CAT - Earnings call transcript Q1 2019

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Operator

Good morning ladies and gentlemen, and welcome to the Caterpillar 1Q 2018 Analyst Conference Call. At this time, all participants have been placed on the listen-only mode and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Jennifer Driscoll. Ma’am, the floor is yours.

Jennifer Driscoll

Thanks, Kate. welcome first and for earnings everyone, Caterpillar. morning to quarter the call Good from Caterpillar. Relations Jennifer Investor I’m Driscoll at I’m pleased CEO; to Global room and Jim have Epley, Finance with me Chairman Kyle the here Services of Division. Board President and Vice Andrew CFO; Umpleby; Bonfield, of in the

We slides presentation. on have provided company's

subject Today with statements You of under website different the along release risks we to discussed. glossary forward-looking our to results. make plan find are as the than our can assumptions slides on uncertainties and which caterpillar.com could quarterly earnings information that be the actual well the section and financial Investors to results as cause

on forward-looking actual our today's refer details aggregate to factors vary statements in earnings recent release. projections, or to results filings SEC included please For most cause in and that materially the individually to from our

adjusted mind Any loss today's righted of for pension and in and any our strictly is any call of the use report not market to are company. share earlier, of to written other intention gain this reporting the indicated exclude of lower in discrete without share the or any by Please call XXXX costs keep be post-employment the benefit copy items. is profit prohibited. As restructuring other to quarter re-measurement to expected fourth plan mark the first that adjusted per for quarter profit our as portion It's we're in year. approval

turn X:XX Investor on time. long that or caterpillar.com, X, presentation intend transcript, the please May Before To PM the I'll events And the will I any access click about then next target. turn the an call to over then differ Jim. Jim, until We X:XX remind over term and presentation. call to that, capital Day and Eastern for with PM visit to questions from allocation we investors webcast me to be webcasting let you week

Jim Umpleby

Caterpillar, happy and us to on have good morning you Jennifer. everyone at the call. with to you, We're Thank

next we targets Clayton, update of Carolina, to we mentioned Day plans. where and week in see financial our Investor enterprise an deployment capital Jennifer many North strategy, provide As hope on our you at will

in commitment provide for These services, our higher strategy the gains R&D SG&A including driven costs, to volume Turning downtime Industries rose a on services team Services of XX%. critical quarter. benefit to well enabler to expenses, returns. equipment quarter excellence. and customer our We total was maximizing share Last at contribution of foundation. more us for continued rising and benefit. to and allows a reducing ways, and another the during services in us as forward was this reflect is value variety strategy. different Expanding a global equipment and allowed markets look I'd and our as assets a flow in executing million in tax from expanding Resource investing sales sharing of demand world. greater and enables our for growth and profit X%. Construction Strong company realization. a delivering for fueled Profit like our around commitment Operating the new an X%. machine Consolidated growth. to from benefited for favorable quarter availability. grew repurchase services XXX,XXX million to additional record the Growing per our paying of grow by to in think day. manufacturing investor and is to element how first our higher Digital offset business of of about than in reflection connected addition way, price us future bringing of our added incentive are to $X.XX offerings strong and worldwide. operating we stock about per favorable upcoming by We to which quarter Growth $XXX as part profitable lower by of customer create diverse connectivity dividend needs demand to Slide included cash discrete investments of thank connected on of improving solutions a shareholder X, more This offerings $XXX assets operational strategy utilization. construction value highlight meet we stronger year price our share first strong short-term the end-user industries first demand first compensation by realization, customer led result about revenues higher with $X.XX XXX,XXX results the our price providing

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enhancing on focus to continue operational safety. excellence, including We

to always home goal our return want every all day. employees We of incidents. Our safely is zero safety

hours at worked. we of recordable injuries track XXX,XXX the for of number One metrics

we less not which define our flow, this So operating is to expenditures. free improve and and our focus are safe. XXXX, cash far operating Executing than better year, as tracking strategy flow allowing prevent we us his and on injuries priority keep X% people we miss profit to cash will capital

for we expectations free flow. our X, and cash on Day operating discuss will Investor margins our During May

Now and performance markets expectations our turning we the continue the unchanged. XXXX on confidence Slide XXXX fundamentals in diverse to for to end outlook X, have of are

we of range by the to XXXX in to X,XXX quarter. XXXX profit realized amount share. tax brings discreet outlook However, first we to per benefit X,XXX XXXX our the our That the of adjusted

continue We growth to cost discipline for expect modest sales XXXX. and year full continued

local let's the us, environment. believe walk infrastructure a residential with Now external we're for partly economy, will continue weakness be we funding along through healthy positive in construction. in the Construction to what seeing for In stable by that development offset Industries, U.S.

