Cat Financial Q2 Earnings Hurt by Provision Charges; NBV Up 32%

Cat Financial reported Q2/18 revenues of $723 million, an increase of $47 million, or 7%, compared with Q2/17. Q2/18 profit was $71 million, a $43 million, or 38%, decrease from Q2/17.

The increase in revenues was due to a $35 million favorable impact from higher average financing rates and a $26 million favorable impact from higher average earning assets, partially offset by a $14 million unfavorable impact from lower lending activity with Caterpillar.

Profit before income taxes was $100 million for Q2/18 compared with $164 million for Q2/17. The decrease was primarily due to an $86 million increase in provision for credit losses, partially offset by a $12 million increase in net yield on average earning assets and a $12 million favorable impact from higher average earning assets.

The provision for income taxes reflects an estimated annual tax rate of 24% in Q2/18, compared with 30% in Q2/17. The decrease in the estimated annual tax rate is primarily due to the reduction in the U.S. corporate tax rate beginning January 1, 2018, along with changes in the geographic mix of profits.

During Q2/18 retail new business volume was $3.56 billion, an increase of $863 million, or 32%, from Q2/17. The increase was primarily driven by higher volume in Asia/Pacific, North America and Europe, partially offset by a decrease in Caterpillar Power Finance.

At the end of Q2/18, past dues were 3.16%, compared with 2.71% at the end of Q2/17. Write-offs, net of recoveries, were $80 million for Q2/18, compared with $26 million for Q2/17. The increase in write-offs, net of recoveries, was primarily driven by a small number of customers in the Caterpillar Power Finance portfolio and recent collection experience in the Latin America portfolio.

As of June 30, 2018, the allowance for credit losses totaled $416 million, or 1.48% of finance receivables, compared with $403 million, or 1.45% of finance receivables, at March 31, 2018. The allowance for credit losses at year-end 2017 was $365 million, or 1.33% of finance receivables.

“Despite continued weakness in the Cat Power Finance and Latin America portfolios, we are pleased with the performance of our core asset portfolio and the growth of our business,” Dave Walton, president of Cat Financial and vice president with responsibility for the Financial Products Division of Caterpillar, said. “The global Cat Financial team remains focused on executing our strategy to help Caterpillar customers and dealers succeed through financial services solutions.”

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