Caterpillar, Inc. :CAT-US: Earnings Analysis: Q4, 2016 By the Numbers : March 16, 2017

Caterpillar, Inc. reports financial results for the quarter ended December 31, 2016.

We analyze the earnings along side the following peers of Caterpillar, Inc. – Deere & Company, Cummins Inc., Joy Global Inc., CNH Industrial NV, Komatsu Ltd. Sponsored ADR, Astec Industries, Inc. and General Electric Company (DE-US, CMI-US, JOY-US, CNHI-US, KMTUY-US, ASTE-US and GE-US) that have also reported for this period.


  • Summary numbers: Revenues of USD 9574 million, Net Earnings of USD -1171 million.
  • Gross margins narrowed from 24.48% to 19.68% compared to the same period last year, operating (EBITDA) margins now 1.17% from 5.98%.
  • Year-on-year change in operating cash flow of -9.17% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Narrowing of operating margins contributed to decline in earnings.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2016-12-31 2016-09-30 2016-06-30 2016-03-31 2015-12-31
Relevant Numbers (Quarterly)
Revenues (mil) 9574 9160 10342 9461 11030
Revenue Growth (%YOY) -13.2 -16.44 -16.03 -25.52 -22.56
Earnings (mil) -1171 283 550 271 -87
Earnings Growth (%YOY) -1245.98 -23.1 -22.54 -75.61 -111.49
Net Margin (%) -12.23 3.09 5.32 2.86 -0.79
EPS -2 0.48 0.93 0.46 -0.15
Return on Equity (%) -32.38 7.3 14.17 7.08 -2.26
Return on Assets (%) -6.2 1.46 2.81 1.38 -0.44

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Market Share Versus Profits

Revenues History
Earnings History

CAT-US‘s change in revenue this period compared to the same period last year of -13.20% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that CAT-US is holding onto its market share. Also, for comparison purposes, revenues changed by 4.52% and earnings by -513.78% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 24.48% to 19.68%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 5.98% to 1.17% in this time frame. For comparison, gross margins were 27.77% and EBITDA margins were 17.10% in the previous period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

CAT-US‘s decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days have fallen to 59.61 days from 72.45 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

CAT-US‘s change in operating cash flow of -9.17% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings


The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from -1.03% to -6.97% and (2) one-time items that contributed to a decrease in pretax margins from -1.90% to -14.08%

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

Caterpillar, Inc. is engaged in the manufacturing of construction & mining equipment, diesel & natural gas engines, industrial gas turbines and diesel-electric locomotives. It provides technology for construction, transportation, mining, forestry, energy, logistics, electronics, financing and electric power generation. The company operates through the following segments: Construction Industries, Resource Industries, Energy & Transportation and Financial Products. The Construction Industries segment supports customers using machinery in infrastructure and building construction applications. The Resource Industries segment responsible for supporting customers using machinery in mining and quarrying applications and it includes business strategy, product design, product management and development, manufacturing, marketing and sales and product support. The Energy & Transportation segment supports customers in oil and gas, power generation, marine, rail and industrial applications. The Financial Products segment line business provides a wide range of financing alternatives to customers and dealers for Caterpillar machinery and engines, solar gas turbines as well as other equipment and marine vessels. Caterpillar was founded on April 15, 1925 and is headquartered in Peoria, IL.

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