Unnamed: 0 int64 | symbol string | quarter int64 | year int64 | date string | company_name string | company_id float64 | text string |
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1,300 | C | 1 | 2,025 | 2025-04-15 11:00:00 | Citigroup Inc. | 391,687 | Betsy Graseck: Thanks so much.
Operator: Our next question comes from the line of Erika Najarian with UBS. Your line is now open. Please go ahead.
Erika Najarian: Hi. Good afternoon. Just a follow-up question here. On the buyback pacing. Your message has been pretty clear about the first half versus the second half. That said, with the stock at $65 versus tangible book at $90, I guess, are you just so scared of from the volatility of the SCB result that that just must be a hurdle before you can accelerate the buyback? And, Mark, perhaps you know, if you could sort of dispel some of the notion that sometimes happened in some of these, you know, chats with buy-siders about, you know, your inability to dividend from the bank sub to the holding company in order to increase your buybacks over the near term. If you could address that too, that would be great. |
1,301 | C | 1 | 2,025 | 2025-04-15 11:00:00 | Citigroup Inc. | 391,687 | Mark Mason: Yeah. Sure. So look, we have accelerated the pace of buybacks. And, you know, I think this quarter's a good example where I'd guided, you know, $4 billion five hundred, and we kicked it up to $1.75 billion. And I think you should expect that, you know, as we see opportunities to continue to do that, that we're going to do it. And you should expect that, you know, given where we are trading relative to book value, that you know, we're constantly, you know, focused on those opportunities to take it up more, you know, than we had planned. Or more than expected. Look, I think we are, you know, we have seen a lot of volatility in the SCB. And we're not the only ones other players in the industry have as well. I think we're encouraged by the dialogue that we're hearing, but there is still some risk to the SCB, you know, coming in different this year versus last year. And I think, you know, I don't think we should lose we're not losing sight of that. So we'll get more clarity when the SCB comes. I think that'll be important. We obviously are generating good earnings quarter after quarter, which obviously creates the capacity for us to do more here, and I think we've evidenced a willingness to do that. I think in terms of your other question with regard to your question implying whether there are any restrictions, we don't have any restrictions on a buyback. Like, we would not have announced a $20 billion buyback program if we didn't think we could execute the program in a reasonable amount of time. And so, you know, obviously, we disclose what we dividend out from the bank, and you can look at that over the last three years. You know, we've dividend ranged somewhere in the range of zero to $5 billion in any given quarter. But, again, there are no restrictions imposed by the FRB, which governs the parent, on the ability to pay dividends and buyback stock. In addition to that, we have multiple sources of funding, including loans to subsidiaries, which could be remitted as well as debt issuance programs as |
1,302 | C | 1 | 2,025 | 2025-04-15 11:00:00 | Citigroup Inc. | 391,687 | have multiple sources of funding, including loans to subsidiaries, which could be remitted as well as debt issuance programs as well as the earnings that are generated that put we are well-positioned, you know, to do to execute on the program that we've described. And to continue our desired pace of buybacks. |
1,303 | C | 1 | 2,025 | 2025-04-15 11:00:00 | Citigroup Inc. | 391,687 | Erika Najarian: Got it. And just my second question, Mark, did you know, you mentioned the four cuts that's now embedded in your NII outlook. I'm guessing that's for the US. How should we think about how you're thinking of global rates? You know, obviously, it's a basket of countries and currencies that we have to think about. And, you know, if your top exposures are exposed to lower rates, how should we think about deposit spreads in services from here?
Mark Mason: I think I'd say I guess the easiest way to answer the question, you know, the IRE analysis that we show on a quarterly basis and, you know, there are a lot of that's obviously a risk measure. You know, there are a lot of limitations associated with, you know, with taking it too deeply, taking it too literally. But as you know, it is a, you know, a view on how lower rates could impact Citi over a twelve-month period. It assumes a static balance sheet, no growth, no change in composition or mix, or no or changes in our hedging action, and it is an instantaneous, you know, shock to the entire curve. With that said, we do break out the impact for US dollar versus non-US dollar. Remember, as you just referenced, you know, there are over sixty currencies, but that asset sensitivity would suggest that with a in the fourth quarter, with a hundred basis point move, across the currencies that the non-US dollar impact would be a billion dollars over a twelve-month period. And so that, you know, take that with a grain of salt, but that gives you some sense as to the sensitivity to rates that would assume all of those currencies and rates in those countries moved at the same time across the curve. And we did nothing to actively manage or dynamically manage the balance sheet.
Erika Najarian: Got it. Thanks.
Operator: Our next question comes from the line of Vivek Juneja with JPMorgan. Your line is now open. Please go ahead. |
1,304 | C | 1 | 2,025 | 2025-04-15 11:00:00 | Citigroup Inc. | 391,687 | Operator: Our next question comes from the line of Vivek Juneja with JPMorgan. Your line is now open. Please go ahead.
Vivek Juneja: Thanks for taking my questions. A couple of them as follow-ups to questions that have been asked. First one for you, Mark. The dividend doing buybacks, so the dividend being from the bank to the holding company that we've just asked. How much are you willing to let your double leverage go up? Is there any sort of internal limits that you follow? What would be the implications of that from a funding cost standpoint?
Mark Mason: Yeah. Look, we have internal limits. We have management action triggers internally. We're not anywhere close to those limits or triggers. You know, it's not something that I'm worried about as it relates to, you know, the buyback program that I have and or, you know, the buyback that we forecasted, you know, over the balance of the year.
Vivek Juneja: Jane, you know, hearing about all the turmoil and reading some news stories about mandates being shifted from US broker-dealers to local players. Jane, are you concerned about that? Is that a shift that's starting outside the US? And for big players like yourselves and others, who are widespread globally, does this start to create stronger competitors or move some business away over time? |
1,305 | C | 1 | 2,025 | 2025-04-15 11:00:00 | Citigroup Inc. | 391,687 | Jane Fraser: No. It doesn't. We haven't seen any shifts of business away from us. And just remember the nature of our business. These are many of these markets around the world we've been in for over a century. We were the first bank in. Sometimes we're the only international bank. And we truly have a unique footprint that we are everywhere, and we're able to connect everything, everywhere. And there aren't other banks that have this. They don't have the scale. They don't have the depth of local capabilities. They don't have the risk management skills. They don't have all of these different elements that the clients need now. And they need in this type of environment where things are shifting around, it's very easy to move your supply chains around on our platform. To shift the mix of different businesses you're doing in different geographies. And as I said, a lot of the work we do is very local, and we're at the cutting edge and leading edge in services both in TTS, custody in particular. Our corporate bank has got very strong, deep relationships. We've got balance sheet strength. So you tend to see flights to quality in these environments. And when you're in the emerging markets, there's only one word for quality, and that's Citi.
Vivek Juneja: Okay.
Operator: Our next question comes from the line of Gerard Cassidy with RBC. Your line is now open. Please go ahead.
Gerard Cassidy: Hi, Jane. Hi, Mark. Mark, you touched on in your opening comments about the seasonal increase in trading-related assets. And the number the growth was very strong. Was there any types of strategies that you guys employed? Because when you go back in other seasonal periods, you know, first quarter of prior years, we've not seen this kind of growth. So what led to this kind of success of growing your trading assets so well this quarter? |
1,306 | C | 1 | 2,025 | 2025-04-15 11:00:00 | Citigroup Inc. | 391,687 | Mark Mason: Yeah. Again, it's the growth you've seen across the platform in both, you know, fixed income as well as equities. And so, you know, that equities growth obviously of 23%, strong performance in derivatives and prime and prime balance growth, you know, tied to that, particularly with, you know, hedge funds and asset managers as they, you know, looked at, you know, regional reallocation, strong contribution there. And then, you know, rates in current. And then we saw a lot of good spread product momentum driven by, you know, higher client activity and loan growth. And so, you know, the nature of the activity, the structure of the product, and what have you were all contributing factors there. Really strong performance across the business. And obviously shows up in, you know, both the assets and the trading assets and the trading liabilities in the funding mechanisms associated with that.
Gerard Cassidy: Very good. And then as a quick follow-up, you guys give us good details about the allocation of equity. I think it was Slide twenty-three. I was curious, I noticed that you lowered some of the total equity doesn't change, of course. But you did lower the allocation of the equity for different lines, like wealth and banking. What was the thinking behind lowering it in the first quarter relative to 2024? |
1,307 | C | 1 | 2,025 | 2025-04-15 11:00:00 | Citigroup Inc. | 391,687 | Mark Mason: Yeah. So as you probably know, Gerard, we kind of look at this on an annual basis. It's a process that we run, and we run it at the end of the year with an eye towards how we want to make adjustments in the year that's following. As we looked at the performance of the business, overall, our five businesses have improved their PPNR. And their profitability. And therefore improving their resiliency in stress scenarios. And reducing their stress losses. And so as we thought about that underlying strength that we saw as well as our forecast for what demand would be through 2025, those were important factors in that allocation or that attribution to the businesses for TCE. So in a way, they're getting the benefit of that improved resiliency even before it shows up in our stress capital buffer. Alright? And so each of the businesses we talked about markets as a great example. We've been talking about optimizing use of capital, revenue to RWA, and the improvement, all that year, we talked about that. And you see that showed up in their performance but also showed up therefore, in the amount of TCE allocation that they have this year. So, hopefully, that helps. Obviously, regulatory capital hasn't changed in the aggregate, that's comprised of the RWA, GSIB, and stress capital buffers. But over time, we'd expect as we've talked about our strategy, we'd expect the exits to obviously continue to come off the balance sheet. And we'd expect our strategy and the resiliency of our PPNR and the steadiness of those earnings to ultimately show up in our stress capital book.
Gerard Cassidy: Great. Appreciate the color as always. Thank you.
Mark Mason: Yep.
Operator: Our next question comes from the line of Matt O'Connor with Deutsche Bank. Your line is now open. Please go ahead. |
1,308 | C | 1 | 2,025 | 2025-04-15 11:00:00 | Citigroup Inc. | 391,687 | Operator: Our next question comes from the line of Matt O'Connor with Deutsche Bank. Your line is now open. Please go ahead.
Matt O'Connor: Hi. Just a follow-up on the expenses, came in a bit lower than expected one q even ex the accounting change. What's your thought process for the rest of the year? Because what I'm getting at is often one q is the high watermark. So if you trickle down a little bit from here, you know, that would imply cost coming in a bit below what you're at what you're expecting. You just talk about the trajectory for here? Thanks.
Mark Mason: Sure. So, again, I gave I kind of stuck to the guidance that we'd given in January. So expenses, $53.4 billion for the full year. We did come in, you know, at $13.4 billion in the quarter. I kind of went through the puts and takes around that. I'd expect probably a bit of a tick up in q2 when I think about the things in front of us and some of the continued investment that we plan to make in transformation and some of the other, you know, things underneath that, like data and right reporting. And then I'd expect it to trend down so that we get to the target of the $53.4 billion that I referenced for the full year. And so likely see a tick up and then a trend down and landing the full year at the guidance here. Obviously, if, you know, revenue moves sorry. Go ahead.
Matt O'Connor: No. No. Please ask.
Mark Mason: I'll say, obviously, if revenue moves in either direction, we'll adjust accordingly. We have upside to revenue. You'd expect to see some of that variable in transaction cost move in that direction as well. And if we see pressure on revenues, we'll be focused on ensuring that we are, you know, bringing our expenses down as well.
Matt O'Connor: Okay. And then just any way to frame how much cost will go up from one q to two q based on what you're thinking now?
Mark Mason: Nope. No. I'm not giving second-quarter guidance beyond what I've factored into the full year at this stage.
Matt O'Connor: Okay. Fair enough.
Operator: Alright. Thank you. |
1,309 | C | 1 | 2,025 | 2025-04-15 11:00:00 | Citigroup Inc. | 391,687 | Matt O'Connor: Okay. Fair enough.
Operator: Alright. Thank you.
Mark Mason: Thank you.
Operator: Our next question comes from the line of Saul Martinez with HSBC. Your line is now open. Please go ahead.
Saul Martinez: Hi. Thanks for taking my questions. Just following up on the expenses, your 2026 target of a 10% to 11% ROCE, I think you're targeting expenses being below $53 billion. Should we I assume with the accounting change that should recalibrate to being below call it $53.5 billion is that or $52.5 billion. Sorry. Is that, you know, a fair assumption or conclusion from that?
Mark Mason: Sure. $52.6 billion. So that's the last $52 billion down. Yeah. Yeah. I bet. But yes. I mean, I mean, it's, you know, the it's a change in line item in terms of that association fee, and sure, I targeted 2026 as less than $53 billion. And with that $400 million, sure, you can deduct that from the $53 billion.
Saul Martinez: Got it. Just wanted to clarify that. And then I guess secondly, on wealth management, the net new assets are, you know, pretty impressive. Then an h rent, $16.5 billion, I think, you know, it's something like 11% of beginning period of client assets over the last couple of quarters. So it seems like Andy is, you know, really delivering there. Just anything in, you know, strength across the different products. But anything you want to highlight there as to what's driving that and any comments just on the durability of that kind of momentum? |
1,310 | C | 1 | 2,025 | 2025-04-15 11:00:00 | Citigroup Inc. | 391,687 | Jane Fraser: The strategy that Andy's laid out and talked about is working. We've got the franchise very focused around that new investment asset. Bringing those in from the $5 trillion of assets that are off us with existing clients as well as new wealth that is being created and new clients that we're bringing to the franchise. And so we are I am I'm very pleased as well with the caliber of the team. That he has brought to bear here. We've got real horsepower and firepower in our investment capabilities. And he's also investing to improve client experience a new relationship with Palantir here as well. And it's a team that's on the front foot. And in this environment, around the world, clients are really looking to ask for advice because there are not many global wealth managers. They're looking to ask for a global perspective, capabilities we've got on the ground, all around the globe. And helping put them into a good position amid the uncertainty. So we are a destination of choice right now, and we're taking full advantage of it. I don't see that changing. This is the strength of Citi's strategy is working.
Saul Martinez: Okay. Great. That's good to hear. Thank you.
Operator: There are no further questions. I'll now turn the call over to Jennifer Landis for closing remarks.
Jennifer Landis: Thank you all for joining us. We appreciate all the questions. Have a great afternoon.
