Cat Financial originations rise 6% YoY amid high rates

Cat Financial’s originations rose in the third quarter of 2023 despite interest rate concerns tightening financial markets and negatively impacting new-vehicle market share. 

BY THE NUMBERS 

Cat Financial improved across several metrics year over year, including revenues, retail new business volume, total assets and past due percentage, according to the company’s 10-Q filing with the Securities and Exchange Commission.  

New business volume jumped 6.2% YoY to $2.9 billion, landed the company’s managed portfolio at $32.4 billion, up 3.1% YoY, according to the filing.  

Revenues at the captive also increased, up 22.6% YoY to $846 million.  

Past-dues at Cat Financial were 1.96%, an improvement of 4 basis points (bps) YoY. Write-offs, net of recoveries, were $9 million for Q3, down 30.1% YoY. Past-dues and write-offs are at historic low levels, Caterpillar’s Chief Financial Officer Andrew Bonfield said during the company’s earnings call Tuesday. 

Meanwhile, Cat Financial’s allowance for credit losses totaled $340 million, or 1.23% of finance receivables, as of Sept. 30, compared with $339 million, or 1.3% in the same reporting period last year.  

STATE OF PLAY 

Cat Financials’ growth came despite a loss in penetration on new units, Bonfield said during the call. 

“We have seen a slight reduction in the share of new machines we are financing within Cat Financial because we fund in the wholesale market, so we’re slightly less competitive against banks, but generally, customers have been paying cash,” he said.  

Caterpillar customers “haven’t been sensitive to interest rates as far as buying machinery is concerned, and one thing we keep a very close focus on, write-offs, past-dues and provision levels,” Bonfield said. “Our customers are in very robust shape and do not appear to be being impacted by the higher interest rates yet.” 

NOTEWORTHY

“Our backlog should come down, so that’s a positive thing,” Chief Executive James Umpleby III said during the call. “And if you look at our backlog over a number of years, it’s still elevated compared to where it normally would be, based on revenue. We do feel good about market conditions, and we expect that as we improve lead times that backlog as a percentage of revenue would come down to more normal levels.” 

MARKET REACTION  

Shares of Caterpillar (NYSE: CAT) fell 5.5% to $228.77 Tuesday when markets opened in New York when Caterpillar reported its earnings. Shares bounced back on Thursday, rising 3.14% or $7.29 from market open to $239.12 as of market close today. Caterpillar, Inc. has a market capitalization of $115.32 billion.  

FUTURE LOOK  

Retail new business volume increased compared with 2022, and though it declined compared to Q2, it followed a typical seasonal pattern, Bonfield said. “In addition, we continue to see strong demand for used equipment, and used inventory remains at low levels.” 

Still, Cat expects continued growth in non-residential construction in North America due to the impact of government-related infrastructure investments and a healthy pipeline of construction projects, Umpleby III said.