DJ Caterpillar Inc.: Exhibit 99.1 to Amended Form 8-K 2018 3Q Earnings Release
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Caterpillar Inc. Caterpillar Inc.: Exhibit 99.1 to Amended Form 8-K 2018 3Q Earnings Release 23-Oct-2018 / 23:25 CET/CEST Dissemination of a French Regulatory News, transmitted by EQS Group. The issuer is solely responsible for the content of this announcement. Caterpillar Inc. **************** 3Q 2018 Earnings Release October 23, 2018 FOR IMMEDIATE RELEASE Caterpillar Reports Third-Quarter 2018 Results ********************************************** Record Third-Quarter Profit Per Share Driven by Higher Sales and Strong Operational Performance DEERFIELD, Ill. - Caterpillar Inc. (NYSE: CAT) today announced third-quarter 2018 sales and revenues of $13.5 billion, compared with $11.4 billion in the third quarter of 2017, an 18 percent increase. Third-quarter 2018 profit per share of $2.88 was a third-quarter record. Profit per share was $1.77 in the third quarter of 2017. Excluding restructuring costs and a net tax benefit to adjust deferred tax balances, adjusted profit per share in the third quarter of 2018 was $2.86, compared with third-quarter 2017 adjusted profit per share of $1.95. During the third quarter of 2018, Machinery, Energy & Transportation (ME&T) operating cash flow was $848 million. In the quarter, the company deployed significant capital, including a discretionary pension contribution of $1.0 billion, the repurchase of $750 million of Caterpillar common stock and a dividend payment of $511 million. The enterprise cash balance at the end of the third quarter of 2018 was $8.0 billion. "This was the best third-quarter profit per share in our company's history," said Caterpillar CEO Jim Umpleby. "Our global team continues to do excellent work focusing on our customers' success and executing our strategy for profitable growth." 2018 Outlook The company's 2018 profit per share outlook is a range of $10.65 to $11.65. The company is maintaining the adjusted profit per share outlook range of $11.00 to $12.00. The current profit per share outlook now includes a net tax benefit of $95 million that was recorded in the third quarter of 2018 to adjust deferred tax balances. The outlook for adjusted profit per share excludes restructuring costs of about $400 million and the net tax benefit. Most end markets continue to improve. Order rates and backlog remain healthy. In the fourth quarter, price realization, operational excellence and cost discipline are expected to more than offset higher material and freight costs, including tariffs. The outlook does not include a mark-to-market gain or loss for remeasurement of pension and other postemployment benefit (OPEB) plans and any additional changes to provisional estimates recorded in 2017 for U.S. tax reform. Notes: - Glossary of terms is included on pages 11-12; first occurrence of terms shown in bold italics. - Information on non-GAAP financial measures is included on page 13. - Caterpillar will conduct a teleconference and live webcast, with a slide presentation, beginning at 10 a.m. Central Time on Tuesday, October 23, 2018, to discuss its 2018 third-quarter financial results. The accompanying slides will be available before the webcast on the Caterpillar website at http://www.caterpillar.com/investors/events-and-presentations [1]. About Caterpillar: For more than 90 years, Caterpillar Inc. has been making sustainable progress possible and driving positive change on every continent. Customers turn to Caterpillar to help them develop infrastructure, energy and natural resource assets. With 2017 sales and revenues of $45.462 billion, Caterpillar is the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. The company principally operates through its three primary segments - Construction Industries, Resource Industries and Energy & Transportation - and also provides financing and related services through its Financial Products segment. For more information, visit caterpillar.com [2]. To connect with us on social media, visit caterpillar.com/social-media [3]. Caterpillar contact: Corrie Scott, 224-551-4133 (Office), 808-351-3865 (Mobile) or Scott_Corrie@cat.com Forward-Looking Statements Certain statements in this press release relate to future events and expectations and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "believe," "estimate," "will be," "will," "would," "expect," "anticipate," "plan," "project," "intend," "could," "should" or other similar words or expressions often identify forward-looking statements. All statements other than statements of historical fact are forward-looking statements, including, without limitation, statements regarding our outlook, projections, forecasts or trend descriptions. These statements do not guarantee future performance and speak only as of the date they are made, and we do not undertake to update our forward-looking statements. Caterpillar's actual results may differ materially from those described or