CAT - Earnings call transcript Q2 2020

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Q2 2020 Caterpillar Inc. Earnings Conference Call. At this time, all participants are in a listen only mode. [Operator Instructions] I would now like to hand the conference over to your speaker today, Jennifer. Please go ahead.

Jennifer Driscoll

you. Thank everyone. morning, Good second call. Caterpillar's quarter to earnings Welcome

Services Joining the this Chief Board today The are call Global Financial IR on Rengel, Chairman which of Jim Umpleby, we Finance our and of earnings Kyle today Vice our and Manager. morning. Epley, Rob Senior call Officer; President Division; our CEO; release, builds Andrew Bonfield, earlier issued

make in slides the relaunched a a the tool the find time that Investor website news Investors on organization. improved it on may presentation some with look welcome accompany new caterpillar.com. You along moment better of your any recently release our Relations have you. can out When feedback for the Sector that today's ways and We to you check take please we

and to make forward-looking slide to the are subject uncertainties. X, on statements today Moving we risks

assumptions We and that the be information for copyrighted factors to portion the than materially individually the included to will actual prior cause pension our in details We Caterpillar We news forecast. cause from settlement results has of resulting aggregate per news reconciliation the share also or SEC our any $X.XX results morning’s provide non-GAAP appendix call. today. of to a make obligations. from approval. vary our reminder to release. could use This of actual on our prohibit our without quarter a it this written in different forward-looking refer this statements year’s recent remeasurement discussed that we release could an Please the filings loss

our and Jim? Jim X to to flip let's turn CEO, the slide Umpleby. call and Now Chairman over

Jim Umpleby

and Jennifer you, good everyone. Thank morning

helping those and the customers, pandemic the responders unprecedented quarter second We well frontline. as on the as thank healthcare challenges brought The first dealers, in fight our employees for suppliers.

delivering products our workforce want society to is provide and support our infrastructure pandemic. to essential each keeping enable our during commitment Working for safe. with Caterpillar's to also that their dealers, the We customers other support thank global critical to is Caterpillar while customers that services

During health safety our and strong our this and the of safety, to employees. time Caterpillar remains is dedicated leveraging well-being culture

keeping Our uncertain managing of COVID-XX. consulting last Effective customer workforce to also including base compensation suspended of management support continuing XXXX X most discretionary three our travel reinstated senior our expenses down, employees and also We've entertainment. XXXX focusing the and inefficiencies reduced executives. for needs. weather reduced on is created salary navigating production increases July executives. the meet Short-term except all management costs by most disciplines to and is match The environment salaried will during period storm to the by structural including this demand. execution successfully years helping us strategy costs We've and employees incentive for senior remain we customer our for plans

to more operational to improving a continue cost includes on competitive. of relating excellence which teams focus Our the through worked flexible our and number challenges pandemic. We've operational making structure

of although operate, our redirecting to to substantially disruption capacity. main orders other mitigate centers worked are at We've the mid-July supply many to primary production our the across distribution by segments all parts. three prioritizing of facilities As sources, alternative most chain operating and using continue reduced impactful distribution to the

to although Our relatively fluid. work the the situation good shape, global supply is chain continue challenges. remains through in We'll

enterprise $X.X billion continue global and to billion of a strong Our our is we're ended $XX.X liquidity the customers. second and in quarter basis Caterpillar of confident serving with position On cash available ability consolidated financial our sources.

on Now slide X. a of I second the results provide summary will quarter's

industries decreased XX% we changes including North construction the XX% XX%. by Machine anticipated. mainly and in that driven of drop primarily sales reported resource user volume we was The morning less by billion by industries in by to end XX% than of sales users America. revenues decline second due users Second to to quarter decreased in quarter and a driven a decreased This lower and sales $XX by lower demand was decline dealer inventories. sales

in industrial Asia-Pacific Energy demand bright remains The transportation a to continue a for as demand improved year users and expected. led gas for to while quarter. XX% Asia-Pacific steady Power generation sales was spot. with soft reciprocating as ago by was X% in from end transportation increase user by China. oil engines machines and decline decreased and were

During was quarter inventory their continue $XXX by dealer million will the dealers of the XXXX. than billion by a of the end. details Lower The volume in the quarter. This margin with year-over-year $X their reduce by than quarter now inventories point XXXX drove we we decrease offerings. to dealers nearly in decreased quarter We for the the to In later The this basis including XXX our dealer to contributor operating second share expanded greater half decline spite second expected. highest invest in our was of call. our during programs primary challenging compares in year sales more increase R&D inventories our sales X.X%. Andrew in inventory the in environment past quarter will $X.X change more billion. of anticipate decline priority

share dividends repurchases. share quarter loss. we largely In and in year billion services returned compared Year-to-date in $X.XX the $X.XX included as have also dividend. was Profit capabilities. shareholder enhancing quarter second in our second quarterly This $X.XX digital period. million per with We $XXX share quarter the shareholders year's $X.X through the re-measurement to returned to we per for such continued our invest prior pension to via

conditions. quarterly through XXXX has a Caterpillar of paid business every a reminder challenging variety year a since dividend As

to M, expect E and upon expect don't We our returning our balance point T of of we shares anticipate cycles. the suspended We all repurchase established flow of In to January. we dividend. free more continue the the the support through cash for our At our year. to position substantially completion shareholders financial in strong program we to share repurchase April program this

