CAT - Earnings call transcript Q3 2020

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Q3 2020 Caterpillar Earnings Conference Call. At this time, all participants are in a listen only mode. Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Jennifer Driscoll. Thank you. ahead. go Please

Jennifer Driscoll

Finance Chief morning, XXXX Good Jim welcome our morning. Caterpillar's we Andrew Senior which to call Division; and expanding Chairman Epley, we Thanks sales users, our call. everyone. Today quarter Bonfield, CEO; and earnings earnings the by issued Vice IR Global Officer; Rob I On third Kyle of Jason. Board this Manager. And President Services of Financial and earlier am our Umpleby, are Rengel, news joined release

from today the Difficulty]. statements [Tech to slides presentation. under and Our subject are the uncertainties forward-looking all Investor events news in we The caterpillar.com are and release make today section of risks and

different factors materially for this forecast. that it than you forward-looking information sharing also vary portion without with to Please individually and on could SEC of the are call. copyrighted our actual use news the assumptions We cause results combined will our or be make this of we on we to could call. from written reminder in any the filings that release prohibit our details refer statements recent And actual approval. cause our prior to has Caterpillar results our

is remeasurement backlog quarter reconciliation obligations. There the We morning��s information This in this things. loss provide and other the per a also included settlement $X.XX release. share news non-GAAP from couple resulting of pension appendix to

CEO, X our I Jim and Andrew on first our will third moment to turn position a update over Jim? our hand please as results in slide quarter but So Umpleby. financial you to Chairman and

Jim Umpleby

need. proud providing our team performed Thanks products services the everyone in support in for a enable I'm of our how global environment, Jennifer. has to world that Thank essential and a challenging customers joining the you, call.

excellence, on leverage XXXX, work as management strategy pandemic is element well, resulting costs. strong our based structural served excellence committed disciplined and continue The services. in We both We offerings safe environment. which our and in launched expanded remaining operational safety altered in operational productive of culture, our has remain to this of strategy to

the As continued a several balance to successful. digital and to We're are went services make a result, offerings strong customers we our sheet, capabilities. pandemic enhancing new expanded and introducing with invest into more and in products it our

Now with cover I'll X. briefly results third quarter starting slide

the While sales, quarter, our versus earnings was in declined than profit the performance prior and we expected. share per better quarter year's

of demand. the due $X.X Lower Third by billion drove primarily volume quarter sales decline revenues user end lower sales and XX%. decreased to

million decline we $X.X by decrease having in morning by was end. inventories decreased dealers about inventory by users Machine versus a with in year this reported similar a also previous $XXX year. billion a now of their decrease North and In months line they we of the year-to-date; million assumptions. will quarter, anticipated, users, of trend driven quarter reduce addition, we to estimate versus by XX% by $X.X their sales XX% by reduced sales was XX% dealers second billion quarter's That decreased $XXX three to third the our by to than This which with in about America. decreased the more This XXXX. inventories

versus with by sales $X.XX and and to Asia demand transportation declines the reflecting oil decreased by gas, was primarily overall $X.XX China in of Profit quarter and users applications. in share third per quarter Energy higher from declines of the Pacific flat, in offset third industrial XX% other was XXXX. region. XXXX driven and the countries by

the to were as second third impacted also X, believe the Turning COVID-XX. periods to by slide we compare it's against helpful both quarter

Sales are down our main were quarters were quarter second compared quarter segments. about lower slightly or essentially seasonally only across lower Sales the the in similar. second and roughly to three typically this X%. year flat in were second. the third The versus third of $XXX third Sales the million

in largely expectations, margin in our came sales anticipated. line our better with While operating than performance we was

improvement basis from came a the efficiencies better margin second we than in the margins X.X% from cost and quarter quarter. favorable The point XX%, reported Third we factory anticipated. combination were control, mix, XXX improvement of geographic

margins of margins and Looking from favorable at unfavorable The turbines. to on with gas, sequential price. in had relative industries mix price solar construction geographic led efficiencies. E resource manufacturing more sales second from costs including and segments; favorable margins that industries transportation mainly margins due oil higher the to for declined Energy operating the the reflected than way &T less offset impact and and an mix, quarter. reduced

As Solar's you know, be lumpy. to business tends

by non In some impacted items. and addition, E&T recurring were margins,

over of XXXX quarter quarter Next, the the data the to I'll was decline was about point a versus on users third year. the we released what improvement three quarter XXXX sales second expected. the third in of XXXX. of comment the second from The data quarter decline percentage sales in today That machine this XX%

For year-over-year reported when residential construction the sales most our construction benefited construction compared performance. users quarter segment. regions Stronger industries, in to the of to industry year-over-year a in decline third less second quarter

by declined aggregates Asia demand remained segment. XXXX, this low, in the construction, transportation regions to Energy second Sales heavy year while resource during XX% in an by positive, see decrease in strong other quarter with sales sequentially; continued compared declined quarry China. driven as Pacific reported North to users across remained quarter. users third lumpiness particularly the XX% to in continued industries of and and America

third industrial of XXXX. to decline. Power declines expected, the oil continued to moderated fluctuate in demand second quarter in As quarter as reduced contributed Transportation and versus the reported gas while improved, remained weak. the generation

the markets, on the Turning as we economy. X, the serve much at impact still look for ahead Caterpillar end slide global pandemic to we on and its depends

remains fluid. cautiously we While optimistic. situation are the Overall,

today. our availability with solid is meet vast I'll as levels continue product our of demand. trends closely thoughts be good majority aftermarket demand on We market the share to parts suppliers for maintaining well. our for the to work of in positioned to some well Availability products. on end changes We're each year in improve we quarter trends. typical compared our into going the our sales seasonal should well. user quarter next End fourth the Overall, expect see follows in demand of markets demand and user improve we This as fourth to third. to what based

