Q2 2024 Caterpillar Inc Earnings Call

Audra: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ryan Fiedler. Thank you.

Today's conference is being recorded.

I would now like to hand, the conference over to your Speaker today Ryan Fiedler. Thank you. Please go ahead.

Ryan Fiedler: Thank you, Audra, and good morning, everyone, and welcome to Caterpillar's second quarter 2024 earnings call. I'm Ryan Fiedler, Vice President of Investor Relations. Joining me today are Jim Umpleby, Chairman and CEO, Andrew Bonfield, Chief Financial Officer, Kyle Epley, Senior Vice President of the Global Finance Services Division, and Rob Rangel, Senior Director of IR.

Ryan Fiedler: Thank you Andre and good morning, everyone and welcome to Caterpillar's second quarter of 2024 earnings call I'm, Ryan Fiedler, Vice President of Investor Relations. Joining me today are Jim <unk>, Chairman and CEO, Andrew Bonfield, Chief Financial Officer, Kyle Epley, Senior Vice President of Global Finance services does.

Speaker Change: Vision, and Rob Rengel senior director of IR during.

Ryan Fiedler: During our call, we'll be discussing the second quarter earnings release we issued earlier today. You can find our slides, the news release, and a webcast recap at investors.caterpillar.com under events and presentations. The content of this call is protected by U.S. and international copyright law. Any rebroadcast, retransmission, reproduction, or distribution of all or part of this content without Caterpillar's prior written permission is prohibited.

Speaker Change: During our call we will be discussing the second quarter earnings release, we issued earlier today.

Speaker Change: You can find our slides the news release and a webcast recap investors dot caterpillar dot com under events and presentations the.

Speaker Change: The content of this call is protected by U S and international copyright law, any rebroadcast retransmission reproduction or distribution of all or part of this content without caterpillar's. Prior written permission is prohibited.

Ryan Fiedler: Moving to slide two. During our call today, we'll make forward-looking statements, which are subject to risks and uncertainty. We'll also make assumptions that could cause our actual results to be different than the information we're sharing with you on this call. Please refer to our recent SEC filings and the forward-looking statements reminder in the news release for details on factors that, individually or in aggregate, could cause our actual results to vary materially from our forecast.

Speaker Change: Moving to slide two during our call today, we will make forward looking statements, which are subject to risks and uncertainties. We will also make assumptions that could cause our actual results to be different than the information. We're sharing with you on this call. Please refer to our recent SEC filings and the forward looking statements reminder, in the news release for details on factors.

Ryan Fiedler: A detailed discussion of the many factors we believe may have a material effect on our business on an ongoing basis is contained in our SEC filing. On today's call, we'll also refer to non-GAAP numbers. For reconciliation of any non-GAAP numbers to the appropriate U.S. GAAP, please see the appendix of the earnings call slide. Now, let's turn to slide three and turn the call over to our chairman and CEO, Jim

Jim Umpleby: Thanks, Ryan. Good morning, everyone.

Jim Umpleby: Thank you for joining us. I'd like to start by thanking our global team for their strong execution in the first half of the year. In the second quarter, we achieved higher adjusted operating profit margin, record adjusted profit per share, and generated robust MENT pre-cash flow. Our results continue to reflect the benefit of the diversity of our end markets as well as the discipline and execution of our strategy for long-term profitable growth.

Jim Umpleby: I'll begin with my perspectives about our performance in the quarter and we'll provide an update on our full year expectations. I'll then provide some insights about our end markets, followed by an update on our sustainability journey. Moving to quarterly results. Sales and revenues were down 4% in the second quarter versus last year, slightly below our expectations. Services increased in the quarter. Our adjusted operating profit increased to $3.7 billion, a record. Sales to users declined in the AMI, primarily due to weakness in Europe relating to residential construction and economic conditions.

Speaker Change: For the second half, we expect adjusted operating profit margins to be better than we previously anticipated or about flat to the second half of 2023, which Andrew will describe.

Andrew: The strength of our performance to date and our improved second half adjusted operating profit margin expectations gives us confidence to guide above our target range.

