significant decrease from $2.83 in Q2 2019.
  • 3Sales declines were broad-based, affecting all regions and primary segments (Construction Industries, Resource Industries, Energy & Transportation) due to lower end-user demand and dealer inventory adjustments.
  • 4Operating profit margin for Q2 2020 was 7.8%, down from 15.3% in Q2 2019, impacted by lower sales volume and unfavorable price realization.
  • 5Cost-saving measures, including the suspension of short-term incentive compensation, helped to offset some of the profit decline.
  • 6The company ended Q2 2020 with a strong liquidity position, holding $8.8 billion in cash and cash equivalents and significant available liquidity sources.
  • 7Caterpillar has temporarily suspended its share repurchase program due to current economic uncertainty.

Frequently Asked Questions

The primary driver of Caterpillar's sales decline was lower end-user demand across all regions and segments, largely due to the global economic slowdown intensified by the COVID-19 pandemic. Additionally, dealers reduced their machine and engine inventories, contributing to the lower sales volume.

Caterpillar implemented several cost-saving measures, including reducing selling, general, and administrative (SG&A) expenses and research and development (R&D) expenses. Notably, the company suspended its 2020 short-term incentive compensation plans for many employees and all senior executives, which significantly reduced related expenses and helped to mitigate the impact on operating profit.

Caterpillar maintained a strong liquidity position at the end of Q2 2020, with $8.8 billion in cash and cash equivalents and significant available liquidity sources. The company has taken steps to further supplement its liquidity, including issuing new debt and notes. Despite current economic uncertainty, management expects its strong financial position to support the company's operations and strategic initiatives.

The COVID-19 pandemic significantly impacted Caterpillar's operations by reducing end-user demand globally, leading to lower sales volumes. The company also implemented safeguards in its facilities to protect employees. While most production facilities continued to operate, the pandemic's overall magnitude and long-term effects on the business remain subject to rapid development and cannot be precisely estimated.