Caterpillar reported before the market opened on January 29, 2021, it earned $1.42 per diluted share in the quarter that ended on December 31, 2020, down 28 percent from earnings of $1.97 in the same 3 months of the previous year. These figures are the earnings determined in accordance with U.S. Generally Accepted Accounting Principles (GAAP).
Adjusted Profits, a non-GAAP figure, fell 22 percent to $2.12 per share from $2.71 one year earlier, a decline not as steep change than the GAAP percentage. The exclusions responsible for the $0.70 per share difference in the latest quarter between the GAAP and Non-GAAP earnings were: Pension mark-to-market [$0.63 per share], and Restructuring costs [$0.07 per share]. Non-GAAP earnings, by excluding unusual and non-cash items that could obscure the results of a business's principal, ongoing operations, are intended to be cleaner measures of corporate profits.
This post compares the quarterly Income Statement published by Caterpillar to the estimates I made in a previous “Look Ahead” post. My estimates were based on publicly available guidance provided by Caterpillar's management to financial analysts, news reports, and trends in the company's historical results. Unless otherwise mentioned, all reported values mentioned below are GAAP figures.
First, a little background about the company: Caterpillar is a leading manufacturer and servicer of machinery for construction, mining, energy production, and transportation. The company also has finance subsidiaries that help customers and dealers purchase and lease Caterpillar and certain other products. Demand for Caterpillar's products tends to vary as economic conditions strengthen and weaken and commodity prices rise and fall.
The following table is a simplified version of Caterpillar's Income Statement for the quarter that ended in December 2020, with company-reported numbers along side my predictions. Figures from the year-earlier quarter are also provided for comparative purposes.
Revenue in the December 2020 quarter totaled $11.2 billion, 15 percent less than last year. The Construction Industries business was responsible for 40 percent of overall revenue, and this unit's revenue percent fell by 10.2 percent compared to the year-earlier result. The Resource Industries business contributed 19 percent of revenue, and this unit's revenue decreased by 9.0 percent. The Energy & Transportation unit supplied 43 percent of revenue, and this business's revenue fell by 19.1 percent.
I was expecting Caterpillar to report revenue of $10.7 billion for the December 2020 quarter. The actual amount surpassed my estimate by $535.0 million (5.0 percent).
The Cost of Revenue (also known as Cost of Goods Sold) was $7.8 billion in the latest quarter, which translates into a Gross Margin of 30.7 percent of revenue. I was expecting the Gross Margin to be 30.3 percent in the December 2020 quarter, and Caterpillar exceeded that prediction by 0.5 percent.
Caterpillar spent $374 million on Research and Development in the latest quarter, down from $386 million one year ago. I had estimated that R&D expenses would be $374 million. R&D was 3.3 percent of Revenue.
Sales, General, and Administrative expenses totaled $1.2 billion in the December 2020 quarter, down 5.2 percent from one year ago. SG&A expenses increased from 9.8 percent to 10.8 percent of quarterly revenue, which shows Caterpillar spent more per dollar of sales on indirect operational costs, such as marketing. I had estimated that SG&A expenses would be 10.5 percent of revenue, and the actual percentage turned out to be higher than the prediction.
The last operating expense line on the Income Statement is where the sum of other operating income and charges, such as restructuring, may be listed. For Caterpillar the amount listed on this line was a $481 million loss in the latest quarter. I was expecting a net loss of $482 million.
Caterpillar's Operating Income was $1.4 billion in the quarter, down 25.4 percent from the year-earlier period. Operating Income exceeded my $1.3 billion estimate by $123 million.
Interest and other non-operating items summed to a net expense of $439 million. My estimate for non-operating items was $508 million.
The effective income tax rate fell by 2.5 percent to 17.7 percent, which had a positive effect on net income. I expected the tax rate to be 25.2 percent.
Net income attributable to Caterpillar was $780 million, $1.42 per share in the quarter ending December 2020. The figures for the year-earlier quarter were $1.1 billion, $1.97/share. My earnings estimate for the latest quarter was $556 million ($1.02/share), so Caterpillar earned $0.40 per share more than I had predicted.
In conclusion, the following list shows where the reported results differed from my expectations:
– Better than expected: Revenue growth + Misc non-operating items + Income tax rate + Non-controlling interests
– Worse than expected: SG&A + Interest
– Near expectations: Gross Margin + R&D + SG&A/Revenue + Special operating items
This post is not investment advice, and the accuracy of the information, tables, charts, and any commentary presented is not guaranteed. Readers are encouraged to independently verify all data using information from original sources. The Income Statements discussed in these blog posts have not been audited and may differ in material respects from those published by the subject company. These differences are intended to facilitate analysis and cross-company comparisons. Complete financial statements with notes can usually be found in the 10-Q and 10-K filings companies submit to the Securities and Exchange Commission (SEC).
#caterpillar #cat #gauges #gcfr #gcfr2 #QtrlyRpt #nac_financialanalysis
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