Q4 2024 Caterpillar Inc Earnings Call
Welcome to the fourth quarter 'twenty 'twenty four Caterpillar earnings conference call. Please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your speaker today, Alex copper. Thank you and please go ahead.
Alex: Thank you Andre.
Alex Copper: Good morning, everyone and welcome to Caterpillar's fourth quarter 2024 earnings call.
Alex Kapur: I'm, Alex Kapur, Vice President elect of Investor Relations.
Speaker Change: Joining me today are Jim Ogilvie, Chairman and CEO, Andrew Bonfield, Chief Financial Officer, Hal I believe senior Vice President of Global Finance Services Division.
Alex Kapur: <unk> Feeler, Vice President of IR, and Rob Rengel Senior director of IR.
Alex Kapur: The lyrical we'll be discussing the fourth quarter earnings release, we issued earlier today.
Alex Kapur: You can find our slides the news release and the webcast recap and investors that caterpillar dot com under events and presentations.
Alex Kapur: The content of this call is protected by U S and international copyright law.
Alex Kapur: Any rebroadcast retransmission reproduction, where distribution of all or part of this content without caterpillars. Prior written permission is prohibited.
Alex Kapur: Moving to slide two during a.
Alex Kapur: Today, we will make forward looking statements, which are subject to risks and uncertainties also make assumptions that could cause our actual results to be different than the information we're sharing with you on this call.
Alex Kapur: 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.
Alex Kapur: A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis is contained in our SEC filings.
Alex Kapur: On today's call will also refer to non-GAAP numbers.
Alex Kapur: For a reconciliation of any non-GAAP numbers to the appropriate U S. GAAP numbers. Please see the appendix of the earnings call slides.
Alex Kapur: Now, let's advance to slide three and turn the call over to our chairman and CEO Jim Ogilvie.
Jim Ogilvie: Thanks, Alex Good morning, everyone. Thank you for joining us.
Jim Ogilvie: We closed out 2024, I want to thank our global team for their strong execution and delivering another good year.
Jim Ogilvie: Our results continue to reflect the benefit of the diversity of our end markets and the disciplined execution of our strategy for long term profitable growth.
Jim Ogilvie: For the year, we delivered record adjusted profit per share and higher adjusted operating profit margin that exceeded the top of our target range, although our topline decreased in the year services revenue grew to a record level. We also generated M. E N T pre cash flow near the top of the target range are robust.
Jim Ogilvie: E N T free cash flow along with our strong balance sheet have allowed us to deploy over $10 billion to shareholders through share repurchases and dividends during the year.
Jim Ogilvie: I'll begin with my perspectives about our performance in the quarter and for the full year. I'll then provide some insights about our end markets followed by an update on our sustainability journey.
Jim Ogilvie: For the fourth quarter sales and revenues were down 5% versus last year, primarily due to lower sales volume. This was slightly below our expectations, mainly due to services growing at a slightly slower rate than we expected and some delivery delays in energy and transportation services.
Jim Ogilvie: Revenues did increase in the quarter compared to 2023.
Jim Ogilvie: Stronger than expected machine sales to users drove a higher than anticipated dealer inventory reduction, which offset each other resulting in a minimal impact to sales.
Jim Ogilvie: Fourth quarter adjusted operating profit margin was below our expectations at 18, 3%, primarily due to lower volume and an unfavorable mix of products. We achieved quarterly adjusted profit per share of $5.14 and generated $3 billion of M E T free cash flow.
Jim Ogilvie: Since the last quarter, and our backlog increased by $1.3 billion to $30 billion for.
Jim Ogilvie: For the full year total sales and revenues were $64 $8 billion, a decrease of 3% compared to 2023.
Jim Ogilvie: Services revenues increased 4% to $24 billion.
Jim Ogilvie: Adjusted operating profit margin of 20.7% exceeded the top end of the target range as we expected and represents a slight improvement from 2023.
Jim Ogilvie: We achieved record adjusted profit per share in 2024 of $21.90, a 3% increase over 2023.
Jim Ogilvie: In addition, we generated $9 $4 billion of M E T free cash flow, which was near the top of our target range as we expected.