Operator: This concludes the Citi first quarter 2025 earnings call. You may now disconnect. |
1,311 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | Operator: Welcome to the fourth quarter 2024 Caterpillar earnings conference call. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Alex Kapper. Thank you, and please go ahead. |
1,312 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | Alex Kapper: Thank you Audra. Good morning everyone and welcome to Caterpillar’s fourth quarter 2024 earnings call. I’m Alex Kapper, Vice President-elect of Investor Relations. Joining me today are Jim Umpleby, Chairman and CEO; Andrew Bonfield, Chief Financial Officer; Kyle Epley, Senior Vice President of Global Finance Services Division; Ryan Fiedler, Vice President of IR; and Robert Rengel, Senior Director of IR. During our call, we’ll be discussing the fourth quarter earnings release we issued earlier today. You can find our slides, the news release and a webcast recap at investors.caterpillar.com under Events and Presentations. The content of this call is protected by U.S. and international copyright law. Any rebroadcast, retransmission, reproduction or distribution of all or part of this content without Caterpillar’s prior written permission is prohibited. Moving to Slide 2, during our call today, we’ll make forward-looking statements which are subject to risks and uncertainties. We’ll also make assumptions that could cause our actual results to be different than the information we’re sharing with you on this call. Please refer to our recent SEC filings and the forward-looking statements reminder in the news release for details on factors that individually or in aggregate could cause our actual results to vary materially from our forecast. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis is contained in our SEC filings. On today’s call, we’ll also refer to non-GAAP numbers. For a reconciliation of any non-GAAP numbers to the appropriate U.S. GAAP numbers, please see the appendix of the earnings call slides. Now let’s advance to Slide 3 and turn the call over to our Chairman and CEO, Jim Umpleby. |
1,313 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | Jim Umpleby: Thanks Alex. Good morning everyone. Thank you for joining us. As we close out 2024, I want to thank our global team for their strong execution in delivering another good year. Our results continued to reflect the benefit of the diversity of our end markets and the disciplined execution of our strategy for long term profitable growth. For the year, we delivered record adjusted profit per share and higher adjusted operating profit margin that exceeded the top of our target range. Although our top line decreased in the year, services revenue grew to a record level. We also generated ME&T free cash flow near the top of the target range. Our robust ME&T free cash flow along with our strong balance sheet allowed us to deploy over $10 million to shareholders through share repurchases and dividends during the year. I’ll begin with my perspectives about our performance in the quarter and for the full year. I’ll then provide some insights about our end markets followed by an update on our sustainability journey. For the fourth quarter, sales and revenues were down 5% versus last year, primarily due to lower sales volume. This was slightly below our expectations mainly due to services growing at a slightly slower rate than we expected and some delivery delays in energy and transportation. Services revenues did increase in the quarter compared to 2023. Stronger than expected machine sales to users drove a higher than anticipated dealer inventory reduction which offset each other, resulting in a minimal impact to sales. Fourth quarter adjusted operating profit margin was below our expectations at 18.3%, primarily due to lower volume and an unfavorable mix of products. We achieved quarterly adjusted profit per share of $5.14 and generated $3 billion of ME&T free cash flow. Since last quarter end, our backlog increased by $1.3 billion to $30 billion. For the full year, total sales and revenues were $64.8 billion, a decrease of 3% compared to 2023. Services revenues increased 4% to $24 billion. Adjusted operating |
1,314 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | were $64.8 billion, a decrease of 3% compared to 2023. Services revenues increased 4% to $24 billion. Adjusted operating profit margin of 20.7% exceeded the top end of the target range, as we expected, and represents a slight improvement from 2023. We achieved record adjusted profit per share in 2024 of $21.90, a 3% increase over 2023. In addition, we generated $9.4 billion of ME&T free cash flow, which was near the top of our target range, as we expected. Since 2019, we have generated approximately $40 billion of ME&T free cash flow, including $10.3 billion in 2024. Our strong and consistent ME&T free cash flow has allowed us to reduce the average number of shares outstanding by approximately 18% since the beginning of 2019. Turning to Slide 4, as I mentioned earlier, sales and revenues declined 5% in the fourth quarter to $16.2 billion. Compared to the fourth quarter of 2023, machine sales to users, which includes construction industries and resource industries, declined by 3% but was better than our expectations. Energy and transportation continued to grow as sales to users increased 2%. Sales to users in construction industries were down 3% year-over-year. In North America, sales to users were slightly lower, but better than we expected. Sales to users grew in residential construction, while non-residential was down slightly. Rental fleet loading was down but in line with expectations, as we described during our last earnings call. Dealers’ rental revenue continued to grow in the quarter. Sales to users declined in EAME and Asia Pacific in line with our expectations. Sales to users in Latin America continued to grow but at a lower rate than we expected. In resource industries, sales to users declined 3%, which was better than we expected. Mining was better than expected due to large mining and off-highway trucks being placed into service earlier than we anticipated. Heavy construction and coring aggregates were in line with expectations. In energy and transportation, sales to users increased by 2%. Power |
1,315 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | and coring aggregates were in line with expectations. In energy and transportation, sales to users increased by 2%. Power generation sales to users grew 27% as conditions remained favorable for both reciprocating engines and turbines and turbine-related services. Sales to users for reciprocating engines used in oil and gas applications declined primarily due to a challenging comparative to the fourth quarter of 2023. For solar turbines and turbine-related services, fourth quarter sales were down in oil and gas compared to strong shipments in the fourth quarter of 2023. Most of solar’s fourth quarter decline in oil and gas was offset by growth in power generation. Transportation sales to users increased, while industrial declined. Moving to dealer inventory and backlog, in total dealer inventory decreased by $1.3 billion versus the third quarter of 2024. For machines, dealer inventory decreased by $1.6 billion. The decrease was more than we had anticipated due to better than expected sales to users, particularly for construction industries in North America and resource industries. As I mentioned, backlog increased versus the third quarter to $30 billion, led by energy and transportation. This is a $2.5 billion increase versus 2023 year-end. Our backlog remains elevated as a percentage of revenues compared to historical levels. We continue to see strong order activity for both reciprocating engines and power generation and turbines and turbine-related services in both oil and gas and power generation. Turning to Slide 5, I’ll now provide full year highlights. In 2024, we generated sales and revenues of $64.8 billion, down 3% versus last year. This was due to lower sales volume partially offset by favorable price realization. Our adjusted operating profit margin was 20.7%, a 20 basis point increase over 2023 despite lower sales and revenues. Adjusted profit per share in 2024 was $21.90. As I mentioned, services revenue increased to $24 billion in 2024, a 4% increase over 2023. Services continued to grow as we focus |
1,316 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | I mentioned, services revenue increased to $24 billion in 2024, a 4% increase over 2023. Services continued to grow as we focus on making our customers successful. Working with our dealers, we are leveraging over 1.5 million connected reporting assets and digital tools. Our Cat digital tools allow customers to more efficiently improve uptime, manage their fleets, and transact on our ecommerce platforms. For example, this year we launched an internal generative AI solution designed to optimize the creation of intelligent leads, which we call Prioritize Service Events, or PSEs. This tool significantly reduces the time and effort required for service recommendations, helping customers avoid unplanned downtime by clearly identifying the recommended repair options and timing for customers. In 2024, we delivered more than two-thirds of new equipment with a customer value agreement, which remains an important part of our services growth initiatives. We also experienced better than expected growth in our ecommerce platforms and have focused on improving our customer on-boarding to include key digital products. Also in 2024, we saw record usage of Vision Link, our equipment management application, on-boarding and activating thousands of new customers throughout the year. Services growth remains resilient despite the decline in our overall top line. We continued to execute our various services initiatives as we strive towards our aspirational target of $28 billion in services revenues. Moving to Slide 6, we generated robust ME&T free cash flow of $9.4 billion for the full year. We deployed $10.3 billion to shareholders through $7.7 billion of share repurchases and $2.6 billion of dividends paid. We remain proud of our dividend aristocrat status as we have paid higher annual dividends for 31 consecutive years. We continue to expect to return substantially all ME&T free cash flow to shareholders over time through dividends and share repurchases. Now on Slide 7, I’ll describe our expectations moving forward. Overall, we |
1,317 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | over time through dividends and share repurchases. Now on Slide 7, I’ll describe our expectations moving forward. Overall, we currently anticipate 2025 sales and revenues to be slightly lower compared to 2024. In 2025, we expect continued strength in energy and transportation to mostly offset lower sales in construction industries and resource industries. We also expect services revenues to grow in 2025, including growth across all three primary segments. We currently expect machine dealer inventory to end 2025 at similar levels to year-end 2024. Full year adjusted operating profit margin is expected to be lower than 2024, but it is anticipated to be in the top half of the target range based on the corresponding level of sales and revenues. Finally, we expect ME&T free cash flow to be in the top half of our target range of $5 billion to $10 billion. Now I’ll discuss our outlook for key end markets, starting with construction industries. In North America, we expect moderately lower sales to users in 2025 versus last year. Construction spend in North America remains healthy, primarily driven by large multi-year projects and government-related infrastructure investments supported by funding from the IIJA. Although we anticipate the combined non-residential and residential construction spend to remain similar to 2024 levels, our current planning assumptions reflect lower demand for new equipment. We also expect lower dealer rental fleet loading compared to 2024, although dealer revenue is expected to grow. Overall, we remain positive about the medium and longer term outlook in North America. In Asia Pacific outside of China, we expect soft economic conditions to continue into 2025. We anticipate China to remain at relatively low levels for the above-10 ton excavator industry. In EAME, we anticipate weak economic conditions in Europe will continue and a healthy level of construction activity in Africa and the Middle East. Construction activity in Latin America is expected to decline moderately. We also anticipate the |
1,318 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | in Africa and the Middle East. Construction activity in Latin America is expected to decline moderately. We also anticipate the ongoing benefit of our services initiatives will positively impact construction industries in 2025. Moving to resource industries, we anticipate lower sales to users in 2025 compared to last year, partially offset by higher services revenues including robust rebuild activity. Customers continue to display capital discipline, although key commodities remain above investment thresholds. Customer product utilization remains high. The number of parked trucks remains relatively low. The age of the fleet remains elevated and our autonomous solutions continue to see strong customer acceptance. We continue to believe the energy transition will support increased commodity demand over time, expanding our total addressable market and providing further opportunities for long term profitable growth. Moving to energy and transportation, demand is expected to remain strong in power generation, and we expect growth for both Cat reciprocating engines and solar turbines. Overall strength in power generation for both prime and backup power applications continues to be driven by increasing energy demand to support data center growth related to cloud computing and generative AI. Through continued focus on improving manufacturing efficiencies, along with initial stages of our investment to increase large engine output capacity, we expect growth in reciprocating engines for power generation in 2025. We also expect growth in solar turbines for power generation driven by increased customer demand. For oil and gas, after a flat year in 2024, we expect moderate growth in 2025. We expect reciprocating engines and services to be slightly down in 2025 due to continuing capital discipline by our customers, industry consolidation, and efficiency improvements in our customers’ operations. Solar turbines’ oil and gas backlog remains strong, and we see continued healthy order and inquiry activity. We expect growth for |
1,319 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | turbines’ oil and gas backlog remains strong, and we see continued healthy order and inquiry activity. We expect growth for turbines and turbine-related services in oil and gas. Demand for our products in industrial applications is expected to remain at a relatively low level, similar to 2024. In transportation, we anticipate full year growth driven by rail services. Moving to Slide 8, I’ll now provide an update on our sustainability journey. Caterpillar’s legacy of sustainable innovation spans nearly a century. Throughout that time, we have provided products and services that improve the quality of life and the environment while helping customers fulfill society’s need for infrastructure in a sustainable way. Earlier this month, Caterpillar kicked off its year-long centennial celebration at CES 2025 with the theme, The Next Hundred Years: Experience What’s Possible. We showcased our continuous investment in the core technologies of autonomy, alternative fuels, connectivity and digital, and electrification. Our ability to provide these solutions reflects investments of more than $30 billion in R&D over the past 20 years to deliver best-in-class innovation. Taking center stage at the Caterpillar CES exhibit was a Cat 972 wheel loader retrofitted to be an extended range electrified machine hybrid technical demonstrator. The demonstrator can run fully battery electric with zero exhaust emissions for several hours. It has an on-board generator and charger that enables full day uptime without requiring an investment in direct current, or DC charging infrastructure. In initial testing, the demonstrator maintains or exceeds the performance of a Cat 972 internal combustion machine while providing customers with the benefits of a hybrid system. With that, I’ll turn it over to Andrew. |
1,320 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | Andrew Bonfield: Thank you Jim, and good morning everyone. I’ll begin with a summary of the fourth quarter and then provide more detailed comments, including some on the performance of the segments. Next, I’ll discuss the balance sheet and free cash flow before concluding with comments on our high level assumptions for 2025, as well as expectations for the first quarter. Beginning on Slide 9, sales and revenues were $16.2 billion, a 5% decrease versus the prior year. As Jim mentioned, sales were slightly lower than we had anticipated, which together with unfavorable mix resulted in lower than expected margins for the quarter. Adjusted operating profit was $3 billion and our adjusted operating profit margin was 18.3%. Profit per share was $5.78 in the fourth quarter compared to $5.28 in the fourth quarter of last year. Adjusted profit per share was $5.14 in the quarter, a 2% decrease compared to $5.23 last year. Adjusted profit per share excluded a discrete tax benefit of $0.46 for a tax law change related to currency translation. Mark to market gains of $0.23 for the re-measurement of pension and other post-employment plans was also excluded, in addition to restructuring costs of $0.05 in the quarter. Other income expense was $185 million favorable versus the prior year, mostly driven by a positive currency impact related to ME&T balance sheet translation, which compared to a negative impact in the fourth quarter last year. As I have mentioned previously, we do not anticipate currency translation movements, so the positive impact on the fourth quarter of 2024 helped to offset the impact of operating profit being lower than expected. Excluding discrete items, the provision for income taxes in the fourth quarter of 2024 reflected a global annual effective tax rate of 22.2%. This was slightly lower than we had expected a quarter ago and benefited the quarter by $0.09. Finally, the year-over-year impact from the reduction in the average number of shares outstanding, primarily due to share repurchases, resulted in a |
1,321 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | impact from the reduction in the average number of shares outstanding, primarily due to share repurchases, resulted in a favorable impact on adjusted profit per share of approximately $0.24 as compared to the fourth quarter of 2023. Moving onto Slide 10, I’ll discuss the top line results for the fourth quarter. Sales and revenues decreased by 5% compared to the prior year, primarily impacted by lower sales volume. Price was unfavorable year-over-year and about in line with what we had expected. Lower volume was driven by the impact from changes in dealer inventories and a 2% year-over-year decrease in total sales to users. Total machine dealer inventory decreased by $1.6 billion in the quarter compared to $1.4 billion decrease in the prior year. The decrease in machine dealer inventory was larger than we had expected, and it’s mostly a function of higher than anticipated sales to users across both construction industries in North America and resource industries. Service revenues increased in the quarter compared to 2023. As I mentioned, the sales decrease in the quarter was slightly larger than we had anticipated. This was mostly due to services growing at a slightly slower rate than we had expected and some delivery delays in energy and transportation. Moving to operating profit on Slide 11, operating profit in the fourth quarter decreased by 7% to $2.9 billion. Adjusted operating profit decreased by 8% to $3 billion mainly due to the profit impact of lower than expected sales volume. As I mentioned, for the fourth quarter the adjusted operating profit margin was 18.3%, a 60 basis point decrease compared to the prior year. This was lower than we had anticipated mainly due to a lower than expected sales volume and the impact of unfavorable mix. On Slide 12, construction industry sales decreased by 8% in the fourth quarter to $6 billion. This was slightly below our expectations on lower than anticipated volume. Compared to the prior year, the 8% sales decrease was primarily due to unfavorable price realization |
1,322 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | than anticipated volume. Compared to the prior year, the 8% sales decrease was primarily due to unfavorable price realization and lower sales volume. The decrease in sales volume was mainly driven by lower sales of equipment to end users and dealers reducing their inventory by slightly more than they did during the fourth quarter of 2023. By region, construction industry sales in North America decreased by 14%. In Latin America, sales increased by 6%. Sales in the EAME region decreased by 1%, and Asia Pacific sales decreased by 2%. Fourth quarter profit for construction industries was $1.2 billion, a 24% decrease versus the prior year. This was primarily due to unfavorable price realization as a result of the impact of the post-sales merchandising programs that we discussed with you in October. The segment’s margin of 19.6% was a decrease of 390 basis points versus the prior year. The margin was lower than we had anticipated, primarily impacted by lower volume and unfavorable mix. Manufacturing costs were also unfavorable versus our expectations, principally due to a headwind from cost absorption as our inventory in construction industries declined. Turning to Slide 13, resource industry sales decreased by 9% in the fourth quarter to $3 billion. This was below our expectations mainly due to services growing at a slightly lower rate than we had anticipated. As we compare to the prior year, the 9% sales decrease was primarily due to lower sales volume mainly driven by the impact from changes in dealer inventories. Dealer inventory decreased more in the fourth quarter of 2024 than it did in the fourth quarter of 2023. Fourth quarter profit for resource industries decreased by 22% versus the prior year to $466 million. This was mainly due to the profit impact of lower sales volume. The segment’s margin of 15.7% was a decrease of 280 basis points versus the prior year. This was lower than we had anticipated, primarily due to lower volume. Now on Slide 14, energy and transportation sales of $7.6 billion were about |
1,323 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | we had anticipated, primarily due to lower volume. Now on Slide 14, energy and transportation sales of $7.6 billion were about flat versus the prior year. Sales were slightly below our expectations to a lower than expected services growth rate, largely in oil and gas, and the timing of deliveries of international locomotives. Compared to the prior year, sales were roughly flat as the impact of lower sales volume was mostly offset by favorable price realization. By application, power generation sales increased by 22%, transportation sales were lower by 1%, oil and gas sales decreased by 14%, and industrial sales decreased by 14%. Fourth quarter profit for energy and transportation increased by 3% versus the prior year to $1.5 billion. The increase was primarily due to favorable price realization partially offset by the profit impact of lower sales volume. The segment’s margin of 19.3% was an increase of 70 basis points versus the prior year. This was lower than we had anticipated, primarily due to lower than expected volume and an unfavorable mix of products. Moving to Slide 15, financial products revenues increased by 4% versus the prior year to about $1 billion, primarily due to higher average earning assets in North America and higher average financing rates across all regions, except North America. Segment profit decreased by 29% to $166 million. This was mainly due to an unfavorable impact from equities securities in addition to lower margin and a higher provision for credit losses. Our customers’ financial health remains strong. Past dues were 1.56% in the quarter, down 23 basis points versus the prior year and our lowest level since 2005. The allowance rate was 0.91%, remaining near historic lows. Business activity at Cat Financial remains healthy. Retail credit applications increased and our retail new business volume grew by 3% versus the prior year. This was our highest level since 2012, supported by attractive finance packages for customers choosing to buy Caterpillar equipment. We continue to see |