implied in our forward-looking statements based on a number of factors, including, but not limited to: (i) global and regional economic conditions and economic conditions in the industries we serve; (ii) commodity price changes, material price increases, fluctuations in demand for our products or significant shortages of material; (iii) government monetary or fiscal policies; (iv) political and economic risks, commercial instability and events beyond our control in the countries in which we operate; (v) international trade policies and their impact on demand for our products and our competitive position, including the imposition of new tariffs or changes in existing tariff rates; (vi) our ability to develop, produce and market quality products that meet our customers' needs; (vii) the impact of the highly competitive environment in which we operate on our sales and pricing; (viii) information technology security threats and computer crime; (ix) additional restructuring costs or a failure to realize anticipated savings or benefits from past or future cost reduction actions; (x) failure to realize all of the anticipated benefits from initiatives to increase our productivity, efficiency and cash flow and to reduce costs; (xi) inventory management decisions and sourcing practices of our dealers and our OEM customers; (xii) a failure to realize, or a delay in realizing, all of the anticipated benefits of our acquisitions, joint ventures or divestitures; (xiii) union disputes or other employee relations issues; (xiv) adverse effects of unexpected events including natural disasters; (xv) disruptions or volatility in global financial markets limiting our sources of liquidity or the liquidity of our customers, dealers and suppliers; (xvi) failure to maintain our credit ratings and potential resulting increases to our cost of borrowing and adverse effects on our cost of funds, liquidity, competitive position and access to capital markets; (xvii) our Financial Products segment's risks associated with the financial services industry; (xviii) changes in interest rates or market liquidity conditions; (xix) an increase in delinquencies, repossessions or net losses of Cat Financial's customers; (xx) currency fluctuations; (xxi) our or Cat Financial's compliance with financial and other restrictive covenants in debt agreements; (xxii) increased pension plan funding obligations; (xxiii) alleged or actual violations of trade or anti-corruption laws and regulations; (xxiv) additional tax expense or exposure, including the impact of U.S. tax reform; (xxv) significant legal proceedings, claims, lawsuits or government investigations; (xxvi) new regulations or changes in financial services regulations; (xxvii) compliance with environmental laws and regulations; and (xxviii) other factors described in more detail in Caterpillar's Forms 10-Q, 10-K and other filings with the Securities and Exchange Commission. CONSOLIDATED RESULTS ******************** Consolidated Sales and Revenues The chart above graphically illustrates reasons for the change in Consolidated Sales and Revenues between the third quarter of 2017 (at left) and the third quarter of 2018 (at right). Items favorably impacting sales and revenues appear as upward stair steps with the corresponding dollar amounts above each bar, while items negatively impacting sales and revenues appear as downward stair steps with dollar amounts reflected in parentheses above each bar. Caterpillar management utilizes these charts internally to visually communicate with the company's board of directors and employees. Total sales and revenues were $13.510 billion in the third quarter of 2018, an increase of $2.097 billion, or 18 percent, compared with $11.413 billion in the third quarter of 2017. The increase was due to higher sales volume driven by improved demand across the three primary segments, including an increase in dealer inventories. Favorable price realization, primarily in Resource Industries, also contributed to the sales improvement. The increase was partially offset by unfavorable currency impacts, primarily due to a weaker Australian dollar and Brazilian real. Consolidated Operating Profit The chart above graphically illustrates reasons for the change in Consolidated Operating Profit between the third quarter of 2017 (at left) and the third quarter of 2018 (at right). Items favorably impacting operating profit appear as upward stair steps with the corresponding dollar amounts above each bar, while items negatively impacting operating profit appear as downward stair steps with dollar amounts reflected in parentheses above each bar. Caterpillar management utilizes these charts internally to visually communicate with the company's board of directors and employees. The bar entitled Other includes consolidating adjustments and
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DJ Caterpillar Inc.: Exhibit 99.1 to Amended Form -2-
Machinery, Energy & Transportation other operating (income) expenses.
