Caterpillar (CAT) Q4 2017 earnings summary

Executive summary

• 2017 marked a broad recovery, with higher sales across regions and primary segments and improved operating profit.

• Strategy focused on operational excellence, profitable growth, expanded offerings and services, with resources directed toward higher-return opportunities.

Financial highlights

• Q4 sales and revenues rose 35% YoY to $12.896B; FY sales and revenues increased 18% to $45.462B from $38.5B.

• Q4 operating profit was $1.161B versus a $1.262B loss in Q4 2016; FY operating profit was $4.406B versus $498M.

• Q4 GAAP loss per share was $2.18, including a $2.371B U.S. tax-reform charge; adjusted EPS was $2.16 versus $0.83.

• FY GAAP EPS was $1.26 versus a $0.11 loss; adjusted EPS was $6.88 versus $3.42.

• Q4 volume was the largest profit driver; favorable price realization was $213M and variable manufacturing costs were favorable by $170M.

Outlook and guidance

• 2018 EPS guidance: $7.75–$8.75 reported and $8.25–$9.25 adjusted; outlook includes ~$400M of restructuring costs, versus $1.256B in 2017.

• Sales volume growth across the three primary segments is the largest expected profit driver; sales and operating margins are expected to improve across those segments.

• Assumptions include slightly favorable pricing mostly offset by higher material costs, a 24% tax rate including U.S. tax reform, and ~$900M of short-term incentive compensation expense.

• Period costs excluding incentive compensation are expected to rise with wage inflation and growth investments; Financial Products profit is expected to decline without the 2017 securities-sale gains.

• Outlook assumes no share repurchases and ME&T capital expenditures of $1.0B–$1.5B.