We compelling also opportunities. M&A flexibility retain sheet balance for

us Our either focus flexibility changes on react operational will negative. positive to times or operations conditions to allow quickly manufacturing lead market future excellence, shorter and in in

Our XXXX our of the outlook XXXX. economic providing not financial this guidance time quarter We third pandemic its for to withdrew of of the on is second today. remainder compare the it conditions. and quarter helpful We and of on XXXX global to more in duration the we're will for impact financial year results at depend this March annual believe

expect conditions sales to environment in third today. quarter quarter are Our to are with reduction current the is assuming views there quarter to on Overall a where quarter. in no compared we the changes compared third we We in based significant the are year's around second. modestly which Caterpillar of the second in previous users the XX% lower see consistent the the sales versus decline normally for

X. slide to Turning

quarry mixed while normal in hard than anticipate residential the In normal seasonal North varying Asia-Pacific We the favor industries Copper and quarter improve in remain smaller gold which construction mixed. iron for expected begin in America the china weaker non-residential prices largely normal America. pandemic. EMEA. industries to and and follow remain sands. quarter call oil Likewise construction seasonality is to the especially coal soft, likely a to second. seasonality. to overall is due we see expect effects equipment. would pattern; strong. In quarter remains demand expect overall Commodity weakness North is to and Demand demand into aggregate bit second construction we resource the we construction due in to in In during is are third improved products low to sold to ore in applications and the of the non-residential We typically expect a

COVID-XX this to customers mining some down In addition, operations earlier relating year shut pandemic. the

to with customers Energy the May we for long-term in We large outlook fleet not mining customer the mining. autonomy year. strong high age and started that mining June and believe represents are and optimistic the trucks and competitive about Globally sales in typically medium Caterpillar. improve. the second average a of remain remains in moving which for interest transportation activity is our Conversations decline greenfield and of and addition half historically advantage However, still forward. brownfield projects indicate do the

for challenges impact continued gas expect engines. We and demand in to oil reciprocating

execute to their projects. continues turbines Solar long-term

demand continue and relative for be power engines data Industrial to bright generation. and the that the serve. reflect conditions centers in a emergency spot transportation they to markets continue to power will within anticipate We expected are

Turning to X. slide

services, earnings on our During which last operational call we our expanded offerings reviewed excellence. strategy focuses and

and impact We our also chaotic than business been discussed COVID-XX had downturn severe more cyclical envisioned. any we the that had of in

of a for while enhancing reduce in our taken growth expanded to offerings; long-term costs elements conscious of digital key and capabilities decision continue Importantly, actions strategy we've including services invest growth. we've profitable our to enablers made to

our continue the achieve XXXX challenging XXXX a to supplier wrap in right successfully inventory level performance which cash margins that in this offerings as incremental the we challenges in are will believe to this will the of services, expanded mitigate similar risk a be XXXX it we're unfolds less It targets the of as time the sales even margin up, holding While of year elements is That's our we better we inventory all disruption. our flow of become the to us result certain retained. how historical key strategy. environment clearer we're for navigated be Free our only expect investor during we've day. strengthened we communicated To have be to at why needs are strategy. much at of than pursuing for investing to against and

ample liquidity. an for We negative. either or to company We balance positioned conditions have this ready positive better in from sheet stronger strong for fully growth. even market changes profitable a long-term and intend We're crisis emerge

detailed third to and second Now for our our a expectations segment Andrew quarter. performance call recap for the me turn the more let of quarter results, over

Andrew Bonfield

I of the comment Jim morning and cash begin we're our our competitiveness well on results and quarter our a to you actions update as will I the improve profitability. a third flow. liquidity and with second position taking quarter brief Then review Thank good on will with ending as before everyone.

and As per a down million. billion. the including X, profit share the to Operating to $X.XX declined second XX% you pension XX% $XX quarter was share. decreased total can to remeasurement quarter slide Profit per of see for $XXX sales by per for $X.XX on loss by XX% revenues share

to Sales less largely was This volume. we users were a by declined quarter's driven top bottomline of which XX%, had by anticipated. decline and than results

and used the equipment However, expected. anticipated were less also inventory more their by down declined this on impact dealers original than Services a because reduce to as had levels than we reported they minimal had sales. but sales opportunity revenues revenues

movement declined volume decline The the decline. approximately in slide in $X.X dealer of billion second billion volume see you was $X.X billion end-user reflected by a billion, reduction sales inventory. As on demand quarter and in $X.X X, which $X

dealers As industries. were decreased in this million construction $X.X mentioned, Jim segments pronounced and industries an year's resource the compared billion Volume increase declined of $XXX in quarter. with in quarter but inventory by prior all most

was While combination Australian price was movement geographic in fell dollar low and of changes Compared end competitive pattern. backlog construction year normal all decreased were lowered decreases were the $XXX sales by industries a mix with industries. about declined The by the sales in It drove by million. $X.X transportation. segments. by backlog negative and primary pressures in and which The North $XXX currency energy realization the XX%. billion Price America first billion regions driven quarter, Brazilian construction million. continued Real three the led following of adverse the declines in by primarily with the our all $X a of ago since Order seasonal and by

