Cat Financial revenue surges despite declining new business volume

cat financiala financial subsidiary of an equipment manufacturer caterpillarincreased revenue despite lower new transaction volumes thanks to favorable interest rates.

Cat Financial posted $11.4 billion in originations for the full year, down 13.3% from 2021, according to an earnings supplement released on Tuesday. Fourth quarter originations were $2.8 billion, down 19.5% year over year.

Caterpillar’s chief financial officer, Andrew Bonfield, said on the earnings call.

“As we noted last quarter, Cat Financial has not seen a slowdown in business activity, but continues to face intense competition from banks. higher interest rates More and more customers are willing to pay cash for the machines,” says Bonfield.

Cat Financial’s full-year balances reached $32 billion, down 1.3% from 2021.

Caterpillar Financial Products, including Cat Financial and Caterpillar Financial Products Caterpillar Financial Insurance Servicesposted fourth-quarter revenue of $853 million, an increase of 9.9% year-over-year, according to an earnings supplement.

Cat Financial’s fourth quarter revenue was $724 million, up 12.6% year-over-year. Revenues for Caterpillar Financial Insurance Services, a provider of extended equipment warranties and equipment and business insurance, were down 3 percent year-over-year to $129 million, according to an Equipment Finance Connect analysis of the earnings supplement.

Bonfield acknowledges “higher average loan rates across all regions” for increased financial and insurance income.

Cat Financial Credit Performance

Cat Financial’s delinquent accounts were 1.89% in 2022, down 6 basis points (bps) year-over-year. “This was his 11-basis-point reduction in past dues compared to the third quarter of 2022,” Bonfield said in the earnings call.

EFC’s analysis shows charge-offs net of recoveries reached $46 million in the fourth quarter, representing 0.14% of the total portfolio. EFC’s analysis showed charge-offs were down 49 bps year-on-year.

Cat Financial’s fourth quarter loan loss reserves were $346 million, or 1.29% of finance receivables, up 7 bps from December 31, 2021.

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

Rapid increase in construction and resource sales

Across all lines of business, Caterpillar increased North American sales to $7.9 billion in the fourth quarter, an increase of 35.5% year-over-year. “Sales were more than I expected, supply chain constraints Some areas have eased, allowing us to ship more product,” Bonfield said.

“As supply chain conditions improve, we expect to slim down again and reduce our internal inventories,” said James Umpleby III, Caterpillar Chief Executive Officer.

Caterpillar Construction, for example, reported fourth-quarter North American sales of $3.5 billion, up 34.2% year-over-year. According to Bonfield, construction sales were “primarily driven by strong pricing, positive changes in dealer inventory and increased sales to users.

“The construction industry has had an unusually strong fourth quarter, with shipments exceeding our expectations,” he added.

Caterpillar Resources, meanwhile, reported sales in North America of $1.4 billion, up 59.2% year-over-year. Bonfield acknowledged pricing and increased sales for increased revenue.

“Resource Industries had a strong fourth quarter with its best quarterly shipments since 2012. We expect sales to decline in the first quarter due to shipment timing.

Shipping and supply chain were issues for several parts of Caterpillar’s business in the fourth quarter, but areas such as large engines struggled more than construction equipment.

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

Caterpillar stock [Nasdaq: CAT] It closed at $249.54, down $2.75 or 1.09% from its opening price. Caterpillar has a market capitalization of $128.45 billion.