For are the construction America building industries, to in In third construction growth sales remain improve Overall, support sales and today, on to will expect for related users to the user continue end in what percentage subdued machines, starts China, year. in construction to reduction third. by be based strong year-over-year on sales America and and non going continue government industries building products what North demand in business construction activity. we saw next well expect improve. we quarter confidence markets we in North and strength the we infrastructure residential our in expect quarter also for provides compared and stronger due rates continue as to in demand Based the fourth built should compared homebuilder quarter. see oil into fourth our a on division. activity. China the the quarter, spending as today, gas to housing machine our to to We Recovery see smaller should which interest in fourth what low we construction we boost anticipate end for The

situation the fluid. As I remains earlier, mentioned

in continued fourth in by to lumpy. higher third, compared quarter the the be although with Turning tends to a users third solid quarter to activity up mining picked year-over-year, in versus second. down to the in compared as encouraged Resource We're improving to we the in Industries, third quarter expect well the sales that slightly sales business quoting orders

mining. sales We strong years. in is improve next large miners tender will spread over tractors. we're large is have have machine is Many for months. in metal conditions over utilization are on the Based expected remain optimistic Aftermarket XX particularly about remain the strong. is in pending overall deferred deliveries rebuilds for some to maintenance to some Mining be improving expected mining CapEx seeing, tenders next trucks and large next activity increase as year. Demand base the few to everything expected commodities The that we in parts high.

the to in in construction resource heavy aggregates expect particularly weak North We America. and industries and and quarry term, near remain

our to and safety addition, continuing with to and report autonomous traction mining autonomous efficiencies improvements customers gain trucks In sites. continue on mining

expect to We and have now end. autonomous by energy and to trucks to XXX third including in approach and stronger the over typically are the fourth higher running quarter. users compared Sales year XXX transportation quarter, sales

continued continue the to trend We engines in that expect year. quarter. challenges gas during American oil for and see North this fourth We reciprocating

However, well servicing. we recent in by made industry by encouraged comments are participants

reciprocating in activity For create power expect increase demand generation, datacenter to we engines. to higher

the in have As best is solar fourth should of year its quarter quarter. sales the typical

are solar delay However, mix next lower fourth as than in maintenance in will E&T's seeing quarter. previous customers impact likely sales years which some year, in the the be will also we

in addition margin the fourth is they transportation to the investments to of Meanwhile, some a that dynamics on quarter, we in the improvement, but timing negative product engines impact and expect have for development continue demand expected to industrial serve. In E&T. markets show reflect

earlier the comment expand with this Oil a me strong we Oil portfolio the strategic in see broadest our agreement Before Weir acquire oil We It & transportation, signed world and Gas industry. fit business. and off & offerings of energy month comes and current the between business on our in to Gas and one gas. would the services product moving service to let a Weir strong

more Overall third improved details we're XXXX. our in and view stronger move of prices for And strengthen even And will this Our we in a this fourth additional believe an more opportunistic well us lineup and to goal a time a as than margins will we dealer attractive our with we is and be share to reductions; space. looking transaction us closing, importantly, the remain if products quarter few positioned operating into the upon solution volume the performance, gas oil to oil make versus on successful complete inventory with Andrew We competitors. as economics acquisition services. this expect moments. low. give assumptions would customers prove quarter,

Turning slide cycles. return the cash we shareholders Year-to-date, at that repurchases. to our X, we through said we've and intend of $X.X to Day Investor to to flow share billion all dividends returned ME&T via our XXXX shareholders free substantially

repurchase quarterly share through our As quarter, end. dividend. will million to we third year shareholders through plan returned we about last quarter, $XXX remain the calendar In said suspended our

XXXX; of our our We status, directors, dividend concerning dividends priority cycles. but all again to including annual economic consecutive remains dividend the of All decisions for paid higher XX made by dividend The next high increasing aristocrat board year. where anticipate a are through proud are years, our we we've shareholders.

of President Energy Younessi, Before closing, Transportation let them contributions Ramin at the retirements We things. me Billy Industries. and to mention Caterpillar two end Ramin and Construction important in Group of and thank retirement. The significant Billy other President best wish of their year Group and all for Ainsworth,

Fassino We'll and We're for ranking expanded and that In We of the assessed by flexible also have quickly also Joe than excellence, strategy XX our the Creed working cost X,XXX the for we services Wall been welcome changes the safely includes able companies ever, positioned which around we're well competitive. and managed customers. proud publicly serve more operational list more continue Journal number our executive to mention recognized making Tony in is to market Caterpillar structure are to as better and on and team offerings our investing Street traded sustainably to profitable to execute demand. react as summary, in world. more the its in be world. office. the new growth, improving recently to companies like than most I'd The

stronger We is an will emerge the in pandemic even company.