Operating profit for the third quarter of 2018 was $2.135 billion, compared to $1.509 billion in the third quarter of 2017. The
increase of $626 million was mostly due to higher sales volume and favorable price realization.
Manufacturing costs were higher due to increased material and freight costs. Material costs were higher primarily due to increases
in steel prices and tariffs. Freight costs were unfavorable primarily due to supply chain inefficiencies as the industry continues
to respond to strong global demand. Selling, general and administrative (SG&A) and research and development (R&D) expenses
increased primarily due to investments aligned with the company's strategic growth initiatives.
Other Profit/Loss Items
- Other income/expense in the third quarter of 2018 was income of $102 million, compared with income of $132 million in the third
quarter of 2017. The unfavorable change was primarily a result of higher currency translation and hedging net losses.
- The provision for income taxes in the third quarter of 2018 reflected an estimated annual tax rate of 24 percent, compared to
32 percent in the third quarter of 2017, excluding the discrete items discussed in the following paragraph. The decrease was
primarily due to the reduction in the U.S. corporate tax rate beginning January 1, 2018, along with other changes in the
geographic mix of profits from a tax perspective.
The provision for income taxes in the third quarter of 2018 included a $95 million net benefit to adjust deferred tax balances. In
addition, a discrete tax benefit of $3 million was recorded in the third quarter of 2018, compared to $18 million in the third
quarter of 2017, for the settlement of stock-based compensation awards with associated tax deductions in excess of cumulative U.S.
GAAP compensation expense.
Global Workforce
The global workforce increased about 8,200 from the end of the third quarter of 2017, primarily due to higher production volumes.
September 30
2018 2017 Increase
Full-time employment 103,000 96,700 6,300
Flexible workforce 20,100 18,200 1,900
Total 123,100 114,900 8,200
Geographic summary
U.S. workforce 53,400 49,700 3,700
Non-U.S. workforce 69,700 65,200 4,500
Total 123,100 114,900 8,200
Construction Industries' total sales were $5.683 billion in the third quarter of 2018, compared with $4.886 billion in the third
quarter of 2017. The increase was mostly due to higher sales volume for construction equipment.
Sales increased in all regions except Latin America.
? In North America, the sales increase was mostly due to higher demand for new equipment, primarily to support oil and gas
activities, including pipelines, and non-residential building construction activities.
? Construction activities remained weak in Latin America.
? Sales increased in EAME as infrastructure and building construction activities drove higher demand across several countries in
the region.
? Sales in Asia/Pacific were higher across the region, with the most significant impact from improved demand in China, including
an increase in dealer inventories from low levels, stemming from increased non-residential building construction and
infrastructure activities.
Construction Industries' profit was $1.058 billion in the third quarter of 2018, compared with $884 million in the third quarter of
2017. The increase in profit was a result of higher sales volume, partially offset by higher manufacturing costs. Manufacturing
costs were higher primarily due to increased material and freight costs.
Resource Industries' total sales were $2.638 billion in the third quarter of 2018, an increase of $682 million from the third
quarter of 2017. The increase was primarily due to higher demand for both mining and heavy construction equipment. Commodity market
fundamentals remained positive, contributing to higher mining equipment sales. In addition, increased sales to heavy construction
and quarry and aggregate customers were driven by positive global economic growth. Resource Industries' customers globally continue
to focus on improving the productivity and efficiency of existing machine assets, thereby extending equipment life cycles and
lowering operating costs. Rebuild, overhaul and maintenance activity remains strong, resulting in higher aftermarket parts sales.
Favorable price realization also contributed to the sales improvement.
Resource Industries' profit was $414 million in the third quarter of 2018, compared with $229 million in the third quarter of 2017.