In demand remained steady remain our Latin Middle flat the and to region activity the In to expect continue in continue political Within low expect sales infrastructure East last Africa with demand strong. We to China, Europe, to economic despite remains we be year. uncertainties. this and America year. Asia-Pacific

resource investible industries, continue expect commodity For we to level. remain to most at prices

companies increasingly in invest mining becoming seeing to CapEx. willing are We

disciplined encouraging, is CapEx that remain mines While in deployment.

quarrying oil demand We to prices oil recovery, for construction away heavy remain are equipment prices equipment expect for of volatility demand generation demand. to healthy the demand ease, and power and increase Energy pipeline Later the Permian to but are in take in for first & GAAP anticipate half well in in and equipment aggregate the for U.S the a we be continues construction an the expected year, Transportation, are impacting should servicing the strong. positive. In in year. compression constraints in remain

our closer business improvements will way services. the to transportation, a Andrew Finally in in expect of With we at our including call turn financials. I over that, for look

Andrew Bonfield

you, Jim, Thank and everyone. good morning,

totaled will strategy through and walk X% year, driven and our from full execute in results our price reported by results starting updated as we outlook today Sales before record Industries with quarter, a and use to drive $XX.X first up billion both quarter strong an year. volume to last operating continue for have with We particular. for growth. realization to X execution the turning I Resource Slide model the first profitable our having revenues quarter gains the

manufacturing first per higher quarter This tax First SG&A $X.XX and driven increased increased profit due a the R&D on $X.XX year. the quarter offset investments of prior by higher XX% benefit, sales, from costs included first of higher year's share last spending per by to versus quarter. partly is share and discrete

line the and Construction Volume original price gains, partially Resource by was Industries primarily to demand quarter Industries currency. growth driven by in reflected Resource strong volume and in and let's was Sales Now realization, in top X. services. to Slide growth Industries. turn offset from equipment both revenue gains on demand and due

were North For the this construction flat versus quarter. & industry rose principally and dollar pressures year. against euro, sales strengthening, Transportation prior reflected plan. the Chinese the Australian Currency in sales dollar primary Energy America double-digits

operating X, you will I If changes to walk Slide profit. in through move the

million $XXX to and tariffs million variable July tariff material freight from profits operating and costs, started increased quarter. $XX material first realization in line shown added As million labor. fourth a while in higher Manufacturing unfavorable, increase drovethe were what million of only also direct with chart, expected. These $XXX price quarter expense quarter the of about the included higher costs Financial on contributing to levels, profit the $XXX we and due sales million the improved Remember by $XX last Products operating in for year. costs costs, volumes respectively.

some are incentive items. are have about an also have year. areas so in their impacted million. production by and despite The were while the we're R&D across. expense, suppliers low-level to last a have increased spend lower moderated, bottlenecks and in of as against spending Also investments QX our until implementation in Labor costs levels QX QX was competitors will material well the services Restructuring steel by prices rising not these quarter. including still level unfavorable Currency of ramp effect impact continue SG&A short-term primarily corporate costs contracts due So volumes. procurement are growth up for original expanded $XX these set as date. offerings, and compensation passed as after to light

million on each the performance Latin X. an to for Asia-Pacific, Slide activities. road with demand increase by QX increased and Construction sales Industries were Now, in let’s X%. North construction equipment, look new America billion, $XXX segment beginning $X.X $XXX particularly Sales for Construction EAME declined of Sales in in of higher due or million at America.

million sales were as to partly euro in was flat, offset $XX about what which Pacific down favorable China increase due EAME, dealer by smaller realization. or volumes In X% the driver $XX by the Currency inventories is in expected. we Asia or weaker and price was sales X% declined million.

America million low in $XX factors Latin contributed economic in to X% sales decline very macro a off a of or Lastly base.

by led Turning Construction higher margin on segment is costs. realization The XX.X% material XXX cost X%, more profit segment basis price manufacturing high Industries favorable decrease of profit from quarter of the points This than to was costs. of higher offset in of XXXX. was the first increase declined profit labor by freight a impact by

While as backlog moment quarter these Construction less rates. increase the saw by increase, was the we ago. the same on factors higher for mentioned orders Industries magnitude rose The costs fourth driven was and levels in production supported an a are

We continue from products to have free managed most line distribution.

Industries aggregate. Slide heavy Resource demand, the favorable XX% including of of billion, quarter $XXX the to reflected from Industries. look X, utilization price construction in solid demand The increase sales Resource go and saw We were mining XXXX. let's increased equipment sales $X.X quarter Now and at and first up quarry million equipment, services. from high

dealer particularly XX%. strong continue increased or declined production, up Industries inventories. to about ramp in $XXX backlog million Resource resulted factories as was which our sales in Asia-Pacific up with The

QX in quarter than First were orders higher XXXX.