1,324 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | since 2012, supported by attractive finance packages for customers choosing to buy Caterpillar equipment. We continue to see proportionately more of our sales financed through Cat Financial; in addition, demand for used equipment remains healthy and inventories remain at low levels. Conversion rates were above historical averages as customers choose to buy equipment at the end of their lease term. Moving onto Slide 16, we continue to generate strong ME&T free cash flow. The $9.4 billion in 2024 was near the top end of our target range and just slightly lower than the prior year despite a larger payment for short term incentive compensation and higher capital expenditure. CapEx for the year was about $2 billion, which was in line with our expectations. Moving to capital deployment, in 2024 we returned $10.3 billion to shareholders through repurchased stock and dividends. On share repurchases, we deployed $7.7 billion as we continue to fulfill our objective to be in the market on a more consistent basis. Our balance sheet remains strong with an enterprise cash balance of $6.9 billion. In addition, we hold $2 billion in slightly longer dated liquid marketable securities to improve yields on that cash. Now on Slide 17, let me start with a high level overview of our expectations for the full year. We expect a slight decrease in sales for 2025 with an unfavorable impact from both volume and price. Due to the impact of post-sales merchandising programs, price realization should account for about a 1% decrease in sales for the full year. On margins, the impact of price together with high depreciation costs due to the investments we are making should result in adjusted operating profit margins being in the top half of the target range with the expected level of sales, rather than being above the top end of the range, as occurred in 2024. Our margin targets are progressive, so while we would expect volume to have an impact on absolute margins, our target is adjusted for lower sales. We expect a slight headwind in other |
1,325 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | volume to have an impact on absolute margins, our target is adjusted for lower sales. We expect a slight headwind in other income and expense in 2025 primarily due to lower interest income, mostly due to lower interest rates, as well as the absence of the positive currency benefit from ME&T balance sheet translation that occurred in 2024. As I mentioned, we do not anticipate translation movements in our expectations. We expect restructuring costs of approximately $150 million to $200 million in 2025. We anticipate a global annual effective tax rate of 23% for 2025, excluding discrete items. While the impact of the share buyback should be positive, we expect to have less ME&T free cash flow to deploy in 2025. This implies a less favorable impact to profit per share in 2025 as compared to 2024. By segment, lower sales in construction industries and resource industries will be partially offset by sales growth in energy and transportation. For construction industries, we expect lower sales in 2025 based on the outlook Jim described and unfavorable price realization. In resource industries, we anticipate slightly lower sales versus 2024 driven by unfavorable price realization and slightly lower volume. Higher volumes and favorable price in energy and transportation should drive sales growth, though sales remain constrained until the benefits of the investments we are making in large engines begin to flow through beyond 2025. We also anticipate another year of services growth in each of our primary segments. Currently, we do not anticipate a significant change in dealer inventory in machines by the end of 2025. Moving onto ME&T free cash flow, we expect to be in the top half of our target range of $5 billion to $10 billion. The first quarter of 2025 will be impacted by a $1.4 billion cash outflow related to the payout of last year’s incentive compensation. We anticipate CapEx of about $2.5 billion in 2025 as we continue to make disciplined investments that are right for our business, governed by a focus on growing |
1,326 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | billion in 2025 as we continue to make disciplined investments that are right for our business, governed by a focus on growing absolute OPACC [ph] dollars. This includes the multi-year capital investment to expand our large engine volume output capability that we mentioned last year. Turning to Slide 18, to assist with your modeling, I’ll provide some color on the first quarter, starting with the top line. We expect lower sales versus the prior year. For perspective, in a typical year we see our lowest sales in the first quarter of the year. In 2025, we anticipate that trend to continue to be more pronounced as sales in the first quarter should account for a lower percentage of full year sales than is typical by about 100 basis points. This decrease is mainly due to our expectations for dealer inventory movements and price, which primarily impacts machines. Energy and transportation is expected to show normal seasonality with sales growing throughout the year. Let me explain. Although dealers did reduce machine inventory significantly in the fourth quarter, they remain around the top end of the range as we enter 2025. This compares with dealer inventories in construction industries being towards the middle of the range at the beginning of 2024. As a result, we expect them to build correspondingly less inventory during the first quarter than the $1.1 billion that they built in the first quarter of 2024. As we expect dealer inventory to be about flat by year end, we should see a tailwind to sales in the fourth quarter as we don’t expect a similar machine dealer inventory change as we have seen in the last two years. We also expect unfavorable price realization for machines in the first quarter due to the impact of post-sales merchandising programs. We would expect these price impacts to be greater for machines in the first half of the year as the noticeable impact of post-sales merchandising programs started in the third quarter of 2024, making for an easier comparison in the second half. To pull together the |
1,327 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | programs started in the third quarter of 2024, making for an easier comparison in the second half. To pull together the impact by segment, we anticipate lower sales in construction industries in the first quarter, impacted by lower sales to users, the headwind from changes in dealer inventory and price, the impact of which should be similar to what we saw in the fourth quarter of 2024. In resource industries in the first quarter, we expect lower sales volume versus the prior year, impacted by lower volume and unfavorable price realization. In energy and transportation, we anticipate similar sales in the first quarter versus the prior year as continued strength in power generation is about offset by lower oil and gas and transportation sales. Price should be positive for energy and transportation. Now I’ll provide some color on first quarter margin expectations. Though enterprise margins are typically stronger in the first quarter compared to with the remaining quarters of the year, we do not expect this seasonal trend to occur in 2025. Compared to the prior year, we anticipate a lower enterprise adjusted operating profit margin in the first quarter due primarily to lower than usual volume and price. Volume is impacted by the lower build of machine dealer inventory and slightly lower sales to users for machines. Unfavorable price realization for machines is principally due to the factors I’ve discussed previously, which will be partially offset by favorable price in energy and transportation. We expect there will be improvement in first quarter margins offsetting the volume impact in the first quarter due to stronger volume in the fourth quarter than is typical. By segment, in the first quarter in construction industries, we anticipate lower margins compared to the prior year due primarily to lower volume and price. We do not expect to see the margin benefit we typically see in the first quarter of the year as compared to the fourth quarter of the prior year, which is generally in the range of 100 to 200 basis |
1,328 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | quarter of the year as compared to the fourth quarter of the prior year, which is generally in the range of 100 to 200 basis points. Again, some of this will be offset in the fourth quarter as volume is favorable and price more neutral. In resource industries, we anticipate lower margin in the first quarter compared to the prior year, mainly due to lower volume and unfavorable price realization. In energy and transportation, we expect slightly lower margin versus the prior year as favorable price realization is more than offset by higher manufacturing costs and unfavorable mix impacts. Again, as a reminder, this detail is provided to help you model the first quarter and does not impact our expectations for the full year that I set out earlier, which is a slight decrease in sales and revenues for the year and margins in the top half of the target range. Turning to Slide 19, let me summarize. Adjusted profit per share of $21.90 exceeded last year’s record by 3%. This was our third straight year with record adjusted profit per share. Adjusted operating profit margin of 20.7% exceeded the top of our target range. ME&T free cash flow of $9.4 billion was near the top of the target range of $5 billion to $10 billion. For 2025, while we expect a slight drop in sales, we expect to be in the top half of the adjusted operating profit margin range and the top half of the ME&T free cash flow target range, and we anticipate another year of services growth. We continue to execute our strategy for long term profitable growth, and with that, we’ll take your questions. |
1,329 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | Operator: Thank you. We will now begin the question and answer session. [Operator instructions] Your first question comes from the line of Steven Volkmann with Jefferies.
Steven Volkmann: Hello, good morning everybody. I guess I’ll dive in, if I could since its timely, just Jim, how are you seeing the data center business now? There’s obviously some concern about what that’s going to look like longer term. I know you’re adding some capacity. Can you just discuss any changes in your view relative to data center demand?
Jim Umpleby: Yes, we continue to see strong demand for both our reciprocating engines and our gas turbines, just in conversations with customers. It’s really all about how quickly can you increase capacity for your reciprocating engines and how quickly can you get us our large gas turbines, so we’re very encouraged by what we see happening in the marketplace. Many customers are planning orders with us over multiple years to ensure that we can meet their needs, and as a reminder, we said that with the investments we’re making in our large reciprocating engines, we are expanding capacity by about 125% over 2023 - that will happen over the next several years, and with solar, we have a new product, the Titan 350. We’re very encouraged by the acceptance in the market that we’re seeing for that product, and of course a lot of it is being driven by data centers, so again still very, very positive from our perspective.
Steven Volkmann: Thank you.
Operator: We’ll go next to Michael Feniger at Bank of America.
Andrew Bonfield: Hi Michael. |
1,330 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | Steven Volkmann: Thank you.
Operator: We’ll go next to Michael Feniger at Bank of America.
Andrew Bonfield: Hi Michael.
Michael Feniger: Morning guys. Thanks for taking my question. For dealers, to see the inventory, I think in 2023 machines built $700 million for the full year, ’24 inventory is down $700 million. I know you guys are thinking North America construction end user is down a little bit on ’25, so how do you get comfortable with where those dealer inventories are going to stay the same on the machine side, and did anything changed post election in terms of the views around inventories, because I think there were some comments that the retail sales end users was a little bit better than expected in terms of how it’s informing your view on ’25. Thanks everyone. |
1,331 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | Andrew Bonfield: Yes, so as you correctly point out, we did see a dealer inventory build for machines in 2023. Most of that, actually, was in resource industries rather than construction industries, and in fact most of the decline this year, year-over-year actually, is in resource industries rather than construction industries, so that’s part of the balance. As we know with resource industries, a lot of that is around timing of commissioning. We did see better than we expected commissioning in the fourth quarter which will have some impact on the first quarter of 2025, but that was a positive as dealers were able to deliver more machines to customers, particularly on the RI side. Overall on the CI side, based on our conversations--obviously we engage in conversations with dealers, dealers are independent businesses, they determine what level of inventory they hold, they base that on their expectations for the outlook for the markets. Obviously our expectation, based on what we’re seeing today is, as you know, that not all of our end markets are exactly in sync as we think about from a CI perspective, and based on our conversations, we don’t expect a material reduction in dealer inventory as we go through the year. Yes, we did see [indiscernible] were slightly better in North America than we expected in the fourth quarter - that is probably one of the first times we’ve actually seen that trend, and there may be some benefit from some of our post-sales merchandising programs, but we’re not calling that for 2025 yet. We still think that’s somewhere we need a lot of work still to be seen to make sure that we’re actually seeing that continue to flow through.
Operator: We’ll move next to Rob Wertheimer at Melius Research. |
1,332 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | Operator: We’ll move next to Rob Wertheimer at Melius Research.
Rob Wertheimer: Hi, good morning and thank you. My question is on you have a large and diverse oil and gas business, and I’m wondering if you could characterize, especially if you will on gas compression, kind of where you think you are in the cycle. Obviously we’ve had Europe, we’ve had Russia, we’ve had lots of different demand shifting around, and there may be other growth areas - [indiscernible], etc. I just wonder if you could give a little bit of an outlook on oil and gas. Thank you.
Jim Umpleby: Yes, certainly. We are expecting moderate growth in 2025 for oil and gas in total. For recip, we expect engine services to be slightly down for the year, really driven by gas compression and well servicing. We did see some order pick-up in recip gas compression in late 2024. On the solar turbine side, very healthy backlog, healthy order intake and inquiry activity. We do expect growth in oil and gas in the year. We are seeing, to your specific question about gas compression, solar does have a--there’s a lot of activity around gas transmission, gas compression particularly in the United States - many pipeline customers are adding compression to existing pipelines, so again that business is quite strong, and a lot of quotation activity as well.
Rob Wertheimer: Thank you.
Operator: We’ll go next to David Raso at Evercore ISI.
Andrew Bonfield: Hi David. |
1,333 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | Rob Wertheimer: Thank you.
Operator: We’ll go next to David Raso at Evercore ISI.
Andrew Bonfield: Hi David.
David Raso: Hi everybody, thanks for the time. I’m curious - obviously trying to think about margins for ’25 for the segments, and I was a little surprised by price cost being negative. The manufacturing cost had been a positive year-over-year, all of a sudden the comp gets harder, right - that’s why the fourth quarter wasn’t going to be as easy, but to see the cost up, I noticed you called out E&T, but does that imply CI and RI manufacturing costs were still a benefit year-over-year, and all the cost is in E&T? Maybe if you can just provide that kind of framework from the fourth quarter to how to think about full year ’25 price cost. |
1,334 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | Andrew Bonfield: Yes David, if you recall, actually in my comments I did call out within CI negative absorption in the fourth quarter as we did reduce CI inventory, so manufacturing costs were also negative in CI. In E&T, most of that was a function, actually, of putting more labor in the factories to get more machines out the door, or more engines out the door at the end of the year, and that obviously reflects the demand we’re seeing. Obviously, remember that we are--you know, we are still trying to build up capacity particularly on the large engine side, and that really is what’s driving that in particular. On material costs, our expectations are that material costs will decline in 2025; however, there are some offsets within manufacturing costs which go the other way. Some of that relates to volume and absorption as a result of that, which means we don’t get the cost price offset that we’ve had in previous years. Most of that is the reason and the rationale by segment for that. So yes, material costs will be favorable but manufacturing costs will be broadly in line with our expectations. Remember also, other things come in, mix and so forth as well, and finally just one thing to remember, the depreciation I called out, actually most of that is within manufacturing costs as well.
Operator: We’ll go next to Jerry Revich at Goldman Sachs.
Jerry Revich: Yes, hi. Good morning everyone.
Andrew Bonfield: Morning Jerry.
Jerry Revich: Jim, Andrew, I’m wondering if you could just talk about your solar turbine lead times, and how are you thinking about potentially adding additional roofline capacity for turbines specifically? We’re hearing optimism on the Titan 350 from the customer base, and assuming what we saw earlier this week is a blip on the radar, I’m just wondering how are you thinking about capacity for that range of product. |
1,335 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | Jim Umpleby: Yes, as I mentioned earlier, we’re seeing strong backlog and strong inquiry and order activity for solar, for both power generation and gas compression. We can increase capacity without building new factories, since you used the roofline--mentioned the roofline in your question, so certainly there are things that we can do within our facilities. One is just increasingly manufacture, and you can do things like add an additional test cell to an existing facility, maybe add an engine build pit - things like that. One of the big issues, of course, is working with suppliers to ensure that we get enough components from suppliers, and of course just given the strength in the business, there’s a lot of companies out there working with those same suppliers, so that is--that can be a bit of a limiting factor. But in terms of actual investments required to increase capacity, based on what we see coming, we don’t see a need to build a brand-new factory or anything like that.
Operator: We’ll move next to Chad Dillard at Bernstein.
Chad Dillard: Hey, good morning guys. Thanks for taking my question.
Jim Umpleby: Hi Chad.
Chad Dillard: Hey, how are you? My question is on the ’25 operating profit guide. You’re guiding to the top end of the range for a given level of revenue for the full year. You’ve been guiding that way, I think for the last year and actually have been hitting it, so I guess what would give you--what do you think would drive you to bring that guide back to the midpoint - is it price cost normalizing, and in that same vein, how are you thinking about the evolution of price cost to ’25? When does that pressure peak and comps get easier? |
1,336 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | Jim Umpleby: Maybe I’ll start and then I’ll kick it over to Andrew. Firstly, I believe what we said is we expect to be in that top half of the range for margins for 2025, and of course our key measure here for our team is to grow absolute OPACC dollars because we believe that mostly closely aligns with TS over time - of course, OPACC being operating capital after capital charge, so given the return on the capital that we invest, and so again a reminder, what we expect for 2025 is to be in the top half of the range. With that, I’ll turn it over to Andrew.
Andrew Bonfield: Yes, and so on the price realization point, this really is relating to the post sales merchandising programs that we discussed a little bit in the third quarter. I’d remind you just that, as I explained in the third quarter, that will take about a year to flow through, and that relates to the fact that obviously in a world where demand is normalizing and supply is less constrained, obviously we make--we have merchandising programs to offer customers particularly things like buying down interest rates. As we’ve said before, that’s also an attractive option for us because obviously we get some margin benefit from that within Cat Financial over the term of the financing deal. What that does mean, though, and as you saw from the Cat Financial numbers, new business volume is very high - actually, their share is up, so effectively over time we’ll recover a little bit through Cat Financial but we will have some margin pressure in the short term from those, as those programs normalize. That mostly impacts machines, mostly impacts the first quarter--first and second quarters, first half of the year. Once we get past Q3, we’ll be past that, and actually then return probably much more to the normal evolution of price cost, which obviously we always try and work to make sure we can offset the two.
Operator: We’ll move to our next question from Jamie Cook at Truist Securities. |
1,337 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | Operator: We’ll move to our next question from Jamie Cook at Truist Securities.
Jamie Cook: Hi, good morning. My question relates to E&T. I guess first, you called out delays in shipments, I think in the fourth quarter. Can you just give us color on that - you know, how big that was and when that hits in terms of 2025? Then I was also surprised just your top line growth wasn’t better in 2024, so how do we think about top line growth in 2025, any incremental capacity coming online and how that helps your top line? Just any color there on how much your, I guess, top line and E&T was constrained in 2025 because of lack of capacity. Thank you.
Jim Umpleby: I’ll answer the second part of the question first, and I’ll kick it to Andrew for the first part. As we’ve mentioned, we’re making that investment to increase our capacity in large reciprocating engines by 125% - that takes some time. I think we’ve talked about a four-year period to increase that capacity, so it does take time. We did not expect that to be complete and to have an impact on 2024, and that’s the case. We could in fact ship more if we could build more, but we’re working hard to increase that capacity.
Andrew Bonfield: Yes, and as regards the fourth quarter, most of the impact, as I indicated in my comments, was relating to services, particularly in oil and gas. We’ll need to see how that pans out as we go through the first quarter. With regards to the OE side, most of that was international locomotives, and that should hit early in the first half of 2025; and overall, just to remind you, we do expect E&T sales growth in 2025.