Andrew: Overall, our expectations for full year adjusted operating profit and adjusted profit per share are now higher than it was during our last earnings call.

Speaker Change: We also anticipate that M. E&P free cash flow will remain in the top half of the free cash flow target range.

Speaker Change: Turning to slide four in our second quarter results.

Speaker Change: In the second quarter of 2020 for sales and revenues declined 4% to $16 7 billion sales.

Speaker Change: Sales volume declined slightly more than we expected while price realization, including geographic mix was better than we anticipated.

Speaker Change: Dealer inventory also declined in the second quarter.

Speaker Change: Compared to the second quarter of 2023 overall sales to users decreased 3% slightly below expectations for.

Speaker Change: <unk> machines, which includes construction industries and resource industries sales to users declined by 8% slightly more than expected.

Speaker Change: Energy and transportation continue to show strength as sales to users increased 10%.

Speaker Change: Sales to users in construction industries were down 5%.

Speaker Change: In North America sales to users were slightly lower than anticipated, primarily due to weaker than expected rental fleet loading.

Jim Umpleby: We also saw increased sales of reciprocating engines for gas compression, while well-servicing oil and gas applications were lower. In June, we announced an additional $20 billion share repurchase authorization with no expiration date. We still expect gas compression to be up for the full year. However, we expect it to soften in the second half. In transportation, we anticipate growth as the year progresses in both high-speed marine and rail services.

Speaker Change: Next I'll discuss resource industries.

Speaker Change: After a strong performance in 2023 in mining as well as heavy construction and quarry and aggregates. We continue to anticipate lower machine volume versus last year, primarily due to off highway and articulated trucks.

Speaker Change: We currently anticipate a decrease in resource industries dealer inventories in 2024 versus a slight increase last year.

Speaker Change: We expect to see higher services revenues, including robust rebuild activity.

Speaker Change: <unk> product utilization remains high the number of parked trucks remains low and the age of the fleet remains elevated and our autonomous solutions continue to see strong customer acceptance.

Speaker Change: Customers continued to display capital discipline. However, we continue to believe the energy transition will support increased commodity demand over time, expanding our total addressable market and providing further opportunities for long term profitable growth.

Speaker Change: Moving to energy and transportation.

Speaker Change: In oil and gas in total we expect a stronger year overall in 2024 versus last year.

Speaker Change: After a strong 2023, we expect reciprocating engine sales in oil and gas to be flat to slightly down primarily due to ongoing softness in well servicing.

Speaker Change: We still expect gas compression to be up for the full year. However, we expected to soften in the second half.

Ryan Fiedler: Beginning on slide eight, adjusted profit per share increased by 8% to $5.99 in the quarter compared to $5.55 last year. As you may recall, we anticipated a sales decline this quarter versus last year as an atypical dealer inventory increase in the second quarter of 2023 made for a challenging comparison. Now specific to our second half assumption. However, keep in mind that first half margins were at record levels, and the magnitude of the second half decline may be slightly larger than is typical.

Speaker Change: This was primarily due to lower sales volume, partially offset by favorable price realization.

Speaker Change: Sales volume was impacted by unfavorable changes in dealer inventories.

Speaker Change: Dilemma choose about flat in the second quarter of 2024 versus an increase in the second quarter of last year.

Speaker Change: Lower sales to users also impacted volume.

Speaker Change: Low construction interest rates were lower than we had anticipated due to lower than expected rental fleet loading in North America and continued weakness in Europe.

Speaker Change: By region at sales in North America were about flat in Latin America sales increased by 20% sales in the EMEA region decreased by 27%.

In Asia Pacific sales declined by 15%.

Speaker Change: Second quarter profit for construction industries was $1 7 billion.

Speaker Change: A 3% decrease versus the prior year.

Speaker Change: This is mainly due to lower sales volume, partially offset by favorable price realization, which benefited from geographic mix effects.

Speaker Change: Favorable manufacturing costs provided some tailwind as well largely reflecting lower material costs.

Speaker Change: The segment's margin of 26, 1% was an increase of 90 basis points versus last year.