Now, let over Andrew. to it me turn

Andrew Bonfield

with XX% on and decreased outlook the walk good to finish $X.X and Then revenues To by position. morning, profit cash of with billion. free results. cash Jim, results $XXX XX% quarter flow, Operating through and our million. recap to start and I'll slide will the third on segment you you, Thank liquidity a and declined fourth our touch $X quarter by X sales summarize, everyone. I

of share foreign or third exchange was includes both per our Third fairly Adjusted tax we and Last This was was and quarter pension this adjusted million operating with negative better per XX. what by finished share share for in $X.XX. losses close obligations. sales income. and included $XX per than profit although the impacts of share, thought discrete benefit investment share Overall, profit share offset $X tax or partially profit to we pre figures. $X.XX in year's per $X.XX, share settlements July, and per margin million profit anticipated, revenues was being the per is remeasurement $XX quarter lower XXXX $X.XX profit the per resulting your from

billion slide $X.X to lower on also dealer due the in year-on-year decrease. $XXX shown As of line to inventory by declined $X.X X, billion, A were which movement top million volume. contributed

on mentioned sales It is Sales reflected declined and Within lower to industries spending China, quarter unfavorable gas North quarter. where a America. mainly activity from trend. users the North to Asia second XX% timing, to weakness XX% sales stimulus does for down for the spot. Resource while in by America America. bright due of and rose Pacific some Jim be in by reciprocating the X% lumpy that year- improved in Transportation As and construction year-to-date. tend to overall to over-year decreased was particularly decreased from industry number for the had Industries by benefiting users levels which users Latin This North XX% actually America Energy up engines, a XX%. XX%. decline

had solar turbines users in timing in also to We business unfavorable lower applications. our and industrial sales

user's expect delivery lead and of time resource this significantly the quarter inventory inventory the The customer more improvement to reduced decreases quarter, and dealer Energy energy dealers Dealers as $XXX expectations in decrease comment quarter-over-quarter quarter. million dealers. I'll for compares when have respectively. the received quarter by sales anticipated. XX% from this a you is by been and longer to few among third million to also made movements users XX%, declined on decrease and Industries in segments. more we in and last to the Dealers by the Industries both XX% final tend have prior $XXX the products the between in to As consistent of than of $X.X enabled reduce billion have year-to-date. inventory product year. Construction slight year That by in Sales transportation inventory to versus primary were order fourth the the machine Sales impacted a declined industries sales moments. fairly these is by our when would Resource Transportation three

the geographic driven region, sales China. in by demand were Pacific Asia resilient at most healthy Looking in

quarter driven realization industries. construction America North demand digits industries of performance of America saw XXXX. of confident than in better million quarter the in resource by geographic and This Latin an last are issue relative dealers comparing quarter, many percentage positive sales percent challenged, third $XXX is that industries. While mix and destocking second double Machine about future. within than we pronounced industries. dealers less was fairly was believe decline less We seemingly the saw by construction in price and we of about in their reason was the reflected second despite the Unfavorable increased one are construction more become This versus to changes more in orders quarter. the

the quarter slightly solar second our backlog of saw compared to increased also We turbines XXXX.

profit We manufacturing Volume a the primary helped lower quarter are improvement by in effects costs also with for million. a the short the declines third quarter margin operating of compared Lower of delivered an XXX that. basis incentive XX; XX.X%, help term slide second offset mitigate point X.X% operating decrease; the XXXX. of XX% operating the margin volume. compensation to on fell $XXX partially favorable Now driver for

than quarter favorable good primarily was we expense the factory geographic better in million, was reflected this mentioned, Restructuring quarter I better control, million for compared efficiency. slightly of cost the $XX more As XXXX. with expected and third $XXX and mix

progress of committed make the year. the certain at doing we're addressing challenge to continue to We beginning as products so

facility the of shovels. This a in manufactures completed Germany. contemplation closing the mining we hydraulic related to doormen class facility productivity quarter, Dorman process This

earlier, closer base. improve and I profit share profit investment We $X.XX. are foreign per to locations was Pretax as and And by losses adjusted lower and in per our mentioned profit rates. customer due impacted $X.XX our considering to this competitiveness cents end lower supply was share will to This segment. income interest was help us market exchange

segments XX. beginning Now results third slide the on quarter I'll discuss individual the for

compared to fueled billion. in in declined by to and unfavorable inventories short The a also favorable volume quarter in the principally road by pipeline sales. to with End by XX.X%. decreased XXXX $XXX more to by For million, Construction America, $X.X costs expense quarter decrease realization during offset. year's decrease margin sales. The points inventories. Volume basis profit mix and sales Lower user demand reduced XXX of in Dealers provide geographic the related declines quarter. to user due construction and low end Industries, the third manufacturing prior term decreased an decrease by dealer impacted changes and North America demand third price XX% XX% their North incentive segment's reflecting declined significant compensation of third operating

XX, As third We saw user billion. by shown the for decreased mining. aggregates Industries construction, on sales $X.X Resource heavy lower and quarry slide demand XX% in and supporting equipment end quarter to

aftermarket due also rebuilds. maintenance lower to We sales part customers deferring saw in part and

unfavorable contributed primarily The applications truck We improve. In low of sales revenue. sales across the price this and business quarter. saw continues lower and realization lumpy addition, improve but fourth Specific Latin has America. mining for activity production versus timing machine quarter in the the in as percentage markets, we mentioned, expect to reduction Jim all to to mining, North as it stayed was America to third parked impacted sales. deliveries in But

Third to decrease and points as margin partially to price, declined as manufacturing by segment's favorable by due volume $XXX to incentive quarter offset costs, well unfavorable operating XXX compensation decreased The the basis profit million. expense. short-term X.X%

and XX% America as quarter in sales compression. X%. turbines decline oil XX% locomotive related due aftermarket That declined small This XX% sales XX.X%. decreased down Power those and XX% low and declined Transportation gas large included turbine to million offset America. as decreased well An by to to points related and reciprocating and a respectively. to sales billion. engines declines. services. of Generation and volumes Energy operating slowed in gas. Industrial to primarily third by using segment declined XX, for sales reciprocating increase engines Demand in by $XXX engine Profit $X.X North as slide segment's North basis lower helped by sales engines, partially Turning is deliveries sales to margin well XX% decreased Transportation services lower in primarily volume. parts the by Rail XXX reciprocating in on The driven revenues and