The improvement was mostly due to higher sales volume and favorable price realization. The increase was partially offset by higher
manufacturing costs, including freight and material costs, and increased SG&A/R&D expenses primarily due to investments aligned
with strategic growth initiatives.
Energy & Transportation's total sales were $5.555 billion in the third quarter of 2018, compared with $4.838 billion in the third
quarter of 2017. The increase was primarily due to higher sales volume across all applications except Industrial.
? Oil and Gas - Sales increased due to higher demand in North America for well servicing and gas compression applications. Higher
energy prices and growth in U.S. onshore oil and gas drove increased sales for reciprocating engines.
? Power Generation - Sales improved across all regions, with the largest increases in North America and Asia/Pacific primarily
for reciprocating engine applications, including data centers and power plants, and for aftermarket parts.
? Industrial - Sales were lower in EAME primarily due to economic uncertainty in a few countries in the Middle East, partially
offset by slightly higher sales in Asia/Pacific and North America.
? Transportation - Sales were higher primarily due to rail services, driven by acquisitions in Asia/Pacific and EAME, and
increased rail traffic in North America.
Energy & Transportation's profit was $973 million in the third quarter of 2018, compared with $743 million in the third quarter of
2017. The improvement was mostly due to higher sales volume. The increase was partially offset by higher manufacturing costs,
including freight costs, and increased SG&A/R&D expenses primarily due to investments aligned with strategic growth initiatives.
Financial Products' segment revenues were $845 million in the third quarter of 2018, an increase of $71 million, or 9 percent, from
the third quarter of 2017. The increase was primarily due to higher average financing rates and higher average earning assets in
North America and Asia/Pacific as well as a favorable impact from returned or repossessed equipment. These favorable impacts were
partially offset by lower intercompany lending activity in North America, lower average earning assets in Latin America and lower
average financing rates in Europe.
Financial Products' segment profit was $201 million in the third quarter of 2018, compared with $185 million in the third quarter
of 2017. The increase was primarily due to a favorable impact from returned or repossessed equipment, higher average earning assets
and an increase in net yield on average earning assets. This was partially offset by an unfavorable impact from available for sale
securities in Insurance Services.
At the end of the third quarter of 2018, past dues at Cat Financial were 3.47 percent, compared with 2.73 percent at the end of the
third quarter of 2017. The increase in past dues was primarily driven by the Cat Power Finance portfolio. Write-offs, net of
recoveries, in the third quarter of 2018 were $40 million, compared with $47 million in the third quarter of 2017.
As of September 30, 2018, Cat Financial's allowance for credit losses totaled $416 million, or 1.49 percent of finance receivables,
compared with $416 million, or 1.48 percent of finance receivables at June 30, 2018. The allowance for credit losses at December
31, 2017, was $365 million, or 1.33 percent of finance receivables.
Corporate Items and Eliminations
Expense for corporate items and eliminations was $401 million in the third quarter of 2018, a decrease of $58 million from the
third quarter of 2017, primarily due to methodology differences and lower corporate costs. Restructuring costs were $110 million in
the third quarter of 2018, compared to $90 million in the third quarter of 2017.
QUESTIONS AND ANSWERS
*********************
Q1: Can you discuss changes in dealer inventories during the third quarter of 2018?
A: Dealer machine and engine inventories increased about $800 million during the third quarter of 2018, compared to an increase of
about $200 million during the third quarter of 2017. The favorable change impacted sales for the three primary segments about
equally. During the first nine months of 2018, dealer machine and engine inventories increased about $2.1 billion, compared to an
increase of about $100 million during the first nine months of 2017. We believe the increase in dealer inventories is reflective of
current end-user demand.
Q2: Can you discuss changes to your order backlog by segment?
A: At the end of the third quarter of 2018, the order backlog was $17.3 billion, about $400 million lower than the second quarter
of 2018, with decreases across the three primary segments.