Speaker Change: I mean.

Speaker Change: It means that we now anticipate overall adjusted operating profit margin to be above the top end of the target range for the full year.

Speaker Change: Specific to second half margins, despite higher sales, we do expect lower margins versus the first half which follows the typical seasonal trend.

Speaker Change: However, keep in mind that first half margins were record levels and the magnitude of the second half decline maybe slightly larger than is typical.

Ryan Fiedler: As compared to the prior year, we expect our adjusted operating profit margin in the second half will be similar to the prior year level. While we anticipate some favorability in manufacturing costs on improved operational efficiencies, we do expect slightly lower volumes and a slight headwind from price in the second half versus a year ago. We also anticipate lower machine sales to users versus a strong comparison. In energy and transportation, we anticipate higher sales versus the prior, supported by strength in power generation, oil and gas, and transportation.

Speaker Change: As compared to the prior year, we expect our adjusted operating profit margin in the second half will be similar to the prior year level.

Speaker Change: While we anticipate some favorability in manufacturing costs on improved operational efficiencies we.

Speaker Change: We do expect slightly lower volumes and a slight headwind from price in the second half versus a year ago.

Speaker Change: On price the impact of lapping the increases taken in the second half of 2023 means that the benefit in the second half of this year will be significantly lower.

Speaker Change: In addition, we expect that improved availability across the industry will result in the normalization of the pricing environment.

Speaker Change: To assist you with your modeling for the full year. Please note that we now anticipate restructuring costs of around $450 million.

Speaker Change: Certainly is that possibility.

Speaker Change: Again, there's been a lot of it will depend upon mix and again, our ability to increase our capacity in in and large engines, which were working very hard to do but again. The good news is that again back to that power generation market is quite strong and one of the things. We're also bullish about that.

Speaker Change: Possibly a bit farther out is just the opportunity for distributed generation as more renewables are added to the grid as theres more grid instability issues. It creates an opportunity for us we believe to sell both reciprocating engines and gas turbines in distributed power generation applications distributed throughout the grid and we're very excited about that opportunity one of the.

Speaker Change: He is also that the keep in mind is we have a strong backlog and the backlog increase that we reported today of course <unk> was a big part of that and that includes both solar turbines and our large engines.

Steve Volkmann: We'll move next to Steve Volkmann at Jeff.

Speaker Change: We'll move next to Steve Volkmann at Jefferies.

Steve Volkmann: Great. Good morning, guys. Thanks for taking the question pivot.

Speaker Change: Pivoting maybe to.

Steve Volkmann: Construction industries I think you both mentioned lower than expected rental fleet loading in the quarter is one of the trends that you called out and I'm curious if that is if you view that as sort of a timing issue and maybe you can give us a sense of where you think the rental fleets are and how much kind of update in.

Speaker Change: And re fleeting needs to be done there.

Speaker Change: Certainly what we're going to start with is dealer rental income was actually up for the quarter.

Speaker Change: And dealers are independent businesses and of course make their own decisions about what kind of machines and how many machines they put into their rental fleets and there is a whole variety of things they look at their they think about it.

Speaker Change: Interest rates, obviously, and they think about other other aspects, but we we are continue to be bullish on what we see as an opportunity around rental and we're working closely with our dealers to help them increase their rental business over time.

Speaker Change: Our next question comes from Robert Wertheimer of Melius research.

Robert Wertheimer: Hi, good morning, everybody.

Speaker Change: So wanted to circle round to E&P, where.

Robert Wertheimer: As you see the rise of data centers I guess, the critical nature of that power backup is rising and an important question is going to be around mix and margin in the E&P segment is there any.

Speaker Change: Oil and gas you, obviously youre running it as a great business with high margin IMAX as well is there any.

Speaker Change: Anticipated mix and package power Gen kind of replaces some of the strength, we've seen in oil and gas and then more broadly Jim I think you mentioned cost solar turbines and power Gen. I think you've had historical strength in like combined heat and power and things like that that market for solar turbines expanding visibly already in power Gen. Two.

Speaker Change: More and more applications and I'll stop there. Thanks.