As well were as one affected one positive time time XXXX and the negative also margins XXXX. impact items volume negative in items by in

in dealers this provision in customers quarter, Past dues assets. Credit second XX quarter year-over-year. expense certain by purchase basis our financial seven shape. $XXX average are in quarter. was XX% products XX% X.XX% $XXX across associated receivables wrap points net and Inc, primarily slide in our This and gas to up financing declines. XX% flat million, oil up that commentary; the all to from continues good assets. The earning due vessel base. receivables, Moving applications losses, decreased to and held quarter last Caterpillar to support to customers from due third a asset average at to led Profitability higher segment increase decreased provision are healthy rates time. levels for up The lower during yield support and lower third lower were Overall, million. volume by with credit about CAT reflected lower with and to is valuations a our by Financial a the revenue on finance regions latter challenging is lower collateral marine and to lower

X% payments. limited. majority second single programs have modifications first the resumed range. very their about and Over percentage the care our the timely successful, second only request to were has portfolio, remains United In have customers, low digit in States, the requests XX% exited been loans were modified, modification while of percent vast Our as retail period, of customer customer whose represent global now

businesses as customers always and closely impacts Financial is CAT manage with flow. their to case, continue the work they the COVID-XX As cash on will their

free million million about capital of third profit machinery, favorable a Now flow as from on quarter XXXX, cash and was of payable working up quarter, but quarter offset transportation slide about accounts cash million $XXX XX, versus versus $XXX Lower energy in the by this the the impacts about improved. decrease second was year. from $XXX partially of

the XX. will disruptions We level supply inventory, by to also continue providing on demand of expected continue decline the are prior purposes we the we other to see not what helpful to now services for user quickly is year. versus quarter will their and we are in few about by to $X Whilst the equipment customers on thoughts assumption to slide high based end dealers have a quarter be than for annual from end, guidance, the make outperform expect billion. including year reduce work and fourth impacted less third by hold not of and that modeling fourth billion Seasonally We fourth to of sure your on in our respond see process components able a in inventories fourth original quarter we with $X.X demand. more shown ensure expect our as do full improve the are quarter we both third. to a may the compared from orders. typically in larger Overall, Sales and dealers than be the potential to hear

to fourth $XXX we of reduction is saw translate quarter a the will reduction that quarter XXXX. fourth the similar which For the million, to around in

you XXXX. reductions though, positive to The mind manage some Overall, continue this the with will an operating demand. enable margins businesses, I Keep of cost improvement lap we versus they momentum, independent benefits dealers to XXXX begin be their in half the third point quarter. of that in And second own we restructuring material normally expect producing inventories. the the savings quarter. see are began and for which of us fourth closer total is the expect gross as XXXX we'd important expect we to about to the remind much We from in This compared around million will $XXX in quarter the the fourth restructuring benefit million seasonable expenses expense Overall, fourth XXXX. expect we an in we million $XXX do year. margins quarter a The in with operating implies currently of quarter in fourth only about compensation. on improvement expect in reduction of therefore margins of do incentive $XX reduction quarter-on-quarter. also

continue we efficiency forward. as These the progress products. importantly, I More In make total, earlier. will to products competitiveness action efforts to million Dortmund challenged mentioned $XXX we facility challenge including about move addressing our $XXX million continue to these of and expect increase relate the we to spend

as charge expect quarter also this We we time. expect not tax fourth in any discrete items increase at to do tax the the

then Now financial to Earlier $X.XX made translates share we our that April, shareholders we around returned due our share this per month, $XXX the turning to we’ve our uncertainties XX, quarterly associated declared repurchases COVID-XX extended dividend position. this to program repurchase and per share, to which and year-to-date. earlier quarter. to In Slide year. normal calendar of million suspended through Including $X.X with billion year, end the

Investor our return in and substantially through shareholders free is to for to our flow ME&T intend cash unchanged all May cycles. the commitment Our Day we XXXX

compelling opportunities. to continue M&A use sheet, can maintain for We balance a we strong which

& a attractive own established and a Pressure financially this over a for Pressure earlier purchase liquidity. for will transmissions even closing. with and announced gas including month, We our without our comes million included enhances valuations Transportation are Its and transaction third enables cash. mentioned, As It’s some Jim oil provide ended within $X.X prices. Group’s $XXX oil gas be when us a in the the with This additional acquisition services strategy profile, to customers. at value upon an business growth. with profitable time Combining engines to $XX our to Weir billion agreement Pumping quarter The results to consistent segment billion strong enterprise Control portfolio in enterprise It’s and financial of customers. Energy in and oil in long-term compelling. recovery for proposal ability also investing create cash our Weir’s we

resilience strong. will credit stronger shown and an in our environment emerge Our remains even current We’ve we rating Company. the

So finally, recap Slide let’s let XX points. turn key me and today’s to

profitable We execute growth. our for continue to strategy

while $X.X positioned quarter. start We’re expanding volumes improving dealer excellence. for stronger changes Company. emerge investing operating margins improved pandemic well session. demand. quarter. We in With the services prepare quarter, that, we offerings stronger and inventory second fourth we XXXX even see coming in the and improved versus operational hand by In down market third billion, the Jason for as an in back from to And we’ll I’ll Q&A the will to the it With margins