short-term were year's and costs, unfavorable with expenses reductions than quarter Moving announced volume we offset basis SG&A second along the decline action manufacturing costs March lowered realization. the Lower price Operating for by operating side $X.X the X. margins incentive The payments. that fell to our again to manufacturing more million. profit. by R&D XXX in XX% Operating billion $XXX decrease other This drove cost We decreased suspending quarter. in the points. this profit

decrease $XXX to SG&A that about the With and was comparison, spend to million. slowdown to of quarter. travel of second note reductions decline. the expense of the in due in activity incentive discretionary of portion R&D the in as remaining it A the important For regards quarter the was compensation incentive major is driver the compensation such due was to XXXX

greatest on individual have actions Starting to prioritize long-term the on continue cost taken specific slide I opportunity projects the for certain we second spending profitable have While XX, the segments our those drive results been quarter. will to that discuss growth.

rail at and applications. $X.X Transportation industrial declining to power gas of with across XX% Oil as traffic declines by in North all by lesser reduced sales for Second even lower sales XX% marine sales rate. in by driven activity. decrease declined declined all by by energy transportation, oil demand transportation relatively The with generation XX% sales regions. reciprocating declined gas engines and decreased lower quarter weak. America across demand billion sales and XX% regions a with and Industrial and remained was and

by was partly moment lower SG&A declined by volume and sales turbine The Power lower overall decrease offsetting story and by volume basis partly solar turbines XX% by well and services. expenses demand declines to as reasons sales mentioned operating XX% the for this the generation similar of a moderated to decline segment for power energy costs However, the with decreased The emergency R&D to XXX margin for and centers. data XX%. drove company million lower profit the as points offset higher $XXX transportation ago. is with related manufacturing as I

decreased side Construction to billion. second dealer industry Turning inventories drove Lower the and changes demand XX% in decrease. to $X quarter XX. the sales in from impact volume the end-user by

partially manufacturing sales and By as to price second were pipeline realization. of due price price realization pandemic currency activities. our mix profit in was of We and $XXX as unfavorable primarily did quarter and end-user a that in costs price decrease unfavorable North included savings. sales. XX% sales segment's The lower versus million. a to as combination was Asia-Pacific The declined realization We by America second from of driven XX% dealer a points impacts. influenced record realization impacts this the basis XX.X%. by sales quarter margin lower SG&A the offset construction changes higher largely including about China's region decreased in XXX also saw Lower by demand in flat segment's year. volume by decline unfavorable road and prior inventory profit offset unfavorable to mix The R&D XX% and geographic had the geographic

sales XX% to the ago from resource demand dealer industry while the quarter aggregate saw in increase a non-residential decline. low user As to XX, a inventories slide the degree. mining equipment in Dealers decreased the an compared decreased lesser We shown the last into and in with and machine comparative lower against year billion on applications quarter. by inventories quarter sales year. and quarry declined end Changes strong drove $X.X

that sales short-term quarter profit by manufacturing second in offsetting points the declined Industries margin term. decline power Resource by Our dealt and stayed partially quarter to customers volume the COVID-XX to has and long decreased with adjusted commodities. million. production cycle replacement overall [indiscernible] XXX expense. X.X%. medium in Profit something the disruptions on for reflected in due we to mining demand mining and for lower in low however XX% positive percentage impacts The to prospects lower address and the basis were The and remain weaknesses truck costs some favorable incentives

million. The lower to financing the in lower revenues decline rates to the by net declined. XX% led and XX. Profitability by purchase CAT and lower $XXX reflecting by volumes Financial $XXX asset Inc. to to base. quarter latter lower quarter lower due decreased as was average The yield second decreased XX% products the receivables earning in average Moving million assets. from slide

losses due the compared credit future by of to for provision with the increased on also impacts quarter credit first COVID-XX of have losses. XXXX We $XX expected million the

customers continue dealers these We our support challenging times. during to and

that for requests care reviewing call, told health we encouraging and programs payment and their entered slowed world a relief for It's we dramatically healthy new apply to payment that customer additional the of this see April. around process. simplified quarter's customers launched customers have through earnings key It that mentioned our worth in As the is indicators quarter. since loans. of We current streamlined relief you fairly last allow on most customer to on downturn

down X.XX% were dues first X.XX% past the in quarter This from quarter.

benefited due. considered loans that with quarter fact modifications the second are The not past from

will presume. be payments really as we their monitoring accounts So carefully these normal

compared the second June but Latin all the saw in XX% XXXX business first except as declined we an outperformed across to of quarter of America. quarter uptick XXXX by New volume compared to regions

continue solutions globe. provide teams qualify dedicated As to the around to customers financial

offset cash than which a cash holding bit machinery, an for line see supply spending the provided driven safety about of purchases in $X.X from accounts normally million for to the $XXX of in lower down stores in to capital This top Free to profit. the would this disruption. billion and work as the risk flow. the and process reduce payable and Turning a XXXX less working transportation declines. amount reduction was began quarter negative lower benefit decline substantial inventories other components are we component flow reduced energy by We profit. mitigate of quarter with billion we quarter about Caterpillar a was to in The an of total as was including to we such of in due $X.X

full XX. estimated to cannot COVID-XX turn be time. at this Let's The slide pandemic business impact our on of reasonably year the