Jim Ogilvie: Since 2019, we have generated approximately $40 billion of M. E N T free cash flow of which we have returned substantially all to shareholders through share repurchases and dividends, including $10.3 billion in 2024.
Jim Ogilvie: Our strong and consistent M E N T free cash flow has allowed us to reduce the average number of shares outstanding by approximately 18% since the beginning of 2019.
Jim Ogilvie: Turning to slide four as I mentioned earlier sales and revenues declined 5% in the fourth quarter to $16 $2 billion.
Jim Ogilvie: Compared to the fourth quarter of 2023 machine sales to users, which includes construction industries and resource industries declined by 3%, but was better than our expectations.
Jim Ogilvie: <unk> and transportation continued to grow as sales to users increased 2%.
Jim Ogilvie: Sales to users in construction industries were down 3% year over year in North America sales to users were slightly lower but better than we expected.
Jim Ogilvie: Sales to users grew in residential construction, while nonresidential was down slightly.
Jim Ogilvie: Rental fleet loading was down but in line with expectations as we described during our last earnings call.
Jim Ogilvie: <unk> rental revenue continued to grow in the quarter.
Jim Ogilvie: Sales to users declined in E. Amy in Asia Pacific in line with our expectations.
Jim Ogilvie: Sales to users in Latin America continue to grow but at a lower rate than we expected.
Jim Ogilvie: In resource industries sales to users declined, 3%, which was better than we expected.
Jim Ogilvie: Mining was better than expected due to large mining and off highway trucks being placed into service earlier than we anticipated.
Jim Ogilvie: Heavy construction and quarry and aggregates were in line with expectations.
Jim Ogilvie: In energy and transportation sales to users increased by 2%.
Jim Ogilvie: Power generation sales to users grew 27% as conditions remained favorable for both reciprocating engines and turbines and turbine related services.
Jim Ogilvie: Sales to users for reciprocating engines used in oil and gas applications declined primarily due to a challenging comparative to the fourth quarter of 2023.
Jim Ogilvie: For solar turbines and turbine related services fourth quarter sales were down in oil and gas compared to strong shipments in the fourth quarter of 2023.
Jim Ogilvie: Most of Solaris fourth quarter decline in oil and gas was offset by growth in power generation.
Jim Ogilvie: Transportation sales to users increased while industrial declined.
Jim Ogilvie: Moving to dealer inventory and backlog in total dealer inventory decreased by $1.3 billion versus the third quarter of 2024.
Four machines dealer inventory decreased by $1.6 billion. The decrease was more than we had anticipated due to better expected better than expected sales to users, particularly for construction industries in North America and resource industries.
Jim Ogilvie: As I mentioned at backlog increased versus the third quarter to $30 billion led by energy and transportation.
Jim Ogilvie: This is a 2.5 billion dollar increase versus 2023 year and our backlog remains elevated as a percentage of revenues compared to historical levels.
Jim Ogilvie: We continue to see strong order activity for both reciprocating engines and power generation and turbines and turbine related services in both oil and gas and power generation.
Jim Ogilvie: Turning to slide five I'll now provide full year highlights in 'twenty 'twenty four we generated sales and revenues of $64 $8 billion down 3% versus last year. This was due to lower sales volume, partially offset by favorable price realization.
Jim Ogilvie: Our adjusted operating profit margin was 27% a 20 basis point increase over 2023, despite lower sales and revenues.
Jim Ogilvie: Adjusted profit per share in 2024 was $21.90.
Jim Ogilvie: As I mentioned services revenues increased to $24 billion in 2024% to 4% increase over 2023.
Jim Ogilvie: Services continue to grow as we focus on making our customers successful.
Jim Ogilvie: Working with our dealers, we are leveraging over 1.5 million connected reporting assets and digital tools, our cat digital tools allow customers to more efficiently improve uptime manage their fleets and transact on our e-commerce platforms.
Jim Ogilvie: For example, this year, we launched an internal generative AI solution designed to optimize the creation of intelligent leads which we call prioritize service events for <unk>.
Jim Ogilvie: This tool significantly reduces the time and effort required for service recommendations, helping customers avoid unplanned downtime like clearly identifying the recommended repair options and timing for customers.
