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May 4, 2022, 10:50 a.m. EDT

10-Q: CATERPILLAR INC

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(EDGAR Online via COMTEX) -- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide information that will assist the reader in understanding the company's Consolidated Financial Statements, the changes in certain key items in those financial statements between select periods and the primary factors that accounted for those changes. In addition, we discuss how certain accounting principles, policies and critical estimates affect our Consolidated Financial Statements. Our discussion also contains certain forward-looking statements related to future events and expectations. This MD&A should be read in conjunction with our discussion of cautionary statements and significant risks to the company's business under Part I, Item 1A. Risk Factors of the 2021 Form 10-K .

Highlights for the first quarter of 2022 include:

Total sales and revenues for the first quarter of 2022 were $13.589 billion, an increase of $1.702 billion, or 14 percent, compared with $11.887 billion in the first quarter of 2021. Sales were higher across the three primary segments.

Operating profit margin was 13.7 percent for the first quarter of 2022, compared with 15.3 percent for the first quarter of 2021. Adjusted operating profit margin was 13.7 percent for the first quarter of 2022, compared with 15.8 percent for the first quarter of 2021.

First-quarter 2022 profit per share was $2.86, and excluding the items in the table below, adjusted profit per share was $2.88. First-quarter 2021 profit per share was $2.77, and excluding the items in the table below, adjusted profit per share was $2.87.

In order for our results to be more meaningful to our readers, we have separately quantified the impact of several significant items. A detailed reconciliation of GAAP to non-GAAP financial measures is included on page 53.







                                                                    Three Months Ended March         Three Months Ended March
                                                                            31, 2022                         31, 2021
                                                                      Profit       Profit              Profit       Profit
        (Dollars in millions except per share data)                Before Taxes   Per Share         Before Taxes   Per Share
        Profit                                                     $   1,999    $     2.86          $   1,997    $     2.77
        Restructuring costs                                               13          0.02                 64          0.10
        Adjusted profit                                            $   2,012    $     2.88          $   2,061    $     2.87
        


Enterprise operating cash flow was $0.3 billion in the first quarter of 2022. Caterpillar ended the first quarter of 2022 with $6.5 billion of enterprise cash.

Overview

Total sales and revenues for the first quarter of 2022 were $13.589 billion, an increase of $1.702 billion, or 14 percent, compared with $11.887 billion in the first quarter of 2021. The increase was due to higher sales volume and favorable price realization, partially offset by unfavorable currency impacts primarily related to the euro, Australian dollar and Japanese yen. The increase in sales volume was driven by higher end-user demand for equipment and services and the impact from changes in dealer inventories. Dealers increased inventories by $1.3 billion during the first quarter of 2022, compared with an increase of $700 million during the first quarter of 2021. Sales were higher across the three primary segments.

First-quarter 2022 profit per share was $2.86, compared with $2.77 profit per share in the first quarter of 2021. Profit per share for both quarters included restructuring costs. Profit for the first quarter of 2022 was $1.537 billion, which was about flat compared with $1.530 billion for the first quarter of 2021. Unfavorable manufacturing costs and higher selling, general and administrative (SG&A) and research and development (R&D) expenses were offset by favorable price realization and higher sales volume. Unfavorable manufacturing costs primarily reflected higher material and freight costs. The increase in SG&A/R&D expenses was mainly driven by investments aligned with the company's strategy for profitable growth.

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Global Business Conditions:

We continue to monitor a variety of external factors including the ongoing impact of the COVID-19 pandemic around the world, supply chain disruptions and associated cost and labor pressures. Areas of particular focus include certain components, transportation and raw materials. Transportation shortages have resulted in delays and increased costs. In addition, our suppliers are dealing with availability issues and freight delays, which leads to pressure on production in our facilities. Contingency plans have been developed and continue to be modified to minimize supply chain challenges that may impact our ability to meet increasing customer demand. We continue to assess the environment and are taking appropriate price actions in response to rising costs. We will continue to monitor the situation as conditions remain fluid and evolve throughout the year.

Notes:

Glossary of terms is included on pages 47 - 49; first occurrence of terms shown in bold italics.

Information on non-GAAP financial measures is included on page 53.

Certain amounts may not add due to rounding.