The order backlog increased about $1.9 billion from the end of the third quarter of 2017, with increases across the three primary
segments.
Q3: Can you comment on expense related to your 2018 short-term incentive compensation plans and the impact on the 2018 outlook?
A: Short-term incentive compensation expense is directly related to financial and operational performance, measured against targets
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set annually. Third-quarter 2018 expense was about $350 million, compared to third-quarter 2017 expense of about $400 million. For the full year of 2018, across the current outlook range, short-term incentive compensation expense is expected to be about $1.4 billion, nearly the same as 2017. Q4: Can you provide more information on the adjustment to deferred tax balances made during the third quarter of 2018? A: The net tax benefit of $95 million includes a $154 million reduction to the provisionally estimated charge recognized during the fourth quarter of 2017 due to the enactment of U.S. tax reform legislation, partially offset by a $59 million adjustment to the valuation allowance against net deferred tax assets for prior years. The $154 million benefit revises the estimated impact of the write-down of U.S. net deferred tax assets to reflect the reduction in the U.S. corporate tax rate from 35 percent to 21 percent. This benefit primarily related to the decision to make an additional discretionary pension contribution of $1.0 billion to U.S. pension plans in the third quarter of 2018, treated as deductible on the 2017 U.S. tax return. Q5: What was the impact of recently imposed tariffs on material costs in the third quarter of 2018? A: The impact of recently imposed tariffs was about $40 million in the third quarter of 2018. For the full year of 2018, we expect the impact of recently imposed tariffs will be at the low end of the previously provided range of $100 million to $200 million. Q6: Sales and revenues for the first nine months of 2018 were up 24 percent. Is this significant ramp in demand impacting availability? A: The sharp increase in demand has led to supply chain challenges across the industry. Although the company is making efforts to improve material flows, constraints remain for some parts and components that are impacting lead times and availability. Q7: What price action are you anticipating for 2019? A: In the third quarter of 2018, we notified our dealers of an upcoming price action of 1 to 4 percent worldwide on machines and engines with exceptions on specific products and regions. This price action will be effective in January 2019, and is a result of current industry factors and general economic conditions. Q8: Do you expect to exclude restructuring costs from adjusted profit per share in 2019? A: On September 24, 2015, we announced a significant restructuring program expected to be completed by the end of 2018. Although we expect restructuring to continue as part of ongoing business activities, restructuring costs should decline in 2019, and we do not plan to exclude restructuring costs from adjusted profit per share in 2019. GLOSSARY OF TERMS ***************** 1) Adjusted Profit Per Share - Profit per share excluding restructuring costs for 2018 and 2017. For 2018, adjusted profit per share also excludes a net tax benefit to adjust deferred tax balances. 2) All Other Segments - Primarily includes activities such as: business strategy, product management and development, manufacturing of filters and fluids, undercarriage, ground engaging tools, fluid transfer products, precision seals, rubber sealing and connecting components primarily for Cat(R) products; parts distribution; integrated logistics solutions, distribution services responsible for dealer development and administration including a wholly owned dealer in Japan, dealer portfolio management and ensuring the most efficient and effective distribution of machines, engines and parts; digital investments for new customer and dealer solutions that integrate data analytics with state-of-the-art digital technologies while transforming the buying experience. 3) Consolidating Adjustments - Elimination of transactions between Machinery, Energy & Transportation and Financial Products. 4) Construction Industries - A segment primarily responsible for supporting customers using machinery in infrastructure, forestry and building construction applications. Responsibilities include business strategy, product design, product management and development, manufacturing, marketing and sales and product support. The product portfolio includes asphalt pavers, backhoe loaders, compactors, cold planers, compact track and multi-terrain loaders, mini, small, medium and large track excavators, forestry excavators, feller bunchers, harvesters, knuckleboom loaders, motor graders, pipelayers, road reclaimers, site prep tractors, skidders, skid steer loaders, telehandlers, small and medium track-type tractors, track-type loaders, utility vehicles, wheel excavators, compact, small and medium wheel loaders and related parts and work tools. 