Caterpillar Reports Fourth-Quarter and Full-Year 2021 Results

DEERFIELD, Ill., Jan. 28, 2022 /PRNewswire/ --

• Fourth-quarter 2021 sales and revenues up 23%; full-year sales and revenues up 22%
• Fourth-quarter 2021 profit per share of $3.91; adjusted profit per share of $2.69
• 2021 profit per share of $11.83; adjusted profit per share of $10.81
• Strong operating cash flow; ended the year with $9.3 billion of enterprise cash
• Returned $5.0 billion to shareholders through dividends and share repurchases in 2021

Caterpillar Inc. (NYSE: CAT) today announced fourth-quarter and full-year results for 2021.

Sales and revenues for the fourth quarter of 2021 were $13.8 billion, a 23% increase compared with $11.2 billion in the fourth quarter of 2020. Operating profit margin was 11.7% for the fourth quarter of 2021, compared with 12.3% for the fourth quarter of 2020. Fourth-quarter 2021 profit per share was $3.91, compared with $1.42 profit per share in the fourth quarter of 2020. Adjusted profit per share in the fourth quarter of 2021 was $2.69, compared with fourth-quarter 2020 adjusted profit per share of $2.12. Fourth-quarter 2021 adjusted profit per share also reflected a lower-than-expected effective tax rate.

Full-year sales and revenues in 2021 were $51.0 billion, up 22% compared with $41.7 billion in 2020. The increase reflected higher end-user demand for equipment and services and the impact from changes in dealer inventories. Dealers decreased their inventories $2.9 billion in 2020, while remaining about flat in 2021. Operating profit margin was 13.5% for 2021, compared with 10.9% for 2020. Full-year profit was $11.83 per share in 2021, compared with profit of $5.46 per share in 2020. Adjusted profit per share in 2021 was $10.81, compared with adjusted profit per share of $6.56 in 2020.

"I'm proud of our global team's continued resilience in what proved to be a challenging and dynamic operating environment. We delivered adjusted operating profit margins and ME&T free cash flows consistent with our long-term targets established during our 2019 Investor Day," said Chairman and CEO Jim Umpleby. "Amid ongoing supply chain constraints, our team continues to execute our strategy for long-term profitable growth while striving to meet customer demand."

In 2021, adjusted profit per share excluded mark-to-market gains for remeasurement of pension and other postemployment benefit (OPEB) plans and restructuring costs. In 2020, adjusted profit per share excluded mark-to-market losses for remeasurement of pension and OPEB plans and restructuring costs. Please see a reconciliation of GAAP to non-GAAP financial measures in the appendix on page 14.

For the full year of 2021, enterprise operating cash flow was $7.2 billion. During the year, the company repurchased $2.7 billion of Caterpillar common stock and paid dividends of $2.3 billion. Liquidity remained strong with an enterprise cash balance of $9.3 billion at the end of 2021.

CONSOLIDATED RESULTS

Consolidated Sales and Revenues

Consolidated Sales and Revenues Comparison
Fourth Quarter 2021 vs. Fourth Quarter 2020

To access this chart, go to https://investors.caterpillar.com/financials/quarterly-results/default.aspx for the downloadable version of Caterpillar fourth-quarter and full-year 2021earnings.

The chart above graphically illustrates reasons for the change in consolidated sales and revenues between the fourth quarter of 2020 (at left) and the fourth quarter of 2021 (at right). Caterpillar management utilizes these charts internally to visually communicate with the company's Board of Directors and employees.

Total sales and revenues for the fourth quarter of 2021 were $13.798 billion, an increase of $2.563 billion, or 23%, compared with $11.235 billion in the fourth quarter of 2020. The increase was mostly due to higher sales volume, driven by higher end-user demand for equipment and services and the impact from changes in dealer inventories, along with favorable price realization. Dealers decreased inventories during the fourth quarter of 2020, compared to remaining about flat during the fourth quarter of 2021.

Sales were higher across the three primary segments.

Consolidated Operating Profit

Consolidated Operating Profit Comparison
Fourth Quarter 2021 vs. Fourth Quarter 2020

To access this chart, go to https://investors.caterpillar.com/financials/quarterly-results/default.aspx for the downloadable version of Caterpillar fourth-quarter and full-year 2021 earnings.

The chart above graphically illustrates reasons for the change in consolidated operating profit between the fourth quarter of 2020 (at left) and the fourth quarter of 2021 (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's other operating (income) expenses.

Operating profit for the fourth quarter of 2021 was $1.611 billion, an increase of $231 million, or 17%, compared with $1.380 billion in the fourth quarter of 2020. Higher manufacturing costs and selling, general and administrative (SG&A) and research and development (R&D) expenses were more than offset by higher sales volume, favorable price realization and net restructuring income due to a gain on the sale of a facility.

Unfavorable manufacturing costs primarily reflected higher freight and material costs.

The increase in SG&A/R&D expenses was driven by higher short-term incentive compensation expense, which was reinstated in 2021, higher labor costs due to increased headcount and investments aligned with the company's strategy for profitable growth, including acquisition-related expenses.