Jim Ogilvie: 'twenty 'twenty four we delivered more than two thirds of new equipment with the customer value agreement, which remains an important part of our services growth initiatives. We also experienced better than expected growth in our e-commerce platforms and have focused on improving our customer onboarding to include key digital products.
Jim Ogilvie: Also in 2024, we saw record usage of vision link our equipment management application Onboarding inactivating thousands of new customers throughout the year.
Jim Ogilvie: Services growth remains resilient despite the decline in our overall topline we continued to execute our various services initiatives as we strive towards our aspirational target of $28 billion and services revenues.
Jim Ogilvie: Moving to slide six we generated robust M E T free cash flow of $9 $4 billion for the full year, we deployed $10 $3 billion to shareholders through $7.7 billion of share repurchases and $2 $6 billion of dividends paid.
Jim Ogilvie: We remain proud of our dividend aristocrat status as we have paid higher annual dividends for 31 consecutive years. We continue to expect to return substantially all immune T free cash flow to shareholders over time through dividends and share repurchases.
Jim Ogilvie: Now on slide seven I'll describe our expectations moving forward overall, we currently anticipate 2025 sales and revenues to be slightly lower compared to 'twenty 'twenty four.
Jim Ogilvie: In 2025, we expect continued strength in energy and transportation to mostly offset lower sales in construction industries and resource industries. We also expect services revenues to grow in 2025, including growth across all three primary segments.
Jim Ogilvie: We currently expect machine dealer inventory to end 'twenty twenty-five at similar levels to year end 2024.
Jim Ogilvie: Full year adjusted operating profit margin is expected to be lower than 2024, but it is anticipated to be in the top half of the target range based on the corresponding level of sales and revenues. Finally, we expect M E T free cash flow to be in the top half of our target range of $5 billion to $10 billion now.
Jim Ogilvie: Now I'll discuss our outlook for key end markets, starting with construction industries in North America, we expect a moderately lower sales to users in 2025 versus last year construction spend in North America remains healthy primarily driven by large multi year projects and government related infrastructure investments supported by funding from the eye.
Jim Ogilvie: J a.
Jim Ogilvie: Although we anticipate the combined nonresidential and residential construction spend to remain similar to 2024 levels. Our current planning assumptions reflect lower demand for new equipment. We also expect lower dealer rental fleet loading compared to 2024, although dealer revenue is expected to grow.
Jim Ogilvie: Overall, we remain positive about the medium and longer term outlook in North America.
Jim Ogilvie: In Asia Pacific outside of China, We expect soft economic conditions to continue into 2025.
Jim Ogilvie: We anticipate China to remain at relatively low levels for the above 10 ton excavator industry.
Jim Ogilvie: In the Amy we anticipate weak economic conditions in Europe will continue and the healthy level of construction activity in Africa, and the middle East construction activity in Latin America is expected to decline moderately.
Jim Ogilvie: We also anticipate the ongoing benefit of our services initiatives will positively impact construction industries in 2025.
Jim Ogilvie: Moving to resource industries, we anticipate lower sales to users in 2025 compared to last year, partially offset by higher services revenues, including robust rebuild activity cuts.
Jim Ogilvie: Customers continue to display capital discipline, although key commodities remain above and freshmen investment thresholds custom.
Jim Ogilvie: Customer product utilization remains high the number of parked trucks remains relatively low the age of that fleet remains elevated and our autonomous solutions continue to see strong customer acceptance.
Jim Ogilvie: 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.
Jim Ogilvie: Moving to energy and transportation demand is expected to remain strong in power generation and we expect growth for both cat reciprocating engines and solar turbines overall.
Jim Ogilvie: Overall strength in power generation for both prime and backup power applications continues to be driven by increasing energy demand to support data center growth related to cloud computing and generative AI through.
Jim Ogilvie: Through continued focus on improving manufacturing efficiencies along with initial stages of our investment to increase large engine output capacity, we expect growth in reciprocating engines for power generation in 2025.
Jim Ogilvie: We also expect growth in solar turbines for power generation driven by increased customer demand.
