Caterpillar Q3 profit drops by half as lower equipment demand bites revenue

• Caterpillar profit per share for the September 2020 quarter came in at $1.22, down 54.14 per cent QoQ
• Following the earnings release, Caterpillar shares plunged 3.24 per cent to $157.91 on 27 October 2020
• At the end of September 2020, Caterpillar has $9.3 billion worth of enterprise cash with over $14 billion equivalent to available liquidity sources

Caterpillar Inc (NYSE:CAT), the Illinois-headquartered construction equipment manufacturer, has reported a 54 per cent drop in the Q3 2020 profit per share on the back of muted demand for the construction machineries in the three-month period. However, the DJIA-component has beaten the street forecast posting a better-than-expected result as the profit per share benefitted from the lower-than-expected corporate taxes in the reporting quarter.

Caterpillar profit per share for the September 2020 quarter came in at $1.22, down 54.14 per cent as compared with a profit per share $2.66 in the similar period of the previous year. Caterpillar’s total revenue for the third quarter fell 23 per cent to $9.9 billion as against a net revenue of $12.8 billion in the September quarter of 2019. The equipment maker has cited a lower end-user demand for equipment and services as the primary reason for the decline in the sales volumes and the resultant net revenues.

Caterpillar stock performance

Following the earnings release, Caterpillar shares plunged 3.24 per cent to $157.91 from the previous closing price of $163.20 after hitting an intraday bottom at $157.01, down 3.79 per cent on the New York Stock Exchange (NYSE) on Tuesday, 27 October 2020. The stock of Caterpillar has been on a falling trend from Thursday, 22 October, after registering a continuous gain in the last few weeks of this month.

Caterpillar shares have lost 6.93 per cent of the market value in the last four trading sessions from a stock price level of $169.66. However, Caterpillar shares have logged an index-beating performance in the last seven months after the stock touched a 52-week closing low of $91.85. Caterpillar share price has rallied nearly 72 per cent to $157.91 (27 Oct) from a yearly closing level of $91.85 as on 23 March 2020, meanwhile, the Dow Jones Industrial Average has registered a return of 48 per cent in the similar stretch.

Source: Thomson Reuters

Key highlights of Caterpillar earnings

• Caterpillar’s profit per share for the September 2020 quarter included a pre-tax remeasurement loss of $77 million (as a result of settlements of pension obligations) translating into a per share loss of $0.12.
• The operating profit margin of Caterpillar for the reporting quarter stood at 10 per cent as against a profit margin of 15.8 per cent in the July-September term of 2019.
• Caterpillar has realised $4.3 billion in the operating cash flows for the first nine-month period ended 30 September 2020.
• At the end of September 2020, Caterpillar has $9.3 billion worth of enterprise cash and over $14 billion equivalent to available liquidity sources.
• With a revenue figure of $53.8 billion in the financial year 2019, Caterpillar is the world’s leading construction and mining equipment maker.

Chairman’s take

Caterpillar continues to safely navigate the coronavirus pandemic while remaining firmly committed to serving our customers with the third-quarter results largely aligned with the expectations, said Jim Umpleby, Chairman and CEO at Caterpillar. The company is encouraged by the positive signs in certain industries, as well as geographies with the enterprise ready to respond quickly to changing market conditions, Umpleby added.

Caterpillar dividend

Earlier in October 2020 itself, Caterpillar had maintained to distribute a quarterly dividend even in tightened economic conditions developed on the back of the coronavirus pandemic. The board of directors of Caterpillar have voted to maintain a quarterly dividend of $1.03 per share of common stock. The quarterly dividend of $1.03 per share will be payable on 20 November 2020 to all the eligible shareholders of record on 26 October 2020. Interestingly, Caterpillar has paid a cash dividend every year since the incorporation of the company with a regular dividend frequency on quarterly basis from 1933.

A strong balance sheet supports Caterpillar to maintain a quarterly dividend of $1.03 a piece as the company’s dividend payment has been a high priority through all economic cycles, Jim Umpleby had said.

A glance at Cat Financial Q3 2020 earnings

Cat Financial, the Tennessee-headquartered financial services arm of Caterpillar, has reported a fall of 63 per cent in the third quarter 2020 profit to $48 million as compared to a profit of $81 million in the July-September quarter of 2019. The net revenues of Cat Financial came in at $589 million, down 20 per cent as against a revenue figure of $748 million in the same quarter of previous year.

On the other hand, the profit before income taxes for the reporting quarter was $96 million, down 48 per cent from an operating profit of $184 million in the similar three-month period of 2019. An increase of $50 million in provisions for on the account of non-performing credit has been one of the main reasons for the shortfall in the operating profit in the third quarter of 2020.

According to the company, the unfavourable impact from lower average financing rate to the tune of $76 million and a $40 million loss from average earning assets has been a primary reason for the quarterly dip in the total revenues.