Yahoo Finance Caterpillar Inc (CAT) Q1 2024 Earnings Call Transcript Highlights: Robust Performance Amidst ...
Adjusted Operating Profit Margin: Increased to 22.2%, up 110 basis points from last year.
Record Adjusted Profit Per Share: $5.60, up 14%.
ME&T Free Cash Flow: $1.3 billion.
Cash Deployment: $5.1 billion for share repurchases and dividends, including a $3.5 billion accelerated share repurchase program.
Backlog: Increased to $27.9 billion, up $400 million from Q4 2023.
Sales and Revenues: Remained flat at $15.8 billion.
Adjusted Operating Profit: Increased by 5% to $3.5 billion.
Dealer Inventory: Increased by $1.4 billion, with machine dealer inventory up by $1.1 billion.
Release Date: April 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Q & A Highlights
Q: So nice margin performance in the quarter. And hence, my question is around margins. You guided for the second quarter. So if sales are expected to be lower year-over-year, I'm assuming volumes are down too. So what essentially would help margins remain relatively flattish. Is it price -- I know you mentioned some factors, but just wanted more color. Is it price cost? Is it some cost savings initiatives? Or is it something else that's going on? So any color there would be helpful. A: Andrew R. J. Bonfield - Caterpillar Inc. - CFO: Yes. So at the moment, there are two factors. One, which is obviously price will still be positive in the second quarter, and that will help overall margins and will help to offset the impact of lower volume. Also, we do expect to see some flattening of manufacturing costs versus the prior year. Mostly because of freight, we would expect the benefit of lower freight costs to offset the impact of cost absorption which may occur in the quarter. So those are two factors. And then we will expect the increase in investments we're making behind our strategic investments in SG&A and R&D to be offset by lower short-term incentive compensation expense. So those are all the moving parts. But overall, as we said, we expect margins to be about flat year-over-year in the second quarter versus second quarter of 2023.
Q: Great. I know you're guiding Q2 sales to be lower year-over-year and the full year would be broadly similar. So maybe you could give us some context of what's driving that second half, that slight pickup? Is it deliveries in a certain market like E&T? And is your expectations that end user dealer retail sales, which pulled back in Q1. Do you think that's the low point for the year, and that starts to improve through the year to match that full year guide? Any context there would be helpful. A: Andrew R. J. Bonfield - Caterpillar Inc. - CFO: Yes. So overall, as we've said, really what's happening in Q2 is principally the impact on lower volume will be around the impact of dealer inventory movements, particularly on the machine side. Last year, as I said, we actually had a very atypical build in the second quarter. As you know, the historic trend is always during selling season to see particularly on the CI side, dealer inventory to decrease. So that was really the main driver. Overall, as we've indicated for the year, we still expect a healthy volume in North America in CI. We do have some impact now on Europe. That means we now expect CIs to be slightly lower year-over-year. We are seeing that offset though by expected sales growth in Energy & Transportation where we're seeing more positivity than we've seen. As far as STUs are concerned, Obviously, the first quarter was impacted by those, principally the European conditions, which we mentioned a moment ago. Overall, we're still very comfortable, but the overall guide we've made for the year, which is sales and revenues will be broadly flat with 2023.
Q: Nice quarter. Jim, I guess my question, under your leadership, I think the earnings tower of Caterpillar has far exceeded anyone's expectation and a lot of that was driven by the O&E business model and your focus on profitable growth. At the same time, you're allocating -- you've been allocating capital to higher-return products, right? That's part of the strategy. At the same time, you're talking about doubling, I think you said your large engine capacity to meet demand for data centers. And this is now you're lower. At this point, it's your lower-margin segment. So I guess understanding right now within E&T, we have investment in AACE and capacity. But like over time, why should E&T margins structurally be higher than the other two segments, in particular, given where construction margins are right now. I'm just wondering if the market underappreciates where E&T margins can go, given the capacity additions you're talking about? A: D. James Umpleby - Caterpillar Inc. - Chairman of the Board & CEO: Jamie, it's a good question. One of the things to keep in mind is that many of the investments we're making, electrification and in other areas, the costs are absorbed in Energy & Transportation. So that's one of the things that has an impact on the margin of the total segment. And as you quite rightly mentioned, we're very focused on investing in areas that represent the best opportunities for future profitable growth. And as we look at the margin opportunities around large engines, that's certainly an area that very much deserves our investment in both capital and expense and management attention as well. So certainly, as you know, our primary measure of profitable growth is absolute OPACC dollars, and we're trying to increase that. Having said that, we provided our margin targets, and we said it would be in the upper half of the range. But again, we're investing in areas that represent very good opportunities for profitable growth, and that includes large engines. So I'm not saying that margins won't come up in E&T. Again, the one thing to keep in mind here is that a lot of costs go into that segment that really benefit some of the other segments.
Q: I think some of the concern around the second half of the year sales having to be positive to offset the first half being down. It'd be helpful if you can give us a little sense of the implied orders for the quarter actually did turn slightly positive year-over-year. Can you give us any color that you can around sort of what moved in the backlog sequentially, E&T, CI, RI, just so we can get a sense of was the order improvement year-over-year solely E&T. Was there any order improvement year-over-year in RI and CI just to maybe build more confidence in the second half of the year sales growth? And of course, any color around some of the E&T orders, you get the impression some are very long-dated orders. Just trying to get a sense of that order flow in E&T, how soon can those orders show up in revenues. A: D. James Umpleby - Caterpillar Inc. - Chairman of the Board & CEO: So David, let me ask the last part of your question first. So in terms of E&T, about 80% of our total Cat backlog is expected to be sold within 12 months. And we don't put orders into the -- we don't put things into the backlog unless we have a firm customer order. So we work really closely with our customers as an example with customers that are looking for large engines for data centers. And we have a sense going out multiple years of what it is they want. But we don't put any of that into the backlog until they give us a firm order. So it doesn't -- our backlog doesn't go out as far as you might think. So I
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
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