Jim Ogilvie: For oil and gas after a flat year in 2024, we expect moderate growth in 2025, we expect reciprocating engines and services to be slightly down in 2025 due to continuing capital discipline by our customers industry consolidation and efficiency improvements in our customers' operations solar turbines oil and gas backlog remains strong.
Jim Ogilvie: And we continue and we see continued healthy order and inquiry activity, we expect growth for turbines and turbine related services in oil and gas.
Jim Ogilvie: Demand for products in industrial applications is expected to remain at a relatively low level similar to 2024 and transportation, we anticipate full year growth driven by rail services.
Jim Ogilvie: Moving to slide eight I'll now provide an update on our sustainability journey.
Jim Ogilvie: <unk> is a legacy of sustainable innovation spans nearly a century throughout that time, we have provided products and services that improve the quality of life and the environment, while helping customers fulfill societies need for infrastructure in a sustainable way.
Jim Ogilvie: Earlier this month caterpillar kicked off its yearlong centennial celebration at CES 2025, with the theme the next hundred years experience what's possible.
Jim Ogilvie: We showcased our continuous investment in the core technologies of autonomy alternative fuels connectivity and digital and electrification.
Jim Ogilvie: Our ability to provide these solutions reflects investments of more than $30 billion in R&D over the past 20 years to deliver best in class innovation taken.
Jim Ogilvie: <unk> taken center stage at the Caterpillar CES exhibit with the Cat 97, two wheel loader retrofitted to be an extended range electrified machine hybrid technical demonstrator the.
Jim Ogilvie: A demonstrator can run fully battery electric was zero exhaust emissions for several hours. It has an onboard generator and charger that enables full day uptime without required investment in dis indirect current or D C charging infrastructure.
Jim Ogilvie: And initial testing the demonstrator maintains or exceeds the performance of a cat nine seven to internal combustion machine, while providing customers with the benefits of a hybrid system.
Jim Ogilvie: With that I'll turn it over to Andrew Thank you, Jim and good morning, everyone. I'll begin with a summary of the fourth quarter and then provide more detailed comments, including some on the performance of the segments.
Jim Ogilvie: Next I'll discuss the balance sheet and free cash flow before concluding with comments on our high level assumptions for 2025 as well as our expectations for the first quarter.
Speaker Change: Beginning on slide nine sales and revenues were $16 2, billion% to 5% decrease versus the prior year.
Jim Ogilvie: As Jim mentioned sales was slightly lower than we had anticipated, which together with unfavorable mix resulted in lower than expected margins for the quarter.
Adjusted operating profit was $3 billion and our adjusted operating profit margin was 18, 3%.
Jim Ogilvie: Profit per share was $5 78 in the fourth quarter compared to $5.28 in the fourth quarter of last year.
Jim Ogilvie: Adjusted profit per share was $5.14 in the quarter, a 2% decrease compared to $5 23 last year.
Jim Ogilvie: Adjusted profit per share excluding a discrete tax benefit of 46 cents for tax law change related to currency translation.
Jim Ogilvie: Mark to market gains of 23 to the re measurement of pension and other post employment plans was also excluded in addition to restructuring costs of five cents in the quarter.
Jim Ogilvie: Other income and expense was 185 millions favorable versus the prior year, mostly driven by a positive currency impact related to <unk> balance sheet translation.
Jim Ogilvie: Which compared to a negative impact in the fourth quarter last year.
Jim Ogilvie: As I mentioned previously we do not anticipate currency translation movements. So the positive impact from the fourth quarter of 2024 helped offset the impacts of operating profit being lower than expected.
Jim Ogilvie: Excluding discrete items the provision for income taxes in the fourth quarter of 2024 reflected a global annual effective tax rate of 22, 2%.
Jim Ogilvie: This was slightly lower than we had expected a quarter ago and benefited the quarter by nine.
Jim Ogilvie: Finally, the year over year impact from the reduction in the average number of shares outstanding primarily due to share repurchases resulted in a favorable impact on adjusted profit per share of approximately <unk> 24 cents as compared to the fourth quarter of 2023.
Jim Ogilvie: Moving on to slide 10, I'll discuss the top line results for the fourth quarter.