So suspend of for share would the while we I third key it continue purposes for to to helpful quarter. few thought modeling thoughts a be our guidance, annual

in in to means expected As which that sales the normal third the lower Jim users we mentioned, total expect than quarter second to are seasonality quarter. be

inventory we to we be expect the the decline a in will in in third third Whilst bit last I talk the a and inventory to similar that the of quarter dealer expect saw level year expect in decline in second. third We we demand more moment. quarter saw we quarter percentage the in as deal about end-user around a

of we're material cost which reductions some the benefits in half the profitability, of starting terms lack to the began second of XXXX. In of now

our impact will Whilst it incentive amount low the margin. likely be a than the on gross in compensation negative the this second. have absolute dollar third will was in continue, the benefit quarter from will So

not improvement we the third quarter may versus second the an margins overall see in quarter. So in operating

dealer you full first Let half $X.X billion. their for on of me about by the our year update expectations In reductions. dealers also the give reduce an year, inventory inventories

the latest will and another reminder demand on Based their own independent by the will inventories reduction that is read in inventories. in second anticipate this a of in the businesses anticipate end-user to end-user their produce are enable to dealers us XXXX. similar reduction in billion line the with half that second their on we made dealers further year. $X they half reduce currently We That XXXX. of As manage demand

we As outlook. expect you typically on do, January be we able in to update XXXX our to

ended shared of share consistent dividends recommence as in this for XX At cycle this share cash enterprise our shareholders declared in liquidity in quarterly dividend all to and substantially $X.X slide free our to don't intention Investor with We and as allocation $X.X more aristocrat. to repurchase share billion year We flow May our shareholders by to proud and Turning of we status repurchases. capital We a date and quarter to we program our second returned Jim return repurchase dividend shareholders have and returned $XXX million combination in remain mid recently about program cash the position. In to expect including our we billion April Day to with our our the quarter. second cash. through repurchases our indicated XXXX the year. share suspended

$X.X short-term resources undrawn. facility. an revolving existing billion credit $XX.X liquidity remain as as well maintained we've of facility credit these incremental environment the Given Both billion our

$X.X status. no for bonds. available programs during billion foreseeable the States financial median funding issued in of to we with position. $X.X $X pension We and future billion and expect we've As In to July currently the $XX.X now mentioned supplement don't U.S. in plans the billion registered current in given billion billion last CAT machine contributions transportation to make maturities in and corporate quarter, We have due liquidity United energy term XXXX Canada long-term we support than issued debt discretionary in $X.X notes paper its further less and commercial XXXX. also

the of that we as or believe strength positioned sheet enables demand negative us we to through well into to manage cycle move to XXXX. balance We and either we our positive are comfortable in the changes are respond

the reached an our we profitability the You facilities start address a to will and Production and transitioned to which products. products certain in $XXX we $XXX close recall Germany. OPACC. Asia million facilities expected competitiveness. that be To in [indiscernible] customers manufacture Lunen agreement would including the challenge year estimated invest and improved will to competitiveness producing we of weren't improve to of will be placeholder our and in restructuring level million at million the Wackersdorf of $XXX These second end to long closer quarter its expense

Caterpillar in agreement AB we've $XXX In to solve prior to not the which are execution to and about million restructuring approximately We expected sales with or continue systems million taken compared from $XXX $XXX We for also million expense operating manufactures annual $XXX still to model. be in as year restructuring controls Any marine thus totaled reached an quarter a propulsion the and actions XXXX. drive second year’s lost expect this ships. propulsion the million the in quarter. far expense material we

quarter it in will but quarter. it than it be expense restructuring last We than higher the was be year expect was third the in to second lower slightly

XX turn today's and let's recap So finally points. key to slide

We customers our environment. continue we're in have our the position to strong a in ability and current confident financial global to serve

via customer to our by in shareholders inventories to dealers billion dealers this demand billion. over working year and $X.X expect with dividends and returned we reduce have date. $X year their buybacks the manage We're to We to

negative or In we produce in lean Our to to expect XXXX, remain factories demand. demand. remain to leveraging we and respond ready changes positive agile principles

operator to satisfying hand supporting With some for serve is excellence, Q&A all offerings. to start to of We our session. focused the Our expanded global I that, to over working needs we critical customers, the staying thank of and enabling on infrastructure, and while for safe employees transportation operational it remain will the continue and strategy services enabling energy. us essentials our the

Operator

you. Thank

from question first Our comes America. of Bank Ross line Gilardi the from of

is open. Your line

Jennifer Driscoll

are We'll line move Good morning, you Stephen from of our Ross. question muted? from next the Ross, on Jefferies. Volkmann to

line Your open. is

Stephen Volkmann

good Hi, morning.

I am you Can here. hear think I me?