5) Corporate Items and Eliminations - Includes restructuring costs; corporate-level expenses; timing differences, as some expenses are reported in segment profit on a cash basis; methodology differences between segment and consolidated external reporting; and inter-segment eliminations. 6) Currency - With respect to sales and revenues, currency represents the translation impact on sales resulting from changes in foreign currency exchange rates versus the U.S. dollar. With respect to operating profit, currency represents the net translation impact on sales and operating costs resulting from changes in foreign currency exchange rates versus the U.S. dollar. Currency only includes the impact on sales and operating profit for the Machinery, Energy & Transportation lines of business excluding restructuring costs; currency impacts on Financial Products' revenues and operating profit are included in the Financial Products' portions of the respective analyses. With respect to other income/expense, currency represents the effects of forward and option contracts entered into by the company to reduce the risk of fluctuations in exchange rates (hedging) and the net effect of changes in foreign currency exchange rates on our foreign currency assets and liabilities for consolidated results (translation). 7) EAME - A geographic region including Europe, Africa, the Middle East and the Commonwealth of Independent States (CIS). 8) Earning Assets - Assets consisting primarily of total finance receivables net of unearned income, plus equipment on operating leases, less accumulated depreciation at Cat Financial. 9) Energy & Transportation - A segment primarily responsible for supporting customers using reciprocating engines, turbines, diesel-electric locomotives and related parts across industries serving Oil and Gas, Power Generation, Industrial and Transportation applications, including marine and rail-related businesses. Responsibilities include business strategy, product design, product management and development, manufacturing, marketing and sales and product support of turbine machinery and integrated systems and solutions and turbine-related services, reciprocating engine-powered generator sets, integrated systems used in the electric power generation industry, reciprocating engines and integrated systems and solutions for the marine and oil and gas industries; reciprocating engines supplied to the industrial industry as well as Cat machinery; the remanufacturing of Cat engines and components and remanufacturing services for other companies; the business strategy, product design, product management and development, manufacturing, remanufacturing, leasing and service of diesel-electric locomotives and components and other rail-related products and services and product support of on-highway vocational trucks for North America. 10) Financial Products Segment - Provides financing alternatives to customers and dealers around the world for Caterpillar products, as well as financing for vehicles, power generation facilities and marine vessels that, in most cases, incorporate Caterpillar products. Financing plans include operating and finance leases, installment sale contracts, working capital loans and wholesale financing plans. The segment also provides insurance and risk management products and services that help customers and dealers manage their business risk. Insurance and risk management products offered include physical damage insurance, inventory protection plans, extended service coverage for machines and engines, and dealer property and casualty insurance. The various forms of financing, insurance and risk management products offered to customers and dealers help support the purchase and lease of our equipment. The segment also earns revenues from Machinery, Energy & Transportation, but the related costs are not allocated to operating segments. Financial Products segment profit is determined on a pretax basis and includes other income/expense items. 11) Latin America - A geographic region including Central and South American countries and Mexico. 12) Machinery, Energy & Transportation (ME&T) - Represents the aggregate total of Construction Industries, Resource Industries, Energy & Transportation, All Other Segments and related corporate items and eliminations. 13) Machinery, Energy & Transportation Other Operating (Income) Expenses - Comprised primarily of gains/losses on disposal of long-lived assets, gains/losses on divestitures and legal settlements and accruals. Restructuring costs classified as other operating expenses on the Results of Operations are presented separately on the Operating Profit Comparison. 14) Manufacturing Costs - Manufacturing costs exclude the impacts of currency and restructuring costs (see definition below) and represent the volume-adjusted change for variable costs and the absolute dollar change for period manufacturing costs. Variable manufacturing costs are defined as having a direct relationship with the volume of production. This includes material costs, direct labor and other costs that vary directly with production volume such as freight, power to operate machines and supplies that are consumed in the manufacturing process. Period manufacturing costs support production but are defined as generally not
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