Jim Ogilvie: Sales and revenues decreased by 5% compared to the prior year, primarily impacted by lower sales volume.
Jim Ogilvie: Price was unfavorable year over year and about in line with what we had expected.
Jim Ogilvie: Lower volume was driven by the impact from changes in dealer inventories and a 2% year over year decrease in total sales to users.
Jim Ogilvie: Total machine dealer inventory decreased by $1 $6 billion in the quarter compared to $1 $4 billion.
Jim Ogilvie: The decrease in the prior year.
Jim Ogilvie: The decrease in machine dealer inventory was larger than we had expected and it's mostly a function of higher than anticipated sales to users across both construction industries in North America and resource industries.
Jim Ogilvie: Service revenues increased in the quarter compared to 2023.
Speaker Change: As I mentioned the sales decrease in the quarter was slightly larger than we had anticipated. This was mostly due to services growing at a slightly slower rate than we had expected and some delivery delays in energy and transportation.
Speaker Change: Moving to operating profit on slide 11.
Speaker Change: Operating profit in the fourth quarter decreased by 7% to $9 billion.
Speaker Change: Adjusted operating profit decreased by 8% to $3 billion.
Speaker Change: Mainly due to the profit impact of lower than expected sales volume.
Speaker Change: As I mentioned for the fourth quarter. The adjusted operating profit margin was 18, 3%, a 60 basis point decrease compared to the prior year.
Speaker Change: This is lower than we had anticipated mainly due to a lower than expected sales volume and the impact of unfavorable mix.
Speaker Change: On slide 12, construction industries sales decreased by 8% in the fourth quarter to $6 billion.
Speaker Change: This was slightly below our expectations on lower than anticipated volume.
Speaker Change: Compared to the prior year to 8% sales decrease was primarily due to unfavorable price realization and lower sales volume.
Speaker Change: The decrease in sales volume was mainly driven by lower sales of equipment to end users and dealers, reducing their inventory by slightly more than they did during the fourth quarter of 2023.
Speaker Change: By region construction industry sales in North America decreased by 14% and Latin America sales increased by 6% sales in the EMEA region decreased by 1% and Asia Pacific sales decreased by 2%.
Speaker Change: Fourth quarter profit for construction industries was $1 2, billion% to 24% decrease versus the prior year.
Speaker Change: This was primarily due to unfavorable price realization as a result of the impacts of the post sales merchandising programs that we've discussed with you in October.
Speaker Change: The segment's margin of 19, 6% was a decrease of 390 basis points versus the prior year.
Speaker Change: The margin was and was lower than we had anticipated primarily impacted by lower volume and unfavorable mix.
Speaker Change: Manufacturing costs was unfavorable versus our expectations, principally due to a headwind from cost absorption as that inventory in construction industries declined.
Speaker Change: Yes.
Speaker Change: Turning to slide 13 resource industries sales decreased by 9% in the fourth quarter to $3 billion.
Speaker Change: This was below our expectations, mainly due to services growing at a slightly lower rate than we had anticipated.
Speaker Change: As we compared to the prior year, the 9% sales decrease was primarily due to lower sales volume, mainly driven by the impact from changes in dealer inventories.
Speaker Change: Dealer inventory decrease more than the fourth quarter of 2024 than it did in the fourth quarter of 2023.
Speaker Change: Fourth quarter profit for resource industries decreased by 22% versus the prior year to $466 million. This.
Speaker Change: This is mainly due to the profit impact of lower sales volume.
Speaker Change: The segment's margin of 15, 7% was decrease of 280 basis points versus the prior year. This.
Speaker Change: This was lower than we had anticipated primarily due to lower volume.
Speaker Change: Now on slide 14 energy and transportation sales of $7 $6 billion were about flat versus the prior year.
Speaker Change: Sales were slightly below our expectations due to a lower than expected services growth rate largely in oil and gas and the timing of deliveries of international locomotives.
Speaker Change: Compared to the prior year sales were roughly flat as the impacts of low sales volume was mostly offset by favorable price realization.
Speaker Change: By application power generation sales increased by 22%.
Speaker Change: <unk> sales were lower by 1%.
