Caterpillar Reports Second-Quarter 2019 Results

DEERFIELD, Ill., July 24, 2019 /PRNewswire/ -- 

• Sales and revenues up 3%; profit per share slightly up
• Strong ME&T operating cash flow; returned about $1.9 billion in share repurchases and dividends
• Full-year profit per share outlook range is maintained at $12.06 to $13.06; the company currently expects to be at the lower end of this range

Caterpillar Inc. (NYSE: CAT) today announced second-quarter 2019 sales and revenues of $14.4 billion, a 3% increase compared with $14.0 billion in the second quarter of 2018. Second-quarter 2019 profit per share was $2.83, compared with $2.82 profit per share in the second quarter of 2018.

During the second quarter of 2019, Machinery, Energy & Transportation (ME&T) operating cash flow was $2.0 billion. The company repurchased $1.4 billion of Caterpillar common stock and paid dividends of $0.5 billion in the second quarter of 2019. The enterprise cash balance at the end of the second quarter of 2019 was $7.4 billion.

"Sales and revenues increased this quarter, including a record performance from Construction Industries, which reflected our strong competitive position globally," said Caterpillar Chairman and CEO Jim Umpleby. "Our strong operating cash flow in the quarter allowed us to repurchase shares and pay dividends of about $1.9 billion. This is in line with our intention to return substantially all free cash flow to shareholders."

2019 Outlook

The full-year profit per share outlook range is maintained at $12.06 to $13.06, which includes the first-quarter $0.31 per share discrete tax benefit. The company currently expects to be at the lower end of this outlook range.

The company continues to expect modest sales growth in 2019, which assumes a recovery in Oil and Gas near the end of the year and dealers working through higher machine inventory levels. The company still expects price realization to offset manufacturing costs. With a higher amount of restructuring costs incurred in the second quarter of 2019, the company expects restructuring costs for the remainder of the year to be significantly lower.

"We expect our profit per share in 2019 to be another record," added Umpleby. "We have the right strategy in place to deliver long-term profitable growth through our continued focus on strategic investments, including growing services and expanding offerings. We will also continue to focus on driving operational excellence including a flexible and competitive cost structure."

The outlook does not include a mark-to-market gain or loss for remeasurement of pension and other postemployment benefit plans, which will be excluded from adjusted profit per share in the fourth quarter of 2019 along with any other discrete items.

CONSOLIDATED RESULTS

Consolidated Sales and Revenues

Consolidated Sales and Revenues Comparison
Second Quarter 2019 vs. Second Quarter 2018 

To access this chart, go to http://www.caterpillar.com/en/investors/quarterly-results.html for the downloadable version of Caterpillar second-quarter 2019 earnings.

The chart above graphically illustrates reasons for the change in consolidated sales and revenues between the second quarter of 2018 (at left) and the second quarter of 2019 (at right). Caterpillar management utilizes these charts internally to visually communicate with the company's Board of Directors and employees.

Total sales and revenues were $14.432 billion in the second quarter of 2019, an increase of $421 million, or 3%, compared with $14.011 billion in the second quarter of 2018. The improvement was primarily due to favorable price realization and higher sales volume driven by improved demand for equipment, including a favorable impact from changes in dealer inventories. The increase was partially offset by unfavorable currency impacts. Sales increased in Construction Industries and Resource Industries, while Energy & Transportation sales decreased. Sales increased in North America and Latin America, partially offset by decreases in Asia/Pacific and EAME.

Consolidated Operating Profit

Consolidated Operating Profit Comparison
Second Quarter 2019 vs. Second Quarter 2018 

To access this chart, go to http://www.caterpillar.com/en/investors/quarterly-results.html for the downloadable version of Caterpillar second-quarter 2019 earnings.

The chart above graphically illustrates reasons for the change in consolidated operating profit between the second quarter of 2018 (at left) and the second quarter of 2019 (at right). Caterpillar management utilizes these charts internally to visually communicate with the company's Board of Directors and employees. The bar titled Other includes consolidating adjustments and Machinery, Energy & Transportation other operating (income) expenses.

Operating profit for the second quarter of 2019 was $2.213 billion, up 2% compared with $2.167 billion in the second quarter of 2018. The increase of $46 million was due to favorable price realization and lower selling, general and administrative (SG&A) and research and development (R&D) expenses, offset by higher manufacturing costs and unfavorable sales volume due to product mix.

The increase in manufacturing costs was primarily due to higher material costs, including tariffs, variable labor and burden and warranty expense. Favorable SG&A/R&D expenses were mostly due to lower short-term incentive compensation expense.

The change in sales volume was the result of an unfavorable mix of products primarily within Energy & Transportation and Construction Industries.

Operating profit margin was 15.3% for the second quarter of 2019, compared with 15.5% for the second quarter of 2018.