XX%, continue new and as first Resource expect XXXX. margin equipment year. million, manufacturing sales lean Segment price to this Industries warranty sales of profit to XXXX, increased improved money in expansion well We in expect $XXX slightly material primarily Favorable including of Segment realization higher improved up in was rose versus profit year. quarter last about higher offset to costs and us was XXX costs to XX% by higher as points basis volumes. expense. due partially performance margins higher higher fright CapEx

to with to to year. X%, last and million Transportation by gained will were acquisition of million the reciprocating XX sales to profit about Transportation & decline sales the demand margin segment and one-year two currency comparable delivers by applications. in more the price partially results. reflect due engine same higher billion sheet. or of driven January America. were Jim due North in earlier. gas for in marked offset EMEA. & million review was increase manufacturing The drove Transportation XX, Energy offset quarter which due will warrantee first similar gas Energy oil than Turning $XX Industrial diesel Energy costs we quarter Favorable recently to $XX Transportation contracted driven & Segment to in and softness primarily in ENG were $X.X in X%, $XXX, related Transportation backlog sales oil Sales X%. applications decreased & sales last down offset power rail in volumes increase into or by unfavorable year's XX%. realization quarter X%. Slide generation by to more an and project by We turbines, was in XXXX. rail referred by Sales internal to higher America for anniversary or basis margins points higher freight rose timing engines The large $XX specific costs North services that expense. businesses Energy first and than by service profit by

outlook. I XXXX and through XX, Now assumptions the will walk let's to for our go Slide

for $XX.XX reflects to tax per a $XX.XX. The share from our range earlier. range now to is $XX.XX item change discrete profit of prior outlook $XX.XX Our mentioned XXXX

largely with the business assumptions Our loss unchanged. were

fundamental competence diverse continue modestly to to We have this in markets we our expect end increase and of the year. sales

We realization of about to billion This a year. be We the makes the the tailwind manufacturing also of million project to to discrete called types for costs, the costs will anticipate we unchanged full XX% higher see $X.X million. short-term at for $XXX range is out. $XXX is offset tax We $XXX annual compensation $X.X item of restructuring in incentive expected expenditures about billion. million capital rate price except

unchanged. the environment macroeconomic is assumes largely geopolitical that outlook Our

the in of in quarter, long-term ahead second of for customers to on in to from of assessment anticipate we markets variable year, including We and the Depending half the including continue stronger of oil demand strategy, value. America. gas on from enterprise additional profitable stronger North better and our internal growth margins expect based terms the was investments appropriate. execution back Looking results

make XXXX. in We repurchases pension the priorities. cash in allocation with $X the of expect expect to capital last second to will alignment share be contributions of any pension our additional we made We active description company contribution billion in the and stock third upon repurchase another depend quarter year. and market the not do due $XXX million additional quarter Any to voluntary generation

first per last So was XX let’s of and recap the following finally record today’s to It year. quarter share turn results. profit a record Slide first quarter

to updated in our We have $XX.XX $XX.XX guidance to share. profit per

profile from for the to financial back to that, call. return portion it shareholders strong our executing and the term while that question-and-answer to were Given to $X.X I able quarter, cater will strategy With begin we long billion the investing hand operator profitable of growth.

Operator

Thank Thank [Operator is now floor you. for the open gentlemen Instructions] and you. questions. Ladies

from at Jerry question first coming today Revich Sachs. Our is Goldman

Your line live. is

Jerry Revich

expect truck year wondering to large backlog that growth wondering you your are and if orders your I'm you for resources, budgets project the to utilization turn moving prospects business? expected to do on could And us when the update into over past In I'm on what resource direction. seen expectations right CapEx we’ve translate

Jim Umpleby

take it’s that Jim. one on. I’ll Yes, Jerry,

of So business levels customers. our seeing we’re mining from healthy

know we few really had production terms of oppose ramping reflection is any of demand. fact over as able ramp months. softening you particularly suppliers production the up in with up the our As chain issues of that backlog to our to been we’ve last And some a

is market strong. the again So

here production, our activity we’re in has and have in which a resulted reduction market We to continue to expect good ramping up backlog.

Jerry Revich

inventory Okay. if just could on wondering And your I'm then expand you dealer comments.

like due of we year a or inventory end This you’re at comment to words. production to the inventories up place flat really year inventory business indeed low dealer low holder is other reduce ramp to dealer that as be do It single year activity course flat for the XX? looking over inventories in or up quarter the expectation is mentioned either organically. see still sounds versus XX resource you dealer you retail end the healthy if an in first is we dealer and So accelerate to expect build see year sales of levels food

Jim Umpleby

to we we to the with a the our in did obviously, regions. making inventory work usual sure are demands. this an assumption Obviously, what in Obviously, own end so Yes, we dealers year in their be. inventory reasonable sure the order Jerry, we market making based at stage. levels that closely see control we expectations flat so levels their that make expect is align and the dealers actually first quarter seasonal the about to with inventories at our of mind keep current for appropriate. we’re on is believe that And increase be We believe

Operator

Thank you.

Our Cook Suisse. today Jamie from Credit next question is coming at

live. line Your is

Jamie Cook

margin? on I dealer how or was we price year helped, think follow shrink then on margin, either Your very the mix First know or resource level, inventory inventory of on given level sort inventory in and full And do question first restructuring any about but volume there the just dealer benefit expectation, just the from you sort than much question you. the levels? higher quarter, of a there region by comment of can Thank months dealer product? up and

Jim Umpleby

Hi Jim. Jamie, it's

also throughout we you margins was price give but don’t had guidance, by low don’t was margin first -- the driven we quarter guide good timing had of are the A of that year quite volume We yes leverage. relatively just lot first that investment quarter. know the looking as we segment well, in strong. at and As

Andrew Bonfield

across some inventories how guide. areas obviously, with biggest are sort our we level all It distribution. Obviously, product inventories, three we we of to them on target see range, in month guide to And try as would to and dealer that dealer of try and is know generally, we across keep to four regards be and sort to everywhere do groups. the

some inventory rise So products and over are levels once we time get distribution. managed those obviously could higher off lower

Operator

Research. today Our from is next coming question Wertheimer at Melius Rob

Your line is live.