Speaker Change: Well, thank you Rob and so to answer the last part of your question first so in solar we have seen some pretty interesting applications for solar that youre right traditionally over the last 30 years. So there's been a lot of combined heat and power applications for solar but as an example, we are relatively recently sold some.

Jim Umpleby: Solar gas turbines in a power generation application for continuous duty for a data center in Ireland. And that's something that, again, we wouldn't have seen 20 years ago. So there are some more opportunities. And as I mentioned earlier, you know, as we think about distributed generation for both re-sip and gas turbines, and again, our engines and turbines burn a whole variety of fuels, natural gas, biofuels, hydrogen blends, and all the rest, we do see an increased opportunity for that, those distributed power generation opportunities over time.

Speaker Change: Solar gas turbines in our power generation power generation application for continuous duty for a data center in Ireland, and that's something that again, we wouldn't have seen 20 years ago. So there are some more opportunities and as I mentioned earlier as we think about distributed generation for both reshaped and guest gas turbines and again, our engines and turbines burn a whole variety of fuels natural.

Speaker Change: Gas biofuels hydrogen blends and all the rest we do see an increased opportunity for that those distributed.

Speaker Change: Power generation opportunities over time, and we think that's a secular growth trend again, and we're very excited about.

Jim Umpleby: And we think that's a secular growth trend, again, that we're very excited about. You know, as you think about energy and transportation, there's a lot of components there. So when you ask a question about kind of mix in oil and gas versus power generation, generally, we do quite well, margin-wise, in our large engine. So that's something that we're quite excited about, the opportunities that we see moving forward. Of course, solar is a very good business as well.

Speaker Change: Think about energy and transportation, there's a lot of components. There. So when you asked the question about kind of mix in oil and gas versus power generation generally we do quite well margin wise on our large engine. So that's something that we're quite excited about the opportunities that we see moving forward of course solar is a very good business as well. So again, there's a lot of a lot of things there to think about not just power generation oil and gas but.

Jim Umpleby: So again, there are a lot of things there to think about, not just power generation, oil, and gas. But as we think about energy and transportation moving forward and our ability to, again, grow that business and achieve strong margins, we feel quite good.

Speaker Change: But as we think about energy and transportation moving forward and our ability to again to grow that business and achieve strong margins, we feel quite good.

David Raso: We'll move next to David Raso at Evercore ISI.

Speaker Change: We'll move next to David Raso at Evercore ISI.

David Raso: Hi, Thank you for the time I was curious the retail sales of machines. It sounds like youre expecting them to be down again in the second half of the year, but anything you're hearing from dealers to try to be thoughtful about when you would expect retail machines.

Speaker Change: Retail sales to pick back up is there any indication from the order book or backlog with NCI NRI and with that also where do you expect dealer inventory to end the year on machines. Thank you.

Speaker Change: Yes, So let me start.

Speaker Change: God help unpack that a little bit so on the retail sales.

David Raso: Two factors, obviously, retail sales in the quarter, one of which was in North America, and most of that was actually rental fleet. That does go into retail sales, but it actually is rental fleet loading by dealers. So that was most of that. And then Europe itself, which was still softer than we expected.

Speaker Change: No.

Speaker Change: We're not too concerned about just a quarterly deviation what we're really focused on is more the medium and long term over time, and we remain quite bullish on the on the mining business.

Speaker Change: We will take our next question from Tami Zakaria at J P. Morgan.

Tami Zakaria: Hey, good morning, Thank you so much.

Tami Zakaria: My question is more longer term focus rather than this quarter or a year.

Tami Zakaria: So can you help us frame how to think about caterpillar.

Speaker Change: Current portfolio of products that play into the data center markets.

Speaker Change: Aside from backup generators.

Speaker Change: Are there any other products, maybe related to micro grids or anything else to call out where you see an opportunity and related to that besides E. N T. As a segment due data centers provide opportunities for any products or services within C. I R. R I as well over the <unk>.

Speaker Change: And for the long term.

Speaker Change: We do believe thank you for your question, we do believe that the data center buildup creates opportunities.