Other Profit/Loss and Tax Items

• Other income (expense) in the fourth quarter of 2021 was income of $1.063 billion, compared with expense of $309 million in the fourth quarter of 2020. The change was primarily driven by mark-to-market gains for remeasurement of pension and OPEB plans in the fourth quarter of 2021, compared with mark-to-market losses in the fourth quarter of 2020 (see a reconciliation of GAAP to non-GAAP financial measures in the appendix on page 14).
  
  
• The provision for income taxes for the fourth quarter of 2021 reflected an annual effective tax rate of approximately 23%, compared with approximately 28% for the fourth quarter of 2020, excluding the discrete items discussed below. The decrease from 2020 was primarily related to changes in the geographic mix of profits from a tax perspective.
  
  In the fourth quarter of 2021, the company recorded a $118 million tax benefit due to the change from the third-quarter estimated annual tax rate of 25%, compared to a $96 million benefit for the reduction in the annual effective tax rate in the fourth quarter of 2020. In addition, the company recorded a tax charge of $190 million related to $833 million of pension and OPEB mark-to-market gains in the fourth quarter of 2021, compared to a tax benefit of $92 million related to $438 million of mark-to-market losses in the fourth quarter of 2020. Finally, the company recorded a tax benefit of $40 million in the fourth quarter of 2021 primarily related to recognition of U.S. capital losses compared to other discrete tax benefits of $28 million in the fourth quarter of 2020.

Construction Industries' total sales were $5.736 billion in the fourth quarter of 2021, an increase of $1.228 billion, or 27%, compared with $4.508 billion in the fourth quarter of 2020. The increase was due to higher sales volume, driven by the impact from changes in dealer inventories and higher end-user demand, along with favorable price realization. Dealers decreased inventories more during the fourth quarter of 2020 than during the fourth quarter of 2021.

• In North America, sales increased due to higher sales volume and favorable price realization. Higher sales volume was driven by the impact from changes in dealer inventories as dealers decreased inventories more during the fourth quarter of 2020 than during the fourth quarter of 2021.
• Sales increased in Latin America primarily due to higher sales volume and favorable price realization. Higher sales volume was driven by higher end-user demand and the impact from changes in dealer inventories. Dealers increased inventories during the fourth quarter of 2021, compared to a decrease during the fourth quarter of 2020.
• In EAME, sales increased due to higher sales volume from higher end-user demand and the impact of changes in dealer inventories. Dealers decreased inventories more during the fourth quarter of 2020 than during the fourth quarter of 2021.
• Sales decreased in Asia/Pacific primarily due to lower sales volume, partially offset by favorable price realization. Decreased sales volume reflected lower end-user demand, partially offset by the impact from changes in dealer inventories. Lower sales in China, driven by lower end-user demand, were partially offset by higher sales across most of the rest of the region. Dealers decreased inventories during the fourth quarter of 2020, compared to an increase during the fourth quarter of 2021.

Construction Industries' profit was $788 million in the fourth quarter of 2021, an increase of $158 million, or 25%, compared with $630 million in the fourth quarter of 2020. Higher manufacturing costs and SG&A/R&D expenses were more than offset by higher sales volume and favorable price realization. Unfavorable manufacturing costs primarily reflected higher freight, material and labor costs.

The increase in SG&A/R&D expenses was driven by higher short-term incentive compensation expense.

Resource Industries' total sales were $2.762 billion in the fourth quarter of 2021, an increase of $582 million, or 27%, compared with $2.180 billion in the fourth quarter of 2020. The increase was primarily due to higher sales volume, driven by higher end-user demand for equipment and aftermarket parts, and favorable price realization. End-user demand was higher in mining as well as heavy construction and quarry and aggregates.

Resource Industries' profit was $305 million in the fourth quarter of 2021, an increase of $32 million, or 12%, compared with $273 million in the fourth quarter of 2020. Increased manufacturing costs and SG&A/R&D expenses were more than offset by higher sales volume and favorable price realization. Unfavorable manufacturing costs primarily reflected higher freight and material costs.

The increase in SG&A/R&D expenses was driven by investments aligned with growth initiatives, primarily labor, and higher short-term incentive compensation expense.

Energy & Transportation's total sales were $5.728 billion in the fourth quarter of 2021, an increase of $917 million, or 19%, compared with $4.811 billion in the fourth quarter of 2020. Sales increased across all applications and inter-segment sales.

• Oil and Gas – Sales increased for reciprocating engines aftermarket parts across all regions, turbines and turbine-related services and reciprocating engines used in gas compression.
• Power Generation – Sales rose due to higher sales volume in reciprocating engines aftermarket parts and small reciprocating engine applications.
• Industrial – Sales were up due to higher demand across all regions.
• Transportation – Sales increased due to higher deliveries of locomotives, which were primarily international, and rail services.

Energy & Transportation's profit was $675 million in the fourth quarter of 2021, a decrease of $12 million, or 2%, compared with $687 million in the fourth quarter of 2020. The decrease was due to unfavorable manufacturing costs and higher SG&A/R&D expenses, mostly offset by higher sales volume and favorable price realization. Unfavorable manufacturing costs reflected higher freight and material costs, as well as increased period manufacturing costs.