Rob Wertheimer

your to look as market basis use XX you're tonnage more construction If in last over a China the or opposed if share you I you think at less doubled units. years, it

bigger last you've in You done months some that category. about what's four and growing machines talk of those do in and what's ebbing driven to of sort well cause the the well changed then in you that changes? three, Could

Andrew Bonfield

timing as prior Yes, goes which whole and than China, relatively a we obviously, with the saw the year this also to on China, in due pricing. sales selling We competitive is some is first And season, stronger those year had be market obviously, to strong now for some the quarter of across so the New -- been our full mainly but there's consistent, shares. Chinese know, China, expect the industry season flat Year, normal is Spring for year. industry impact up. in usually sector expectation China of you that very has the

the for flattish be to sales year. our expect We

we key launching to that lose back, QX, compete. it market but strategy, think So strategy enables of part dealers gain and the the some working will in the new to actions which we're us models, is which with right is share taking we also

Operator

you. Thank

Our today Duignan next JP question Securities. is coming Morgan from Ann at

live. is line Your

Ann Duignan

give targets your X% on regions. I to your price update across increase was different segments just could wondering and an if us you X%

Andrew Bonfield

Yes.

the revenues, full of impact increase, stronger the was on whole the obviously, RI midyear partly quarter, on price in Construction broadly net full which is for the on So that we ENT. price Ann, brushed segments segments which some because as across you than And $XXX increase, for in Xst saw that six it basically more That year. million. CI Industries of and the was last mostly year obviously, effect in then, January. about is about the X% That’s first price had saw or was

of pass QX anniversary but far We put get we price so of in price to realized the in expect increases second better year. be the we're QX through. once have realization, the the less prices midyear will holding price of But increase half good CI and level we particular,

Ann Duignan

cost Or the forward? should Okay. they even on And worst just that you. margins Were have happen be Thank Construction incremental weren’t specific did incremental? in going QX's think anything follow then that up Industries quick margins with those might your comparable in you context, one about though expected to you CI. how and margins we

Jim Umpleby

Yes.

comparables just about because if guidance So again the an at are, price comparables to of steel the impacted I had increases more in authorized some towards They give year. both than talk we costs I’ll detailed I as the impact tariffs we’re we broadly. and for about material middle CI, particularly But we quarter don’t rather that a talked CI. think, you see segment. last individual second of -- seeing just indeed look Freight the end

those those. and of as So we’re comparable get we still Obviously, the margins should our increases, stabilize better pass remainder ramping for the past be year.

Operator

Thank you.

from Fisher coming Steven UBS is today question next at Securities. Our

Your line is live.

Steven Fisher

how you hit for the half, of plan buyback Just more visibility buybacks. the in are the cash and guidance QX for your second you thinking year curious do general? plenty the about to Obviously, have still

similar mentioned quarter. think quarter you buybacks the I another in second

don’t have So of think conservative cautious an that is maybe you XXX the is you buybacks something making more about need you second year, buyback the you as in is there guidance? half and the that guidance visibility it’s in next might do in whereby Or the offset? the lot given a clarify guidance

Jim Umpleby

point in I year in profitability, our of year of on we're maintaining so it’s our range. this terms Yes, early the guidance think, our for

deployment. terms buybacks, Day capital next of we’re going things our bit discuss to the In is of Investor financial our a one at week

see forward having So to look we there that conversation. you

Steven Fisher

Okay. that But I is think, into now million you clarify, to is baked just guidance? for $XXX QX, the said

Jim Umpleby

quarter-on-quarter. level assumes have activity a buyback of Yes, consistent that guidance that we

Steven Fisher

Can just about building. in you about of business, later do a then the a demand construction outside on road follow you talk year? on North and you’re what seeing said And what mix American the just the up higher construction you think road

Jim Umpleby

expect the don’t remainder of local bit fact again, year. see and we change drive a major don’t the sales infrastructures, have that helping strong the we was talked and residential about of state We infrastructure for soft. we mix -- is Well, a investment

Steven Fisher

Anything commercial side? on the

Jim Umpleby

is There add. to nothing

Operator

you. Thank

David your live. at from Our today coming is question is next Institutional Evercore ISI Equity. line Raso Sir

David Raso

does your guidance utilize down for If backlog, for year year-over-year I flat implied historical imply would changes your quarter. what fourth of orders your of term look orders Is also third the year, backlog in in second should most in year-over-year sales the that the and your the your and the it half. year-over-year the XXXX? the dealers I to from at But stay the and positive maybe in year-over-year does imply and that for sequential rest the be you’re that hearing that seeing growing quarter customers full back we second half of