Speaker Change: In many areas across our business. So you mentioned backup generator sets, obviously, that's a opportunity which is here today that we're dealing with in addition, I mentioned earlier. The fact that data centers is increasing power generation requirement. So in the United States I have the stats right.

Tami Zakaria: Demand was was flat between I think believe I think between 2007 and 2022 and now it's starting to increase and of course, our customers use our products to produce the commodities to satisfy that increasingly strategic demand. In addition to that I talked about the fact that both our reciprocating engines in our gas turbines. We believe we have the opportunity to be used.

Speaker Change: In what we call distributed power generation applications and a lot of that again is tied back to that data center build out as electricity demand in the developed world continues to increase and of course in the developing world as standards of living increase power generation demand go up as well and again, that's an opportunity for us because our customers use our products to produce the commodities dissatisfaction.

Tami Zakaria: So that increasing demand in addition to that yes, we do provide micro grids and our power generation organization, we work with customers to set up micro grids that is one of the things that we do have the ability to do and we're pretty uniquely positioned given our portfolio of products to help our customers do that also.

Speaker Change: Do you think about data center build out well of course that requires construction machinery as well and that helps our construction equipment business and then of course thinking about copper and other commodities that need to be produced to also support what's happening with increased power generation requirements that helps our <unk>.

Tami Zakaria: So I believe the data center build out helps a whole variety of products across our portfolio.

Mig: We'll move next to Mig <unk> of Baird.

Mig: Thank you good morning, everyone. Just just a quick follow up on construction pricing.

Speaker Change: I guess so.

Mig: Sounds like you expect a little bit of erosion here, but maybe we can give some insight in terms of that magnitude.

Speaker Change: I'm looking back at 2016, Thats, the last year, where I think we saw.

Speaker Change: Two to three percentage points is that kind of a fair expectation to have going forward and how do you think about used prices in this market.

Mig: And the potential impact that that might have.

Speaker Change: We think about 2025.

Kyle Menges: Yeah, it makes sense...

Speaker Change: Yes, it makes so.

Speaker Change: Absolutely will not be that sort of level of magnitude.

Speaker Change: We obviously see a normal element of competitive positioning, which obviously impacts pricing. Obviously, we don't expect list price changes this will be.

Speaker Change: Really about.

Tami Zakaria: Customer by customer discussions.

Mig: On the impact of used market. The used market. Obviously has had some impact has seen some erosion reprice.

Tami Zakaria: Actually quite interestingly, where that impacts us more is around cat financial.

Tami Zakaria: Actually although used prices are coming down they are still relatively high compared to historic levels and inventories are very low so we.

Tami Zakaria: We are not expecting that to impact us.

Tami Zakaria: The other area, obviously does impact used prices would be around rental fleet.

Tami Zakaria: And obviously debt and higher interest rates are having some impact on rental fleet loading as we talked about already in the call.

Kyle Menges: We'll go next to Kyle Menges.

Speaker Change: We'll go next to Kyle Mangas of Citi.

Kyle Mangas: Thank you.

Kyle Mangas: Good morning, guys.

Kyle Mangas: I'll, just just to hear a little bit more about that.

Kyle Mangas: Rental fleet loading kind of changing your expectations there for the second half of the year I am curious just to parse out what is kind of demand related like softening demand in the second half versus <unk>.

Speaker Change: Are you trying to manage the rental fleets versus kind of dealers trying to pushing back a little bit of uptick in fleet.

Speaker Change: Love to hear kind of what's driving that thank you.

Speaker Change: Yes, so obviously.

Jim: As Jim mentioned rental.

Tami Zakaria: Dealer rental revenue is actually increasing positively.

Tami Zakaria: As we expected for the year.

Speaker Change: That's driven by the level of activity our assumption when we started the planning year was the dealer fleet loading would be a certain number.

Speaker Change: It is slightly less than that and Thats why we have taken it down is more around the fact that they are not loading their feeds quite as quickly.

Speaker Change: They're managing their fleet, that's what they do.

Speaker Change: They are independent businesses, they make decisions around.

Speaker Change: How much fleet, how they move the fleet out into.