Speaker Change: Oil and gas sales decreased by 14% and industrial sales decreased by 14%.
Speaker Change: Fourth quarter profit for energy and transportation increased by 3% versus prior year to $1 5 billion.
Speaker Change: The increase was primarily due to favorable price realization, partially offset by the profit impact of lower sales volume.
Speaker Change: The segment's margin of 19, 3% was an increase of 70 basis points versus the prior year.
Speaker Change: This was lower than we had anticipated primarily due to lower than expected volume and an unfavorable mix of products.
Speaker Change: Moving to slide 15 financial products revenues increased by 4% versus the prior year to about $1 billion, primarily due to higher average, earning assets in North America, and higher average financing rates across all regions, except North America.
Speaker Change: Segment profit decreased by 29% to $166 million.
Speaker Change: This was mainly due to an unfavorable impact from equity Securities. In addition to lower margin and a higher provision for credit losses.
Speaker Change: Our customers' financial health remains strong posture is 156% in the quarter down 23 basis points versus the prior year and our lowest level since 2005.
Speaker Change: The allowance rate was <unk> nine 1% remaining near historic lows.
Speaker Change: Business activity at Cat financial remains healthy.
Retail credit applications increased and our retail new business volume grew by 3% versus the prior year.
Speaker Change: This was our highest level since 2012 supported by attractive financing packages for customers choosing to buy caterpillar equipment.
Speaker Change: We continue to see proportionately more of ourselves financed through cat financial and.
Speaker Change: In addition demand for used equipment remains healthy and inventories remained at low levels.
Speaker Change: And version rates are above historical averages as customers choose to buy equipment at the end of their lease term.
Speaker Change: Moving on to Slide 16, we continue to generate strong free cash flow the $9 $4 billion. In 2024 was near the top end of our target range and just slightly lower than the prior year. Despite a larger payment for short term incentive compensation and higher capital expenditure.
Speaker Change: Capex for the year was about $2 billion.
Speaker Change: Which was in line with our expectations.
Speaker Change: Moving to capital deployment in 2024, we returned $10 3 billion to shareholders through repurchase stock and dividends.
Speaker Change: On share repurchases, we deployed seven 7 billion as.
Speaker Change: As we continue to fulfill our objective to be in the market on a more consistent basis.
Speaker Change: Our balance sheet remains strong with an enterprise cash balance of $6 $9 billion. In addition, we hold $2 billion in slightly longer dated liquid marketable securities to improve yields on that cash.
Speaker Change: Now on Slide 17, let me start with a high level overview of our expectations for the full year, we expect a slight decrease in sales for 2025 with an unfavorable impact from both volume and price.
Speaker Change: Due to the impact of post sales merchandising programs price realization should account for about a 1% decrease in sales for the full year.
Speaker Change: Our margins the impact of price together with higher depreciation costs due to the investments we are making should result in adjusted operating profit margins being in the top half of the target range of the expected level of sales rather than being above the top end of the range as occurred in 2024.
Speaker Change: Our margin targets of progressive so while we would expect volumes have an impact on absolute margins.
Speaker Change: <unk> as adjusted for lower sales.
Speaker Change: We expect a slight headwind in other income and expense in 2025, primarily due to lower interest income, mostly due to lower interest rates as well as the absence of the positive currency benefit from AT&T balance sheet translation that occurred in 2024.
Speaker Change: As I mentioned, we do not anticipate translation movements in our expectations.
Speaker Change: We expect restructuring cost of approximately $150 million to $200 million in 2025, we anticipate the global global annual effective tax rate of 23% for 2025, excluding discrete items.
Speaker Change: While the impacts of the share buyback should be positive we expect to have less <unk> free cash flow to deploy in 2025. This implies a less favorable impacts profit per share in 2025 as compared to 2024.
Speaker Change: By segment lower sales in construction industries and resource industries will be partially offset by sales growth in energy and transportation.
Speaker Change: So construction industries, we expect lower sales in 2025 based on the outlook, Jim described and unfavorable price realization.
Speaker Change: In resource industries, we anticipate slightly lower sales versus 2024, driven by unfavorable price realization on slightly lower volume.