Andrew Bonfield

order mean of see the expect I well, to to to In to where, of replacement issues David, as are as full is Yes, expect improvement one an year increase order mining to Takeaway there obviously, we've help around given indicated, in mining a and year. started Permian And reciprocating for one couple is we on second move perspective. obviously, gas, half to the ahead, engines, is, particularly are particularly are obviously, accelerate the year, as do the CapEx from backlog continue we from we're us that moderate. things, expecting ENC, the some in starts will oil area which CapEx rate cycle

from two second would So those which would of are drive say year. we probably big orders half the the factors,

David Raso

key a numbers what And seeing the thinking in sort your imply? that aggregate Is an there what guidance. and drive in guess, be question company you're the I that year-over-year, about that orders obviously will total albeit

Jim Umpleby

that is thinking Yes, our implies. we're what and guidance

David Raso

same the orders that of the the up that regard, year-over-year year. for the full we was margins year, way second second cost the that the half price extrapolate in first in were the worst quarter your And into on Can in for cost, here you're price would if half? guiding thoughts imply of aggregate

Jim Umpleby

Sorry, just You David, clarify realization? I price price/cost? mean can

David Raso

sure growing. back XX laying price the just year. I’m than manufacturing saw of set was last which you down quarter the negative, at quarter where waterfall worse making it the actually costs this in year-over-year then out, Price, margins million we does chart, in as go yes, any that fair that to versus

Jim Umpleby

basically full manufacturing price cost said year. the well Yes, this or we've and guidance increases increases also assumes material offset for as cost

yes, an of that remainder of would imply So year? part the the of from the improvement factor that

David Raso

one. the I This the flow amount as caring, might question shareholder apologize. cash when you define very cash of think last on sheet, it, high. even on cash second fine, my equity, it and company assets, use to But can My but about equipment quick debt, cash be that's cash wish, balance to of to you total seems are cash the the you total everyone, you

the XXX, So think usage. hear you isn’t number cash to report the understand new which when do be should share level company, as I cash a the flow even for pushing CFO the Can us help specially what appropriate Andrew, you company? equipment

Andrew Bonfield

we assume I May Day. will talk about X that in

David Raso

you. Thank that. appreciate I Yes.

Jennifer Driscoll

please a caller. have reminder as per Thanks one question we And could

Operator

you. Thank

America coming is Lynch. of Gilardi at Bank from today question Merrill next Ross Our

Your live. line is

Ross Gilardi

capital like whole thing year your you portfolio this respect spending pent-up in biggest wondering overall resolved? the just with world your hearing I’m are to the field, Jim, there's trade from if what war into general, across in for next the around projects is customers demand

Jim Umpleby

all our there most through are put way certain this think, I issues. of are of large into plans optimistic trade conservatism, we cautiously of will are It think, work as Yes, customers this our does for spending. of kind. I a we our trade capital Certainly, amount that anytime tensions

in positive expect a resolved, positive for and growth be this economic the trade would us. I So tension for global that would get fact

Ross Gilardi

you say recovered February? in had mean, trends? data I recently. the on some April as trends, reacceleration commodity macro of you and January of originally quarter more the better prices say versus unfolded any and see order January in today order feels Would type March, just guided of the obviously And bit you you kind more Did as a little or could and

Jim Umpleby

certainly. Yes,

order some a oil a in know did has for rates about the just you bit fact that the and oil into and on we’re so Permian have reset, about of gas there’s the talk areas. In and a negative very sold constraints As business reciprocated engines gas. of that diverse impact our much been written

earlier, aftermarket good are activity As the is again, activity obviously, we mine activity new business, quotation the good equipment, in customers. in for about that miners feel generally cycle on our you from both we what about strong, cautious of getting past. the based our being the we’re quotation the and and segment mentioned feel quite But

Operator

you. Thank

Noah from Our next Oppenheimer question is today & Company. coming at Kay

Your is live. line

Noah Kay

you immediate on flat segment? about CapEx XX% or your driving midpoint? maybe Just budgets, of about be I there year-over-year. to you having comments Is about at increases think for guided company guidance previously particular up think provided CapEx on in infrastructure anything that your to production The you the and which ramp just slide in together to the the

Jim Umpleby

No. would production the of I can’t big think, I is be below book that significant positive a required. last flow end cash CapEx is expecting we depreciation me flattish, from bottom that and that say a year build still generally, perspective. so -- it And about There’s was incremental it are no up reminds X.X, I to of range.

Andrew Bonfield

there? you are Kate,

Unidentified Company Representative

a question had for Jim you.