Speaker Change: And to the market as well and remember also when you talk about rental fleet, particularly around things like heavy rains heavy rents are effectively a long actually almost rent to buy.

Speaker Change: And often that market is dependent on the customer choice as well as well. So it's not just the data here you also have the customer at the other end of that equation as well.

Speaker Change: As to when the timing when they make that final purchase so a lot of those things. So it's it will be complex.

Jim: And they're pushing this one size fits all but generally we're still very comfortable as Jim said with the opportunity in front of dealers on the rental side and we're very positive about the long term outlook and maybe just to add in and we want our dealers to have a profitable growing rental business and utilization is an important part of that so it's not a situation where.

Kyle Menges: And maybe just to add, we want our dealers to have a profitable, growing rental business, and utilization is an important part of that. So it's not a situation where we're encouraging them to take more equipment than they need. We don't want them to take more equipment from us than they need. We want them to have a growing profitable rental business, and we believe that's a growing opportunity for them and for us over time.

Speaker Change: We're encouraging that take more equipment than they need we don't want them to take more equipment from us than they need we want them to have a growing profitable rental business and we believe that's a growing opportunity for them and for us over time and again, there will be quarterly deviations in terms of how much equipment. They decided to take it into their rental fleets. The point is it's a growing growth opportunity for both us and our dealers and were very.

Kyle Menges: And again, there'll be quarterly deviations in terms of how much equipment they decide to take into their rental fleets. The point is, it's a growing growth opportunity for both us and our dealers, and we're very supportive and helping them with a whole variety of tools, whether it's digital tools or also other methodologies to help them grow their rental business.

Speaker Change: Supportive and they are helping them with a whole variety of tools, whether it's a digital tools and also also other methodologies to help them grow their rental business.

Ryan Fiedler: Yeah, just again, just contextualizing sort of from a size perspective, because I think sometimes things seem a little bit bigger, just remind you that in terms of CI, you know, this is a still a relatively small number, but it is what is driving some of that change in our outlook, which again, is relatively modest. So just before people start worrying that it's a bigger element and a bigger number than it really is.

Speaker Change: Yes, just again, just contextualize it sort of from a size perspective, because I think sometimes things seem a little bit bigger just remind you.

Speaker Change: Then in terms of.

Speaker Change: Ci.

Speaker Change: This is a still a relatively small number.

Speaker Change: But it is what it is driving some of that change in our outlook, which again is relatively modest so just before people start worrying, but it's a big element.

Speaker Change: And a bigger number than it really is remember students.

Speaker Change: OEM sales about 40% of our revenues come from services across the business only about 60% is original equipment and.

Ryan Fiedler: Remember Stu's OEM sales, about 40% of our revenues come from services across the business; only about 60% is original equipment. And again, you know, that does vary by segment. And North America is not 100% of CI sales either. We'll move next to Steven Fisher at UBS.

Speaker Change: And again.

Speaker Change: That does.

Speaker Change: <unk> segment in North America is not 100% of see ourselves either.

Speaker Change: We'll move next to Steven Fisher at UBS.

Steven Fisher: Thanks. Good morning, you mentioned, Jim that gas compression is starting to soften a little bit curious just kind of where you are in the backlog. There do you expect your sales and gas compression to actually be down year over year in the second half and maybe what visibility do you have to to rebuilding the backlog there.

Speaker Change: And what it might take us at our next round of a big LNG projects or how do we think about that thank you.

Speaker Change: Yes, so we do expect for the year I believe I said that we expect gas compression year over year to be higher so higher in 2024, then 2023, we did say we expected a bit of softening in the second half, but still again for gas compression higher in 2024 total than in 2023 U.

Speaker Change: You asked about backlog again, we do have a quite a strong backlog in our large engines across and our gas turbines around <unk>. So again, we feel good about that as well and the comment we made about gas compression that was really recip oil and gas we expected to soften in the second half of the year. It didn't select turbines is also serves oil and gas in our comment was about.

Speaker Change: Recent engines in oil and gas.

Speaker Change: And again, a lot of a lot of strength in a lot of strength in E&P.