Operator: We’ll go next to Mig Dobre at Baird. |
1,338 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | Operator: We’ll go next to Mig Dobre at Baird.
Mig Dobre: Thank you, good morning. Andrew, just a very quick clarification on your comments for CI. At least as I heard it, as I understood it, the relative pressure that we’ll see in Q1 might be associated with this segment, so can you give us a sense for how you see this segment revenue and margin progressing sequentially, so relative to what you had in the fourth quarter? Thank you.
Andrew Bonfield: Yes, so obviously normally what you would see in CI is a first quarter benefit on sales and revenues, mainly due to dealer inventory builds. The last couple of years, that’s been around a billion dollars. We expect that to be significantly less in the first quarter of this year. Correspondingly, we’ve actually seen quite a significant dealer inventory reduction in the fourth quarter - that will be a little bit less, so this is really just a non-operating--actually as we look at underlying sales to users, they will be pretty much in line throughout the whole of the year and will be down slightly for the full year, so that is the underlying characteristics on the top line. The other overlay is really around price. Price will impact the first half. Impact from price, as you saw in the--for CI in the fourth quarter was around $300 million. That will be the impact, the estimated impact on the first quarter; and obviously as we go through the rest of the year and particularly in the second half, the comps become easier and that will actually neutralize as we get into the second half. It’s really just--overall, just really a timing issue related to dealer inventory mostly and the timing of price. When you take those two things out, effectively sales to users should actually be broadly much the same, first half to second half. There is no demand change we’re expecting as we go through the year.
Operator: Next we’ll move to Tami Zakaria at JP Morgan. |
1,339 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | Operator: Next we’ll move to Tami Zakaria at JP Morgan.
Tami Zakaria: Hi, good morning. The order growth in the fourth quarter, I’m curious, how did construction and resources orders do sequentially in the quarter versus the third quarter? It seems like E&T was strong, but would love any directional commentary on the other two segments, if you’re able to provide.
Andrew Bonfield: Yes, so Tami, overall E&T was the major driver. We did see some improvement in orders in resource industries particularly related to some large contracts that we’ve announced previously; and then in CI, it was broadly flat for the quarter year-over-year.
Operator: We’ll go next to Tim Thein at Raymond James.
Tim Thein: Thank you, good morning. Maybe Andrew, just back to the--you had mentioned within the commentary around CI, the issue of inventory absorption or the headwind from it. As you think about Cat more broadly, should we in an environment where the top line is slightly lower, should we think about that as a headwind more broadly for Cat as a whole in ’25, just given where inventory levels are for the company? Is that something we should be factoring in, in terms of that discussion around material cost, or is it less of a headwind as you think about the margin outlook? Thank you. |
1,340 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | Andrew Bonfield: Yes Tim, thanks. I think, as I tried to indicate to David, there are other factors within manufacturing costs which go the other way - absorption will be one of them, slightly going against, obviously, because our intention would be effectively to reduce volume next year, which will impact our rate of absorption and potentially inventory as well. Inventory is a little bit of a more difficult subject. Just to remind you, we are a very large complex company, we have hundreds of products that we hold inventory for, and not all those products have exactly the same lead time. Some of the longer lead time projects are where we are strongest at the moment, things like solar and also large engines, and so some of those may actually continue to build inventory, where we may see some inventory trimming with CI, for example, with slightly lower volumes and also RI as we go through the year. It’s going to be a little bit of a mixed bag, but there may be some impact on absorption and that was built into the fact that obviously we’re not going to see favorability from material costs coming through, manufacturing cost added to the depreciation I talked about a moment ago as well.
Operator: Our next question comes from Angel Castillo at Morgan Stanley.
Angel Castillo: Hi, good morning. Thanks for taking my question. Just wanted to maybe go into the competitive environment a little bit more as you think about the first quarter, continuing to see some of the flow through of the merchandise programs that you mentioned. I guess as we evolve into the second half, I get the comps getting easier. I guess maybe what gives you confidence, though, that the pricing and competitive environment doesn’t worsen, and maybe if you could overlay on that just any views on Trump policies and implications on construction activity in the U.S., and whether--you know, how you see that impacting demand overall. |
1,341 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | Andrew Bonfield: Yes, so on the merchandising programs, some of that is actually within our control. It’s not just--but obviously our focus is actually growing absolute OPACC dollars, remind you, so we don’t necessarily focus on margin per product. But obviously we’ll take that into account, and pricing takes into account the value we provide customers and a lot of other things. Obviously this is relating to--the price we’re talking about is relating to the merchandising programs, and we don’t expect those to change much from where we have them today. In fact, actually in a lower interest rate environment, actually they will become less of the total, so it may actually be the opposite if interest rates do start to fall as we go through the year, based on that buying down of interest rates.
Jim Umpleby: Yes, and just in terms of the administration, certainly if the push for deregulation and other kinds of changes from a regulatory perspective helps increase economic growth, particularly in the United States, that should be a positive again. We’ll have to see how that all plays out, but that certainly has the potential to be positive for us.
Operator: Next we’ll move to Kristen Owen at Oppenheimer.
Kristen Owen: Morning, thank you for the question. I wanted to come back to the margin target guidance coming in at the upper half of the range. You did make some adjustments to that margin target when we were at the height of the supply chain dislocation. Just given the strong performance since then, the outlook even inclusive of that negative price impact, I’m wondering how we should think about this range? Is it still valid, or should we be actually thinking about an upward shift in that range over time? Thank you. |
1,342 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | Jim Umpleby: Yes, again as we think about 2025, we’re talking about being in the top half of that range, and so certainly for this year, we’re not anticipating changing it. Again, just as a reminder, as I mentioned earlier, our driver here is really absolute OPACC dollars, because that most closely, we believe, corresponds to increased TSR over time, and so what we try to do is give investors that guide to give you a sense of where we’ll be, and we make various investments to grow our business profitably for ’25. You know, we said we’ll be in the top half of the range, and as we always do, a year from now we’ll reassess and let you know what we think for 2026.
Andrew Bonfield: Yes, and Kristen, just the other point to always remember is our margin targets are very progressive at the top end of the range. Margins have to--effectively margin is round about 40% at the top end of that target range, which is well above our average gross margin for our products across the whole, so it does require a lot of operating leverage. That is one of the reasons again why we took into account the fact that, while performance has been strong, we’re back in the range now and we still think that actually is a valid range to work with.
Operator: We’ll go next to Steven Fisher at UBS.
Steven Fisher: Thanks, good morning. I know it’s still very early to really understand exactly all the policies coming out of the administration, but wanted to ask a little bit about tariffs, if it hasn’t been asked already. Curious about how you’re thinking about contingency plans and strategies for managing tariffs on the products that you import from China into the U.S. I know generally you have a strategy of producing for local, but I think there’s maybe some products coming in from China. Just curious how you’re thinking about the contingency plans and strategies for that. Thank you. |
1,343 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | Jim Umpleby: Yes, I’ll give that a shot. Certainly it’s going to take time to see how this plays out, there’s certainly a lot of discussions going on around tariffs, and we’ll have to see what actually gets put into place in the end. We are a global manufacturer but our largest manufacturing presence is in the United States, and we are a net exporter outside of the U.S., and that positions us pretty well versus many other companies out there. Having said that, as you say, we do tend to try to produce in region for region, but yes, some products and components particularly move around. But as you can imagine, it’s something we keep a close eye on and we’ll deal with it. We’ve been around 100 years and we’ve seen many different administrations with different attitudes on these issues, and we’ll deal with it. But again, the fact that we have such a large U.S. manufacturing presence, I think positions us pretty well.
Alex Kapper: Audra, we have time for one more question.
Operator: Today’s final question comes from the line of Kyle Menges from Citi.
Kyle Menges: Thanks for taking the question. I was hoping if you could provide a little bit more color on what you’re seeing in RI. You talked about some order improvement in 4Q. How are customer conversations progressing and orders so far in 1Q, and maybe just talk a little bit about some of the pricing actions you’re taking in RI - I think you said it would be negative in 1Q, so would just love to hear some color on those items. Thanks. |
1,344 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | Jim Umpleby: You know certainly, as I mentioned earlier, our customers continue to display capital discipline, but we are encouraged by the fact that the key commodities that our products help our customers produce remain above investment thresholds, and some of the things we look at to get a gauge of what’s happening in the industry, we look at product utilization, the hours that are being put on our machines, and those are high. The number of parked trucks is relatively flow, and the age of the fleet is relatively elevated as well. Again, we’re continuing to invest in our autonomous solutions and we continue to see strong customer acceptance of that. If you stop and think about some of the things that are happening, we talked about data center build-outs and all the rest - I mean, again you think about commodities like copper, that should be a positive for that over time. Having said that, again our customers are displaying capital discipline in terms of price.
Andrew Bonfield: We do expect some marginally negative impact in the first quarter, as we said, and that would be mostly due to the fact that obviously we are also putting merchandising programs particularly where we think about things like heavy construction, coring and aggregates are the major areas that will be affected there.
Jim Umpleby: Okay, great. Well, I just want to thank everyone again for joining us. We always appreciate your questions. I’d like to once again thank our team for their strong performance in 2024, delivering record adjusted profit per share and strong ME&T free cash flow. We’ve been around 100 years, and so as we kick off our centennial year this year, we certainly remain committed to serving our customers. We’ll continue to execute our strategy and invest for long term profitable growth. With that, I’ll turn it over to Alex. |
1,345 | CAT | 4 | 2,024 | 2025-01-30 08:30:00 | Caterpillar Inc. | 259,378 | Alex Kapper: Thank you Jim, Andrew and everyone who joined us today. A replay of our call will be available online later this morning. We’ll also post a transcript on our Investor Relations website as soon as it’s available. You’ll also find our fourth quarter results video with our CFO and the SEC filing with our sales to users data. Click on investors.caterpillar.com and then click on Financials to vie those materials. Finally, I’d like to thank Ryan for his support through our transition, and I wish him the best as he moves onto another role in Caterpillar. If you have any questions, please reach out to me or Rob Rengel. The Investor Relations general phone number is 309-675-4549. Now let’s turn it back to Audra to conclude our call.
Operator: That concludes today’s call. Thank you for joining. You may all disconnect. |
1,346 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | Operator: Welcome to the Third Quarter 2024 Caterpillar Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ryan Fiedler. Please go ahead.
Ryan Fiedler: Thanks, Audra. Good morning, everyone, and welcome to Caterpillar's third quarter of 2024 earnings call. I'm Ryan Fiedler, Vice President of Investor Relations. Joining me today are Jim Umpleby, Chairman and CEO; Andrew Bonfield, Chief Financial Officer; Kyle Epley, Senior Vice President of the Global Finance Services Division; Alex Kapper, Vice President-Elect of IR; and Rob Rengel, Senior Director of IR. During our call, we'll be discussing the third quarter earnings release we issued earlier today. You can find our slides, the news release, and a webcast recap at investors.caterpillar.com under Events & Presentations. The content of this call is protected by US and international copyright law. Any rebroadcast, retransmission, reproduction or distribution of all or part of this content without Caterpillar's prior written permission is prohibited. Moving to Slide 2. During our call today, we'll make forward-looking statements, which are subject to risks and uncertainties. We'll also make assumptions that could cause our actual results to be different than the information we're sharing with you on this call. Please refer to our recent SEC filings and the forward-looking statements reminder in the news release for details on factors that, individually or in aggregate, could cause our actual results to vary materially from our forecast. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis is contained in our SEC filings. On today's call, we'll also refer to non-GAAP numbers. For a reconciliation of any non-GAAP numbers to the appropriate US GAAP numbers, please see the appendix of the earnings call slides. Now, let's turn to Slide 3 and turn the call over to our Chairman and CEO, Jim Umpleby. |
1,347 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | Jim Umpleby: Thanks, Ryan. Good morning, everyone. Thank you for joining us. As we close out the third quarter, I want to thank our global team for another good quarter as our results reflect the benefit of the diversity of our end markets. We delivered strong adjusted operating profit margin and adjusted profit per share, which were consistent with our expectations, although our top-line was lower than we anticipated. We also generated ME&T free cash flow of $2.7 billion in the third quarter. Our robust ME&T free cash flow, along with our strong balance sheet, allowed us to deploy over $9 billion to shareholders through share repurchases and dividends during the first three quarters of the year, including $1.5 billion this quarter. We continue to remain disciplined in the execution of our strategy for long-term profitable growth. I'll begin with my perspectives about our performance in the quarter and will provide an update on our full year expectations. I'll then provide some insights about our end markets, followed by an update on our strategy and sustainability journey. Moving to quarterly results. Sales and revenues were down 4% in the third quarter versus last year, below our expectations due to the impact of lower-than-expected sales to users in Construction Industries and timing of deliveries in Resource Industries and Energy & Transportation. Services increased in the quarter compared to 2023. Adjusted operating profit margin was generally in line with our expectations at 20%. We achieved quarterly adjusted profit per share of $5.17, in line with our expectations at the time of the last earnings call. In addition, our backlog increased slightly to $28.7 billion and remains at a very healthy level. For the full year, although we updated our expectations since our last earnings call to reflect sales being slightly below our prior estimate, our expected adjusted operating profit margin is unchanged and remains above the top of the range. Also, our expectation for adjusted profit per share is unchanged. We |
1,348 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | is unchanged and remains above the top of the range. Also, our expectation for adjusted profit per share is unchanged. We are increasing our expectations for ME&T free cash flow and now anticipate it will be near the top of our target range of $5 billion to $10 billion. Turning to Slide 4. In the third quarter of 2024, sales and revenues declined 4% to $16.1 billion due to lower sales volume. Compared to the third quarter of 2023, overall sales to users decreased 6%. For Machines, which includes Construction Industries and Resource Industries, sales to users declined by 10%, which was below our expectations. Energy & Transportation continued to grow as sales to users increased 5%. Sales to users in Construction Industries were down 7% year-over-year. In North America, sales to users were down primarily due to lower rental fleet loading and the absence of a large pipeline deal in the third quarter of 2023. Excluding these two items, sales to users were about flat versus the prior year. Compared to our expectations, sales to users were lower than expected, impacted by rental fleet loading. Our dealers' rental revenue continued to grow in the quarter. Sales to users declined in EAME, primarily due to ongoing weakness in construction activity in Europe. Sales to users in Asia Pacific declined, while Latin America increased. In Resource Industries, sales to users declined 18%, generally in line with our expectations versus a strong third quarter in 2023. Mining, as well as heavy construction, and quarry and aggregates were lower, mainly due to softness we previously discussed for two products, articulated trucks and off-highway trucks. In Energy & Transportation, sales to users increased by 5%, and we continue to see growth in all applications except industrial. Power generation sales to users grew strongly as market conditions remained favorable for both reciprocating engines and solar turbines and turbine-related services. Oil and gas sales to users benefited from strong sales of turbines and turbine-related |
1,349 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | turbines and turbine-related services. Oil and gas sales to users benefited from strong sales of turbines and turbine-related services. For reciprocating engines in oil and gas applications, sales to users were higher for gas compression but lower in well servicing. Transportation sales to users increased, while industrial declined as we expected. Our results continue to reflect the benefit of the diversity of our end markets, as well as the disciplined execution of our strategy for long-term profitable growth. Moving to dealer inventory and our backlog. In total, dealer inventory increased by $400 million versus the second quarter of 2024. For Machines, dealer inventory increased by $100 million, slightly more than we had anticipated. Looking ahead to the fourth quarter, our current planning assumptions forecast a reduction in machine dealer inventory, and we expect machine dealer inventory to end the year around the same level as year-end 2023. Dealers are independent businesses and make stocking decisions across a wide range of products based on multiple factors across the product portfolio. While machine dealer inventory is currently around the top end of the typical range, we remain comfortable with the overall level of dealer inventory. As I mentioned, backlog increased slightly versus the second quarter to $28.7 billion. Energy & Transportation increased as we continue to see strong demand for solar turbines in oil and gas and power generation, as well as strong demand for reciprocating engines for power generation. Moving to Slide 5, we generated robust ME&T free cash flow of $2.7 billion in the third quarter and $6.4 billion in the first three quarters of 2024. As I mentioned, year-to-date, we deployed more than $9 billion to shareholders through share repurchases and dividends. We remain proud of our dividend aristocrat status and continue to expect to return substantially all ME&T free cash flow to shareholders over time through dividends and share repurchases. Now, on Slide 6, I'll describe our |
1,350 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | all ME&T free cash flow to shareholders over time through dividends and share repurchases. Now, on Slide 6, I'll describe our expectations for our three primary segments moving forward. In Construction Industries, we expect lower sales to users in the fourth quarter, but remain positive about the longer-term demand outlook. During our August earnings call, we noted a lower level of rental fleet loading in North America, which continued into the third quarter, and we now expect the trend to persist in the fourth quarter. Although we have lowered our expectations for sales to users in the fourth quarter, primarily due to lower rental fleet loading, dealer rental revenue continues to grow. In addition, government-related infrastructure projects are expected to remain healthy, supported by funding yet to be spent from the IIJA. In Asia Pacific, outside of China, we expect soft economic conditions to continue. We anticipate demand in China will remain at a relatively low level for the above 10-ton excavator industry. In EAME, we anticipate that weak economic conditions in Europe will continue, partially offset by continued healthy construction demand in the Middle East. Construction activity in Latin America remains healthy, and we are expecting modest growth to continue. In addition, we expect the ongoing benefit of our services initiatives will positively impact Construction Industries. Next, I'll discuss Resource Industries. After strong performance in 2023 in mining as well as heavy construction and quarry and aggregates, we continue to anticipate lower machine volume in the fourth quarter of 2024 versus last year. However, the rate of decline for sales to users in the fourth quarter is expected to moderate versus the previous quarters. We expect to see higher services revenues, including robust rebuild activity. Customer product utilization remains high, the number of parked trucks remains relatively low, the age of the fleet remains elevated, and our autonomous solutions continue to see strong customer |