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THREE MONTHS ENDED MARCH 31, 2022 COMPARED WITH THREE MONTHS ENDED MARCH 31,

CONSOLIDATED SALES AND REVENUES

Total sales and revenues for the first quarter of 2022 were $13.589 billion, an increase of $1.702 billion, or 14 percent, compared with $11.887 billion in the first quarter of 2021. The increase was due to higher sales volume and favorable price realization, partially offset by unfavorable currency impacts primarily related to the euro, Australian dollar and Japanese yen. The increase in sales volume was driven by higher end-user demand for equipment and services and the impact from changes in dealer inventories. Dealers increased inventories by $1.3 billion during the first quarter of 2022, compared with an increase of $700 million during the first quarter of 2021.

Sales were higher across the three primary segments.

North America sales increased 25 percent due to higher end-user demand for equipment and services, favorable price realization and the impact of changes in dealer inventories. Dealers increased inventories more during the first quarter of 2022 than during the first quarter of 2021.

Sales increased 27 percent in Latin America due to the impact of changes in dealer inventories, favorable price realization and higher end-user demand for equipment and services across most of the region. Dealers increased inventories during the first quarter of 2022, compared with a decrease during the first quarter of 2021.

EAME sales increased 15 percent due to higher end-user demand for equipment and services, the impact of changes in dealer inventories and favorable price realization, partially offset by unfavorable currency impacts primarily related to the euro. Dealers increased inventories more during the first quarter of 2022 than during the first quarter of 2021.

Asia/Pacific sales decreased 4 percent driven by lower end-user demand for equipment and services and unfavorable currency impacts related to the Australian dollar and Japanese yen, partially offset by favorable price realization and the impact of changes in dealer inventories. Dealers increased inventories more during the first quarter of 2022 than during the first quarter of 2021. Lower sales in China were partially offset by increased sales across the majority of the region.

Dealers increased inventories by $1.3 billion during the first quarter of 2022, compared with an increase of $700 million during the first quarter of 2021. Dealers are independent, and the reasons for changes in their inventory levels vary, including their expectations of future demand and product delivery times. Dealers' demand expectations take into account seasonal changes, macroeconomic conditions, machine rental rates and other factors. Delivery times can vary based on availability of product from Caterpillar factories and product distribution centers. We do not expect a significant increase in dealer inventory in 2022.

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        Sales and Revenues by Segment
                                               First Quarter         Sales               Price                                 Inter-Segment /         First Quarter           $                 %
        (Millions of dollars)                      2021              Volume           Realization           Currency                Other                  2022              Change           Change
        Construction Industries                $    5,459          $   325          $        421          $    (101)         $             11          $    6,115          $   656               12  %
        Resource Industries                         2,178              527                   169                (34)                      (10)              2,830              652               30  %
        Energy & Transportation                     4,507              333                   115                (74)                      157               5,038              531               12  %
        All Other Segment                             130                2                     -                 (1)                      (13)                118              (12)              (9  %)
        Corporate Items and Eliminations           (1,083)              15                    (1)                (1)                     (145)             (1,215)            (132)
        Machinery, Energy & Transportation                                                                                                                                                       15  %
        Sales                                      11,191            1,202                   704               (211)                        -              12,886            1,695
        Financial Products Segment                    761                -                     -                  -                        22                 783               22                3  %
        Corporate Items and Eliminations              (65)               -                     -                  -                       (15)                (80)             (15)
        Financial Products Revenues                   696                -                     -                  -                         7                 703                7                1  %
        Consolidated Sales and Revenues        $   11,887          $ 1,202          $        704          $    (211)         $              7          $   13,589          $ 1,702               14  %
        