Both SG&A/R&D expenses and period manufacturing costs increased primarily due to higher short-term incentive compensation expense and investments aligned with growth initiatives, including acquisition-related expenses.

Financial Products' segment revenues were $776 million in the fourth quarter of 2021, an increase of $33 million, or 4%, from the fourth quarter of 2020.

Financial Products' segment profit was $248 million in the fourth quarter of 2021, an increase of $53 million, or 27%, compared with $195 million in the fourth quarter of 2020. The increase was mainly due to a favorable impact from returned or repossessed equipment and lower provision for credit losses at Cat Financial, partially offset by an increase in SG&A expenses primarily due to higher short-term incentive compensation expense.

At the end of 2021, past dues at Cat Financial were 1.95%, compared with 3.49% at the end of 2020. Past dues decreased across all portfolio segments as global markets generally improved. Write-offs, net of recoveries, were $205 million for 2021, compared with $222 million for 2020. As of December 31, 2021, Cat Financial's allowance for credit losses totaled $337 million, or 1.22% of finance receivables, compared with $479 million, or 1.77% of finance receivables at December 31, 2020.

Corporate Items and Eliminations

Expense for corporate items and eliminations was $318 million in the fourth quarter of 2021, about flat to the fourth quarter of 2020.

Notes

i. Glossary of terms is included on the Caterpillar website at https://investors.caterpillar.com/overview/default.aspx.
ii. End-user demand is demonstrated by the company's Rolling 3 Month Retail Sales Statistics filed in a Form 8-K on Friday, January 28, 2022.
iii. Information on non-GAAP financial measures is included in the appendix on page 14.
iv. Some amounts within this report are rounded to the millions or billions and may not add.
v. Caterpillar will conduct a teleconference and live webcast, with a slide presentation, beginning at 7:30 a.m. Central Time on Friday, January 28, 2022, to discuss its 2021 fourth-quarter and full-year results. The accompanying slides will be available before the webcast on the Caterpillar website at https://investors.caterpillar.com/events-presentations/default.aspx.

About Caterpillar

With 2021 sales and revenues of $51.0 billion, Caterpillar Inc. is the world's leading manufacturer of construction and mining equipment, off-highway diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. For nearly 100 years, we've been helping customers build a better, more sustainable world and are committed and contributing to a reduced-carbon future. Our innovative products and services, backed by our global dealer network, provide exceptional value that helps customers succeed. Caterpillar does business on every continent, principally operating through three primary segments – Construction Industries, Resource Industries and Energy & Transportation – and providing financing and related services through our Financial Products segment. Visit us at caterpillar.com or join the conversation on our social media channels.

Caterpillar's latest financial results are also available online:

https://investors.caterpillar.com/overview/default.aspx

https://investors.caterpillar.com/financials/quarterly-results/default.aspx (live broadcast/replays of quarterly conference call)

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; (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; (xxvi) the duration and geographic spread of, business disruptions caused by, and the overall global economic impact of, the COVID-19 pandemic; and (xxvii) other factors described in more detail in Caterpillar's Forms 10-Q, 10-K and other filings with the Securities and Exchange Commission.

APPENDIX

NON-GAAP FINANCIAL MEASURES

The following definitions are provided for the non-GAAP financial measures. These non-GAAP financial measures have no standardized meaning prescribed by U.S. GAAP and therefore are unlikely to be comparable to the calculation of similar measures for other companies. Management does not intend these items to be considered in isolation or as a substitute for the related GAAP measures.

The company believes it is important to separately quantify the profit impact of two significant items in order for the company's results to be meaningful to readers. These items consist of (i) pension and OPEB mark-to-market gains/losses resulting from plan remeasurements and (ii) restructuring income/costs, which were incurred to generate longer-term benefits. The company does not consider these items indicative of earnings from ongoing business activities and believes the non-GAAP measure provides investors with useful perspective on underlying business results and trends and aids with assessing the company's period-over-period results.

Reconciliations of adjusted results to the most directly comparable GAAP measure are as follows:

Supplemental Consolidating Data

The company is providing supplemental consolidating data for the purpose of additional analysis. The data has been grouped as follows:

Consolidated – Caterpillar Inc. and its subsidiaries.

Machinery, Energy & Transportation (ME&T) – The company defines ME&T as it is presented in the supplemental data as Caterpillar Inc. and its subsidiaries, excluding Financial Products. ME&T's information relates to the design, manufacturing and marketing of its products.

Financial Products – The company defines Financial Products as it is presented in the supplemental data as its finance and insurance subsidiaries, primarily Caterpillar Financial Services Corporation (Cat Financial) and Caterpillar Insurance Holdings Inc. (Insurance Services). Financial Products' information relates to the financing to customers and dealers for the purchase and lease of Caterpillar and other equipment.

Consolidating Adjustments – Eliminations of transactions between ME&T and Financial Products.

The nature of the ME&T and Financial Products 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 believes this presentation will assist readers in understanding its business.

Pages 16 to 26 reconcile ME&T and Financial Products to Caterpillar Inc. consolidated financial information.