1,351 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | remains relatively low, the age of the fleet remains elevated, and our autonomous solutions continue to see strong customer acceptance. Customers continue to display capital discipline. However, we continue to believe the energy transition will support increased commodity demand over time, expanding our total addressable market and providing further opportunities for long-term profitable growth. Moving to Energy & Transportation. For power generation, demand is expected to remain strong, and we expect robust growth in the fourth quarter and full year sales for both reciprocating engines and solar turbines. Overall strength in power generation continues to be driven by data center growth related to cloud computing and generative AI, and we expect this trend to continue. In oil and gas, in total, we continue to expect a stronger year overall in 2024 versus 2023. For solar turbines used in oil and gas applications, we expect a strong fourth quarter, but sales are expected to be lower than the fourth quarter of 2023 due to the timing of deliveries. The increase in power generation at solar will mostly offset solar's decline in oil and gas, so we expect solar's total sales in the fourth quarter to be roughly flat compared to last year. Solar has a strong backlog as well as healthy order and inquiry activity, and we continue to expect full year growth for solar in oil and gas. After a strong 2023, we expect reciprocating engine sales in oil and gas to be slightly down this year, primarily due to ongoing softness in well servicing. We still expect gas compression to be up for the full year. However, we expect it to soften in the near term as equipment lead times have normalized. As we had previously mentioned, we can leverage our large engine platforms across a variety of applications. Based on current market conditions and well servicing applications, we are able to serve additional power generation demand as we continue to meet oil and gas customer needs while optimizing our overall large engine capacity. Industrial |
1,352 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | demand as we continue to meet oil and gas customer needs while optimizing our overall large engine capacity. Industrial demand has continued to remain at a relatively low level compared to 2023. In transportation, we anticipate full year growth in both rail services and marine applications. Moving to Slide 7, now, I'll provide an update on our strategy and sustainability journey. In February of 2024, we announced a multiyear capital investment in our large reciprocating engine division to approximately double output capability compared to 2023 for new engines and aftermarket parts. Based on increasing expectations of future demand growth, today, we are announcing an additional multiyear investment to further expand our large engine volume output capability to more than 125% compared to 2023. As I mentioned, we leverage these large engines across a variety of applications, including data centers, oil and gas, large mining trucks, and distributed power generation. Moving on to sustainability. We continue to invest in new product, technologies and services to help our customers achieve their climate-related objectives. In September, we unveiled an innovative solution to help solve one of the most complex aspects of the mining industry's energy transition, energy management. Cat Dynamic Energy Transfer, or DET, is a fully Caterpillar developed system that can transfer energy to both diesel electric and battery electric large mining trucks while they are working around them on-site. It can also charge batteries while operating with increased speed on grade, improving operational efficiency and machine uptime. Cat DET is comprised of a series of integrated elements, including a power module that converts energy from a mine site's power source, an electrified rail system to transmit the energy, and a machine system to transfer the energy to the truck's powertrain. Cat DET will integrate with the Cat MineStar Command for hauling solution, merging autonomy and electrification technologies to provide a holistic site |
1,353 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | the Cat MineStar Command for hauling solution, merging autonomy and electrification technologies to provide a holistic site solution. We believe mine sites will benefit from enhanced efficiency with the integration of electrification and automation. When combined, these technologies will help miners achieve production targets, while simultaneously managing energy demands. This example highlights how we leverage our industry-leading technology through an integrated approach across our portfolio to help our customers build a better, more sustainable world. With that, I'll turn it over to Andrew. |
1,354 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | Andrew Bonfield: Thank you, Jim, and good morning, everyone. As usual, I'll begin with a high-level summary of the third quarter, and then provide more detailed comments, including the performance of the segments. I'll then, discuss the balance sheet and free cash flow, before concluding with comments on our assumptions for the full year and the fourth quarter. Beginning on Slide 8, although sales and revenues were lower than we had expected, our adjusted operating profit margin was 20.0%, generally in line with what we had anticipated. Adjusted profit per share was in line with our expectations despite adjusted operating profit being impacted by the lower sales and revenues. I will highlight a few of the moving parts in a moment. As Jim mentioned, our full year margin expectations remain unchanged, and we continue to anticipate the adjusted operating profit margin will be above the top end of the target range despite the slightly lower outlook for the top-line. Our expectations for adjusted profit per share remain unchanged versus our expectations at the time of our last earnings call. Also, we have increased our expectations for ME&T free cash flow for the year, which we now anticipate will be near the top of our $5 billion to $10 billion target range. In the third quarter, sales and revenues of $16.1 billion decreased by 4% compared to the prior year. The adjusted operating profit margin of 20.0% was 80 basis points lower when compared to the prior year. Profit per share was $5.06 in the third quarter compared to $5.45 in the third quarter of last year. Restructuring costs were $0.11 in the quarter versus $0.07 in the prior year. Adjusted profit per share was $5.17 in the quarter compared to $5.52 last year. Other income and expense was $119 million headwind versus the prior year, mostly driven by an unfavorable currency impact related to ME&T balance sheet translation. We do not forecast the impact of foreign currency translation on our adjusted profit per share, so this acted as a headwind compared to our |
1,355 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | the impact of foreign currency translation on our adjusted profit per share, so this acted as a headwind compared to our expectations for the quarter. Excluding discrete items, the provision for income taxes in the third quarter in both 2023 and 2024 reflected a global annual effective tax rate of 22.5%. We recorded a discrete tax benefit, which had an $0.11 favorable impact within the quarter. We do not anticipate discrete items. Finally, the year-over-year impact from the reduction in the average number of shares outstanding, primarily due to share repurchases, resulted in a favorable impact on adjusted profit per share of approximately $0.26 as compared to the third quarter 2023. This was slightly better than we had expected. Moving to Slide 9, I'll discuss our top-line results for the third quarter. Sales and revenues decreased by 4% compared to the prior year, primarily impacted by lower sales volume as a result of lower sales to users and impacts from changes in dealer inventories. Total sales to users decreased by 6% as a 10% decrease from Machines was partially offset by a 5% increase for Energy & Transportation. The impact from changes in total dealer inventories acted as a sales headwind of about $200 million in the quarter. For Machines-only, dealer inventory increased by about $100 million, a smaller increase than the $400 million increase in the prior year, but slightly above our expectations of being flattish to slightly lower. Service revenues increased versus the prior year, as we had anticipated. Moving to operating profit on Slide 10. Operating profit in the third quarter decreased by 9% to $3.1 billion. Adjusted operating profit decreased by 8% to $3.2 billion, mainly due to the impact of lower sales volume, partially offset by favorable price realization and manufacturing costs. Since early 2022, price realization has been a strong -- has been strong and often exceeded our expectations. Over the past several quarters, we have highlighted that price will begin to moderate in the second half of |
1,356 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | our expectations. Over the past several quarters, we have highlighted that price will begin to moderate in the second half of this year. In the third quarter, this moderation began to occur as price realization was lower than previous quarters and generally in line with our expectations. As I mentioned, for the third quarter, the adjusted operating profit margin was 20.0%, which was generally in line with our expectations. By segment, margin in Construction Industries and Resource Industries was slightly below our expectations on lower volume, while Energy & Transportation was about in line. Financial products had a slightly stronger quarter than we had expected. On Slide 11, Construction Industries sales decreased by 9% in the third quarter to $6.3 billion, slightly below our expectations. The decrease versus the prior year was primarily due to lower sales volume and unfavorable price realization. The decrease in sales volume was mainly driven by lower sales of equipment to end users. Changes in dealer inventories also acted as a slight headwind to sales. By region, Construction Industries sales in North America decreased by 11%; in Latin America, sales increased by 19%; sales in the EAME region decreased by 15%; in Asia Pacific, sales declined by 12%. Third quarter profit for Construction Industries was $1.5 billion, a 20% decrease versus the prior year. This is mainly due to the profit impact of lower sales volume and unfavorable price realization. The segment's margin of 23.4% was a decrease of 300 basis points versus the prior year. Turning to Slide 12, Resource Industries sales decreased by 10% in the third quarter to $3.0 billion, which was slightly point below our expectations. The decline versus the prior year was primarily due to lower sales volume, mainly driven by lower sales of equipment to end users given a challenging comparison to the prior year. Third quarter profit for Resource Industries decreased by 15% versus the prior year to $619 million. This was mainly due to the profit impact of lower |
1,357 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | Resource Industries decreased by 15% versus the prior year to $619 million. This was mainly due to the profit impact of lower sales volume. The segment's margin of 20.4% was a decrease of 140 basis points versus the prior year. Now, on Slide 13, Energy & Transportation sales increased by 5% in the third quarter to $7.2 billion, slightly lower than we had expected, driven by the timing of deliveries. The increase versus the prior year was primarily due to favorable price realization and higher sales volume, including higher intersegment sales. By application, power generation sales increased by 26%, transportation sales were higher by 3%, oil and gas sales decreased by 1%, and industrial sales decreased by 16%. Third quarter profit for Energy & Transportation increased by 21% versus the prior year to $1.4 billion. The increase was mainly due to favorable price realization. The segment's margin of 19.9% was an increase of 270 basis points versus the prior year. Moving to Slide 14, financial products revenues increased by 6% to about $1 billion, primarily due to higher average earning assets driven by North America and higher average financing rates across all regions. Segment profit increased by 21% to $246 million. This is mainly due to a favorable impact from equity securities and a lower provision for credit losses. Our customers' financial health is strong. Past dues remain near historic lows of 1.74% in the quarter, down 22 basis points versus the prior year. Our allowance rate was 0.87%, our lowest on record. Business activity at Cat Financial remains healthy. Our retail new business volume increased by 17% versus the prior year, supported by our financing packages for customers choosing to buy Caterpillar equipment. Though Caterpillar's retail machine sales volume was lower, proportionately more sales have been financed through Cat Financial, which highlights the attractiveness of the financing options we are offering to our customers. We also continue to see healthy demand for used equipment and |
1,358 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | of the financing options we are offering to our customers. We also continue to see healthy demand for used equipment and inventories remain at low levels. Conversion rates are also strong as customers choose to buy equipment at the end of their lease term. Moving on to Slide 15, we generated about $2.7 billion in ME&T free cash flow in the third quarter and deployed about $1.5 billion in share repurchases and dividends. Our balance sheet remains strong with an enterprise cash balance of $5.6 billion. In addition, we hold $1.8 billion in slightly longer dated liquid marketable securities to improve yields on that cash. Now, on Slide 16, I will share our high-level assumptions for the full year. For the full year, we have updated our outlook to reflect sales and revenues that are slightly lower than our expectations at the time of our last earnings call, driven by lower-than-expected third quarter sales and an update to our expectations for dealer rental fleet loading in Construction Industries. We continue to anticipate services growth in 2024. As I mentioned earlier, our full year expectations for adjusted operating profit margin and adjusted profit per share remain unchanged compared to our last earnings call. We continue to expect adjusted operating profit margin to be above the top end of the target range. In addition, we are increasing our expectations for ME&T free cash flow for the year, which we now anticipate to be near the top of our $5 billion to $10 billion target range. To assist you with your modeling for the full year, we now anticipate CapEx of around $2 billion and restructuring costs of approximately $400 million. Our expectation for the global annual effective tax rate, excluding discrete items, remains at 22.5%. Turning to Slide 17, I'll provide a few comments on the fourth quarter, starting with the top-line. We expect slightly lower sales and revenues in the fourth quarter compared to the prior year, impacted by lower machine sales to users versus a strong comparison. On machine dealer |
1,359 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | quarter compared to the prior year, impacted by lower machine sales to users versus a strong comparison. On machine dealer inventory, our planning assumptions include the expectation that dealers will reduce their inventories in the fourth quarter while balancing their need to be prepared for 2025. The magnitude of the decline for machine dealer inventory is expected to be less than the $1.4 billion decrease we saw in the fourth quarter of 2023. For perspective, we expect machine dealer inventory to end the year around the same level as year-end 2023. Also, the ongoing benefit of our services initiatives is expected to positively impact sales in the fourth quarter. By segment, in the fourth quarter, compared to the prior year, we anticipate a sales decrease in Construction Industries. This is impacted by lower sales to users, which Jim mentioned, along with unfavorable price realization. In Resource Industries, we expect slightly lower sales, impacted by lower sales to users versus a strong fourth quarter of 2023. In Energy & Transportation, we anticipate slightly higher sales versus the prior year, supported by power generation. Enterprise margin in the fourth quarter is expected to trend lower compared to the third quarter, following the typical seasonable pattern. However, versus the prior year, we expect a modestly higher adjusted operating profit margin despite lower sales. We anticipate favorable manufacturing costs and lower SG&A and R&D expenses will more than offset the profit impact of lower sales volume. Lower SG&A and R&D expenses are primarily driven by the benefit of lower short-term incentive compensation versus a high expense in the prior year quarter. Price realization for Machines is expected to trend lower as the pricing environment continues to normalize, though price in Energy & Transportation should act as a partial offset. Regarding price expectations for Machines, it is important to note that discounts to dealers occur through post sales merchandising programs, which impact our results |
1,360 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | it is important to note that discounts to dealers occur through post sales merchandising programs, which impact our results over time. This includes financing support from Cat Financial, which is an effective way of supporting our customers, and we recover a portion of that support over the life of the deal. Let me explain. Based on the current level of price discounting support, we reserve the anticipated payments to dealers for these merchandising programs. At times, there is a lag between the timing of the invoice of the dealer and when the dealer invoices the customer, which impacts the reserve. Over the next few quarters, we expect the impact from these merchandising programs to drive a headwind to Machine price realization as we continue to adjust the reserve to reflect the current level of price discounting support. By segment, in the fourth quarter, in Construction Industries, we anticipate lower margin compared to the prior year primarily due to unfavorable price realization, partially offset by favorable manufacturing costs. In Resource Industries, we anticipate lower margin in the fourth quarter compared to the prior year, mainly due to lower volume and prioritization of strategic investments around services growth and AACE, which is autonomy, alternative fuels, connectivity and digital, and electrification. Favorable manufacturing costs should act as a partial offset. In Energy & Transportation, we expect a higher margin versus the prior year, primarily impacted by favorable price realization. So, turning to Slide 18, let me summarize. Although sales and revenues were lower than we had expected, adjusted operating profit margin and adjusted profit per share were generally in line with our expectations. We now anticipate our top-line for the full year will be slightly below our prior estimate. Our backlog increased slightly and remains at a very healthy level. Our expectations for full year adjusted operating profit margin and adjusted profit per share remain unchanged compared to a quarter ago. We |
1,361 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | for full year adjusted operating profit margin and adjusted profit per share remain unchanged compared to a quarter ago. We continue to expect adjusted operating profit margin to be above the top end of the target range for the full year based on our expected sales levels. We are now increasing our expectations for ME&T free cash flow, which we anticipate to be near the top of our target range for the full year. Our team executed well in the quarter, and our results continue to benefit -- to reflect the benefit of the diversity of our end markets and the disciplined execution of our strategy for long-term profitable growth. And with that, we'll now take your questions. |
1,362 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] We'll take our first question from Jerry Revich at Goldman Sachs.
Jerry Revich: Yes. Hi. Good morning, everyone.
Jim Umpleby: Good morning, Jerry.
Jerry Revich: Andrew -- hi. I'm wondering if we could just take a step back. Your margin performance this year is really outstanding relative to the long-term targets. And as you see it, is this level of outperformance sustainable or should we take the pricing headwinds that we spoke about in the prepared remarks to mean that you folks are evaluating the optimal balance between margins and market share?
Jim Umpleby: Well, Jerry, just as a reminder, our primary measure of profitable growth is increasing absolute OPACC dollars. That's something we're very focused on. Obviously, we're always focused on being competitive in the various markets that we serve, and of course, we serve a diverse group of industries around the world. So, what's happening in one market with one segment is it can be very different than what's happening in another segment just from a competitive perspective. So, again, we're focused on remaining competitive. We do provide margin targets, obviously, to give investors and analysts a sense of where we'll be around margins, and we'll continue to do that. So, again, we're driving to remain competitive, we're driving to increase absolute OPACC dollars, and you can use our margin target ranges to give a sense of where we expect to be.
Operator: We'll move next to Tami Zakaria at JPMorgan.