Operator

Suisse. Instructions] comes from of Jamie first Credit the [Operator Your light question Cook from

JamieCook

sales, the here; Hi, just your I your the trying user orders positive lines do declines next to end want good Thanks. areas without you're on growth going just morning. you seen commentary end revenue backlog? of bottom we've between a the more have to dealer sounds less sort a so, in comments not can I or guess Jim, on read just of you on inventory. of mean, to It like think And view of more which opportunity year? for constructive XXXX versus quantify of if understanding user possibility terms demand in on growth? you comment you're

JimUmpleby

morning, Good to make just XXXX to to you're I'm color. some some not will comments Jamie. but I provide give going correct. yes, And try guidance,

what see are So we today better on talked mining. quite about here We've the I fact certainly quarter constructive today, we as than I in we ago. feel that a did sit

large believe that So good mining involve high. tractors large about my activity we continues would we in multi activity are large the is mining quite construction in starts earlier next that housing year and on mining US we strength well. is I quoting about remarks, And mentioned year feel industries as end tendering going into to business talked well. the really projects smaller trucks. of Again, that improve. continue of our as will deliveries the for some We've driving

ago. better give So XXXX. going to [Tech we here than for guidance Difficulty] not quarter again, a today we're did

Operator

of lot David Raso a from comes next Evercore Your ISI. from

DavidRaso

order of I'm morning, lot now sense good a for about to you're back of now we with in on sort starting trying book, to should think get improvement, early in year? of about how Andrew just production historical a commentary is the to thinking XXXX, little the and the you're us of think solar perspective, going in baseline we quarter, still it just to spirit, sort bit to appreciate a year Or momentum seeing that retail, I under a and to same for you're way issues you line some revenues just fourth the CI speak baseline said a sequential saying XXXX, with positive terms. you mentioned And in just trying as have the in of mining, give that I'm XXXX. start the timing what some Hi, just into the extrapolate to sequential maybe into normal

we're think the all growth. sanity I easy just company can return revenue mean is check to when relatively to in trying comp. XQ positive I

figure people start momentum perspective some were a out appreciate. I how to trying just much think just XXXX, to bit,

AndrewBonfield

the of lower Good than see buying for And we quarter, inventory the Andrew. as Obviously, as remember you although obviously, getting pandemic some morning. as normal it's if build by that hit, dealers hit did a David, we result Yes, season. first in ready well. the

thoughts be an couple I think impact. will that so of a on QX,

the reduction New later example, would occur is bit a China's obviously, year-on-year Year in China, little in comp, QX, deal the say did inventory Chinese We as challenging. more for expect a big So you year. also, see this we

this may some there means build sort that New of Year's of in be February year. middle Chinese QX, inventory So

in And of But an So sales that think more an first that generally, less impact underlying I quarter had have end we user may say, start momentum comps. will the we obviously as to think QX impact impact. positively.

to the little we through going it's So challenging bit be a as go year.

I pans think get we'll feel year. as give how more you be we bit able exactly a for out January, the little for to to that

Operator

question of next a comes from from Chad Your Dillard line Bernstein.

ChadDillard

would consider managing And own of there? year? forma] I to [pro hope you be And can destocking expect I guys it would running there? on of XX% the the healthy end sales guys. you depletion think a How morning, you what good to about at Hi, basis. be the we should CAT's on comment inventory, level where think it's

AndrewBonfield

morning. Yes, Good is Andrew. Chad, this

CAT As little we one, normally we safety supply about of than is we inventory hold partly that, more said, obviously at which obviously for a disruption. as couple a had inventory concerned reasons gone we've the through we would extra are end for have been bit year holding of the we because

inventory as little So are safety levels bit higher. a

same we Historically, is actually, odd you and obviously for of Caterpillar a getting is in Second owned have in years the ready reduction demand would potentially have where cycle, seen this always a those down upturn thing an a in time. actually downturn inventory. in one

effect that year. catches the we demand the financial right Given move their be into next on that are a tick to are that XXXX. would bullwhip inventory we normally We in expecting where obviously see ready to to would continued a reduce inventory reducing so move I have again, we back where didn't than for position the we plenty inventory a are we levels, more in into hand. underlying normally, the as of that obviously given have us dealers as we us out up cash were we levels. aren't situation hold held. mean, Obviously, if it's believe we little for we Getting we bit

a are rate low environment. interest We in

do. a it's than to not on hold financially, us a inventory little drag more So we would bit big normally

Operator

of Your Vertical from the next O'Dea question comes Joe from line Research.

JoeO'Dea

saw and to services decline services Questions between the demand side from Hi, rates to the XQ. trends. XQ. looks good like user It XQ on business accelerated related and the of similar pretty decline rates might everyone. have end The XQ morning, we

little some talked comment deferrals. bit you And sequentially. you've saw you what But if control about can drive clear on trends tougher in terms think to on little around you just in opportunities a could getting was those leadership year-over-year fact then revenues the bit higher. it term there. announcements I the a services you the the near and recent control on and What focus see what of in changes in if

JimUmpleby

excited believe utilization expected the expect opportunity. to mining higher we terms And continuing that aftermarket question I in what by of something And on did to OE, your services our given increase some continue moving sales, we're would market. certainly very decline in you business. for declining thanks to are element I it's year Having again, we in to services. the extent of that just expect, very a is invest than again, services continue important about about and make see lesser that, strategy. next that did comments, high, said And this invest certainly, be is Yes, into but we part as we're of focused And in to an