Jim Umpleby

Yes. Steve. morning, Good

Stephen Volkmann

it's I too path things $X get Great. have detail of guessing the am be far trying benefit I which that or this the and going reinstating all billion of million some I Thanks tailwind a not guess just things. outlook we're guess right. here to $XXX you'll of million comparative want other about possible, so and we'll from but of may and All is in but down headwind you of thanks but today. terms that temporary not an to various am go for the compensation little to I incentive under producing bit guess XXXX $XXX substantial terms if because from in a sort think sort I probably

irrespective So volume of what come I guess next to temporary my of question choose costs may year forecast. that year whatever may back we specifically is this sort were

Jim Umpleby

Well, thanks Stephen.

year. and guidance As have the certainly, this year uncertainty that you for would that because of we depends the cost so would resulting be a that's much you year next impact obviously reasonable pandemic short-term to not it correctly giving upon wouldn't the mentioned but all on economy incentive there assume the stated be that we're the next

be outside, a inside things be to inside, certainly are some efficient them reduce look to more lower on we of they to efficient. challenge inside to do more change to do We ways what We're costs. change. working continue continue through all find other done can what We ways our if for we in other location continuing way or cost we a to do we leaders do

biggest can continually probably comp the mentioned. think incentive angle short-term again comes is as So one but that to working we're we every cost that of mind you

Stephen Volkmann

might talk that ‘XX? And you the for you all benefits Jim, this of about restructuring laid Andrew are see for all us the in year? out at benefits willing to What

Andrew Bonfield

bit I an give mean in there January little indication and but takes out. you about we Steve, give because obviously won't we'll of you outlook we stage be a this will clearly when it of the probably talk lots more point as at puts

Jim Umpleby

be factor And suspect again volume. will the determining I biggest

So economy out. we'll have to plays how the see

Stephen Volkmann

Thanks. enough. Fair

Operator

question comes Bank next line Ross from the of from Our Gilardi America. of

is line Your open.

Ross Gilardi

you. Thank

Sorry you guys. about hear me Can now? that

Jim Umpleby

Ross. We morning. Good can. Thanks

Ross Gilardi

together mix asking Good is your down yet what's XX% of aware X% the with China to that was it construction strength for as we're morning. biased and towards Asia-Pacific market, show I'm I'm is you piece overall trying the perhaps. is down the heavily mentioned I'm The decline happening the China influenced wondering in geographic pricing reason construction by excavator despite pricing of X% that in you segment. all is in your if course

really hit the it Any China the is was harder particularly of pricing would appreciated. XX%, rest China significantly down XX% is Asia-Pacific excavator than is be Asia-Pacific because So challenged or because the excavator market? color there

Jim Umpleby

the factor down. is that biggest was sales fact the Ross issues call we mean the I pricing North geomix, one American were of

pricing. a on has impact that So big

one compete answer your to China. positioned biggest to issue that are Certainly, our American competitive dealers in the the but and China ability So pressures were pricing so down in significantly. our single the that continue products sales was our number We're well to confident impact. was there in term, is yes North impacting question long fact expand

Ross Gilardi

Okay.

Andrew Bonfield

Sorry Ross.

inventory give to had in Just of little ahead we reported a bit the also new currency impacts Chinese as color and the well China year. built sales forget there's more remember don't

burned So in down some that inventory the CI of QX. in got

Ross Gilardi

be Capital see to and margin very despite when miners comps as Got again a and towards do the strong. declines and with you'd parts mix big you're will follow-up, is will, mining think and seem are the seeing strong just the in positive a very And copper also curious about prices refurbished the then I'd just revenue Okay. be existing you industries I'm fleet. it. favorable are yet on resource bit as digital, iron margins what it’s lower doing are shift very little segment puzzling billing think intensifying miners and ore

the that being about So getting impacts COVID-XX margin but CapEx frugal obviously aside of enormous for you your just cost or from savings curious sort are your on deferring that's customers. technology new generating I persistent for miners paid are that erosion and understand

Jim Umpleby

affecting issue because we biggest The volume have Yes. there. the margins course of is of leverage

So you impact volume down, saw there. that as an seen came you've

So again we'll have is the in operating biggest volume. impact on NRI higher margins

that be not seen and positive we canceled. term term. projects mentioned customers brownfield in surprising remarks The I as medium we forward. but greenfield were the outlook As any bit being long mining COVID haven't mentioned short a It's continue happening what's projects my a being that moving given we are in on are the to involved cautious with and in

haven't seen significant any we of cancellations. So kinds

we're again So about that. bullshit

impact So an biggest certainly leverage. come is the have biggest from that'll operating to volume due will thing impact the

Jennifer Driscoll

And one Thank question per you. remember please person.

Ross Gilardi

Thank you.

Operator

line Sachs. next Our Revich question Goldman of from comes the from Jerry

open. Your line is

Jerry Revich

Yes. morning everyone. Good Hi.

Jim Umpleby

morning, Jerry. Good

Jerry Revich

Question U.S.? assess have out telematics how rates digital. folks much environment to the are with tools slowdown by Where travel in rollout? token you and in talk in we share terms Where and able that are all progress the slowed in ability the environment? you you comment the providing? of rolling same to Thanks. your COVID market been with digital on dealers this And obvious also that you're parts suite in the utilization make you can data in challenge you've Can any product that July analytics getting about in the flare-up to seen the we of the full of by all by on

Jim Umpleby

aftermarket. are a our which capabilities digital and whole of and created internally read tools create continue give of from biggest better mean, ability we a we the perspectives. invest have Well, to in continue to bet. where variety the in some I opportunities You us

our So that's for and Caterpillar to use. tool a both dealers

we the dynamic fluid talked hit leveraging of of very can Clearly world where to looking assets that imagine at was the and that of but activity utilization in the a you at last addition shut year fact an we're again that end parts as a about rates in ways situation. it's saw million In data. impact we we down economic connected

invest in back and area and differently come Some around areas continue think pandemic we fluid dynamic that the again economies progress. good it's an so impacts went and down very I making to it's we're that world. the have as up But again

haven't really slowed we So down.

