The paragraph introduces the First Quarter 2025 Caterpillar Earnings Conference Call, with Operator Alex Kapper welcoming attendees. Key company executives present include Jim Umpleby (CEO), Joe Creed (COO and incoming CEO), Andrew Bonfield (CFO), Kyle Epley (Senior VP of Global Finance Services), and Rob Rengel (Senior Director of Investor Relations). The call will cover the first quarter earnings release, and relevant materials can be found on Caterpillar's investor website. It is noted that the call's content is protected by copyright, and forward-looking statements will be made, which are subject to risks and uncertainties as detailed in their SEC filings. Non-GAAP numbers will be discussed, with reconciliation available in the earnings call slides appendix.

In the paragraph, Jim Umpleby, Chairman and CEO of Caterpillar, addresses recent company milestones and achievements. He begins by discussing the centennial celebrations of Caterpillar and mentions his participation in ringing the opening bell at the New York Stock Exchange. He announces Joe Creed as his successor as CEO, following a planned succession process by the Board of Directors. Umpleby expresses confidence in the new leadership before thanking the global team for their strong quarterly results. Despite some negative currency impacts, Caterpillar exceeded expectations in operating profit and margins, set a record for organic backlog growth, and maintained a strong balance sheet. The company returned over $4 billion to shareholders during the quarter. He hints at discussing future impacts and concludes by offering his perspective on the quarter’s performance.

In the first quarter, the company experienced a 10% decrease in sales and revenues compared to the previous year, primarily due to lower sales volume and unfavorable price realization. Despite this, machine sales to users were stronger than expected, particularly in North America and Construction Industries. Energy & Transportation saw a 13% increase in sales, driven by power generation. Dealer inventories rose modestly, and favorable manufacturing costs led to an adjusted operating profit margin of 18.3%. The company's adjusted profit per share was $4.25. Growth in residential construction sales in North America offset declines in non-residential construction, with rental revenue also increasing. Sales in the EAME region improved, particularly in Africa and the Middle East.

In the Asia-Pacific region, sales declined as expected, while Latin America saw higher-than-anticipated sales growth. Resource Industries experienced a 10% drop in sales, better than predicted, with mining and heavy construction outperforming expectations. Energy & Transportation sales increased by 13%, driven significantly by a 58% rise in power generation sales due to demand for engines in data centers. However, sales of reciprocating engines for oil and gas applications declined. Turbines faced a sales decline in the oil gas sector due to tough comparisons and delayed deliveries. Dealer inventory rose by $100 million, driven by strong sales in Construction and Resource Industries, and the backlog increased by $5 billion to a record $35 billion. ME&T free cash flow reached $200 million, down from the previous year due to lower profit. The company returned $4.3 billion to shareholders through share repurchases and dividends.

The company is proud of its Dividend Aristocrat status, having increased dividends annually for 31 years. They aim to return most of their ME&T free cash flow to shareholders via dividends and share repurchases. Joe Creed discusses their second-quarter outlook, noting positive momentum from the first quarter despite uncertainties due to tariffs. They expect second-quarter sales to be similar to the previous year, with growth in Energy & Transportation offsetting declines in Resource and Construction Industries. Enterprise adjusted operating profit margins are expected to decrease due to lower price realization, with tariffs posing a $250-350 million cost headwind. The company is implementing both short-term and considering long-term mitigation strategies to address these challenges.

The paragraph discusses Caterpillar's adaptability in managing the impact of tariffs and economic uncertainties, highlighting its global manufacturing presence and resilience due to a diverse portfolio. Optimism remains for 2025 sales and revenue projections, with machine sales exceeding expectations and growth in power generation contributing to a record increase in backlog. In a scenario without tariffs, 2025 sales would be flat compared to 2024, with operating profit margins and free cash flow potentially in the upper range targets. However, tariff-related impacts are being assessed for potential effects on the year's results.

The article discusses the expectation of only a slight decline in 2025 sales and revenues compared to 2024, even if there is negative economic growth in the latter half of the year. This optimism is due to the company's diverse end markets and strong backlog, particularly for large engines and solar turbines. The company anticipates achieving target margins for adjusted operating profit and cash flow, despite existing tariffs. It reports strong sales and order rates in Construction Industries, with growth in North American construction and positive, though minimal, momentum in China's excavator industry. Economic conditions remain soft in Asia Pacific and weak in Europe, while Africa and the Middle East show investment potential. Latin America's construction activity is expected to decline. In Resource Industries, strong order rates and backlog growth are noted, especially for large mining trucks.