Speaker Change: <unk> overall.

Speaker Change: We'll go next Angel Castillo at Morgan Stanley.

Angel Castillo: Hi, Good morning, Thanks for taking my question just wanted to maybe unpack the backlog dynamic around C&I, if you could give us a little bit more color.

Angel Castillo: So two part question one what are the orders in the second quarter for Ci two kind of on the backlog, what's kind of the coverage that you have at this point versus your historical level.

Speaker Change: Even though we've had a pretty strong amount of or a number of years and then kind of lastly, just can you talk about kind of the price margin.

Speaker Change: Mix within that backlog.

Speaker Change: As we kind of have visibility now looking forward versus maybe what was in there before.

Speaker Change: Yes so.

Angel: Angel, we obviously do not break down backlog by segment. So that's just a point I would say to you, though we did have a higher level of orders in the second quarter NCI of 2023 part of that was if you remember we did see a dealer inventory build in the third quarter some of that was.

Speaker Change: The head of an engine switchover, so it's not a.

Angel Castillo: It is down quarter over year over year.

Angel Castillo: But that is partly because of the comparison and we actually.

Speaker Change: As a result of that change in the NPI last years, new product introduction.

Ryan Fiedler: Again, similarly, you know, mix varies across the businesses, and obviously, there are different parts of our business which are more profitable than others, and you did see that we do see favorable product mix in CI, and obviously, that does remain, you know, that is a function of what products are being sold and in what proportion. With regard to the backlog, I mean, the backlog for CI reflects availability, and as you know, availability now is pretty good, and that lies in about our 13-week time period, which we would consider to be about the norm of three months.

Speaker Change: Again similarly.

Speaker Change: Mix varies across the businesses.

Speaker Change: And obviously there are different parts of our business, which are more profitable than others.

Speaker Change: And you did see we do see favorable product mix in.

Speaker Change: In Ci.

Speaker Change: And obviously that does remain.

Speaker Change: That is a function of what products are being sold.

Speaker Change: And what proportion.

Speaker Change: With regards to.

Speaker Change: So the backlog the backlog for Ci reflects availability.

Speaker Change: And as you know availability now is pretty good.

Speaker Change: And that laws in about a 13 week time period, which we would consider to be about the norm of three months.

Speaker Change: Okay.

Speaker Change: We will take our next question from Tim Tim Kaine at Raymond James.

Tim Kaine: Great. Thank you good morning, Jim maybe a question for you just on <unk>.

Speaker Change: Another Sci relating one just on the balance.

Tim Kaine: Tween market share and pricing and just thinking obviously over the long term trends that are very important.

Speaker Change: Concept for Cat and just thinking about how you announced and tied in with that the ambition to grow services.

Speaker Change: Just thinking as to.

Speaker Change: No.

Speaker Change: The market first time in some time now we are dealing with kind of free flowing supply and maybe a little bit more competition and capital directed at North America, just how you balance how you and the dealer's balance that again modest motivation to to grow turns while also.

Speaker Change: Kind of balancing that price equation. Thank you.

Jim Umpleby: Certainly, PINs are very important to us, and we make pricing decisions based on a whole variety of inputs. Obviously, we look at our input costs. We look at our competitive situation. And we're continually working to add more value to our customers, so it's not just a price situation. Price is important, and we need to remain competitive. But again, we have some real advantages, we believe. One is our dealer network, again, one of our most significant competitive advantages.

Speaker Change: So it was certainly pins are very important to us.

Speaker Change: And we make pricing decisions based on a whole variety of inputs. Obviously, we look at our input costs, we look at our competitive situation and we're continually working to add more value to our customers. So it's not just a.

Speaker Change: Our price situations price is important and we need to remain competitive but again, we have some real advantages. We believe one is our dealer network again, one of our most significant competitive advantages.

Jim Umpleby: We have a distribution network that none of our competitors have. In addition to that, we continue to invest significantly in technology to help our customers be more successful. All the tools that we're putting into our machines to, for example, allow a customer to hire a relatively inexperienced operator and have them operate a machine like a pro who's been at it for many years. So again, there's a lot that goes into that, a lot of investments in services capabilities, a lot of investments in technology.