Jim Umpleby: Good morning, Tami. |
1,363 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | Operator: We'll move next to Tami Zakaria at JPMorgan.
Jim Umpleby: Good morning, Tami.
Tami Zakaria: Hi. Good morning, Team Caterpillar. Hope you're doing well. My question is on the Resource Industries segment. Volumes in that segment has been down for about a year now, and I think you said the rate of decline you expect to get better in the fourth quarter. I'm curious, how are you planning for this segment for 2025? Do you expect demand -- or sales to stabilize near term or it could get better or maybe stay weak for a few more quarters?
Jim Umpleby: Well, thanks for your question. I mean, the full year drop, as we talked about in previous calls, is really primarily due to a couple of products, articulated trucks and off-highway trucks. And we had a strong backlog there that we had to work our way through, and that's created a comp issue for us in Resource Industries this year. Having said that, obviously, we're not going to give guidance around 2025. We'll talk about 2025 in January, but certainly, we continue to be quite bullish on the long-term aspects for mining just given all the commodities that need to be produced to support the energy transition. Our mining customers use our products to produce those products, things like copper. So, our customers are displaying capital discipline, but we certainly are bullish about the long term. We do expect higher services revenues, because the utilization of our products is quite high. The age of the fleet is relatively elevated and the number of parked trucks is relatively low. So, those are all positive things. One of the things that we also see is a lot of inquiry activity and order activity around large mining trucks, so we're pleased at that. So that's one of the things that also is a reason for optimism as well.
Operator: Next, we'll move to Angel Castillo at Morgan Stanley.
Angel Castillo: Hi, good morning. Thanks for taking my question. I was wondering if you could expand maybe a little bit...
Jim Umpleby: Hi, Angel. |
1,364 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | Jim Umpleby: Hi, Angel.
Angel Castillo: Good morning. I was wondering if you could expand a little bit more on what you're hearing from your dealers and customers around in terms of Construction Industries, particularly in terms of orders, how is that kind of shaking out for that segment specifically? And then more so qualitatively what you're hearing into 2025 in terms of sentiment and kind of inclinations to buy kind of heading into that year versus the macro that remains a little bit uncertain?
Jim Umpleby: Yeah. Well, a couple of things. Firstly, in the quarter, as I mentioned earlier, the primary reasons for the decline quarter-to-quarter was based on lower rental fleet loading by our dealers. And, of course, it's important to note that our dealers' rental revenue continues to increase, so it's really an issue of them having lower loading into their rental fleets. In addition to that, we had a large pipeline deal in the third quarter of last year, which obviously didn't reoccur, and that created an issue as well. I mean, from a positive perspective, we expect government-related infrastructure to remain healthy. I mean, if we look at some facts from ARTBA, which is the American Road and Transportation Builders Association, they noted that, only 27% of the $348 billion in total on IIJA funding has been spent as of August of 2024. About 47% of it's been committed, and only 27% of it's been spent. So that's quite healthy as well. So, there's a lot of infrastructure activity out there that our dealers are working with our -- their customers to help support. So, we feel good about that as well.
Operator: We'll go next to Jamie Cook at Truist Securities. |
1,365 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | Operator: We'll go next to Jamie Cook at Truist Securities.
Jamie Cook: Hi. Good morning. And I'm sorry, I'm flipping between multiple calls, but, Jim, I think you said during the prepared remarks that you guys are adding incremental large engine capacity relative to your previous announcement. So, I guess my question is, is there any way you can frame the capital investment? And more important, what you think the longer-term revenue opportunity for Caterpillar as you continue to increase capacity here? And then, sort of what does that imply for margins for this segment? Again, we're adding a lot of capacity, but the margins are below Resource and Construction. So, should margins be structurally higher as the volumes ramp? Thank you. |
1,366 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | Jim Umpleby: Thanks for your question, Jamie, and we haven't quantified the amount of capital investment in that capacity increase, but we did talk about the fact that we expect with this incremental investment that we will have increased our large engine volume output capability to more than 25% -- 125% compared to 2023. And, of course, those engines are used across a wide variety of applications, and certainly, what's driving the demand today is data centers. We sell backup generators sets for data centers, but we're also quite excited about the opportunity going forward for what we call distributed generation. Data centers, of course, don't just create an opportunity for us for backup generator sets, but, of course, the base load requirements on the grid is going up as well because of data centers, and there's much been written about that. And so, just given the fact that there's been relative underinvestment in traditional power plants over the last few years, the fact that more renewables have been added to the grid, which are intermittent in nature, and the fact that now we have data centers increasing baseload requirements on the grid, we think that creates an opportunity for us for both our gas turbine generator sets and our reciprocating engine generator sets in what we call distributed power applications distributed across the grid, and our gas turbines and gensets can burn a wide variety of fuels, natural gas, biofuels, hydrogen blends. So, we're quite excited about that long-term opportunity that is starting to manifest itself. And your question about margins, certainly, you saw a nice margin increase quarter-to-quarter in Energy & Transportation, and just because of mix and because of increased volume and just the fact that business should be higher, again, we have the opportunity to increase margins in Energy & Transportation going forward, but I'm not going to quantify that at this point. But certainly, it's an opportunity.
Operator: We'll take our next question from David Raso at Evercore ISI. |
1,367 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | Operator: We'll take our next question from David Raso at Evercore ISI.
David Raso: Hi. Thank you. Yeah, looking, as everybody, more bread crumbs for 2025. My question, I guess, two pieces. The comment about the drag, right, the lag of discounting for CI, it'll show itself more as some of those orders get shipped into '25. Can you give us a sense of just where we stand right now? Let's assume no further deterioration maybe in CI pricing. But what we're booking right now with those discounts, what is the most acute, like, period in '25 that that shows up? Like, essentially, it's how long are these orders out for? Is this second quarter, third quarter next year, that should be the most acute drag from the incremental discounting right now? And then, on the positive side, you kind of just said you didn't want to quantify it, but the investments in E&T, the large engines, which I know also go to large mining trucks, but let's think of it as E&T in particular right now, is there any way to think about regular throughput improvement? Any capacity additions that can show up in '25 to give us a sense of at least your throughput capability '25 versus '24? Just some order of magnitude? Thank you.
Jim Umpleby: Yeah. Thanks for your question, David. So, one of the things we talked about when we announced the initial investment to increase our large engine capacity is that would increase over a four-year period, and so we haven't laid it out year-by-year, and it's -- again, it's a four-year increase. So, I'm afraid I'm not going to be able to answer your question to give a sense of additional output for 2025. And I'll let Andrew answer your question about margins. |
1,368 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | Andrew Bonfield: Yeah. So, on the impact of pricing, this is one of those accounting quirks that we sometimes have. The way it works, David, is the accrual is done on a historic 12-month basis to build up the reserve. So potentially, this could act -- impact us for several quarters. It is -- as the merchandising programs increase, you then have the amount that's in inventory that you have to effectively catch up on over time, and that's done over a 12-month period. So, generally, it will be for the next several quarters, but we are starting to see the merchandising programs hit more normal levels now, and, obviously, that creates a little bit of a headwind on price. I will probably quantify it a little bit more when we get to 2025 guidance for you in January.
Operator: Next, we'll go to Michael Feniger at Bank of America.
Michael Feniger: Hey, everyone. Thank you for taking my question. I would just love to get a sense of -- on the oil and gas side, obviously, retail sales were up a little bit. You talked about the differentiation of what you're seeing in terms of the recip side and well services, maybe gas compression, some of the other areas. Just when we look into 2025, if we see more LNG permitting in the Gulf, is that positive for the solar business? Do we need a higher nat gas price? Obviously, the oil price has been kind of stuck in a range. So, just curious how we're thinking with oil and gas being very strong and up in '24. You kind of made some comments on Q4. What do we kind of think about the bread crumbs for '25 for that business? Thank you. |
1,369 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | Jim Umpleby: So again, I'll resist giving the guidance for 2025, but I'll just give you some color around the industry. Certainly, we mentioned the fact that well servicing continued to be a bit weak. Gas compression for recip for Cat oil and gas, we expect to be up for the total year, but a bit of softening in the fourth quarter. On solar turbines and oil and gas, the business is quite strong, a lot of booking activity, a lot of quotation activity, both for gas compression, but also for international projects as well. So again, solar business quite robust, and I've described the recip. It remains to be seen, obviously, if LNG exports then are again -- start again, if that permitting process starts again, I would think certainly, medium to long term, that'd be a positive for us.
Operator: We'll move to our next question from Kristen Owen at Oppenheimer & Company.
Kristen Owen: Great. Thank you for taking the question. Jim, I wanted to come back to the CI competitive dynamics, particularly in North America. I mean, you've called out this re-fleeting issue a couple of quarters in a row now, but you are at the higher end of the inventory range. Just wondering, can you help us understand how much maybe incremental international competition you're seeing, given the depreciation at the yen and just continued disappointment in China activity? Is there anything you're seeing on a shift in the competitive landscape there? |
1,370 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | Jim Umpleby: Well, certainly, we're very focused on remaining competitive and the competitive situation continually changes. So, I could -- every year I've been in this job and before that, the competitive situation always changes, but we are quite confident in our ability to continue to compete. We continue to invest in new technologies, to allow -- as an example, to allow operators to more effectively operate their machines, as an example, taking a less experienced operator and through technology, allowing them to operate more like an experienced operator. We continue to invest in our digital capabilities. Our dealers continue to invest in their capabilities as well. So, we're quite confident in our ability to continue to compete and be successful. The competitive situation, there are currency changes that occur and you're right, the yen has been relatively weak and that for a period of time, can create a bit of a tailwind for a competitor, but those things change over time as currencies change. But, again, what we're really focused on is providing that long-term value to our customers by continuing to invest in things like technology, our digital capabilities, service capabilities, and all the rest. |
1,371 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | Andrew Bonfield: And can I just make a comment on your comment about the higher end of the inventory range? I mean, one of the things just to remember is dealer inventory is a complex, thing. We have 150 dealers around the world. We have three business segments. We have lots of different products. There are some actual product lines where, actually, dealers holding more inventory would actually be a good thing from a competitive perspective, not necessarily always reducing. So, it's not necessarily without them burning it down. We obviously, work with them through that process where they do need to think about a deal inventory reduction, and that's why we're anticipating in the fourth quarter. But there are also some business segments where, actually, at times, we would like dealers probably to hold a little bit more for competitive reasons as well.
Operator: We'll go next to Steven Fisher at UBS.
Steven Fisher: Thanks. Good morning. Jim, you mentioned the four-year process on power gen capacity expansion, but the power gen growth actually accelerated to about 26% year-over-year from 15% in Q2. So, with being at capacity on some of the bigger projects -- products, can you talk about what drove that acceleration and, to what extent is that maybe a function of shifting some of your oil and gas engines into power gen? And should we expect some sort of quarter-to-quarter fluctuations in that rate of growth in power gen going forward based on comps and how you are able to shift capacity around? Thank you. |
1,372 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | Jim Umpleby: Yeah. Just to be -- thanks for your question. Just to be clear, when we ship a generator set to an oil and gas customer or for an oil and gas application, we count that as oil and gas, not power generation, just to be clear. So, a variety of reasons for the increase. Certainly, of course, as I mentioned in my prepared remarks, we do have the ability to reallocate if the demand for oil and gas is not there and we have excess capacity. We can shift those engines from oil and gas to power generation and back and forth depending on the needs of our customers. So that's there. Solar power generation, again, that solar business and power generation is also increasing, and that also has an impact on it as well. And we've been, of course, working in our reciprocating engine facilities to increase capacity. Yes, the major impact will come later because of the big capital investment we're making, but we're working on increasing throughput and getting more out of our existing facilities as well as the demand goes up.
Operator: We'll take our next question from Kyle Menges of Citigroup.
Kyle Menges: Thanks for taking the question. I was hoping if you could discuss inventories a little bit more. So, this planned reduction in in dealer inventories in 4Q, is that enough to make you guys feel pretty good about machine inventories heading into next year? And then, it'd also be helpful just to hear your thoughts on used inventories. Sounds like they remain at low levels, but are you seeing used tick up a little bit? And is there any cause for concern that used inventories could become an issue in 2025? |
1,373 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | Andrew Bonfield: Yeah. So, first of all, let me mention on used. As we say, used inventory levels actually remain at pretty low levels based on history. They had ticked up slightly. Obviously, pricing has become a little bit lower, but pricing still is actually okay from a Cat Financial perspective. So, no concern at this point around used inventory at all from an overall perspective. With regards to dealer inventory, obviously, we work closely with our dealers through what we call our S&OP process. That's our sales and operations planning process. We go down by dealer, by product, really to understand what their expectations, what their requirements are, what their ordering needs are. That's part of a way of us helping to manage the factories and production efficiently. At this point in time, we expect that reduction we see to bring about the inventory overall to about flat year-over-year. That seems to be the right level based on what we're hearing from dealers at this stage. I don't see any reason, at this point in time, that there would be a need to reduce them significantly more, but, obviously, that's a discussion process that will occur through 2025. But, obviously, we are ready and prepared to manage and work and manage production accordingly. With regards to -- as I made the point a moment ago, there are some product lines where actually dealers really could hold more inventory. So, got to be very, very careful about looking at it as a holistic, but, overall, we're very comfortable with the total level and expectations for the year-end.
Operator: We'll go next to Chad Dillard at Bernstein.
Chad Dillard: Hey. Good morning, all. So...
Andrew Bonfield: Hi, Chad. |
1,374 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | Operator: We'll go next to Chad Dillard at Bernstein.
Chad Dillard: Hey. Good morning, all. So...
Andrew Bonfield: Hi, Chad.
Chad Dillard: I wanted to revisit -- hey. How you guys doing? So I just wanted to revisit the comments about pricing in CI. So first, just want to understand, like, when do you actually expect, like, the max pricing pressure? And then secondly, if we think about the other side of the ledger, the cost side, you have fuel coming down. It sounds like you're easing on SG&A and then R&D costs. So, just trying to think through whether you'll be able to offset some of that pricing pressure with some improved costs.
Andrew Bonfield: Yeah. So, let me just, first of all, come back to the overall. If you actually look at our overall gross margins for the quarter, gross margins were about flat despite low volume. So, we have been able to find offsets. Some of that obviously is with positive price within E&T, and some of that is lower manufacturing costs. So, there are always -- and that's part of the benefit of having a broad portfolio of businesses. We are able to manage that appropriately. Obviously, we are looking at commodity input costs, and, obviously, working from a procurement perspective. Always remind you that there's always a lag. It's never because of the contracting that we do. We often don't necessarily buy at spot prices. We buy at contracted prices, which may even be lower than spot. So, all of those things are factors which feed in, takes a little bit of time for that to fall through. With regards to the pricing pressure, immediately already, the merchandising programs we put in place are flowing through to the P&L within CI, so that's immediate. The point I was talking about was the lag impact on the reserve we have, which is really just a balance sheet impact, which impacts -- that will impact over the next several quarters. We'll give you a little bit more update of that when we get to January.
Operator: Next, we'll go to Tim Thein at Raymond James. |
1,375 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | Operator: Next, we'll go to Tim Thein at Raymond James.
Tim Thein: Thank you. Good morning. Jim, I was hoping you could maybe give some color on the backlog and the orders which were pretty strong in the quarter and just in terms of maybe a key driver or two of or kind of what's behind that. And I guess, more significantly, I'm just curious if the -- I presume you're going to highlight data centers as part of that. And is there a shift in terms of how you think -- or how we should think about ultimately the delivery -- the timing of those deliveries in that, given the tightness in capacity? I presume some of your bigger data center customers are looking to secure capacity further out. So, anyway, so just the question around the maybe the driver of the orders and then should we think about any change in terms of the ultimate delivery cadence of those orders? Thank you.
Jim Umpleby: Yeah. Thanks for your question. So, the backlog increase in Energy & Transportation was quite robust and that more than offset a decrease in backlog for Machines. And of course, it's not surprising that the backlog for Machines went down in anticipation of the machine dealer inventory reduction that we previously talked about in the fourth quarter. So, the backlog increase in Energy & Transportation being driven a lot by, of course, by power generation for recip, also being driven by robust orders in solar turbines for both oil and gas and recip. So that's really what's behind it. And so certainly, typically lead times for solar is eight to 12 months typically for recip and power generation. We're working hard to meet the demands of our customers there, but we do have orders going out 18, 24 months on the outside for power generation and recip.
Operator: Next, we'll move to Mig Dobre at Baird. |
1,376 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | Operator: Next, we'll move to Mig Dobre at Baird.
Mig Dobre: Yes. Thank you. And just to follow-up on Tim's question, is there a way to maybe quantify what percentage of the backlog is deliverable here in the next 12 months? And I'm also curious, given the fact that the lead times are what they are in power gen, how are competitive dynamics, you versus your competitors, in that part of the business? Is there somebody else out there maybe with better lead times than you? Can you gain share if you improve your lead times faster than others? Appreciate some thoughts on that.
