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And again, if you think about the market changing, we're still very bullish on the fact longer term that we believe the energy transition will support increased commodity demand over time. That will expand our total addressable market and provide us further opportunities for long-term profitable growth.
Just think about everything that has to happen for EVs. There's no way around that being accomplished without our customers producing more commodities. And of course, they use our products to produce those additional commodities.
commoditys/EVs, good for CAT
Transcript
2024 Q1
29 Apr 24
aybe we can talk a little bit about Resource Industries. I guess one of the things that stood out to me was that pretty significant decline in dealer deliveries in this segment. And I'm curious in mining specifically. What's going on there? Are you actually starting to see maybe a pullback in demand from your customers? Is the investment cycle maturing there? Or is this just sort of a temporary aberration?
D. Umpleby
Yes.
So we had expected some softness certainly in RI this year, and we talked about that, I believe, in our first quarter call.
So a number of things.
First of all, on the positive side, the number of parked trucks and some indices that we look at to really judge the health of the mining industry.
And so some positives. The number of parked trucks is relatively low.
The utilization of our customers' products -- of our products by our customers is high and the age of the fleet is relatively elevated.
So those are positive things. Having said that, we -- our customers are displaying capital discipline, not surprising just given what's happening in the economic conditions around the world. But those indices really do bode well for us.
And in addition to that, we've seen great strength, great acceptance of our autonomous solutions.
So those have been accepted well also.
We expect a robust rebuild activity this year because our products are being used so extensively by our customers.
So again, really, I think it's just really mostly a function of a bit of a dealer inventory change and also our customers just playing capital discipline.
miners dispkaying capital sopending discipline
Transcript
2024 Q1
29 Apr 24
My question is around Cat's capabilities in power gen and data centers and so forth and how that may or may not be changing with the rise of AI and kind of massive increases in scale of data centers. Then I can ask specifically, I understand that your investment in large recips is probably partially targeted at that. My impression is that historically, solar turbines are more combined heat and power in power gen. I don't know whether they've served the data center market. I'm curious as to whether you now have an opportunity as those data centers are bigger to sell turbines into it? And just your general sense of how the world is changing in [indiscernible]
D. Umpleby
Thank you, Robert.
We are very excited about the, what we view as a secular growth opportunity around data centers, both in terms of increasing based power loads, but also the specific opportunities to serve those data centers.
So as you probably know, traditionally, we have provided a reciprocating generator sets as backup for those data centers.
But what you say is very correct that business is changing. And I believe that we are uniquely positioned because we have a combination of both gas turbines and recips that burn a whole variety of fuels.
And so we have had some projects now where we've shipped gas turbines to provide prime power for data centers because in some places, when data centers want to go into a geographic area, the utility can't handle the load of those.
And when, in fact, there's natural gas available, we've seen situations where a customer will take gas turbines, install those for natural gas to produce their own base power for the data centers. And in addition to that then, there's also the reciprocating engine gen sets as backup. It's something were to happen. But typically, again, we are seeing a change, you're right, the market's changing, and we're very excited about that opportunity.
data centers/AI inevitably
Transcript
2024 Q1
29 Apr 24
We'll move next to David Raso at Evercore ISI.
David Raso
I think some of the concern around the second half of the year sales having to be positive to offset the first half being down. It'd be helpful if you can give us a little sense of the implied orders for the quarter actually did turn slightly positive year-over-year. Can you give us any color that you can around sort of what moved in the backlog sequentially, E&T, CI, RI, just so we can get a sense of was the order improvement year-over-year solely E&T. Was there any order improvement year-over-year in RI and CI just to maybe build more confidence in the second half of the year sales growth?
And of course, any color around some of the E&T orders, you get the impression some are very long-dated orders.
Just trying to get a sense of that order flow in E&T, how soon can those orders show up in revenues.
D. Umpleby
So David, let me ask the last part of your question first.
So in terms of E&T, about 80% of our total Cat backlog is expected to be sold within 12 months. And we don't put orders into the -- we don't put things into the backlog unless we have a firm customer order.
So we work really closely with our customers as an example with customers that are looking for large engines for data centers. And we have a sense going out multiple years of what it is they want. But we don't put any of that into the backlog until they give us a firm order.
So it doesn't -- our backlog doesn't go out as far as you might think.
So I'll start with that, and then I'll turn it over to Andrew for the first part of your question.
how H2 sles will be better ---- backlog
Transcript
2024 Q1
29 Apr 24
I'll discuss our expectations for the second quarter, starting with the top line.
We expect lower sales in the second quarter compared to the prior year as we anticipate a headwind due to changes in dealer inventory of machines which will impact volumes.
We expect the dealer inventory machines to decline this quarter in line with normal seasonal trends versus the atypical $200 million increase that occurred in the second quarter of 2023.
However, we anticipate a continuation of healthy demand across most of our end markets for our products and services and price is expected to remain positive year-over-year.
Following the typical season of the pattern, we do expect higher sales in the second quarter as compared to the first.
By segment compared to the prior year, we anticipate lower sales in Construction Industries as we expect changes in dealer inventory to act as a headwind. Favorable price should that provide a partial offset.