Jerry Revich

of product dealers do Can a just market available provide update you your the to an there? share suite just you tools clarification, sorry expect be when And to by full globally?

Jim Umpleby

a It's journey. never-ending

So don't we'll get think ever I there.

on we we're continually what move at capabilities looking new forward. is as So adding doing

a have question no our go. continually intent. again ways is There those we'll add still and we upon So to capabilities; that's

Jerry Revich

Okay. Thank you.

Operator

Morgan. Our next question Ann from of from JP comes the line Duignan

open. Your is line

Ann Duignan

Hi, everyone. morning good

Jim Umpleby

Good morning, Ann.

Ann Duignan

life Good old ask houses, begins Back ask in they question. ends morning. and long-term when and and building wanted back you're etc. say I dealers surge step that a with the construction CAT if you're just visit always etc. systems would a new because their I putting schools, days residential in more to eventually

we're business any of if the new cycle of believe reason your at how leads, infrastructure that curious would that terms long and out to then So brand of as what a beginning just am purchase as where I to residential in rental and there's opposed we not in is of at back kind least the non-residential there impact forward terms your move given term? uncertainties thinking

Jim Umpleby

Well, Ann it's I thanks think as question ask dealer that about important think certainly global for and from business question, our to you network a your and perspective.

I that of is support residential America is construction towards clearly build in all that. infrastructure say So and there slanted more if North important are out new fact question your requires you as suspect to homes

an and important. understand we think as well. a I have other and in to important change a obviously will rental in versus to again that important question call significant we but as certainly purchase not I we're business as be ready grow very of Rental, businesses your to not on. to view I an will market keep make and have business and COVID It's rental the So a continue time. will but am oil have to that or strong mining step whether area focused be we gas that mind kinds over continue business will and

Ann Duignan

will I interest time. of Thank Okay. in you. leave it the there

Jim Umpleby

Thanks Ann.

Operator

David of ISI. line Our Evercore next from from Raso comes the question

open. Your line is

David Raso

think Hi, for My takes about margin. sense incremental how year-over-year? you you and to good to some short-term back up the think in morning. give incentive puts Jim mentioned of and questions you decrementals coming XQ on threw back. just of but relates this there XQ versus the a us posted you out way lot question earlier to about How XQ Can to comp some for XX% were alluding the there

a Thank to changed wanted be business with us I continue there year totality? to know up for you're about there's costs to you how way get the so some significant incrementals. think historically lot the you to Would but You but a would CAT mean revenue cut give has and know up willing in look of I I how ways it. other of bit offset that. a put to forth some set after margins pretty sense thinking decline of in incremental has level [mix] you. on just

Jim Umpleby

David. Yes

I in down which us the probably does fact factor to did three to margins think when performance. going variances actually structural single the the volume and costs fact about is years in are to over that haven't script most last obviously this alluded absolute built as comes driving the to the margin enable biggest you Jim think we sensitive we forward,

So obviously you'll obviously where volumes margins. significant margin, where environment in see in improving, overall an very improvement are

biggest am I really is I that do using or think notice, benefit us. obviously incrementals not single but the again to decrementals You'll

on obviously margin. an of expect there As as we out always you particularly gross versus as because look does QX we in seasonality QX have on impact that mentioned volume some QX in is normally would lower

lapping You obviously also material we are changes. cost those

mentioned my impact will that have notes. margin as gross in on slightly negative So a I

see lower year. quarter number a last lower was QX. will It dollar the We number in a absolute savings step in in

some will impact. So that have

margins, was that we is we normally QX we're slightly think What margins QX. improvement in overall expect year into though as does So in saying shouldn't mean than a overall last what move were obviously is probably I they margin lower QX.

be QX actually performance XX.X% I that we within actually higher XX.X%. would margin year-on-year call than rather that the regard what than think relatively last year slightly good because in So overall would

sort of hold would sorts of those that but So levels.

David Raso

So that that last just XQ we comment just be clear, it should be ballpark? roughly XX around in saw the

Jim Umpleby

shouldn't be. It

that no as and higher there the we've do you will margin, posted be the X.X% math in you XX.X% slightly operating from percentage. a the If just is improvement against margins assume

David Raso

it. you much. appreciate I Thank very Okay.

Operator

question Fargo line the of Andrew Securities. Our from Casey Wells comes next from

open. is line Your

Andrew Casey

lot. Thanks everybody. a Good morning,

Jim Umpleby

Good morning, Andy.