Jim Umpleby: You bet. Generally, overall, the way we think about it is about 75% of our backlog is expected to be sold within 12 months. That's a general number for total. As I mentioned, some of the large engine orders are out a bit more than that. Certainly, if we can produce more engines, we can sell more engines for power generation, recip engines. That's certainly the case. And again, just given the strength that we see in that market is obviously why we decided to make an incremental investment in our capability to increase engines and parts. So, again, the business is quite strong. It's very, very encouraging.
Operator: Next, we'll go to Jairam Nathan at Daiwa.
Jairam Nathan: Yeah. Hi. Thanks for taking my question. I just wanted to go over some of your position in China. There's a lot of talk about stimulus, not sure how helpful it could be. But, if you could just remind us of your market position there, the freshness products a little bit? |
1,377 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | Jim Umpleby: Yeah. Certainly. So, as we've discussed previously, for a long period of time, we talked about China being roughly 10% -- 5% to 10% of our consolidated sales and revenues. It's certainly been less than that the last couple of years, and the continue -- the market itself continues to be quite weak. And so, it is below that 5% again this year. So, it's a relatively small piece of our total enterprise sales. Certainly, we have a significant presence in China in terms of facilities and we've integrated our supply chain suppliers, manufacturing and local leadership as well and dealers. And but again, the market is, in fact, quite depressed and we have it. And this is a reminder, for us, that market is primarily excavators above 10-ton. And so, people have asked about the stimulus. We certainly -- it's too early for us to have seen any impact of that, and we have not.
Ryan Fiedler: Audra, we have time for one more question.
Operator: And today's final question comes from the line of Rob Wertheimer with Melius Research.
Rob Wertheimer: Thank you. Good morning. So I wanted to follow-up. Last quarter, you kind of touched on expanding opportunities at solar turbines and power gen. And in today's call, I mean, you mentioned some of the strong demand you're seeing in the recip side and capacity expansion, et cetera. On Renova's call, they had some strong trends in narrow derivative turbines, which I think are probably still a little bit above your power range. But I wonder if you might just talk about this business and the opportunity you're seeing in the power gen segment for solar. What that means? Does it mean behind the gated data center? Does it mean data centers? What is the opportunity you're seeing? And then, you've expanded capacity in recips. Do you have room to grow in turbines, or would you -- is the opportunity big enough that you're thinking about expanding there, too? Just a general overview. Thanks. |
1,378 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | Jim Umpleby: Yes. Thanks, Rob. So certainly, we are seeing an increase in business in -- for power generation and solar turbines. It's -- we're selling trailerized units now and it's being driven by a whole variety of factors. One of the things that we're doing is selling into some rental fleets, where rental fleets are positioning themselves to help satisfy what they believe will be increased electricity demand across the grid and primarily in North America. And sometimes those units will be rented to a utility, sometimes they'll be rented to a data center, but there's a whole variety of uses for that. So, we are seeing an increase in power generation at solar. Solar is not out of capacity. They certainly have the ability to continue to increase their production. And one of the things you might be aware of is that we are in the process of introducing a newer, larger gas turbine for solar turbines. It's our largest jet called the Titan 350, and that really will allow us to compete in some areas that we have not been able to compete in the past -- compete for in the past because we just didn't have a turbine that was large enough. And so, we're quite excited about that new product. It's early days in terms of just starting to get those shipped, but we are quite encouraged by the amount of customer interest and discussions we're having with our customers about that new product. So again, that's something that's very exciting for us. Okay. With that, I just want to thank everyone for joining us and certainly appreciate your questions. Just want to thank by again, thanking our global team for delivering strong adjusted operating profit margin and adjusted profit per share, and again, while generating robust ME&T free cash flow. And as we discussed today, our results continue to reflect the benefit of the diversity of our end markets as well as the execution of our strategy for long-term profitable growth. Again, thank you for your time. |
1,379 | CAT | 3 | 2,024 | 2024-10-30 08:30:00 | Caterpillar Inc. | 259,378 | Ryan Fiedler: Thank you, Jim, Andrew, and everyone who joined us today. A replay of our call will be available online later this morning. We'll also post a transcript to our Investor Relations website as soon as it's available. You'll also find the third quarter results video with our CFO and an SEC filing with our sales to users data. Click on investors.caterpillar.com, then click on Financials to view those materials. If you have any questions, please reach out to Alex, Rob, or me. The Investor Relations general phone number is 309-675-4549. And now, we'll turn the call back to Audra to conclude.
Operator: Thank you. That does conclude our call. Thank you for joining. You may all disconnect. |
1,380 | CAT | 2 | 2,024 | 2024-08-06 08:30:00 | Caterpillar Inc. | 259,378 | Operator: Welcome to the Second Quarter 2024 Caterpillar Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ryan Fiedler. Thank you. Please go ahead.
Ryan Fiedler: Thank you, Audra, and good morning, everyone, and welcome to Caterpillar's second quarter of 2024 earnings call. I'm Ryan Fiedler, Vice President of Investor Relations. Joining me today are Jim Umpleby, Chairman and CEO ; Andrew Bonfield, Chief Financial Officer ; Kyle Epley, Senior Vice President of the Global Finance Services Division; and Rob Rengel, Senior Director of IR. During our call, we'll be discussing the first quarter earnings release we issued earlier today. You can find our slides, the news release, and a webcast recap at investors.caterpillar.com under Events and Presentations. The content of this call is protected by US and international copyright law. Any rebroadcast, retransmission, reproduction or distribution of all or part of this content without Caterpillar's prior written permission is prohibited. Moving to Slide 2. During our call today, we'll make forward-looking statements which are subject to risks and uncertainties. We'll also make assumptions that could cause our actual results to be different than the information we're sharing with you on this call. Please refer to our recent SEC filings and the forward-looking statements reminder in the news release for details on factors that, individually or in aggregate, could cause our actual results to vary materially from our forecast. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis is contained in our SEC filings. On today's call, we'll also refer to non-GAAP numbers. For a reconciliation of any non-GAAP numbers to the appropriate US GAAP numbers, please see the appendix of the earnings call slides. Now let's turn to Slide 3 and turn the call over to our Chairman and CEO, Jim Umpleby. |
1,381 | CAT | 2 | 2,024 | 2024-08-06 08:30:00 | Caterpillar Inc. | 259,378 | James Umpleby: Thanks, Ryan. Good morning, everyone. Thank you for joining us. I'd like to start by thanking our global team for their strong execution in the first half of the year. In the second quarter, we achieved higher adjusted operating profit margin, record adjusted profit per share and generated robust ME&T free cash flow. Our results continue to reflect the benefit of the diversity of our end-markets as well as the disciplined execution of our strategy for long-term profitable growth. I'll begin with my perspectives about our performance in the quarter and we'll provide an update on our full year expectations. I'll then provide some insights about our end-markets, followed by an update on our sustainability journey. Moving to quarterly results. Sales and revenues were down 4% in the second quarter versus last year, slightly below our expectations. Services increased in the quarter. Our adjusted operating profit increased to $3.7 billion, a record. Adjusted operating profit margin was better than we expected and improved to 22.4% up 110 basis points versus last year. We achieved a record quarterly adjusted profit per share of $5.99, up 8%. We also generated $2.5 billion of ME&T free cash flow in the quarter. In addition, our backlog increased to $28.6 billion, up $700 million versus the first quarter of 2024. Before I get into the detail of the quarter and outlook for our segments, I'll update our expectations for the full year based on our first half results. Earlier in the year, we estimated that sales and revenues would be broadly similar for the full year. For the first half, the top-line came in marginally below our expectations and ended 2% below the prior year. We now anticipate our sales and revenues will decline at a roughly similar rate in the second half versus the prior year, in-part due to our latest assumptions for dealer inventory, principally into Resource Industries. Overall sales to users and construction industries are running slightly lower than we anticipated, partially offset by |
1,382 | CAT | 2 | 2,024 | 2024-08-06 08:30:00 | Caterpillar Inc. | 259,378 | Overall sales to users and construction industries are running slightly lower than we anticipated, partially offset by stronger-than-expected sales in Energy and Transportation. Service revenues continue to grow. Although sales and revenues have been marginally below our expectations, adjusted operating profit margins have been stronger than we anticipated. Earlier in the year, we expected our adjusted operating profit margin to be in the top half of the target range at the corresponding level of sales. Due to the strength of our performance in the first half of the year, we now expect overall adjusted operating profit margins to be above the top of the target range for the full year. For the second half, we expect adjusted operating profit margins to be better than we previously anticipated or about flat to the second half of 2023, which Andrew will describe. The strength of our performance to date and our improved second half adjusted operating profit margin expectations give us confidence to guide above our target range. Overall, our expectations for full year adjusted operating profit and adjusted profit per share are now higher than it was during our last earnings call. We also anticipate that ME&T free cash flow will remain in the top half of the free cash flow target range. Turning to Slide 4 and our second quarter results. In the second quarter of 2024, sales and revenues declined 4% to $16.7 billion. Sales volume declined slightly more than we expected, while price realization, including geographic mix was better than we anticipated. Dealer inventory also declined in the second quarter. Compared to the second quarter of 2023, overall sales to users decreased 3%, slightly below expectations. For machines, which includes Construction Industries and Resource Industries, sales to users declined by 8%, slightly more than expected. Energy and transportation continued to show strength as sales to users increased 10%. Sales to users in Construction Industries were down 5%. In North America, sales to users were |
1,383 | CAT | 2 | 2,024 | 2024-08-06 08:30:00 | Caterpillar Inc. | 259,378 | as sales to users increased 10%. Sales to users in Construction Industries were down 5%. In North America, sales to users were slightly lower than anticipated, primarily due to weaker than expected rental fleet loading. Government related infrastructure projects remained healthy. Residential sales to users in North America were up as demand for new housing remained resilient. Sales to users declined in the EAME, primarily due to weakness in Europe relating to residential construction and economic conditions. Sales to users in Asia Pacific declined, while Latin America increased. In Resource Industries, sales to users declined 15%, a slightly smaller decline than we expected versus a very strong second quarter in 2023. Mining as well as heavy construction and quarry and aggregates were lower, mainly due to softness we previously discussed for two products, articulated trucks and off-highway trucks. In Energy and Transportation, despite the ongoing weakness in industrial, sales to users increased by 10% as we continue to see strength across most applications. Oil and gas sales to users benefited from strong sales of turbines and turbine related services. We also saw increased sales of reciprocating engines into gas compression, while well servicing oil and gas applications were lower. Power generation sales to users grew as market conditions remained favorable, including strong data center growth. Transportation sales to users increased, while industrial declined as expected from the strong levels last year. Our results continue to reflect the benefit of the diversity of our end-markets as well as the disciplined execution of our strategy for long-term profitable growth. Moving to dealer inventory. In total, dealer inventory decreased by $200 million versus the first quarter. For machines, dealer inventory decreased by $400 million and remains within our typical range. As I mentioned, backlog increased to $28.6 billion, up $700 million versus the first quarter of 2024. Energy & Transportation drove the increase as |
1,384 | CAT | 2 | 2,024 | 2024-08-06 08:30:00 | Caterpillar Inc. | 259,378 | increased to $28.6 billion, up $700 million versus the first quarter of 2024. Energy & Transportation drove the increase as we continue to see strong demand for solar turbines and reciprocating engines for power generation. Adjusted operating profit margin increased to 22.4% in the second quarter, a 110 basis point increase over last year, which was better than we anticipated. Margin exceeded our expectations, primarily due to lower than expected manufacturing costs and slightly better than expected price. Moving to Slide 5, we generated ME&T free cash flow of $2.5 billion in the second quarter. We deployed more than $1.8 billion of cash for share repurchases and about $600 million in dividends in the second quarter. In June, we announced an additional $20 billion share repurchase authorization with no expiration date. We remain committed to consistent share repurchases. Since 2019, when we communicated our intention to return substantially all ME&T free cash flow to shareholders over time, our net share count has decreased by approximately 18%. In addition, we increased our dividend by 8% in the second quarter, which is our fourth straight year of a high single-digit quarterly increase. We remain proud of our Dividend Aristocrat status and continue to expect to return substantially all ME&T free cash to shareholders over time through dividends and share repurchases. Now on Slide 6. I'll describe our expectations for our three primary segments moving forward. In Construction Industries, after a record 2023, sales to users in the second half are now expected to decline slightly versus last year. In North America, we now anticipate slightly lower construction industry sales to users for full year 2024 than we did previously, primarily due to weaker than expected rental fleet loading. Government related infrastructure projects are expected to remain healthy. In Asia Pacific, outside of China, we still expect soft economic conditions to continue. We anticipate demand in China will remain at a relatively low level |
1,385 | CAT | 2 | 2,024 | 2024-08-06 08:30:00 | Caterpillar Inc. | 259,378 | we still expect soft economic conditions to continue. We anticipate demand in China will remain at a relatively low level for the above 10 ton excavator industry. In the EAME, we anticipate that weak economic conditions in Europe will continue, somewhat offset by continued healthy construction demand in the Middle East. Construction activity in Latin America remains mixed, but overall, we are expecting modest growth. In addition, we are expecting the ongoing benefit of our services initiatives will positively impact Construction Industries. Next, I'll discuss Resource Industries. After strong performance in 2023 in mining as well as heavy construction, in quarry and aggregates, we continue to anticipate lower machine volume versus last year, primarily due to off-highway and articulated trucks. We currently anticipate a decrease in Resource Industries dealer inventories in 2024 versus a slight increase last year. We expect to see higher services revenues, including robust rebuild activity. Customer product utilization remains high, the number of parked trucks remains low and the age of the fleet remains elevated and our autonomous solutions continue to see strong customer acceptance. Customers continue to display capital discipline, however, we continue to believe the energy transition will support increased commodity demand over time, expanding our total addressable market and providing further opportunities for long-term profitable growth. Moving to Energy & Transportation. In oil and gas, in total, we expect a stronger year overall in 2024 versus last year. After a strong 2023, we expect reciprocating engine sales in oil and gas to be flat to slightly down, primarily due to ongoing softness in well servicing. We still expect gas compression to be up for the full year, however, we expect it to soften in the second half. For solar turbines, we continue to expect volume growth in the second half as our backlog remains strong for oil and gas. CAT reciprocating engine and solar turbine demand for power generation |
1,386 | CAT | 2 | 2,024 | 2024-08-06 08:30:00 | Caterpillar Inc. | 259,378 | half as our backlog remains strong for oil and gas. CAT reciprocating engine and solar turbine demand for power generation is expected to remain strong, largely due to continued data center growth relating to cloud computing and Generative AI. Industrial demand is expected to remain at a relatively low level compared to 2023 in the second half. In Transportation, we anticipate growth as the year progresses in both high speed marine and rail services. Moving to Slide 7. I'll provide an update on our sustainability journey. We are contributing to a reduced carbon future and continue to invest in new products, technologies and services to help our customers achieve their climate related objectives. In April, Caterpillar and Vale signed an agreement to test battery-electric large mining trucks as well as to conduct studies on ethanol powered trucks. Progress has been made on both initiatives since the agreement was signed, including conducting a joint study on a dual-fuel solution for haul trucks operating on ethanol and diesel fuel. We are supporting Vale's sustainability objectives. In June, we added CAT CG260 Gas Generator sets to our portfolio of commercially available power solutions capable of running on hydrogen fuel. Previously, our portfolio with this capability ranged from 400 KW to 2,500 KW. The addition of the CG260 now provides up to 4,500 KW of electric power for continuous, prime and load management requirements and is approved to operate on gas containing up to 25% hydrogen by volume. Caterpillar offers retrofit kits to upgrade CG260 Generator sets already installed with these same hydrogen capabilities. In addition to our hydrogen capabilities and reciprocating engines, solar turbines has been a leader with its ability to burn a wide variety of fuels, including hydrogen, natural gas and biofuels. Today, Caterpillar has a large and growing lineup of technologies to support customers in their sustainability journey. These two examples highlight how we are helping our customers build a better, more |
1,387 | CAT | 2 | 2,024 | 2024-08-06 08:30:00 | Caterpillar Inc. | 259,378 | customers in their sustainability journey. These two examples highlight how we are helping our customers build a better, more sustainable world. With that, I'll turn it over to Andrew. |