        Sales and Revenues by Geographic Region
                                                      North America                          Latin America                           EAME                            Asia/Pacific                  External Sales and Revenues                     Inter-Segment                      Total Sales and Revenues
        (Millions of dollars)                       $                % Chg                $                % Chg              $              % Chg                $                % Chg                $               % Chg                   $                   % Chg                $               % Chg
        First Quarter 2022
        Construction Industries              $      2,720               28  %       $       627              60  %        $ 1,277              18  %        $    1,462              (21  %)       $    6,086               12  %       $       29                     61  %        $    6,115              12  %
        Resource Industries                         1,018               55  %               399              (1  %)           594              25  %               748               33  %             2,759               32  %               71                    (12  %)            2,830              30  %
        Energy & Transportation                     1,938                9  %               310              21  %          1,184               8  %               600               14  %             4,032               10  %            1,006                     18  %             5,038              12  %
        All Other Segment                              18               38  %                 -               -  %              5              67  %                16              (27  %)               39                3  %               79                    (14  %)              118              (9  %)
        Corporate Items and Eliminations              (24)                                    1                                (2)                                  (5)                                  (30)                              (1,185)                                     (1,215)
        Machinery, Energy & Transportation
        Sales                                       5,670               25  %             1,337              27  %          3,058              15  %             2,821               (4  %)           12,886               15  %                -                      -               12,886              15  %
        Financial Products Segment                    503                6  %                73              18  %             96              (4  %)              111              (10  %)              783        1       3  %                -                      -                  783               3  %
        Corporate Items and Eliminations              (36)                                  (17)                               (9)                                 (18)                                  (80)                                   -                                         (80)
        Financial Products Revenues                   467                3  %                56              10  %             87              (5  %)               93               (8  %)              703                1  %                -                      -                  703               1  %
        Consolidated Sales and Revenues      $      6,137               23  %       $     1,393              26  %        $ 3,145              15  %        $    2,914               (4  %)       $   13,589               14  %       $        -                      -           $   13,589              14  %
        First Quarter 2021
        Construction Industries              $      2,126                           $       392                           $ 1,081                           $    1,842                            $    5,441                           $       18                                  $    5,459
        Resource Industries                           657                                   405                               474                                  561                                 2,097                                   81                                       2,178
        Energy & Transportation                     1,782                                   256                             1,093                                  527                                 3,658                                  849                                       4,507
        All Other Segment                              13                                     -                                 3                                   22                                    38                                   92                                         130
        Corporate Items and Eliminations              (39)                                    -                                 -                                   (4)                                  (43)                              (1,040)                                     (1,083)
        Machinery, Energy & Transportation
        Sales                                       4,539                                 1,053                             2,651                                2,948                                11,191                                    -                                      11,191
        Financial Products Segment                    476                                    62                               100                                  123                                   761        1                           -                                         761
        Corporate Items and Eliminations              (24)                                  (11)                               (8)                                 (22)                                  (65)                                   -                                         (65)
        Financial Products Revenues                   452                                    51                                92                                  101                                   696                                    -                                         696
        Consolidated Sales and Revenues      $      4,991                           $     1,104                           $ 2,743                           $    3,049                            $   11,887                           $        -                                  $   11,887
        


1 Includes revenues from Machinery, Energy & Transportation of $100 million and $84 million in the first quarter of 2022 and 2021, respectively.

Table of Contents CONSOLIDATED OPERATING PROFIT

Operating profit for the first quarter of 2022 was $1.855 billion, an increase of $41 million, or 2 percent, compared with $1.814 billion in the first quarter of 2021. Unfavorable manufacturing costs and higher selling, general and administrative (SG&A) and research and development (R&D) expenses were more than offset by favorable price realization and higher sales volume. For 2022, price realization is expected to more than offset manufacturing cost increases.

Unfavorable manufacturing costs primarily reflected higher material and freight costs. The increase in SG&A/R&D expenses was mainly driven by investments aligned with the company's strategy for profitable growth.

Short-term incentive compensation expense was about $340 million in the first quarter of 2022, compared to about $300 million in the first quarter of 2021. For 2022, short-term incentive compensation expense is expected to be about $1.3 billion, about flat compared to 2021.

Operating profit margin was 13.7 percent for the first quarter of 2022, compared with 15.3 percent for the first quarter of 2021.







        Profit by Segment
                                                              First Quarter         First Quarter              $                      %
        (Millions of dollars)                                     2022                  2021                 Change                 Change
        Construction Industries                              $      1,057          $      1,042          $        15                       1  %
        Resource Industries                                           361                   312                   49                      16  %
        Energy & Transportation                                       538                   675                 (137)                    (20  %)
        All Other Segment                                               3                     3                    -                       -  %
        Corporate Items and Eliminations                             (244)                 (368)                 124
        Machinery, Energy & Transportation                          1,715                 1,664                   51                       3  %
        Financial Products Segment                                    238                   244                   (6)                     (2  %)
        Corporate Items and Eliminations                              (17)                  (19)                   2
        Financial Products                                            221                   225                   (4)                     (2  %)
        Consolidating Adjustments                                     (81)                  (75)                  (6)
        Consolidated Operating Profit                        $      1,855          $      1,814          $        41                       2  %
        


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Other Profit/Loss and Tax Items

?Interest expense excluding Financial Products in the first quarter of 2022 was $109 million, compared with $142 million in the first quarter of 2021. The decrease was due to lower average debt outstanding during the first quarter of 2022, compared with the first quarter of 2021.