Andrew Casey

question you seen pandemic? are similar to have ask you to guess things you an benefits increased, indication then and also cost whether initiatives like and from the due enabled if understand any will opportunities Good you're the have mentioned to help in benefit Could the morning. of pandemic a I I kind wanted outcome then seeing meaningful pandemic. and Other of companies it's acceleration around question, to from interest us back digitally Jerry's as they the of technology. your internally just of product the pull response ahead

Jim Umpleby

as efficient well. at look they again structural a thinking reduction accelerate their about to else. costs certainly will than anyone and reduce things and think cost back as activities – ways for so and certainly It to company We're and about think no situation looking we're Yes. we're can and different costs again ways be continually mentioned I like this I to step more causes those

not be advantage digital, does travel fact to have and In as to that. terms face an in of there's face obviously and -- done not things an individual in be remotely can if

can certainly technicians using and customers equipment. support have we're work our we but dealers we continue capabilities So on our to where digital that continue to

is So that what pandemic this again correct. is strategy has digital really demonstrated

Andrew Bonfield

area actually that be make autonomous And for it and solutions those it where expand further obviously this think the the will than other optimistic uptake rather looking faster. encourage we people is obviously will I are where

Jim Umpleby

think is all autonomous because we have things think the about about if using in with and reduces to That can very mining operation people mining do proximity. have, Yes. camps a the fact customers good close our it do in our you trucks autonomous technologies of mining the more that number point need for

could acceleration perspective. from So market an be that a certainly

Andrew Casey

response Sure. are is to I any you external that, point guess or more come? of the going it seeing optimism at this it's

Jim Umpleby

been and Lots No, and mining our advantage quite we has very autonomous yes we solution strong my have as that us and the conversations we and interest that. but prepared do gives mentioned strongly very that strong. remarks, with believe about a there best see competitive in I autonomy customers solution in of interest

Andrew Casey

you Okay. very Thank much.

Operator

question next the Jamie Our line comes of from Credit from Cook Suisse.

is line open. Your

Jamie Cook

on understand then outside there maybe day, to can morning Hi, margin similar think remarks the I of markets the question don't the think downturn structurally I in which analyst guess talking you any another that would sort Thank there what inclined you're performance or to be be Jim, you positively about. Can would relative pandemic more just even does of we which you recover expect be to to good mentioned understand us get, Is relative you speak Ann's margins or prepared do while I expect you markets to you your follow-up, of could guess first at concerned sales. just comp? you better to have everyone. the you. sort And think outlined Ross's green way to some with downturn, so as about seem shoots. a I help more you're

Jim Umpleby

past, had to we year Yes, comparisons looking the when margin sale. we're Jamie year about similar when a at historical we a talk

that So XXXX. been have I would serves believe if memory

were billion. So $XX again, I we think about

it mean think of to for about we be operating about is if level about higher we year margin, you expect of sales always a this as strong that and the been hit So we similar in was margins terms shoots we think again an has China and case well. think that, mean expect area green China business first I China. the pandemic in I quite

So that's quite positive.

much back. to dynamic then area in Obviously come starts the So virus away go again situation. a an fluid starts starts then it's very to

very fluid. So it's again

than really to any lot of in for now it's right So see me China. a difficult we again area other predict strength

Jennifer Driscoll

just to XX% then elaborate cycles. And that's to across the XX% range

Jamie Cook

Thank you. Okay.

Operator

Rob comes question Wertheimer of from Research. from our line the And next Melius

line Your open. is

Rob Wertheimer

everyone. Thank you. morning Good

Jim Umpleby

Rob. Hi

Rob Wertheimer

it question talked after of about XQ you year is disclosure. tailwind dipped if of simple the you repair. helpful. other expectation trend in and the whether e-stock. How seen and come dealers We've less you lot I for a that's if that Those a kind sales less back? in a just the did I relative and market expect don't lot think So much down or are disruption to companies end-users it don't caused of get know trend XX XQ? I a know like very to

Jim Umpleby

Yes.

they of down our reasons is were which equipment one but less new out the that build in services expect were down services an which what advantage significantly we'd were than to So total it's revenue. sales is

So yes, as as new drop a significant wasn't but there equipment. was it

Rob Wertheimer

seen kind utilization we've And therefore yet. will not and then as that and comes stop. that an restarted of services trend is that Thanks. I [side] the back others from economies expectation of you're up Kamatsu or seeing

Jim Umpleby

that geography seeing upon the in It's has activity economic strengthened depends about we're where there. again on depends it improvement and area a areas but talking we're certainly bag. mixed It

activity So it tends more which leads sales. to to follow leads more economic services utilization to

Rob Wertheimer

Thanks.

Operator

the of DeBlase Our Nicole comes Bank. line question from from Deutsche next

Your line is open.

Nicole DeBlase

Good Thanks. morning. Yes.

Jim Umpleby

Good morning, Nicole.