1,388 | CAT | 2 | 2,024 | 2024-08-06 08:30:00 | Caterpillar Inc. | 259,378 | Andrew Bonfield: Thank you, Jim, and good morning, everyone. I'll begin with a high level summary of the quarter. Then I'll provide more detailed comments on our second quarter results, including the performance of the segments. Next, I'll discuss the balance sheet and free cash flow and then conclude with comments on our assumptions for the remainder of the year. Beginning on Slide 8. Although sales and revenues were slightly below our expectations, we had strong operating performance in the quarter, including higher adjusted operating profit margin and record adjusted profit per share, both of which were stronger than we had anticipated. Sales and revenues of $16.7 billion decreased by about 4% compared to the prior year. Adjusted operating profit increased by 2% to $3.7 billion. And the adjusted operating profit margin was 22.4%, an increase of 110 basis points versus the prior year. Profit per share was $5.48 in the second quarter compared to $5.67 in the second quarter of last year. Adjusted profit per share increased by 8% to $5.99 in the quarter compared to $5.55 last year. Adjusted profit per share excluded restructuring costs of $0.51 per share mainly due to a loss on the divestiture of two non-US entities. This compares to restructuring costs of $0.05 per share and a discrete deferred tax benefit of $0.17 per share, which were both excluded in the second quarter of 2023. Other income of $155 million for the quarter was a $28 million benefit versus the prior year and was primarily driven by favorable impacts from commodity hedges. The provision for income taxes in the second quarter, excluding discrete items, reflected a global annual effective tax rate of 22.5% compared with 23% in the second quarter of 2023. Finally, the year-over-year impact from the reduction in the average number of shares outstanding primarily due to share repurchases over the past year had a favorable impact on adjusted profit per share of approximately $0.29. Moving on to Slide 9. I'll discuss our top line results in the second |
1,389 | CAT | 2 | 2,024 | 2024-08-06 08:30:00 | Caterpillar Inc. | 259,378 | on adjusted profit per share of approximately $0.29. Moving on to Slide 9. I'll discuss our top line results in the second quarter. Sales and revenues decreased by 4% compared to the prior year as lower volume was partially offset by favorable price realization. Lower volume was mainly driven by the impact from the changes in dealer inventories. As you may recall, we anticipated a sales decline this quarter versus last year as an atypical dealer inventory increase in the second quarter of 2023 made for a challenging comparison. To explain, dealer inventory decreased by about $200 million in the second quarter. In comparison, we saw an increase of $600 million in the second quarter of last year. For machines only, dealer inventory followed the typical seasonal trend this quarter with a decrease of $400 million as compared to a $200 million increase in the second quarter of last year. Sales were slightly below our expectations due to lower-than-expected volume being partially offset by better-than-expected price realization, including geographic mix. Moving to operating profit on Slide 10. Operating profit in the second quarter decreased by 5% to $3.5 billion. This included a $227 million unfavorable impact from higher restructuring costs. Adjusted operating profit increased by 2% to $3.7 billion. Price realization benefited the quarter while the profit impact of lower sales volume acted as a partial offset. The adjusted operating profit margin of 22.4% improved by 110 basis points versus the prior year. Margins were better than we expected mainly due to favorable manufacturing costs, product mix and price. Versus our expectation, price was slightly better than we anticipated driven by Energy & Transportation. On Slide 11, Construction Industries sales decreased by 7% in the second quarter to $6.7 billion. This is primarily due to lower sales volume, partially offset by favorable price realization. Sales volume was impacted by unfavorable changes in dealer inventories. Dealer inventory was about flat in the second |
1,390 | CAT | 2 | 2,024 | 2024-08-06 08:30:00 | Caterpillar Inc. | 259,378 | Sales volume was impacted by unfavorable changes in dealer inventories. Dealer inventory was about flat in the second quarter of 2024 versus an increase in the second quarter of last year. Lower sales to users also impacted volume. Sales in Construction Industries were lower than we had anticipated due to lower-than-expected rental fleet loading in North America and continued weakness in Europe. By region, sales in North America were about flat and Latin America sales increased by 20%. Sales in the EAME region decreased by 27%. In Asia Pacific, sales declined by 15%. Second quarter profit for Construction Industries was $1.7 billion, a 3% decrease versus the prior year. This was mainly due to lower sales volume, partially offset by favorable price realization, which benefited from geographic mix effects. Favorable manufacturing costs provided some tailwind as well largely reflecting lower material costs. The segment's margin of 26.1% was an increase of 90 basis points versus last year. Margin was better than we had expected primarily due to a favorable product mix and the timing of planned SG&A and R&D spend. Price was in line with our expectations. Turning to Slide 12. Resource Industries sales decreased by 10% in the second quarter to $3.2 billion, which was about in line with our expectations. The decline was primarily due to lower sales volume, partially offset by favorable price realization. Sales volume was impacted by changes in dealer inventories as dealer inventory decreased more during the second quarter of 2024 than during the second quarter of last year. In addition, we saw lower sales to users in the segment as anticipated given the challenging comparison. Second quarter profit for Resource Industries decreased by 3% versus the prior year to $718 million. This is mainly due to lower sales volume, partially offset by favorable impacts from price realization and manufacturing costs, including lower freight. The segment's margin of 22.4% was an increase of 160 basis points versus last year. Margin was |
1,391 | CAT | 2 | 2,024 | 2024-08-06 08:30:00 | Caterpillar Inc. | 259,378 | costs, including lower freight. The segment's margin of 22.4% was an increase of 160 basis points versus last year. Margin was better than we had expected mainly driven by the timing of planned SG&A and R&D spend and a favorable product mix. Now on Slide 13. Energy & Transportation sales increased by 2% in the second quarter to $7.3 billion. The increase was due to favorable price realization, which was partially offset by lower sales volume driven by industrial, which declined in line with our expectations. The segment sales were slightly better than we had anticipated primarily driven by price. By application, power generation sales increased by 15%. Transportation sales were higher by 7%. Oil and gas sales improved by 4%, while industrial sales decreased by 21%. Second quarter profit for Energy & Transportation increased by 20% versus the prior year to $1.5 billion. The increase was primarily due to favorable price. The segment's margin of 20.8% was an increase of 320 basis points versus the prior year. Margin was significantly stronger than we had anticipated due to better price and lower-than-expected manufacturing costs, which largely reflected favorable inventory absorption, lower freight and lower material costs. Moving to Slide 14. Financial Products revenues increased by 9% to about $1 billion primarily due to higher average financing rates across all regions and higher average earning assets in North America. Segment profit decreased by 5% to $227 million. This was mainly due to a higher provision for credit losses, which largely reflected the absence of a nonrecurring reserve release from the prior year. The portfolio remains healthy as past dues of 1.74% on near historic lows and reflect a 41 basis point improvement compared to the prior year. In addition, the allowance rate was 0.89% our lowest rate on record. Business activity remains healthy as new business volume increased versus the prior year primarily driven by North America. We also continue to see healthy demand for used equipment where |
1,392 | CAT | 2 | 2,024 | 2024-08-06 08:30:00 | Caterpillar Inc. | 259,378 | versus the prior year primarily driven by North America. We also continue to see healthy demand for used equipment where inventories remain close to historical low levels. Moving on to Slide 15. We generated $2.5 billion in ME&T free cash flow in the second quarter and we expect our full year free cash flow to be in the top half of our annual target range of between $7.5 billion to $10 billion. Our expectations for CapEx remain between $2 billion and $2.5 billion for the year. On share repurchases, the more than $1.8 billion deployed in the second quarter included a $1 billion accelerated share repurchase agreement. Approximately 75% of those shares were delivered to the company upfront with the balance to be delivered when the agreement is terminated prior to year-end. Note that we also had an ME&T bond maturity of $1 billion in the second quarter. And given our healthy liquidity position, we did not issue new bonds. Our balance sheet remains strong with an enterprise cash balance of $4.3 billion. In addition, we hold $1.8 billion in slightly longer-dated liquid marketable securities to improve yields on that cash. Now on Slides 16 and 17, I will show our high-level assumptions for the remainder of the year. As Jim mentioned, we now anticipate sales and revenues to be slightly lower this year versus the record 2023 level. This compares to our previous expectation for broadly similar sales. This change reflects an updated assumption of a slight reduction in machine dealer inventory, primarily in Resource Industries and lower-than-expected sales to users in Construction Industries mainly due to lower rental fleet loading in North America. Now specific to our second half assumptions. We typically see higher sales in the second half as compared to the first and we expect sales to follow that normal seasonable trend this year. As compared to the prior year, we now anticipate slightly lower sales in the second half driven by lower machine sales to users. Changes in dealer inventories and machines are expected to have |
1,393 | CAT | 2 | 2,024 | 2024-08-06 08:30:00 | Caterpillar Inc. | 259,378 | in the second half driven by lower machine sales to users. Changes in dealer inventories and machines are expected to have a nominal impact as the decrease in the second half of this year should be similar to the decrease observed in the second half of 2023, which was about $1 billion. However, note that machine dealer inventory changes will impact the quarters differently as we expect a sales headwind in the third quarter as dealers built their inventories in the third quarter of 2023 and a sales tailwind in the fourth quarter due to a smaller inventory decline than the prior year. Finally, we continue to anticipate services growth in the second half of the year as we strive to achieve our 2026 target of $28 billion in services revenues. Moving on to our margin expectations. As Jim mentioned, the strength of our first half performance combined with the more favorable expectations for the second half mean that we now anticipate overall adjusted operating profit margin to be above the top end of the target range for the full year. Specific to second half margins, despite higher sales, we do expect lower margins versus the first half, which follows a typical seasonable trend. However, keep in mind that first half margins were at record levels and the magnitude of the second half decline may be slightly larger than is typical. As compared to the prior year, we expect our adjusted operating profit margin in the second half will be similar to the prior year level. While we anticipate some favorability in manufacturing costs on improved operational efficiencies, we do expect slightly lower volumes and a slight headwind from price in the second half versus a year ago. On price, the impact of lapping the increases taken in the second half of 2023 means that the benefit in the second half of this year will be significantly lower. In addition, we expect that improved availability across the industry will result in the normalization of the pricing environment. To assist you with your modeling for the full year, please note |
1,394 | CAT | 2 | 2,024 | 2024-08-06 08:30:00 | Caterpillar Inc. | 259,378 | will result in the normalization of the pricing environment. To assist you with your modeling for the full year, please note that we now anticipate restructuring costs of around $450 million and that our expectations for the annual effective tax rate, excluding discrete items, remains at 22.5%. Now on Slide 18. I'll provide a few comments on the third quarter, starting on the top line. We expect slightly lower sales and revenues in the third quarter compared to the prior year as we anticipate a dealer inventory headwind for machines, which will impact volumes. We expect dealer inventory machines to be flattish to slightly lower in the third quarter as is typical, which compares to the atypical $400 million increase in the prior year. We also anticipate lower machine sales to users versus a strong comparison. We expect flattish price realization in the third quarter versus the prior year due to the normalization that I mentioned a moment ago. We also anticipate that the ongoing benefit of our service initiatives will positively impact sales in the third quarter. By segment in the third quarter compared to the prior year, we anticipate lower sales in Construction Industries primarily due to a headwind from changes in dealer inventories. In Resource Industries, we expect lower sales as sales to users are impacted by a challenging comparison similar to that which we have observed in the first two quarters of this year. In Energy & Transportation, we anticipate higher sales versus the prior year, supported by strengthen in power generation, oil and gas and transportation. Lower sales in industrial should act as a partial offset. For enterprise margins in the third quarter, we expect similar adjusted operating profit margin compared to the prior year as we anticipate lower volume will be offset primarily by favorable manufacturing costs. By segment in the third quarter, in Construction Industries, we anticipate lower margin compared to the prior year on lower volume and slightly unfavorable price realization. |
1,395 | CAT | 2 | 2,024 | 2024-08-06 08:30:00 | Caterpillar Inc. | 259,378 | Industries, we anticipate lower margin compared to the prior year on lower volume and slightly unfavorable price realization. Favorable manufacturing costs should act as a partial offset. For Resource Industries, we anticipate slightly lower margins in the third quarter compared to the prior year due to unfavorable volume and higher SG&A and R&D spend. In Energy & Transportation, we expect a higher margin versus the prior year and stronger volumes and favorable price realization. So turning to Slide 19, let me summarize. Strong execution and operating performance continued in the second quarter. Higher adjusted operating profit margin of 22.4% offset the decrease in sales and revenues and led to a record adjusted profit per share of $5.99. We now expect overall adjusted operating profit margin to be above the top end of the target range for the full year based on our expected sales levels, which should now be slightly lower than levels in 2023. The net of these factors leads to our current expectation for higher adjusted operating profit and adjusted profit per share as compared to what we contemplated at the beginning of the year. ME&T free cash flow generation was $2.5 billion in the quarter. We continue to expect to be in the top half of our target range for the full year. We have deployed $7.6 billion to shareholders through share repurchases and dividends in the first half of 2024. We continue to execute our strategy for long-term profitable growth. And with that we'll take your questions. |
1,396 | CAT | 2 | 2,024 | 2024-08-06 08:30:00 | Caterpillar Inc. | 259,378 | Operator: Thank you. [Operator Instructions] Your first question comes from the line of Chad Dillard from Bernstein. Your line is open.
Chad Dillard: Hi. Good morning, everyone.
James Umpleby: Good morning, Chad.
Andrew Bonfield: Good morning, Chad
Chad Dillard: So I was hoping you could unpack a little bit more the price cost dynamics as we look through the second half of the year. Can you just like walk through like a segment basis in an enterprise, how to think about that? And at least for the second half do you think price cost will be positive?
Andrew Bonfield: Yes. So, overall, so let me start. Obviously, for the full year, price will exceed increases in manufacturing costs. As we look out in the second half of the year, we do expect price to moderate as we've consistently said. However, we are seeing some favorability in manufacturing costs as we saw in the second quarter and we expect that to continue. There will be a continued normalization, particularly in construction of the pricing environment as availability improves and across the industry as a whole. We expect price to be positive in Energy & Transportation in the second half. And that will offset any weakness that we may see in Construction Industries. So, overall, as I just pointed out in my comments, we do expect favorability in manufacturing costs and that will offset actually the volume decline that we expect impact on margins in the third quarter.
Operator: We'll move next to Jamie Cook at Truist Securities.
Jamie Cook: Hi. Good morning and congrats on a nice quarter.
James Umpleby: Thanks, Jamie. |
1,397 | CAT | 2 | 2,024 | 2024-08-06 08:30:00 | Caterpillar Inc. | 259,378 | Jamie Cook: Hi. Good morning and congrats on a nice quarter.
James Umpleby: Thanks, Jamie.
Jamie Cook: I guess my question -- my question pertains to E&T and the E&T margin strength in the quarter. Can you help, I mean, given, again, Jim, the capacity investments you're making in that business, how we think about the E&T margin potential over the long-term relative to Construction and Resource, given you're adding capacity there? And sort of where should we be, Jim, as we're exiting the year? How do we think about the incremental capacity that's coming online just trying to figure out how that helps potentially 2025 and 2026. Thanks. |
1,398 | CAT | 2 | 2,024 | 2024-08-06 08:30:00 | Caterpillar Inc. | 259,378 | James Umpleby: Well, thank you, Jamie, for your question. And then as you noted, we are adding capacity to increase our capability to build both large engines and part of those large engines. But it's a multiyear project and that project will take some time to play out. So it's not a 12-month program. It lasts longer than that, it takes some time. Having said that, the demand for large engines and for solar turbines for both oil and gas and power generation continues to be quite strong. So the margin increase that you saw is a reflection of higher volume, better price and also better mix as well quite frankly. So again, is there a potential for margin expansion over time in Energy & Transportation? There certainly is that possibility. Again, a lot of it will depend upon mix and again our ability to increase our capacity in large engines, which we're working very hard to do. But again, the good news is that, again, back to that power generation market is quite strong. And one of the things we're also bullish about that's possibly a bit farther out is just the opportunity for distributed generation. As more renewables are added to the grid, as there's more grid instability issues, it creates an opportunity for us, we believe, to sell both reciprocating engines and gas turbines and distributed power generation applications distributed throughout the grid. And we're very excited about that opportunity. One of the things also to keep in mind is we have a strong backlog. And the backlog increase that we reported today, of course, E&T was a big part of that. And that includes both solar turbines and our large engines.
Operator: We'll move next to Steve Volkmann at Jefferies. |
1,399 | CAT | 2 | 2,024 | 2024-08-06 08:30:00 | Caterpillar Inc. | 259,378 | Operator: We'll move next to Steve Volkmann at Jefferies.
Stephen Volkmann: Great. Good morning, guys. Thanks for taking the question. Pivoting maybe to Construction Industries. I think you both mentioned lower-than-expected rental fleet loading in the quarter as one of the trends that you called out. And I'm curious if that is -- if you view that as sort of a timing issue and maybe you can give us a sense of where you think the rental fleets are and how much kind of update and refleeting needs to be done there?
James Umpleby: Certainly. We're willing to start with this is dealer rental income was actually up for the quarter. And dealers are independent businesses and of course make their own decisions about what kind of machines and how many machines they put into their rental fleets. And there's a whole variety of things they look at there. They think about interest rates, obviously, and they think about other aspects. But we are continuing to be bullish on what we see as an opportunity around rental and we're working closely with our dealers to help them increase their rental business over time.
Operator: Our next question comes from Robert Wertheimer at Melius Research.
Robert Wertheimer: Hi. Good morning, everybody. I also wanted to circle around to E&T, where as you see the rise of data centers, I guess, the critical nature of that power backup is rising. An important question is going to be around mix and margin in the E&T segment. Is there any oil and gas, obviously, you're running, it's a great business, it's a high margin, high mix as well. Is there any anticipated mix impact if power gen kind of replaces some of the strength we've seen in oil and gas? And then more broadly, Jim, I think you mentioned kind of solar turbines in power gen. I think you've had historical strength in like combined heat and power and things like that. Is that market for solar turbines expanding visibly already in power gen to more and more applications? And I'll stop there. Thanks. |
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