We expect lower sales in Resource Industries versus the prior year driven by lower volume, partially offset by favorable price. In Energy & Transportation, we anticipate similar sales versus the prior year. On enterprise margins in the second quarter, we expect the adjusted operating profit margin to be similar to the prior year and lower versus the first quarter following the typical seasonal pattern.
As compared to the prior year, we expect that price will remain favorable from the continued carryover benefit from increases taken in the second half of 2023.
We expect flattish manufacturing costs compared to the prior year as favorable freight is expected to offset the impacts of unfavorable cost absorption.
We also anticipate an increase in SG&A and R&D expenses related to strategic investments although this will be offset by lower short-term incentive compensation. By segment, in both Construction Industries and Resource Industries, we expect similar margins in the second quarter compared to the prior year as we expect favorable price to be offset by lower volume.
In Energy & Transportation, we expect a higher margin versus the prior year on better price and favorable mix. Unfavorable manufacturing costs and SG&A, and R&D spend related to strategic investments are expected to act as a partial offset in this segment. Note that we expect a headwind to enterprise margins and corporate costs in the quarter where we anticipate unfavorable year-over-year impacts from timing differences.
Q2 guide
Transcript
2024 Q1
29 Apr 24
We continue to expect slightly favorable price realization versus the prior year.
only "slightly favorable price realization"
Transcript
2024 Q1
29 Apr 24
Although our top level sales expectations remain the same, segment inputs have shifted a bit.
We now see a slightly stronger top line in Energy & Transportation after a strong first quarter, while our expectations have been tempered slightly in Construction Industries due to economic conditions in the European market
E & t outlook better, CI weaker due to Europe
Transcript
2024 Q1
29 Apr 24
For the full year, we expect to be in the top half of our ME&T free cash flow target range, which correlates to between $7.5 billion and $10 billion. We still expect to spend between $2 billion and $2.5 billion in CapEx and we will continue to prioritize investments around AACE, which is autonomy, alternative fuels, connectivity and digital, and electrification.
fcf-- 7.5-10
Transcript
2024 Q1
29 Apr 24
Our portfolio continues to perform well as past dues remain near historical lows at 1.78%, a 22 basis point improvement compared to the first quarter of 2023. This is the lowest first quarter past dues since 2006.
In addition, the allowance rate was our lowest on record of 1.01%. Business activity remains strong as new business volume increased versus the prior year, primarily driven by North America.
past dues at very low rate
Transcript
2024 Q1
29 Apr 24
First quarter profit for Construction Industries was $1.8 billion, a slight decrease versus the prior year. The decrease was mainly due to lower sales volume, partially offset by favorable price realization and manufacturing costs. The segment's margin of 27.5% was an increase of 100 basis points versus the last year. This was better than we had expected due to favorable manufacturing costs, which largely reflected lower freight costs.
CI good msgn although volume not as good as expected
Transcript
2024 Q1
29 Apr 24
largely due to continued data center growth relating to cloud computing and generative AI
data center/AI
Transcript
2024 Q1
29 Apr 24
Energy & Transportation. I
E & T outlook
Transcript
2024 Q1
29 Apr 24
Resource Industries
RI outlook
Transcript
2024 Q1
29 Apr 24
Construction Industries.
CI outlook
Transcript
2024 Q1
29 Apr 24
As I mentioned, we anticipate that our 2024 results will be within the top half of our target ranges for both adjusted operating profit margin and ME&T free cash flow.
op mgn and FCF in top half of ranfge
Transcript
2024 Q1
29 Apr 24
We currently do not anticipate a significant change in dealer inventory of machines in 2024 compared to a $700 million increase in 2023. This is expected to be a headwind to sales in 2024.
As a reminder, dealers are independent businesses and manage their own inventories.
sales headwinds due to deaker inventoty not changing much
Transcript
2024 Q1
29 Apr 24
The total level of machine dealer inventory is comfortably within the typical range.
dealer inventory in rsange
Transcript
2024 Q1
29 Apr 24
Power generation sales to users grew as market conditions remain favorable, including strong data center growth.
power generation benefittred from data center
Transcript
2024 Q1
29 Apr 24
In Energy & Transportation, sales to users increased by 9%. Oil and gas sales to users benefited from strong sales of turbines and turbine-related services.
E & T good
Transcript
2024 Q1
29 Apr 24
Compared to our expectations, sales volume was slightly lower, while price realization, including geographic mix, was better than we anticipated. Compared to the first quarter of 2023, overall sales to users decreased 5%. This was slightly lower than we expected, mainly due to weakness in Europe for Construction Industries. Energy & Transportation continued to show strength where sales to users increased 9%.
For machines, which includes Construction Industries and Resource Industries, sales to users declined by 9%.
Focusing on Construction Industries sales to users were down 5%. In North America, our largest geographic region for Construction Industries, sales to users increased as expected and demand remained healthy for both nonresidential and residential construction. Construction projects as well as government-related infrastructure continue to benefit nonresidential demand
volumes lower than expectattions, price better
Transcript
2024 Q1
29 Apr 24