Caterpillar (CAT) Q2 2018 earnings summary

Executive summary

• Q2 sales and revenues rose 24% YoY to $14.011B; diluted EPS reached a second-quarter record of $2.82, and adjusted diluted EPS was $2.97.

• Operating profit increased 83% YoY to $2.167B; higher volume across the three primary segments and a lower tax rate lifted profit, while manufacturing costs and lower Financial Products profit partly offset gains.

• FY 2018 profit-per-share outlook was raised; strong orders and backlog supported production increases amid cost and supply-chain pressures.

Financial highlights

• Sales and revenues were $14.011B versus $11.3B in Q2 2017; operating profit was $2.167B versus $1.184B.

• Adjusted diluted EPS was $2.97 versus $1.49, excluding restructuring costs and the 2017 IronPlanet equity-sale gain; reported diluted EPS was $2.82 versus $1.35.

• Sales volume across the three primary segments added $1.0B to operating profit YoY; price realization contributed $90M.

• Manufacturing costs increased $80M YoY, including higher freight and materials, partly offset by lower warranty expense; period costs rose less than 3% despite 24% revenue growth.

• Q2 ME&T operating cash flow was $2.1B; quarter-end cash and short-term investments were $8.654B.

Outlook and guidance

• FY 2018 profit-per-share guidance rose to $10.50–$11.50 from $9.75–$10.75; adjusted guidance, excluding ~$400M of restructuring costs, rose to $11.00–$12.00 from $10.25–$11.25.

• Tariffs are expected to add $100M–$200M to H2 material costs; mid-year price increases and cost discipline are expected to largely offset the impact.

• Supply-chain challenges are expected to continue pressuring freight costs; targeted investment spending is expected to raise period costs during the rest of 2018.

• Strong order rates and backlog supported orders for certain oil and gas and mining applications into 2019; H2 operating margins were expected to be broadly similar to H1 levels.

• H2 share repurchases were expected to be similar to H1, subject to market conditions and investment priorities.