Nicole DeBlase

and in guess, the in worst outlook the retail half. little I the and I to in the surprised with impact get definitely second easier April on user pandemic guess XQ the by a saw year-on-year and for May respect I the comps demand around basis. that obviously end of range to am is XQ remain same were question as my sales in XQ they a

fall. if just scope in of maybe and for if the upside there's continue there some if conservatism some curious to improve trends and maybe rest July like baked as So there's into the

Jim Umpleby

Yes.

pattern our So there is couple a is retail some there things one to seasonable which obviously obviously stats. is a of of

would season people So if they is unlikely back. summer missed have that obviously the revert obviously

So is unlikely whether to there's any through. pent-up demand come

quarter. do that actually shuttling acceleration most a and in probably not dealer we retail of better in improve We we've the believe is see the done further inventory. what would stats if Secondly our for do reduction production slightly

to bit but through little we obviously Inc. a obviously of reductions the dealer surprise improve pull a probably quicker. inventory would much So not CAT

Andrew Bonfield

for we're positive maybe changes a very to in negative. restate we've is obvious ready said or dynamic that what And and just we're the market

again on just things that's difficult see of We see as obvious get expect worse basically what sense things very in really and further on better. users we're see based we're so don't to could today we're judge we're is a saying and to based is we expecting get what right saying you what message. to today it's what a giving the where for we're we reasons. Again to So we sales not, things not decline

Nicole DeBlase

on. Totally understand. pass it I will Thanks.

Jim Umpleby

Thanks Nicole.

Operator

Your from line the comes of question from Dobre Baird. next Mircea

open. Your line is

Mircea Dobre

question. things to just previous you. up the and we're thinking you're Good kind on third fourth that at the of retail and essentially level follow really morning quarter they're better. here that expecting in about really a worse the If Thank destock bit you're aren't basis. dollars getting a little create maybe getting The billion of won't second dealer half year-over-year headwind that worth a on saying

this is moving structure all based to how talked seasonal do you to we're and the quarter my cost guess in normal about fair I margins to thinking question translate you previously? fourth uptick So about on that normal expect in seasonality the is revenue here that it pieces the think going so if is that's to

Jim Umpleby

Yes.

by business you as varies seasonality interesting by go So business through.

different. in know you any uptick transportation. solar normally see expect is in energy which the have and strong and today and the to traditionally in Nothing particularly quarter fourth As drives a that their particular transportation probably one fourth would Mircea see quarter we things be of you'll

happen this of and in Chinese tends build Year and have year, does be QX to really for a QX negative inventory last CI QX bit the obviously those As QX regards New won't both it Obviously of timing little QX. in the probably year.

project then in much side. higher by and the another factor the sort look mining particularly on related project lumpy. to that's level outlook So as It on again just you through ROI to a remains think of build is about very

really to predict really a have based It's around and customer difficult doesn't that's orders. So seasonality.

Andrew Bonfield

comment dealer to just inventory one add just to Maybe about on that.

businesses demand. the dealers again go positive fact is or allows respond inventory inventory about ourselves demand positioning their to decisions that things that Caterpillar and doing in of to our having we're by to within dealer that down both One independent quickly produce negative own -- us but dealers by to are make

obviously next headwind So again for remove year. a that will potential

Mircea Dobre

fair quarter? revenues than what quarter, in you've us to just sequentially it fourth for lower talked third just up is about But if a clarify the for are decrementals to expect

Andrew Bonfield

there a in out particular volume biggest of that in we yes help would reported margins, that you decline stage to obviously this quarter CI fourth the is but one expect if That factors. just in normally increase we however, At point . always quarter-on-quarter a always is of are does see do margins not,

will in that to So point just it may what not, again volume change the see think We the be not time. from to decrementals may quarter. we at quarter need

Jim Umpleby

we as on strong quarter. And well, it as have mentioned fourth typically I Andrew a mean depends mix so

that a quarter different year has and helps from typically to strong perspective. mixed and we that any Solar don't this expect be a fourth

it's mixed as dependent well. again So

Mircea Dobre

Thank All right. guys. you

Operator

the Our Fisher final question UBS. today will Steven come of from from line

is line open. Your

Steven Fisher

Great. Good morning. Thanks.

that turning it have activity you it like you'd ENT levels little certain So of bit until like a enterprise and really we bottomed to reserving be quite then and matter such cash comfortable to little on there of a a it have kind deployment returning you're more better. you'd possibly have still up things bit. cash of deploying just sounds your is feel level by caution It your that or machinery of really there. of cash were Is some timing a or bit a that comfortable visibility

Jim Umpleby

there. function really uncertainty of the us a economic the just and looking conditions Yes. global that's at It's pandemic and just

function pandemic. is really it So a the of

Steven Fisher

Thanks. enough. Fair Okay.

Jennifer Driscoll

I will turn then remarks it end. for now to Jim to closing would close like and it the I So back at some

Jim Umpleby

thank questions greatly your for appreciate today. again Well Alright. you We it.

profitably grow are we our believe company. very we mentioned well-positioned we As to

your challenges our our we and capabilities Thank the again got enabling to you. this due we've greatly services products morning. in future to pandemic time new invest we're long-term in Although continuing appreciate

Jennifer Driscoll

of you, Thank today. be this and investor investors.caterpillar.com Jim. online relations website will a relaunched available on click replay later on We'll on Financials. Thanks then joined probably the morning. who Monday. A us everyone call post on also transcript Click our

If you or out have me. any questions Rob to please reach

you I to at at phone the general jump to our reach a The conclude investor call. driscoll_jennifer@cat.com. You can number relations rengel_rob@cat.com. let's hope have now Rob and I'm nice is XXX-XXX-XXXX. back weekend operator

Operator

participating. call. This conference Ladies and today's gentlemen for thank concludes you

disconnect. You now may

Caterpillar (CAT) 31 Jul 202020 Q2 Earnings call transcript