Speaker Change: Higher volumes and favorable price and energy and transportation should drive sales growth great growth those sales remain constrained and so the benefits of the investments we are making large engines begin to flow through beyond 2025.
Speaker Change: We also anticipate another year of services growth in each of our primary segments.
Speaker Change: Currently we do not anticipate a significant change in dealer inventory machines by the end of 2025.
Speaker Change: Moving on to <unk> free cash flow, we expect to be in the top half of our target range of $5 $10 billion.
Speaker Change: The first quarter 2075 will be impacted by a $1 4 billion cash outflow related to the payout of last year's incentive compensation.
Speaker Change: We anticipate capex of about two and a half billion dollars in 2025 as we continue to make disciplined investments that are right for our business governed by a focus on growing absolute OPEC.
Speaker Change: This includes a multi year capital investment to expand our large engine volume output capability that we mentioned last year.
Speaker Change: Turning to slide 18 to assist with your modeling I will provide some color on the first quarter, starting with the topline we expect lower sales versus the prior year.
Speaker Change: For perspective in a typical year, we see a lower sales in the first quarter of the year.
Speaker Change: In 2025, we anticipate that trend to continue but be more pronounced as sales in the first quarter should account for lower percentage of full year sales in this typical by about 100 basis points.
Speaker Change: This decrease was mainly due to our expectations for dealer inventory movements in price, which primarily impacts machines.
Speaker Change: Energy and transportation is expected to show normal seasonality with sales growing throughout the year.
Speaker Change: Let me explain.
Speaker Change: Although dealers did reduce machine inventory significantly in the fourth quarter. They remain around the top end of the range as we enter 2005.
Speaker Change: This compares with dealer inventories and construction industry has been towards the middle of the range at the beginning of 2024.
Speaker Change: As a result, we expect them to build correspondingly less machine inventory during the first quarter than the $1 1 billion. They built in the first quarter 2024.
Speaker Change: As we expected we've seen dealer inventory to be about flat by year end, we should see a tailwind to sales in the fourth quarter as we don't expect a similar machine dealer inventory change as we have seen in the last few years.
Speaker Change: We also expect unfavorable price realization for machines in the first quarter due to the impacts of post sales merchandising programs.
Speaker Change: We would expect these price impacts to be greater for machines in the first half of the year as the noticeable impacts of post sales merchandising programs started in the third quarter of 2020 for making for an easier comparison in the second half.
Speaker Change: So to pull together the impact by segment.
Speaker Change: We anticipate lower sales and construction industries in the first quarter impacted by lower sales to users the headwind from changes in dealer inventory and price the impact of which should be similar to what we saw in the fourth quarter of 2024.
Speaker Change: In resource industries in the first quarter, we expect lower sales volume versus the prior year impacted by lower volume and unfavorable price realization.
Speaker Change: In energy and transportation, we anticipate similar sales in the first quarter versus the prior year as continued strength in power generation was about offset by lower oil and gas and transportation sales.
Speaker Change: This should be positive for energy and transportation.
Speaker Change: Now I'll provide some color on first quarter margin expectations.
<unk> enterprise margins are typically stronger in the first quarter compared to the remaining quarters of the year, we do not expect this seasonal trend to occur in 2025.
Speaker Change: Compared to the prior year, we anticipate a lower enterprise adjusted operating profit margin in the first quarter due to primarily due primarily to lower than unusual volume and price.
Speaker Change: Volume is impacted by the lower build the machine dealer inventory and slightly lower sales to users for machines.
Speaker Change: Unfavorable price realization for machines is principally due to the factors I've discussed previously, which will be partially offset by favorable price and energy and transportation.
Speaker Change: We expect there will be improvement in first quarter margins offsetting the volume impact in the first quarter due to stronger volume in the fourth quarter than is typical.
Speaker Change: By segment in the first quarter in construction industries, we anticipate lower margins compared to the prior year due primarily to lower volume and price.
Speaker Change: We do not expect to see the margin benefit we typically see in the first quarter of the year.
Speaker Change: As compared to the fourth quarter of the prior year, which is generally in the range of 100 to 200 basis points again. Some of this will be offset in the fourth quarter as volume is favorable and price more neutral.