Operator

Ann a of question comes from JP line Morgan. next from Your Duignan

AnnDuignan

into road equipment of comments morning. Good If Can Yes. little just invest How noted new I it and get on versus bill who being new infrastructure being highway then could to a your in focus able FAST highway customers could the to construction anything bill important that you be about bit may weaker a Act and ginormous on XXXX, think, we bill? weaker. contract? with is a importance aggregates get made four talk going also, some or construction not quarry we long year term you the particularly new you for

JimUmpleby

it that have But is this when everything infrastructure point. all depends thing timing of overall about. very the reason And, of can bipartisan it course, of so provide seems extension of be economic local the agree we've state for and we and to gets service one they for bill of as advocate governments be the of very We think reauthorization in customers term that, on us, for support uncertain. would the certainty bill. would in stimulus. to that we've a fact, continued terms some for the sides federal passed. a on of based year broad, for course, projects does at one seen, again, plan politics think It tend the bill it's to And positive course, on all highway and appropriate Yes, highway long our certainly two

Operator

from line question next the Your comes of Tim Thein from Citigroup.

TimothyThein

morning. thanks. Great, Good

relates question into as material the price and we of this to So look costs, interplay XXXX.

and inflationary seen we CAT, in how the course, recent given what moves environment, for think the steel, about given Just material the which of plus the be a pike should stay XXXX? grades an we of versus for of most side and price into opportunity coming then cost of more bit to CAT's down looks actions of the we've you. Just globally on markets in ability pricing to state XXXX. Thank

AndrewBonfield

Andrew. we bit little Thanks, obviously, Yes. steel. forward a I that our just Tim. mean mean, of do I from perspective, It's bought Yes,

of still at the benefits are we price reductions this stage. So seeing

is we softer XXXX. that costs. we're As the you have the event, we at we're obviously account are hard. In that thinking we position reasonably through moment, obviously, seeing move that year, Obviously, of price too want demand are are fact still you does about the reflecting environment, later. into we as the good completely option do go a not yes, of And at demand thinking change always actions into correct; the XXXX, price about the material favorable as the But to equation. in in moment, we obviously if side in a are demand taking push the we

Operator

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

RobWertheimer

Good morning.

take that I is unusual. accomplished? this whatever could transition saw there's And you a want the about if little for on And Tony, second bit focus if a or for direction what different it. two a wonder was talk and presidents future you quarter, which a you. to Thank You perhaps Joe

JimUmpleby

kind operational office. change to offering executive going strategy; Expanded continue execute in Well, the contributions we And many we Billy excited signal joining about careers to the I we're any does and thank very and XXXX. during excellence. having bet. for It introduced in certainly Joe and and retirement. wish that well not on also of we're Ramin them Tony as strategy their mentioned, and their services You

strong So we planning. a on amount succession board considerable spends and bench of have very our time

So again, we wish and again, that's Ramin best. all Billy the

Operator

question Courtney line Stanley. Yakavonis from next from the Morgan comes Your out of

CourtneyYakavonis

Hi, guys. Thanks for question. the

can the quarter. the and before activity one activity that -- parts the fourth like you in on the just more was of of If to commented be it business you're small the business driving resi that non-residential housing expecting end you muted the seems comment of sounded

on between Thanks. the If those you maybe of resi two directors, just non make into can next your kind resi? business and you'd sizes about comments on talked any comment you the that of margin relative that heading propel would acknowledging in

AndrewBonfield

that think Obviously, you machines the smaller the as clear, obviously, of that this lower have the Courtney. tend slightly the across portfolio. It's thanks, the Andrew. structures Obviously larger mix, is overall, varies we But even Caterpillar, portfolio than like different different have broader been margin with Yes, a And we within portfolio seen broad business. as parts small of Caterpillar. within to have relatively machines. margin the you've a context year manageable and the

gross not it some help remember are margin improve worried get these a is about does having you from actually leverage we margins. products, that overall, thing think structure. Also I So of other to drag on the your if too very impact favorable obviously,

very been So why manageable manageable, been is it's we the to going forward. it's which been that has be managed, way and it expect

Operator

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

RossGilardi

Weir I as to guys both mining thus in like the But retail billion E&T, some any delivery got given question using you're the thought fuel your few the from hoard the has giving getting coal? markets seeing structural cash I it the seems if And company that not, cycles, the you're is to fossil and headwinds a be its had And be and $X has But for economy and industrial to to that, Jim, term markets? headwinds away lot industry, Thank pressures mean, for outlook diversify discussed in growth ongoing is which far solar, mean to at due morning. not? of very to resilient energy better. near been energy you. a not why Good and markets seem really last spending know be lumpiness Jim. you assets. buying sales you and flagging, pretty the capital maybe I sector like timing. in coal, a of anemic least I in

JimUmpleby

-- by start of signal geography. is I'll me markets the asked diversified start probably we in expansive best to it's expansive and so way a headwinds a I But question Well, end But Ross, both we're quite give we certainly question. of reminding an for terms don't appreciate an believe you solar. bit you've business by your answer. any large

well we're the Street world. the to world And the in future world's we after managed that our of the to XXth transition, positioned will period X,XXX companies investments Wall infrastructure But play will And top during believe energy I that As occurred. I also out sustainably benefit mentioned to customers very we're long would well a of the in build in the proud that around to include And the our period positioned earlier, companies. I'm products confident the is. Journal's matter been have how around to no named have And support and part that. infrastructure. we're transition continue transition from of both succeed future.