Operator

you. Thank

at question is Our Fargo Securities. Well from Casey next coming today Andrew

is live. line Your

Andrew Casey

QX is juxtaposing QX, costs and I'm little against margins in trying to understand QX. versus where a gone last a half it then seasonally in the QX typical the back comments year period improvement. decline about And down manufacturing bit from

further You the answered and unclear. second I'm to might be then higher still little have manufacturing margin we than in QX half? QX expect improvement it, but Should

Jim Umpleby

tariff to result comps the margin and last year a as of it if QX, for seal the you obviously, freight costs. be this is, What compared lower was year, will look No. the

increases QX the We those there’ll and be last half the obviously effect through, on will as in not we go be year, QX similar of of most because, in year. those to then fully the moderate for expect moderate won't obviously, second impact

Operator

Thank you.

coming today Our Partners. Joe question Vertical at from is next O’Dea Research

live. line Your is

Joe O’Dea

A related talked I manufacturing the question and on just costs, related think tariffs costs. you've to

just and a If about you like to But opportunities that But any anymore, could in it a there any to some kind kind process could wanted comps there at we given easier. in you get and more to mitigating I of take down those pretty rerouting have. headwind doesn't It's wait was just all understand down. whether actions quarter, that that's that see are what for then supplies if break if address opportunities sound XXX that's see? other the whether medication you substantial

Andrew Bonfield

Yes.

two just where around lag of look, obviously, which one our So because some currently, because steel effect you the the later of, with probably purely this do year, mitigation, prices, said, we there And as practices. are we behind the is procurement I areas expect areas slightly slightly some we Vale benefit going obviously product potential this be be issues cost prices steel savings. should to are some but that’s price later all one of looking for at through where there coming And as year. looking of lower higher, or

bottlenecks. really other we're some the issues burden, having production, which is that fact also our obviously is around which basically The around variable we liable area, as building

result as we So mitigate expect a and well. of supplier of rest issues, as those during the the to year

are expect these mitigated some just comp by actions not we by taking. do but we also So we of actual the period,

Joe O’Dea

related XQ and there those think happened reflect least presumably when fully to on the already X, effects actions were again Jan doesn’t of because which just degree at in X, price what And that to might've about some implemented? you been on things Jan lag effective some on could seeing talk increases about some is and then we But still that we the XX, backlog. lag pricing, I also price then midyear implemented mean,

Andrew Bonfield

was that the one baked expect That half that's the in do of the -- the biggest midyear price be fully of half lower because we is price above is realization now. factors than the X% enterprising of -- Yes, year. obviously rise increase in in to the first the second last

lower. So basically we to be guided cost had manufacturing price I to as increases. said have would And offset half second we expect

Operator

Thank you.

from Seth question today coming next Our at Markets. Weber is RBC Capital

Your is line live.

Seth Weber

I in guess first quarters a -- traditional is big your on towards does versus skewed the first Is just equipment? construction? were comment fourth up quarter. clarification that that that the orders mining quarrying include Or more that or the Jim,

Jim Umpleby

said was order strong activity remains I what our think in eyes. I Yes, our

gave quotation comparison. healthy. order is is the again, activity So activity But a general hopefully, quotation And I strong. quarter-to-quarter and activity

Andrew Bonfield

an rate was than XXXX. my I higher Yes, -- did think, higher QX overall actually comment, QX I it think in say order from was actually prospective was QX I

-- -- some though some the coming strong see increase mining, and it was that we was So there did moment. ag was through. at That Korean still increase in in

Seth Weber

up lot side. really equipment on as is OE RI as question get And mean are service really and tilt sounds the would picking then again, it a I today just to mix the sales my of more. like usage the you on you towards expect starts more parts

favorable later next So Thanks. mix just become could the or guess wondering in even I'm more year? year I

Jim Umpleby

the the it's healthy O&E are mean towards point, that give didn't so We at at impression to quite this moment. both skewed

Operator

Thank you.

question from & Our Stephen coming Jeffries Company. is at Volkmann today next

is line Your live.

Stephen Volkmann

spending some And also half well? And Most been if initiatives. you being a bit answered, of SG&A to there curious think that in of fade there’s I sort can give little then the elevated commentary growth detail that. its about any I'm was second but some as around does due

Jim Umpleby

the profitable We continue of make area -- growth offerings. targeted investments in more we connect In for to expanded to continue term investments in and services, assets. long services

more our We’re investing in platform. digital

We’re we And product to to well our have for right and around that world. offerings offerings analytics. different ensure the point the investing price we continue product as expanded develop right markets in

obviously, for and investments long So we’re to targeted we’re offerings. making expanded this in the services haul, again, and grow those

Andrew Bonfield

run credit would SG&A. rate you you this and than through was the the coming compensation got And higher normally -- remember, short-term incentive slightly year

which also, the the were well. very business one-time some was itself compensation some in obviously, there made Jim And items corporate we’ve items also to of at helped as that corporate there’s retail was said, investments relating in level. So some that there

low very very last and spend. for quarter a had comps had in We ramp of low SG&A year R&D slow last the also year. up of We first

Stephen Volkmann

this is of And looking half forward or loaded? sort steady it burn is

Andrew Bonfield

first is through the reminder highest increase the the quarter mean I one of perspective year. of from of SG&A spend the levels an

Operator

Thank you.