The paragraph discusses the positive outlook for rebuild activity, emphasizing that customer capital discipline remains strong despite high commodity prices. There's growing acceptance of autonomous solutions and a belief that evolving energy needs will drive future commodity demand and growth. The backlog growth in Energy & Transportation is attributed to strong orders in oil, gas, and power generation, specifically for Cat reciprocating engines and solar turbines. While well servicing faces challenges due to capital discipline and efficiency improvements, there is positive momentum in gas compression. The demand for large engines can be met through multi-year investments, and the outlook remains robust for solar turbines in oil and gas. Industrial applications maintain low demand, while transportation demand stays stable.

In the first quarter, sales and revenues dropped by 10% to $14.2 billion compared to the previous year, mainly due to lower sales volumes and unfavorable currency effects. Despite this decline, the adjusted operating profit was $2.6 billion, with a margin of 18.3%, slightly exceeding expectations. Profit per share decreased from $5.75 to $4.20, with an adjusted figure of $4.25, excluding restructuring costs. A favorable impact of $0.17 on profit per share resulted from share repurchases reducing the average number of shares outstanding. The global tax rate was estimated at 23%. The decline in sales was primarily due to dealer inventory changes, though machine sales to users and inventory levels were roughly as expected, neutralizing some impacts. Finally, the performance of segments and more detailed financial elements, like the operating profit, are discussed in subsequent slides.

In the first quarter, operating profit fell by 27% to $2.6 billion, with adjusted operating profit also down by 26% to the same amount, primarily due to reduced sales volume and unfavorable price realization. The adjusted operating profit margin dropped by 390 basis points to 18.3%. Although performance was slightly better than expected due to lower manufacturing costs and cost absorption from higher inventory levels, Construction Industries experienced a 19% sales decline to $5.2 billion, affected by unfavorable price realization and currency impacts. The sales decrease was largely driven by changes in dealer inventories, with significant regional declines noted, including a 24% drop in North America. Construction Industries' profit decreased by 42% to $1.0 billion, with a margin decline of 770 basis points to 19.8%. This was slightly offset by lower manufacturing costs and expenses. Meanwhile, Resource Industries saw a 10% sales decrease to $2.9 billion.

In the recent report, sales exceeded expectations due to strong off-highway truck deliveries, although overall sales decreased by 10% from the previous year due to reduced sales volume, unfavorable pricing, and currency effects. The Resource Industries segment saw a profit drop of 18% to $599 million, with a margin decrease of 210 basis points to 20.8%, but this was somewhat offset by better-than-anticipated volume and cost management. Meanwhile, Energy & Transportation sales fell by 2% to $6.6 billion, impacted by delivery delays and currency issues, though power generation sales grew by 23%. The segment's profit slightly increased by 1% to $1.3 billion with a 20% margin, benefiting from favorable pricing and cost absorption despite lower sales volume.

Financial Products revenues grew by 2% to over $1 billion, driven by higher earning assets in North America, despite lower financing rates. However, segment profit fell by 27% to $215 million due to the lack of a previous year's favorable insurance settlement and higher credit loss provisions. Customers' financial health remains strong, with past dues at 1.58%, a decrease from the prior year, and the allowance rate at a historic low of 0.95%. Business activity at Cat Financial is healthy, with a 13% increase in retail credit applications and an 8% rise in new business volume. ME&T free cash flow was $200 million, down by $1 billion from the prior year due to lower profit and higher CapEx spending, which is expected to reach $2.5 billion this year. The company returned $4.3 billion to shareholders, including $3.7 billion in share repurchases and a $3 billion accelerated share repurchase program.

The company's financial position remains robust, with favorable pricing through an ASR at a discount to the VWAP and ample liquidity of $3.6 billion in cash and $1.2 billion in marketable securities. They are monitoring economic conditions and have seen stronger-than-expected demand, particularly in Construction Industries, boosting confidence in top-line resilience. Sales expectations are now flat for the year, compared to previous expectations of a decline, excluding tariff impacts. In an alternative scenario considering tariffs and negative economic growth in the latter half of 2025, sales may slightly decrease compared to 2024 but still demonstrate resilience due to backlog strength and market diversity. Margins are expected to stay in the higher range without tariff impacts, while potential costs from tariffs are being assessed.

The paragraph discusses the impact of tariffs and provides financial projections for 2025. Despite uncertainties about tariff rates and potential mitigation actions, the company expects to stay within its margin target range based on current sales and revenue expectations. They anticipate a greater negative price realization impact in the first half of the year, moderating in the latter half. Dealer inventory levels are expected to remain flat compared to 2024. Restructuring costs are projected to be between $150 million and $200 million, and the global tax rate is expected to stay at 23% in 2025, excluding discrete items. For the second quarter, sales are projected to be similar to the previous year, with growth in Energy & Transportation offset by declines in Construction and Resource Industries. Lower sales in Construction Industries are expected due to decreased prices, with slightly positive volume providing some offset.