?Other income (expense) in the first quarter of 2022 was income of $253 million, compared with income of $325 million in the first quarter of 2021. Favorable impacts from higher gains on commodity hedges were more than offset by the unfavorable impacts from lower foreign currency exchange net gains, lower pension and other postemployment benefit (OPEB) plan income and the unfavorable impacts from unrealized gains (losses) on marketable securities.

?The provision for income taxes for the first quarter of 2022 reflected an estimated annual tax rate of 24 percent, compared with 26 percent for the first quarter of 2021, excluding the discrete items discussed below. The comparative tax rate for full-year 2021 was approximately 23 percent. The increase in the estimated annual tax rate from full-year 2021 was primarily related to changes in the expected geographic mix of profits from a tax perspective for 2022.

In addition, a discrete tax benefit of $12 million was recorded in the first quarter of 2022, compared with a $43 million benefit in the first quarter of 2021, for the settlement of stock-based compensation awards with associated tax deductions in excess of cumulative U.S. GAAP compensation expense.

Construction Industries

Construction Industries' total sales were $6.115 billion in the first quarter of 2022, an increase of $656 million, or 12 percent, compared with $5.459 billion in the first quarter of 2021. The increase was due to favorable price realization and higher sales volume, partially offset by unfavorable currency impacts related to the euro, Japanese yen and Australian dollar. The increase in sales volume was driven by the impact from changes in dealer inventories and higher end-user demand for aftermarket parts. Across all regions, dealers increased inventories more during the first quarter of 2022 than during the first quarter of 2021.

?In North America, sales increased due to higher sales volume and favorable price realization. Higher sales volume was driven by higher end-user demand for equipment and aftermarket parts from improving non-residential construction, as well as continued strength in residential construction and the impact from changes in dealer inventories.

?Sales increased in Latin America primarily due to higher sales volume, led by higher end-user demand across the region and the impact from changes in dealer inventories, as well as favorable price realization.

?In EAME, sales increased due to higher sales volume and favorable price realization, partially offset by unfavorable currency impacts related to a weaker euro. Higher sales volume was driven by higher end-user demand for equipment and aftermarket parts and the impact from changes in dealer inventories.

?Sales decreased in Asia/Pacific mainly due to lower sales volume and unfavorable currency impacts driven by a weaker Japanese yen and Australian dollar, partially offset by favorable price realization. Lower sales volume was driven by lower end-user demand, partially offset by the impact from changes in dealer inventories. Lower sales in China primarily driven by lower end-user demand were partially offset by increased sales across the majority of the region.

Construction Industries' profit was $1.057 billion in the first quarter of 2022, an increase of $15 million, or 1 percent, compared with $1.042 billion in the first quarter of 2021. Unfavorable manufacturing costs were more than offset by favorable price realization and higher sales volume. Unfavorable manufacturing costs largely reflected higher material and freight costs.

Construction Industries' profit as a percent of total sales was 17.3 percent in the first quarter of 2022, compared with 19.1 percent in the first quarter of 2021.

Resource Industries

Resource Industries' total sales were $2.830 billion in the first quarter of 2022, an increase of $652 million, or 30 percent, compared with $2.178 billion in the first quarter of 2021. The increase was primarily due to higher sales volume and favorable price realization. The increase in sales volume was driven by higher end-user demand for equipment and aftermarket parts and the impact from changes in dealer inventories. End-user demand was higher in heavy construction and quarry and aggregates as well as mining. Dealers increased inventories during the first quarter of 2022, compared to remaining about flat during the first quarter of 2021.

Resource Industries' profit was $361 million in the first quarter of 2022, an increase of $49 million, or 16 percent, compared with $312 million in the first quarter of 2021. Unfavorable manufacturing costs and higher SG&A/R&D expenses were more than offset by higher sales volume and favorable price realization. Unfavorable manufacturing costs largely reflected higher freight and material costs. The increase in SG&A/R&D expenses was driven by investments aligned with growth initiatives.

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Resource Industries' profit as a percent of total sales was 12.8 percent in the first quarter of 2022, compared with 14.3 percent in the first quarter of 2021.







        Energy & Transportation
            Sales by Application
            (Millions of dollars)                                                           $            %
                                        First Quarter 2022       First Quarter 2021       Change       Change
            Oil and Gas                $               948      $               915      $   33           4  %
            Power Generation                         1,012                      963          49           5  %
            Industrial                               1,020                      813         207          25  %
            Transportation                           1,052                      967          85           9  %
            External Sales                           4,032                    3,658         374          10  %
        . . .
        


May 04, 2022

COMTEX_406686131/2041/2022-05-04T10:50:22

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