customers increase between you energy And expected are in into online well, helping company some reduce demand excited particular them terms we're coal customers how we with It's We've is to exposure, to due to oil And helping substitute support market we that's blending of of flaring, providing And gas today; machines very the opportunities fuel supporting and to with and sustained that customers. see the customers growing mining continue metals. X% mentioned see low. opportunities products services our Whether and our exposure we're by their and goals we're to In and revenues we have we're about electric well. But to to footprint. nickel In our their and future, copper growth. as up introduced carbon way, essential expected look diesel to future of both generally our a allows and when solutions of dynamic parts. it's them world as class and gas for natural support gas, of XX% X% gas the all mining abatement methane coal; the engine improvement. ESG reducing our transportation. our efficiency battery by storage business to including vehicle

CoCom gas, bio experience a and in natural our gas, of gases. burning including recip fuels significant both our have our landfill other engines variety Xand We turbine wide and gas

hydrogen. including to are of run positioned well our equipment on blended variety We a fuels

generator to emissions. burn fuel be electricity. with hydrogen and recip XXX% overall carbon with of We've electric Our drive like can reduce electric sets produce in engines to advanced take machines our technologies that one hybrid configurations to with And available our conjunction develop consumption turbine traditional have customers have solar fuels. drive paired rail electricity Vale, things battery gas electric an and to that powered can we turbine as we batteries, In alternative done advantage enable we of battery customers. renewable switch a locomotive; all

the backup So wind you think of solar, future. believe and part reciprocating about gas farms large will distributed generation, a many turbines be already engines to We're which selling as and well.

Our networks. as and to engines added blends generation are of distributed gas variety hydrogen provide solutions a

going well are future, the to to so the transition positioned support very as but the continue have. occurs, we that we we And think we're again, customers for

Operator

comes DeMaria William from Blair. Larry the of line Your from next question

LarryDeMaria

are rate of morning, Thank of puts are What and Obviously profits environment But example, profit assuming some early and can on sales you flat optimism restructuring. let's next the better everybody. side for run in comp, discussed takes apples-to-apples say benefits year. you and Good maybe the the what's in the XQ next talk, what more year? headwind, you. incentive just

assuming incremental, decremental without any Another apples-to- items to on year, margin? or profit from this an apples year say basis on next let's

AndrewBonfield

obviously, Larry. of if demand, top the obviously, from Andrew. reductions. dealing won't line we have Hi, produce a It's we means closer big that perspective, negative -- the Yes, impact

rolling positive obviously operating other assuming leverage be no perspective. an will changes from profit, through there a the So

cost of year payout. the normal step, runs did the On a at standard we step see, on basis about of million obviously, sort per side, $XXX

We discretionary as and into some move did a XXXX. as will delays have We that we see headwind spending.

come not may Some of back. that

Some overall. of that very minor may relatively come it's back, but

have there other in which such really got projects, started haven't For because like delayed aren't together. Obviously, example, people been as the been they've travel office things have while less. been

better we'll in. into a that give as we as to we how able see out when XXXX. pans January get we'll we obviously So you And about talk be get that guide to

LarryDeMaria

rate run restructuring, with And think to restructuring about. number

AndrewBonfield

plans obviously, we assume we seen these our relating $XXX average million of are together And we've stage, XXXX. for still on restructuring. products. this At to base putting challenge then Obviously, incremental about normally some

planning restructurings as maybe wouldn't year, to million our about spending -- we at of challenge recur products, stage see year probably significant $XXX less, will this this XXXX. much we'll even Some how that finish But we're slightly need process. be next in the different we'll

Operator

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

NicoleDeBlase

guys. morning, thanks. Yes, Good

time three the going that just Just ending I a E&T, bit reported deterioration September, for bit sales more on retail if that. to with was that then this decremental elaborate on higher on there a margins bit you about segment, were wanted think to and spend little by guys the how XQ? months also you a into surprised quarter. there that could special respect to bit little Anything And a

AndrewBonfield

Nicole, piece. the, with start with I'll margins So the

As write last equated one had one I timer also we downs year $XX to said in impairments. about E&T, inventory my to and did have million comments, we some asset some this small income credit number negative a a that year time in of related

big the driver quarter-on-quarter. the actually of margin was that change So

JimUmpleby

really so business terms you quarter-to-quarter of Industries in sales, and E&T deviations particularly lumpy both a sales. of see can terms In It's in E&T. but Resource retail

it. a drives that lot So of

Operator

of a from from Volkmann Jefferies. comes question Steve next Your line up

SteveVolkmann

you some point? operating shareholders difference cash kind next to It's understandable sort this how at that morning, it the be? and want year Thanks you to for make flow of cash to Or to get of up the good the pause on you return proceed Do repo and Thanks. restart level my assuming restarts over think where return and everybody. at year. way. just question. about Hey, the to of sort you I'm curious do cash of taking

AndrewBonfield

that we've It's This over. policy over date. on cash probably of will year, the board free returned And be move take we ME&T done Andrew. flow flow. based Obviously, all will free decision, amount of substantially actual be as cash buyback will our already have any a around year-to- our you Obviously, we that update is morning, will into Remind return XXXX. which good decision Steve. an to

we'll conversation probably just number a around is. probably have the what again, with we'll to But that back and timeframe So back in rebase discussion January you.