In the second quarter, Resource Industries expects lower sales compared to the previous year due to unfavorable price realization and a slight volume decrease. Conversely, Energy & Transportation anticipates higher sales driven by power generation and oil and gas, with favorable pricing. Overall, excluding tariffs, the company expects lower margins compared to the previous year due to headwinds from price realization, increased manufacturing, SG&A, and R&D costs. Tariffs are expected to create a net headwind of $250 million to $350 million for the quarter. In Construction Industries, excluding tariffs, margins are expected to be lower than the prior year due to unfavorable pricing, although higher than the first quarter of 2025. Tariffs will significantly impact this segment, with around half of the enterprise tariff impact expected to hit Construction Industries. Resource Industries also anticipates lower margins compared to the previous year due to unfavorable pricing and increased SG&A and R&D costs.

The paragraph discusses the financial outlook and strategic positioning for Resource Industries and Energy & Transportation as they face a 25% net tariff cost headwind in the second quarter. Despite this, sales are expected to remain stable or decline slightly, with adjusted operating profit margins and ME&T free cash flow staying within target ranges. The business remains robust with strong customer financial health and liquidity. The company has deployed $4.3 billion to reward shareholders and remains focused on long-term profitable growth. Michael Feniger from Bank of America asks about the potential mitigation strategies, such as pricing or cost reductions, to offset the $250 million to $350 million cost headwind identified for Q2 and inquires about the competitive environment and manufacturing footprint.

In the paragraph, Joe Creed addresses a question about managing cost headwinds. He outlines short-term actions being taken to mitigate these costs, such as reducing overhead, cutting discretionary spending like travel, and slowing inbound shipments due to having excess dealer inventory on hand. Creed also mentions efforts to enhance supply chain resilience through dual sourcing where feasible. He explains that while these actions are nimble and reversible, longer-term strategies—such as significantly altering supply chains—require careful consideration and investment, as they are more permanent and depend on various factors such as tariffs and market conditions.

The paragraph discusses the challenges and considerations involved in sourcing critical components and maintaining Caterpillar's quality standards. It highlights the importance of testing and validation, the potential for cost reductions, and prioritizing investments that support future growth. Pricing strategies are influenced by factors such as tariffs, market conditions, and competition, with a focus on dollar OPAT growth. Current merchandising programs are performing well, but the situation remains fluid, particularly with evolving tariff policies. Jim Umpleby expresses cautious optimism regarding possible trade deals and reduced tariff impacts.

The paragraph is part of a conversation during a financial call, focusing on construction trends at Caterpillar (referred to as "Cat"). Rob Wertheimer from Melius Research congratulates the leadership for recent improvements and asks about various factors impacting construction sales, including dealer inventory and pricing trends. Joe Creed responds by explaining that Caterpillar's strategic merchandising programs have led to better-than-expected sales, outperforming the industry. Despite starting with high dealer inventory, strong sales have prevented a typical inventory build, resulting in increased backlog and different seasonal ordering patterns as dealers replenish stock.

The paragraph discusses cautious optimism in dealer inventory levels and customer sentiment, with expectations that burn-down of dealer inventory in the second half may not match last year's levels, giving confidence in sales forecasts. Personal visits to dealers in North America have shown consistent trends with shared information, suggesting good positioning to navigate uncertainties. Tami Zakaria from JPMorgan asks about the tariff impact, estimated at $250 million to $350 million. Andrew Bonfield clarifies that not all tariffs will impact the full quarter and some mitigating actions have yet to be implemented.

The paragraph discusses the impact of tariffs, particularly those from China, and the company's efforts to mitigate this impact over the year. It mentions the potential for cost reduction if tariffs are moderated. Joe Creed from the company highlights a competitive market environment and expresses satisfaction with the company's merchandising programs, noting better-than-expected sales and orders. He also mentions strong market activity not only in North America but also in Africa, the Middle East, and South America. Kyle Menges from Citigroup asks about pricing strategies, especially in the face of tariff impacts, and what competitors are doing regarding pricing. Overall, the company is observing and adapting to a competitive global market environment.

The paragraph discusses the company's approach to pricing decisions, highlighting that multiple factors are considered in the process. It outlines their strategy of monitoring the situation closely and making necessary adjustments, particularly regarding potential price increases in the latter half of the year. Andrew Bonfield explains that, in a no-tariff scenario, there is no assumed price increase, and the impact of merchandising programs is expected to become stronger from the third quarter. They haven't assumed any price hikes at the moment, as they await further clarity. Joe Creed emphasizes that pricing considerations are primarily focused on CI, and each business segment will make decisions suitable for their specific context. The paragraph ends with the call operator moving to the next question from David Raso of Evercore ISI, who congratulates Joe and Jim and mentions skepticism about the order growth being merely a pre-buy.

