Cat Financial reported “healthy” new business volume in the third quarter as the lender benefited from higher demand for its financing products despite a decline in equipment sales.
The financing arm of construction equipment manufacturer Caterpillar reported a 17.3% increase in new business volume in Q3 despite a decline in overall equipment sales, Caterpillar Chief Financial Officer Andrew Bonfield said in today’s earnings call.
“Business activity at Cat Financial remains healthy,” he said. “Though Caterpillar’s retail machine sales volume was lower, proportionately more sales have been financed through Cat Financial, which highlights the attractiveness of the financing options we are offering to our customers.”
Cat Financial noted a favorable impact due to higher average earning assets of $34 million and a favorable impact due to higher average financing rates of $23 million, according to the lender’s earnings release.
NOTEWORTHY: Cat Financial also benefited from healthy used-equipment financing demand and lease conversions, Bonfield said, adding that inventories remain low.
“Conversion rates are also strong as customers choose to buy equipment at the end of their lease term,” he said.
At the manufacturer level, Caterpillar continued to manage pricing and inventory, Bonfield said.
“Pricing has become a little bit lower, but pricing still is actually OK from a Cat Financial perspective,” he said. “With regards to dealer inventory, obviously, we work closely with our dealers through what we call our … sales and operations planning process, where we go down by dealer, by product, really to understand what their expectations, what their requirements are, and what their ordering needs are.”
BY THE NUMBERS: Cat Financial increased its revenues, profits, new business volume and total assets in Q3. In addition, past dues and allowance for credit losses declined, furthering strong portfolio performance, Dave Walton, president and chief executive of Cat Financial, said in the company’s earnings release.
“Cat Financial delivered another quarter of strong results,” he said. “Our portfolio continues to perform well, with past dues remaining at historical lows.”
Cat Financial reported the following in Q3:
- Revenue of $888 million, up 5% year over year;
- Past dues are down 22 basis points YoY to 1.74%;
- New retail business volume of $3.4 billion, up 17.3% YoY;
- Net recovery write-offs of $27 million, up 200% YoY;
- Allowance for credit losses totaling $255 million, or 0.87% of finance receivables, compared with $340 million, or 1.23% of finance receivables, in Q3 2023; and
- Total assets up 5.7% YoY to $34.3 billion.
MARKET OUTLOOK: Shares of Caterpillar [NASDAQ: CAT] were down 2.13% or $8.27 from market open to $379.24 as of market close today. Caterpillar has a market cap of $187.90 billion.