Operator

question line Goldman Revich Jerry next comes from of from Your Sachs. a

JerryRevich

for know folks. dealers morning, I good environment your you're work We've way of for ordering comfortable wondering wondering lot across to or digital other if Thanks. a via use any about what And the of quantify a business connected how I'm your strong talking out quantify you're of way everyone. of Hi, the I if much there. in over it. seen channel? am customers lot board, put you connected you you've machines, in just in Yes, proportion digital us this building just your could traction that for engagement

AndrewBonfield

We Jerry. over focused bet, that's something to quantify are we're You time. going And very seeing certainly we're improvement that But on. number.

this for morning. as to their invest I So investing you as and well, we that can't capabilities, quantify expect and but dealers continue, to seeing it we continue in our we're improvements, really

Operator

line the UBS. comes of from from question Fisher Steven next Your

StevenFisher

Great, looks thanks. noted maybe in guys wondering the Good you Jamie strength like morning, next expect have sales visibility retail how construction, it on year. But the much is continued activity China moderating. you

shift visibility terms the in factors? any a maybe talk So the Thank bit there and you just about some share other drivers key little market you. can of the policy of and versus

JimUmpleby

It's see strength to expect to have we more a don't been do on Again, into everything strong. obviously, strength continue I Steve, China. continued mentioned earlier, on based frankly. As year. to today, ball. And strong. we crystal be that we quite next do much that elaborate expect we to But Based continue what we hard in see than the business

Operator

comes question from Capital Your of next Weber Seth line the Markets. from RBC

SethWeber

morning, Good everybody.

has of a I expect along your been starts of the kind in couple R&D question, here down a to would year? in a material years. R&D where of you in for spend revenue prior Thanks. mean up, pickup lines next come Just back spend scenario a

AndrewBonfield

the term has one the incentive mean, obviously, gone that compensation of I R&D reductions year significant just does have there that going as R&D most slower. project not bigger one Yes, through on short of we've think been year-on-your, slightly projects together engineers Yes. a inevitably, delays. this some actually spend the are been room the factors impacts. all some of the one it's I in having the mean has year, of the things Obviously,

rate actually slightly sales, of held of up because obviously up than decline spend a As year-over-year the is of revenues. better percentage actually R&D is

maybe dollar as obviously, So we'll not of lower percentage as obviously, revenues. big a increase. see quite an But slightly percentage a absolute maybe

JimUmpleby

to and that we continue confident R&D investing are to the again, continue But, build invest digital. we're projects, expanded most up in in those important products,

So again, committed to R&D developing we're important in products continue most and new very programs. investing the

Operator

Your final question comes Dobre from Baird. of from Mircea line a

MirceaDobre

morning. If sound older. were deploying move Thanks to I all discussion customers versus fleet go in at you are we of say, that Jim, the sounds you where for would current mining in, on in. XXXX know back to going there me it's starting because the have environment, we're kind and constructive Good like the you a Thanks. bit little if compare some and we capital. question maybe now pipeline into the on things in squeezing the could of are XXXX? It Want asked for And the you pipeline here. to you mining. looking How

that presuming today say was the different I'm is customers making, little than which it for a So decision in XXXX? your bit

JimUmpleby

Brownfield out cost different on mean, can projects, of conversations customers more different. spike between conversations expecting we reduction, indeed. our end very, today, a had customers the not a XXXX about around they fleets. of of more the help conversations autonomy, very could are for through squeeze retrofits I'd different. very time the discussions were Yes, by they projects, mood They're that shell given different are I And about all be I'm everything say be very XXXX, say wild autonomy cost frankly, what you're finding The continued very, them. quite were more And XXXX, our just up. the doing. The couldn't expanding Greenfield shocked, about them successful. and are gone tough I talking how conversations ways existing

best for and is I've it more mood different time. As thing the industry the XXXX. increase the confidence, over a both said us very, I than previously, think is moderated of the very But for wasn't

Operator

turn now closing back to I for concludes remarks. That the presenters Q&A.

Jim Umpleby

you, for Well, Thank thank everyone this your morning. Jason. you, time

pleased well. quarter longer we future the to of here, forward with you. the company quarter; year and is performing we're term positioned look the fourth Just And Thank we're in with to as kind summarize for our performance very next discussing We you our in results well. believe well January.

Jennifer Driscoll

Thanks, Thanks, Jim. and everybody who Andrew, us joined today.

Before find for XXXX replay dates me October and slide we quarterly of April out in online Investor providing we're where our today. investors.caterpillar.com our website January XX, Relations preliminary this Click those materials. then XX, our close, call available XX, will July let point financials be later morning. transcript and A post click on XX earnings the also later We'll XX, XXXX. to on on

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

let's day Jason enjoy turn driscoll_jennifer@cat.com. your you to rengel_rob@cat.com call. to I rest our phone at reach number of now back can The XXX-XXX-XXXX. and the relations is Rob You hope and conclude investor general

Operator

conference for call. everyone today's concludes That Thank you joining.

disconnect. may You now

Jennifer Driscoll	Director, Investor Relations
Jim Umpleby	Chairman and Chief Executive Officer
Andrew Bonfield	Chief Financial Officer
Jamie Cook	Credit Suisse
David Raso	Evercore ISI
Chad Dillard	Bernstein
Joe O'Dea	Vertical Research Partners
Ann Duignan	JP Morgan
Timothy Thein	Citigroup
Rob Wertheimer	Melius Research
Courtney Yakavonis	Morgan Stanley
Ross Gilardi	Bank of America
Larry DeMaria	William Blair
Nicole DeBlase	Deutsche Bank
Steve Volkmann	Jefferies & Company
Jerry Revich	Goldman Sachs
Steven Fisher	UBS
Seth Weber	RBC Capital Markets
Mircea Dobre	Baird

Caterpillar (CAT) 27 Oct 202020 Q3 Earnings call transcript