The paragraph discusses whether the company is protecting pre-existing order prices in its backlog amidst potential tariff changes. Joe Creed clarifies that while some parts of the business have fixed pricing due to contractual agreements, there is generally flexibility in pricing. He mentions that they haven't observed any significant pre-buying activity. The company is also undertaking measures to mitigate the impact of tariffs, such as shifting some Chinese orders to Brazil. These actions and their effects are not fully detailed in the company's current guidance, as the situation remains fluid.

The paragraph discusses the company's strong backlog growth across three segments, emphasizing that most orders are backed by true customer demand rather than dealer inventory. It notes the lack of motivation for customers to buy machines due to uncertainty about future work. Jamie Cook from Truist Securities congratulates Jim and Joe and compliments the company's impressive margins despite uncertain market conditions. She inquires if the company's diverse earnings, operational execution, and service growth could potentially lead to less volatile and structurally higher margins over time, suggesting that this might be an area of focus under Joe's leadership.

In the paragraph, Joe Creed acknowledges Jim's leadership over the past eight years and discusses the team's strategy focusing on services to mitigate business cyclicality. He highlights the company's strong position due to secular trends in power and a record backlog. Andrew Bonfield adds that the previous margin range was based on data from 2010 to 2016, adjusted for inflation, and suggests that because of improvements in business resilience and market diversity, hitting the lower end of that range is unlikely unless an extreme economic scenario occurs. Angel Castillo from Morgan Stanley then commends Joe on his new role and expresses interest in working with him.

The paragraph discusses the outlook for the rental and sales business of Cat equipment amid market uncertainty. Joe Creed notes that while dealer rental loads have slightly decreased, rental revenue continues to grow, aligning with expectations. The company is well-positioned to support customers whether they choose to rent or buy equipment, with no significant trend changes observed. Creed views rentals as a growth opportunity, continuing to enhance their dealer network's rental offerings. Additionally, Stephen Volkmann from Jefferies inquires about the E&T and power generation sectors, particularly regarding data center adoption trends and capacity. The response indicates no notable changes, implying stable demand and capacity in those areas, with some potential for further growth.

In this paragraph, Joe Creed discusses the company's strong capacity in large engines, particularly for data centers, and mentions that while well servicing is down, there's potential for more power generation orders due to the versatility of engine platforms. The company maintains strong relationships with hyperscalers and data center customers, ensuring robust scheduling support. Jim Umpleby adds that they are seeing strong orders and inquiries for turbine-driven generator sets for data centers. He notes that the data center market has grown quicker and more significantly than anticipated, particularly for their new larger gas turbine, the Titan 350.

The paragraph includes a discussion about economic predictions and strategic priorities by company executives. Andrew Bonfield addresses concerns about demand deterioration, assuming negative global economic growth, which affects the CI segment the most, with some impacts on RI and E&T. Jerry Revich from Goldman Sachs congratulates Jim on his achievements and asks Joe Creed about his strategic priorities over the next two to three years. Joe emphasizes a focus on global trade flows, supporting customers, and executing the company's strategy.

The speaker reflects on their involvement in shaping the company's strategy since 2017, originally as Senior Vice President of Corporate Finance and now as Chief Operating Officer. They emphasize the strategy's success amidst challenges like COVID and supply chain issues and stress the importance of focusing on growth in services. They believe the company model promotes discipline, contributing to strong margin performance and increased shareholder returns. They remain committed to cash deployment priorities, like maintaining dividend aristocrat status and share repurchases, while looking to accelerate growth across all business segments.

The paragraph discusses the opportunities in power generation, demand for natural gas, and the need for critical infrastructure and minerals. The company plans to accelerate growth in areas such as critical infrastructure, ECP, rental, and technology adoption, while managing the current environment. Joe Creed expresses confidence in the team's capabilities and announces his new role as CEO of Caterpillar, acknowledging the contributions of the outgoing CEO, Jim, who has had a 45-year career, including eight years as CEO. Creed looks forward to continuing the company’s legacy alongside the global dealer network.

In the paragraph, Jim Umpleby reflects on his eight-year tenure as CEO, highlighting his pride in the team's accomplishments and their strong performance driven by a strategy focused on long-term profitable growth, customer service, and shareholder rewards. He expresses confidence in the future leadership by Joe and the executive office, believing in a bright future for Caterpillar. Alex Kapper then provides logistical details about accessing a replay of the call, a transcript, and additional financial materials on Caterpillar's Investor Relations website. Contact details for further inquiries are also provided before concluding the call.

This summary was generated with AI and may contain some inaccuracies.