Cat Financial Reports Q2 Decreases in Financial Metrics Partially Due to COVID-19
JUL 31, 2020 - 7:10 am
Cat Financial reported Q2/20 revenues of $641 million, a decrease of $116 million, or 15%, compared with Q2/19. Q2/20 profit was $59 million, a $20 million, or 25%, decrease from Q2/19.
According to Cat Financial, the decrease in revenues was primarily due to a $60 million unfavorable impact from lower average financing rates and a $48 million unfavorable impact from lower average earning assets.
Q2/20 profit before income taxes was $89 million, a $52 million, or 37%, decrease from Q2/19. According to Cat Financial, the decrease was primarily due to a $25 million decrease in net yield on average earning assets, a $23 million unfavorable impact from lower average earning assets and a $15 million increase in provision for credit losses. These unfavorable impacts were partially offset by a $22 million decrease in general, operating and administrative expenses primarily due to lower short-term incentive compensation and employee benefit expenses.
The provision for income taxes reflected an estimated annual tax rate of 27% in Q2/20 compared with 29% in Q2/19, excluding a discrete item in Q2/19 of $13 million for a valuation allowance against the deferred tax assets of a non-U.S. subsidiary. The decrease in the estimated annual tax rate was primarily due to changes in the geographic mix of profits, according to Cat Financial.
During Q2/20, retail new business volume was $2.74 billion, a decrease of $607 million, or 18%, from Q2/19. The decrease was driven by lower volume across all segments with the exception of a slight increase in Asia/Pacific.
At the end of Q2/20, past dues were 3.74%, compared with 3.38% at the end of Q2/19. Past dues increased primarily due to the impact of the COVID-19 pandemic. Write-offs, net of recoveries, were $30 million for Q2/20, compared with $74 million for Q2/19. As of June 30, 2020, the allowance for credit losses totaled $515 million, or 1.92% of finance receivables, compared with $457 million, or 1.69% of finance receivables, at March 31, 2020. The increase in allowance for credit losses was driven in part by expectations of a lingering impact from COVID-19. The allowance for credit losses at year-end 2019 was $424 million, or 1.50% of finance receivables.
Cat Financial ended the second quarter with $630 million of cash and available global credit facilities of $7.75 billion. In July, Cat Financial issued $1.5 billion of new three-year and 18-month medium-term notes to supplement its liquidity position. In addition, Cat Financial benefits from $8 billion of supplemental liquidity facilities that were arranged by Cat Financial and Caterpillar in April.
Cat Financial’s operations have been classified by many government entities as an essential activity for support of financial services.
“Our business performed well during the quarter while managing the continued challenges from the COVID-19 global pandemic,” Dave Walton, president of Cat Financial and vice president with responsibility for the financial products division of Caterpillar, said. “Our team remains focused on executing the strategy to help Caterpillar customers and dealers succeed through financial services solutions while maintaining our strong financial position and liquidity.”
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