Cat Financial sees 9% spike in revenue

Cat Financial, the financing arm of construction equipment manufacturer Caterpillar, reaped the benefits of higher interest rates and retail business volume as it posted a 9% year-over-year revenue increase in the second quarter. 

“Our business activity remains strong, and our global portfolio continues to perform well,” Cat Financial President Dave Walton stated in the company’s Q2 earnings report today. “The Cat Financial team continues to focus on execution of our strategy and supporting Caterpillar customers and dealers with financial services solutions.” 

BY THE NUMBERS: Cat Financial attributed the revenue jump to a $50 million favorable impact from higher average financing rates and a $32 million favorable impact from higher average earning assets. Past dues, meanwhile, remained at historically low levels, which reflects a healthy portfolio, Caterpillar Chief Financial Officer Andrew Bonfield said in today’s earnings call.  

Cat Financial reported the following in Q2: 

• Revenue of $865 million, up 9% year over year; 
• Past dues down 41 basis points YoY to 1.75%; 
• New retail business volume of $3.4 billion, up 8% YoY;  
• Net recovery write-offs of $18 million, up 125% YoY from $8 million; 
• Allowance for credit losses totaling $254 million, or 0.89% of finance receivables, compared to $281 million at the end of Q1 and $320 million at the end of Q2 2023; and  
• Total assets up 1.5% YoY to $33.5 million.  

NOTEWORTHY: Cat Financial reported a loss of $65 million in Q2, down from a profit of $150 million YoY. However, that was primarily the result of a $210 million loss on divestiture of a non-U.S. entity, an abnormality that skewed the results.  

When excluding the loss on divestiture, Q2 profit before income taxes stood at $192 million, down 6% YoY. 

BIGGER PICTURE: Irving, Texas-based Caterpillar in Q2 reported a 4% YoY decline in sales and revenue to $16.7 billion from $17.3 billion. Construction industry sales totaled $6.7 billion, down 7% YoY, while North American construction sales were unchanged YoY in Q2, hovering above $3.9 billion. 

Bonfield highlighted an unprecedented inventory surge a year ago as the main reason behind the drop in sales volume. 

“To explain, dealer inventory decreased by about $200 million in the second quarter. In comparison, we saw an increase of $600 million in the second quarter of last year,” he said during the earnings call. “For machines only, dealer inventory followed the typical seasonal trend this quarter with a decrease of $400 million as compared to a $200 million increase in the second quarter of last year.” 

MARKET OUTLOOK: Shares of Caterpillar [NASDAQ: CAT] were up 3% from market open to $326.44 as of market close today. It has a market cap of $164.95 billion.