Cat Financial revenues jump despite drop in new business volume

Cat Financial, the finance subsidiary of equipment manufacturer Caterpillar, posted increased revenues despite declining new business volume thanks to favorable interest rates. 

For the full year, Cat Financial posted $11.4 billion in originations, a decline of 13.3% from 2021, according to the earnings supplement released Tuesday. Originations in Q4 clocked in at $2.8 billion, a 19.5% year-over-year decrease.  

“Retail new business volume declined versus the prior year but remains steady compared to the third quarter,” said Andrew Bonfield, Caterpillar’s chief financial officer, during the company’s earnings call.  

“As I mentioned last quarter, Cat Financial is not seeing slowing business activity but continues to see strong competition from banks due to higher interest rates and more customers willing to pay cash for their machines,” Bonfield said. 

Cat Financial’s full-year outstandings clocked in at $32 billion, a decline of 1.3% from 2021. 

Caterpillar Financial Products, which includes Cat Financial and Caterpillar Financial Insurance Services, posted Q4 revenue of $853 million, a 9.9% YoY increase, according to the earnings supplement. 

Cat Financial recorded Q4 revenue of $724 million, up 12.6% YoY. Caterpillar Financial Insurance Services, which offers extended protection for equipment and insurance for equipment and business, logged revenue of $129 million, a 3% YoY dip, according to an Equipment Finance Connect analysis of the earnings supplement. 

Bonfield credited “higher average financing rates across all regions” for the increase in finance and insurance revenue. 

Cat Financial credit performance 

Cat Financial accounts past due clocked in at 1.89% in 2022, a decline of 6 basis points (bps) YoY. “This was an 11-basis point decrease in past dues compared to the third quarter of 2022,” Bonfield said during the earnings call. 

Write-offs net of recoveries landed at $46 million in Q4, representing 0.14% of the total portfolio, according to an EFC analysis. Write-offs were down 49 bps YoY, according to EFC analysis. 

Cat Financial’s allowance for credit losses in Q4 was $346 million, or 1.29% of finance receivables, up 7 bps from Dec. 31, 2021. 

“The increase in provisions reflects changes in general economic factors, rather than company-specific economic factors,” Bonfield said. “Despite these changes, our leading indicators remain strong.” 

Construction, resources sales surge  

Across all business lines, Caterpillar posted North American sales revenue of $7.9 billion in Q4, up 35.5% YoY. “Sales were higher than we expected, as supply chain constraints eased in some areas and we were able to ship more product,” Bonfield said. 

“As the supply chain situation improves, I do expect us to become leaner again and to be able to reduce our internal inventory,” said Caterpillar Chief Executive James Umpleby III. 

Caterpillar Construction, for one, reported Q4 North American sales revenue of $3.5 billion, an increase of 34.2% YoY. Bonfield said construction sales were “due mostly to strong pricing, the positive change in dealer inventory and higher sales to users. 

“Construction Industries is following an abnormally strong fourth quarter, where shipments exceeded our expectations,” he added. 

Caterpillar Resources, meanwhile, reported North American sales revenue of $1.4 billion, a 59.2% YoY increase. Bonfield credited pricing and higher sales for the increase in revenues. 

“Resource Industries had a strong fourth quarter, with its highest quarterly shipments since 2012, and expects lower sequential sales in the first quarter due to the timing of shipments which … can be lumpy,” he said. 

Shipments and the supply chain were an issue for multiple parts of Caterpillar’s operations in Q4, but areas such as large engines struggled more than construction machines.  

“[T]hese things ebb and flow over time,” Umpleby said. 

Shares of Caterpillar Inc. [Nasdaq: CAT] were trading at $249.54 at market close, down $2.75 or 1.09% from market open. Caterpillar has a market capitalization of $128.45 billion.