Other Profit/Loss and Tax Items

The provision for income taxes for the second quarter of 2019 reflected an estimated annual tax rate of 26%, compared with 24% for the second quarter of 2018. The increase was largely driven by the application of U.S. tax reform provisions to the earnings of certain non-U.S. subsidiaries, which do not have a calendar fiscal year-end. These provisions did not apply to these subsidiaries in 2018.

Construction Industries' total sales were a record $6.467 billion in the second quarter of 2019, a 5% increase compared with $6.172 billion in the second quarter of 2018. Sales increased primarily due to the favorable impact of dealers increasing inventories in the second quarter of 2019, compared with decreasing inventories in the second quarter of 2018. Favorable price realization was partially offset by unfavorable currency impacts.

• In North America, sales increased primarily due to higher demand, including the favorable impact of dealer inventories, and favorable price realization.
• Construction activities remained at low levels in Latin America, leading to flat sales.
• In EAME, the sales decrease was primarily due to currency impact related to the euro.
• Sales in Asia/Pacific declined due to lower demand mainly due to China driven by continued competitive pricing pressures and timing of the selling season as well as unfavorable currency impacts.

Construction Industries' profit was a record $1.247 billion in the second quarter of 2019, an 8% increase compared with $1.154 billion in the second quarter of 2018. The increase in profit was due to favorable price realization, which was mostly offset by higher manufacturing costs. The increase in sales volume was more than offset by an unfavorable mix of products. Higher material costs and variable labor and burden, including the absence of Brazil incentives, were the primary drivers of increased manufacturing costs.

Resource Industries' total sales were $2.800 billion in the second quarter of 2019, an 11% increase compared with $2.526 billion in the second quarter of 2018. The increase was primarily due to higher equipment demand and favorable price realization. Mining customers increased capital spending to support ongoing mine site operations, which drove higher sales. In addition, sales increased for non-residential construction and quarry and aggregate customers.

Resource Industries' profit was $481 million in the second quarter of 2019, a 17% increase compared with $411 million in the second quarter of 2018. The improvement was mostly due to favorable price realization and increased sales volume, partially offset by higher manufacturing costs. Manufacturing costs increased due to unfavorable operating leverage from changes in inventory, as well as higher material costs, variable labor and burden and warranty expense.

Energy & Transportation's total sales were $5.486 billion in the second quarter of 2019, a 4% decrease compared with $5.724 billion in the second quarter of 2018. Sales decreased primarily due to lower sales volume and unfavorable currency impacts. The decrease was partially offset by favorable price realization.

• Oil and Gas – Sales decreased in North America primarily due to the timing of turbine project deliveries that occurred in the second quarter of 2018 and from lower demand for new equipment in the Permian Basin. This was partially offset by increased sales in EAME primarily due to higher turbine sales for production applications.
• Power Generation – Sales slightly increased mostly due to higher deliveries in North America for both large diesel reciprocating engines and turbines. Increases in North America were partially offset by lower sales in EAME for gas power generation applications.
• Industrial – Sales were slightly down, with a decrease in EAME primarily due to unfavorable currency impacts partially offset by higher volume in Asia Pacific and Latin America.
• Transportation – Sales were slightly lower primarily due to the timing of locomotive deliveries in the second quarter of 2018 and reduced marine activity in North America, partially offset by higher sales for rail services.

Energy & Transportation's profit was $886 million in the second quarter of 2019, compared with $1.012 billion in the second quarter of 2018. The decrease of 12% was mostly due to an unfavorable mix of applications and lower volume. Price realization was slightly favorable, offset by slightly higher manufacturing costs.

Financial Products' segment revenues were $873 million in the second quarter of 2019, an increase of $44 million, or 5%, from the second quarter of 2018. The increase was primarily due to higher average financing rates in North America and Asia/Pacific and higher average earning assets in North America.

Financial Products' segment profit was $193 million in the second quarter of 2019, up 44% compared with $134 million in the second quarter of 2018. The increase was primarily due to a decrease in the provision for credit losses at Cat Financial and an increase in net yield on average earning assets.

At the end of the second quarter of 2019, past dues at Cat Financial were 3.38%, compared with 3.16% at the end of the second quarter of 2018. The increase in past dues was primarily driven by EAME. Write-offs, net of recoveries, were $74 million for the second quarter of 2019, compared with $80 million for the second quarter of 2018. As of June 30, 2019, Cat Financial's allowance for credit losses totaled $523 million, or 1.81% of finance receivables, compared with $534 million, or 1.89% of finance receivables at March 31, 2019. The allowance for credit losses at year-end 2018 was $511 million, or 1.80% of finance receivables.

Dealer Inventories and Order Backlog

Dealer machine and engine inventories increased about $500 million during the second quarter of 2019, compared with an increase of about $100 million during the second quarter of 2018.