Research question Adam next from Company. at today is Colman Cleaveland Our coming

Your live. line is

Adam Colman

trends one to that the business the but you was across the power churn if quarter, here the wondering almost this slowed within have order sales retail you’re E&T flat. about seeing that was could I talk area of growth sales

by I that you’re the wondering for could product of order if what talk chunk and business? line book So was geography and about you the seeing

Jim Umpleby

Powergen seen we’re to of we continue. to months few last the that business in recovering cocoon strength continue is a for over expect we that area business Obviously, a But healthy. in and be that that to and can previously recovery an had downturn expect now we had that It a us. a from. We is bit of

Adam Colman

your still E&T, you oil order gas earlier comment? across And any Have mentioned you that’s had in for that half. yet resent entrants trends you to that then the of related on the and improvement expect far in that, or improve second so seen

Jim Umpleby

Again gas and compression remained steady. is strong

haven’t portion We well But that to rates reset expect servicing in again, order gas come. and for oil a the we of seen yet. pickup and

Another is, Turbines, course, steady. and part of business has that of our oil Solar and remained business gas

a orders, pickup typically We’re will big seeing there and in CapEx oil tied which more there projects, international prices. the to are be

So up. that business is starting pick

Operator

you. Thank

Our next Blaire. Larry Maria William at question today De from is

is live. line Your

Larry De Maria

perhaps should curious that But after do secondly imbalanced? about getting that? when much things And And question, incentive comp And dealer manage balance First when Thank that? down. is question, do I is we year can you. around, we in restrained? CI selling full broader I'm is being a benefit? then when just how more more just spring restrained you just distribution. provide the come season the about think How how that maybe have get think

Jim Umpleby

we And here incentive year. on that few manage benefit the happen for year $XXX anticipate again, terms in distribution situation. to what's I there question million place. compared first and over the next months supply major change we in on obviously about market last how comp, dynamic it's CI, a situation into of based up expect ramp don’t So this the

Larry De Maria

whack shouldn’t on out towards, We that in equilibrium orders, probably more get fair? Okay. year. is of now. than situation, this later Based maybe may CI get more already the Is more

Jim Umpleby

Yes.

for reminder year, the to expected of We be the broadly yes. flattish

Operator

Thank you.

Our Bank from Dillard next Chad Securities. question today at Deutsche coming is

live. Your line is

Chad Dillard

into past Resource seen in I to the So dig Industries realization quarter. want in price the

basis? mix. understand a to go forward And I was? about that how the broad-based And want by how extend, driven on should how to it it Just and those was sustainable think

Jim Umpleby

very mean, be to I strong again, in price the Yes. was year. do highest QX, the and expect RI it for utilization, in quarter we

So There that little an it element yes, number of little bit mix I to through. bit. is a mean, come in wish was

yes. So

Andrew Bonfield

project business based quite and Right, because it’s lumpy. a

of and the for You will just beast for see the certain metrics jump show around nature off quarter-to-quarter. It's RI. rail for

Chad Dillard

of like It on a just Cat bit then Got uptick credit is Financial. it. little And loss on allowances. question seems there a

driving to regional color or a markets? that’s hoping either Just little bit on get perspective that end from additional

Jim Umpleby

the actual actually QX. to X.XX% from Financial, Cat views were in mean, in up QX I So, in past X.XX%

the has increase, we small that year-over-year increase obviously, Cat very on which Financial had the past mostly talked reflects an impact about which So quality the a in bigger portfolio, views. of QX, overall obviously

Remember just the probably effectively are to had we an we Cat -- market that had quarter. and a gain to seeing that loss last Financial You this also, on offset quarter is market this mark a loss in mark in quarter-on-quarter.

Operator

Morgan Our today at next question Stanley. from Yakavonis Courtney coming is

line is live. Your

Courtney Yakavonis

bit we from last addition there we the over in talk affecting you the bit half a lapping in whether obviously of well? entire and a outlined how prices in maybe be the should on just we’ve costs contracting little rates half freight in the Andrew, mitigate from year to a costs see bit about comment should just labor medication variable back drop, how whether your I you think that freight stock little the are Can And costs little steel and year. about seen out? but back as

Andrew Bonfield

the did factors one from were year. costs, obviously which which is Yes, probably last cost two freight actually mostly driving rise, so second there quarter itself,

on sometimes again, we half second should So a comparable of past basis year. get the that in

orders. less The it an issue other us factor year of last which of and becoming a issue was for around backlog is big

have we as going fill, we that again those we’re inefficiencies, and make as some to need sure can we orders So freight best past we to as few we had working forward. mitigate have

Courtney Yakavonis

should kind how some just deliveries this just quarter. want year, then other some or due product And the quickly, to gas of gas you’re of of I that weakness of especially in you compression given one understand oil impact mentioned had is think back to still clarification, this that half expecting timing turbine up and the

shoes the and take to half trying back acceleration So moves and just in and to just takes understand all segment. and expect away oil gas the the that come in

Jim Umpleby

separate that and it those is try Yes. rack don't very and a has can project very at it have again mind you quarter big and is large your decline. to versus I separately. impact there one large turbine business a look in so revenue project that so reset you a turbines, I would also lumpy

our Solar expect we business good again, and year. is solid Turbines So a

intake again and and research, have slowdown we the we of in we the a bit compression seen oil expect earlier, in strong the as order the saw I in well year. mentioned and to gas On that recover later servicing,