Speaker Change: We have a distribution network that none of our competitors have in addition to that we continue to invest significantly in technology to help our customers be more successful all the tools that we're putting into our machines to for example, our customer to higher a relatively inexperienced operator and have them operating machine like it like a like a probe.

Speaker Change: For many years, so again, there's a lot a lot it goes into that.

Speaker Change: A lot of investments in services capabilities a lot of <unk>.

Speaker Change: Investments in.

Speaker Change: In technology as well, but certainly yes, we we recognize pins are important it helps seed the market for future services growth and it's something we're very focused on.

Speaker Change: Hey, Joe we have time for one more question.

Speaker Change: Thank you today's final question comes from the line of Nicole to Blaise from Deutsche Bank.

Speaker Change: Yes, thanks, good morning, guys and accompanying the call.

Speaker Change: Just a couple follow ups on <unk>.

Speaker Change: I guess I was kind of surprised by the strength in Latin America. This quarter, a big year on year growth can you just talk a little bit about.

Speaker Change: The drivers there and also what youre seeing in Mi.

Speaker Change: Is there any signs of life in Europe or are things just kind of bouncing along the bottom there. Thank you.

Jim Umpleby: Yes, Nicole, in Latin America, Brazil was strong, which is an important market for us, and that was part of the reason for the strength, so that was good, and obviously, we'll keep an eye out and hope that that continues as we go through the remainder of the year and beyond. Europe, as we indicated, has been a problem. It's been a problem, I think, and most of our competitors have made similar comments as well.

Speaker Change: Yes, so that Nicole on Latin America, actually Brazil was strong which is an important market for us that was a that was part of the reason for the strength. So that was good and obviously.

Speaker Change: We will keep an eye out on the hope that that continues as we go through the remainder of the year and looking forward.

Speaker Change: Europe as we indicated it has been a problem that's been a problem I think.

Jim Umpleby: It does seem to be a little bit on the bottom. Obviously, it's depending on what happens there. Obviously, you've seen the ECB cut rates. There is, for example, today in the UK, they were talking about construction, actually growth in construction this last month, so hopefully it is starting to pick up, but our assumption really is that it doesn't pick up that quickly for the remainder of the year.

Speaker Change: Most of our competitors have made similar comments as well.

Speaker Change: It does seem to be a little bit on the bottom obviously, it's depending what happens obviously, you've seen the ECB cut rates.

Speaker Change: There is for example today in the U K that would talk about construction actually growth in construction.

Speaker Change: The slowest months, so hopefully it is starting to pick up.

Speaker Change: But our assumption is that it doesn't pick up that quickly.

Speaker Change: For the remainder of the year.

Speaker Change: Alright, well that we'll just thank you all for your questions and we greatly appreciate it I wanted to just close by thanking our global team for their strong execution in the first half of the year.

Speaker Change: Achieved higher adjusted operating profit margin record adjusted profit per share in <unk> and strong <unk> free cash flow and our results continue to reflect the benefit of the diversity of our end markets as well.

Speaker Change: As our disciplined execution of our strategy for long term profitable growth.

Speaker Change: Then I'll turn it back to Ryan.

Ryan Fiedler: Thanks, Jim Andrew and everyone, who joined US today, a replay of our call will be available online. Later. This morning, we will also post the transcript on our Investor Relations website as soon as it's available.

Ryan Fiedler: You'll also find a second quarter results video with our CFO and an SEC filing with our sales to users data. Click on investors.caterpillar.com and then click on financials to view those materials.

Speaker Change: You'll also find our second quarter results video with our CFO and an SEC filing with our sales to users data click on investors that caterpillar Dot com and then click on financials to view those materials do you have any questions. Just please reach out to Robert me, the Investor Relations General phone numbers 390, $675 494 of 549.

Speaker Change: Now, let's turn the call back to Andre to conclude our call.

Andre: Thank you that concludes our call for today. Thank you for joining you may now all disconnect.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: [music].