At the end of the second quarter of 2019, the order backlog was $15.0 billion, about $1.9 billion lower than the first quarter of 2019.

Notes

• Glossary of terms is included on the Caterpillar website at http://www.caterpillar.com/investors/.
• Information on non-GAAP financial measures is included in the appendix on page 20.
• Caterpillar will conduct a teleconference and live webcast, with a slide presentation, beginning at 10 a.m. Central Time on Wednesday, July 24, 2019, to discuss its 2019 second-quarter financial results. The accompanying slides will be available before the webcast on the Caterpillar website at http://www.caterpillar.com/investors/events-and-presentations.

About Caterpillar

For more than 90 years, Caterpillar Inc. has been making sustainable progress possible and driving positive change on every continent. Customers turn to Caterpillar to help them develop infrastructure, energy and natural resource assets. With 2018 sales and revenues of $54.722 billion, Caterpillar is the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. The company principally operates through its three primary segments - Construction Industries, Resource Industries and Energy & Transportation - and also provides financing and related services through its Financial Products segment. For more information, visit caterpillar.com. To connect with us on social media, visit caterpillar.com/social-media.

Forward-Looking Statements

Certain statements in this press release relate to future events and expectations and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "believe," "estimate," "will be," "will," "would," "expect," "anticipate," "plan," "forecast," "target," "guide," "project," "intend," "could," "should" or other similar words or expressions often identify forward-looking statements. All statements other than statements of historical fact are forward-looking statements, including, without limitation, statements regarding our outlook, projections, forecasts or trend descriptions. These statements do not guarantee future performance and speak only as of the date they are made, and we do not undertake to update our forward-looking statements.

Caterpillar's actual results may differ materially from those described or implied in our forward-looking statements based on a number of factors, including, but not limited to: (i) global and regional economic conditions and economic conditions in the industries we serve; (ii) commodity price changes, material price increases, fluctuations in demand for our products or significant shortages of material; (iii) government monetary or fiscal policies; (iv) political and economic risks, commercial instability and events beyond our control in the countries in which we operate; (v) international trade policies and their impact on demand for our products and our competitive position, including the imposition of new tariffs or changes in existing tariff rates; (vi) our ability to develop, produce and market quality products that meet our customers' needs; (vii) the impact of the highly competitive environment in which we operate on our sales and pricing; (viii) information technology security threats and computer crime; (ix) inventory management decisions and sourcing practices of our dealers and our OEM customers; (x) a failure to realize, or a delay in realizing, all of the anticipated benefits of our acquisitions, joint ventures or divestitures; (xi) union disputes or other employee relations issues; (xii) adverse effects of unexpected events including natural disasters; (xiii) disruptions or volatility in global financial markets limiting our sources of liquidity or the liquidity of our customers, dealers and suppliers; (xiv) failure to maintain our credit ratings and potential resulting increases to our cost of borrowing and adverse effects on our cost of funds, liquidity, competitive position and access to capital markets; (xv) our Financial Products segment's risks associated with the financial services industry; (xvi) changes in interest rates or market liquidity conditions; (xvii) an increase in delinquencies, repossessions or net losses of Cat Financial's customers; (xviii) currency fluctuations; (xix) our or Cat Financial's compliance with financial and other restrictive covenants in debt agreements; (xx) increased pension plan funding obligations; (xxi) alleged or actual violations of trade or anti-corruption laws and regulations; (xxii) additional tax expense or exposure, including the impact of U.S. tax reform; (xxiii) significant legal proceedings, claims, lawsuits or government investigations; (xxiv) new regulations or changes in financial services regulations; (xxv) compliance with environmental laws and regulations; and (xxvi) other factors described in more detail in Caterpillar's Forms 10-Q, 10-K and other filings with the Securities and Exchange Commission.

Machinery, Energy & Transportation

Caterpillar defines Machinery, Energy & Transportation as it is presented in the supplemental data as Caterpillar Inc. and its subsidiaries with Financial Products accounted for on the equity basis. Machinery, Energy & Transportation information relates to the design, manufacture and marketing of Caterpillar products. Financial Products' information relates to the financing to customers and dealers for the purchase and lease of Caterpillar and other equipment. The nature of these businesses is different, especially with regard to the financial position and cash flow items. Caterpillar management utilizes this presentation internally to highlight these differences. The company also believes this presentation will assist readers in understanding Caterpillar's business. Pages 11-19 reconcile Machinery, Energy & Transportation with Financial Products on the equity basis to Caterpillar Inc. consolidated financial information.

Caterpillar's latest financial results and outlook are also available online:

               http://www.caterpillar.com/en/investors.html

               http://www.caterpillar.com/en/investors/quarterly-results.html (live broadcast/replays of quarterly conference call)