Operator

you. Thank

coming Our today Research. Neil at is next Frohnapple question from Buckingham

Your live. line is

Neil Frohnapple

out? to what you’re from be any Within used-equipment standpoint? Are the CI, as equipment seeing like about categories seeing concern talk of price you at you weakness can a all you for creeping look major

Jim Umpleby

that auction that was well. Neil, been in the actually flattish. generally, mean, from done aside There but from, weakness Orlando I there we is prices one in found where was

holding that well from particular. up reasonably above one be used-price equipment So seems to

Jennifer Driscoll

I Thanks. one believe question. more have time And for Kate, we

Operator

Thank you.

final today Mig from is coming at Baird. question W. Robert Dobre Our

Your line is live.

Mig Dobre

sounds expand customers related And your right say through this to amount driving in going I the the to you’re demand this feel that and maybe from to starting some of half eventually, as has back that that message to the of that So of amount sure you forward. is XXXX the quarter of serve come properly you resources, back to your positivity? had commentary more there? of you industry talking it me what’s incremental like to this capacity kind replacement kind have get been, positive want make don’t to in do to going quarter the than demand fourth available I about of want terms here put what at how you’re and but I here,

Jim Umpleby

Yes.

mean, aftermarket the the good. business, activity again, activity feel So good, about is just quotation we our I say is to good

We parked that thinking down. of terms and certain come has equipment about have certainly

generally expect to believe are so positioned, presumptuous be And is we will but customers seeing. this there won't all issues And about and our the recovery obviously, you as positive will so continue. our this make let's based feel we make think RI judgment happen next on what happen year, I call is we're thinking year, think business conversations, what activity to but we a to timing about how that you and

Mig Dobre

capacity And from a standpoint?

Jim Umpleby

very its situational right. -- It's

still depends a it's bit being areas commodity there mined. In So geographic kind there in and it's of not. is also excess that on certain the is areas of other capacity,

give we mix really so bag, a one answer it's can't question. to really And that

Andrew Bonfield

We're still significantly the below levels, previous which we saw peak. in

meet capacity of most we we've to sufficient believe demand. So

Mig Dobre

provide Right. pricing, last It you some versus in weaker the company, the the well, question one of then either various is done was obviously, been rest And wondering where I'm downturn on asking. deviation be restructuring that positive can Thanks. any a from perspective just reported lot might the little has is average that’s negative? I there or is that been segment as E&T which pricing why there and businesses on in of

Jim Umpleby

services mix I think, of occurred higher that as E&T obviously in mean, pricing I a probably well. as the generally, actions

of spread would Some through price increase. model that the

significant more be in obviously and So machines, broadly would CI for particular base. parts, a that RI factor. There's were particularly in

Jennifer Driscoll

for you to closing some back it turn Jim, comments.

Jim Umpleby

team's record quarter our performance, everyone your thanks appreciate Well with profit for first Sure. We're questions. for today. joining share. another per We us pleased including

excellence. Investor of our We operational you again an update you strategy. week. May Day many out strategy executing see investing there about Day improving offerings are next at Investor services, expanding and lay And are of look to in XX forward our by our we we the We do in that where in in profitable give growth will we our

deployment. our to With We back financial also bit and a capital will about targets will talk priorities for Jennifer. turn I that,

Jennifer Driscoll

for Thank joining interest appreciate in the today. your you, and We Jim, everyone company. thanks Andrew, us and

Driscoll_jennifer@cat.com. can have questions, you you reach me If at

posted today earnings call relations the later If of website at section today's of you transcript on like you caterpillar.com. find investor it our will a

the after the will transcript be with website. to call we the be of X, met post Kate, mentioned. event we to our May back And operator, same on on will It call. webcast as event and conclude that, day week, will turn Next let hosting an we that our investor

Operator

Thank you, This does conclude conference ladies gentlemen. today's call. and

a lines your You wonderful day. for you phone may time disconnect this and Thank participation. your at have

Jennifer Driscoll	Investor Relations
Jim Umpleby	Chairman, Chief Executive Officer
Andrew Bonfield	Chief Financial Officer
Kyle Epley	Vice President of Global Finance Services Division
Jerry Revich	Goldman Sachs
Jamie Cook	Credit Suisse
Rob Wertheimer	Melius Research
Ann Duignan	JP Morgan Securities
Steven Fisher	UBS Securities
David Raso	Evercore ISI Institutional Equity
Ross Gilardi	Bank of America Merrill Lynch
Noah Kay	Oppenheimer & Company
Andrew Casey	Well Fargo Securities
Joe O’Dea	Vertical Research Partners
Seth Weber	RBC Capital Markets
Stephen Volkmann	Jeffries & Company
Adam Colman	Cleaveland Research Company
Larry De Maria	William Blaire
Chad Dillard	Deutsche Bank Securities
Courtney Yakavonis	Morgan Stanley
Neil Frohnapple	Buckingham Research
Mig Dobre	Robert W. Baird

Caterpillar (CAT) 24 Apr 192019 Q1 Earnings call transcript