Speaker Change: In resource industries, we anticipate low margin in the first quarter compared to the prior year, mainly due to lower volume and unfavorable price realization.
Speaker Change: In energy and transportation, we expect slightly lower margin versus the prior year as favorable price realization is more than offset by higher manufacturing costs and unfavorable mix impacts.
Speaker Change: Again as a reminder, this detail is provided to help you model the first quarter and does not impact our expectations for the full year that I set out earlier, which is a slight decrease in sales and revenues for the year and margins in the top half of the target range.
Speaker Change: So turning to slide 19, let me summarize.
Speaker Change: Adjusted profit per share of $21 90 exceeded last year's record by 3%. This was our third straight year with record adjusted profit per share.
Speaker Change: Adjusted operating profit margin of 27% exceeded the top of our target range.
Speaker Change: <unk> free cash flow of $9 4 billion was near the top of the target range of $5 to $10 billion.
Speaker Change: For 2025, while we expect a slight drop in sales, we expect to be in the top half of the adjusted operating profit margin range and the top half of the free cash flow target range, and we anticipate another year services growth.
Speaker Change: We continue to execute our strategy for long term profitable growth.
Speaker Change: And with that we'll take your questions.
Speaker Change: Thank you we will now begin the question and answer session.
Speaker Change: I would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue.
Speaker Change: If you would like to withdraw your question simply press Star one again.
Speaker Change: Please note we are only allowing one question per analyst.
Speaker Change: Your first question comes from the line of Stephen Volkmann with Jefferies.
Speaker Change: I would say Hello, good morning, good morning, everybody.
Speaker Change: I guess I'll dive in if I could since it's timely.
Tim how are you seeing the data center business now, there's obviously some concern about what thats going to look like longer term I know you are adding some capacity can you just discuss any changes in your view relative to data center demand.
Speaker Change: Yes, we continue to see strong demand for both our reciprocating engines and <unk> are our gas turbines just in conversations with customers, it's really all about.
Speaker Change: How quickly can you increase capacity for your reciprocating engines and how quickly can you get us our large gas turbines. So we're we're very encouraged about what we see happening in the marketplace.
Speaker Change: Many customers are planning orders with us over multiple years to ensure that we can Ken can meet their needs and as a reminder, we said that with the investments we're making in our large reciprocating engines, we are expanding capacity by about 125% over 2023 that will happen over the next several years and with solar we have a new product to tightened III.
Speaker Change: <unk>, we're quite Inc. We're very encouraged by the the acceptance in the market that we're seeing for that product and of course, a lot of that is being driven by data centers. So again.
Speaker Change: It's still very very positive from our perspective.
Speaker Change: Thank you.
Speaker Change: We will go next to Michael Feniger at Bank of America.
Speaker Change: Hi, Michael.
Michael Feniger: Good morning, guys. Thanks for taking my question just on the.
Speaker Change: For dealers just to see the inventory I think in 2023 machines built $700 million for the full year 'twenty four.
Speaker Change: It was down 700 million I know you've got a ticket north of our construction end user is down a little bit on 25, how do you kind of get comfortable with where those dealer inventories are going to stay the same on the machine side and then anything change post election in terms of.
Speaker Change: The views around around on the inventories because I think there was some commentary at the retail sales and used with a little bit better than expected.
Speaker Change: In terms of how it's informing your view on 25, thanks, everyone.
Speaker Change: Yeah. So.
Speaker Change: As you.
Speaker Change: Got it correctly pointed out we did see a dealer inventory build for machines in 2023, and most of that actually was in resource industries.
Speaker Change: Rather in construction industries and in fact, most of the decline this year year over year actually used in resource industries, rather and construction industries.
Speaker Change: So that's part of the balance as we know with with.
Speaker Change: Resource industries, a lot of that is around timing of commissioning, while we did see better than we expected commissioning in the fourth quarter, which will have some impact on the first quarter of 2025, but that was a positive as we actually waivers adidas waived to deliver more machines to customers, particularly on the <unk> side overall on the on the Ci side.
Speaker Change: Based on our conversation you know obviously, we are engaged with conversations with dealers dealers are independent businesses, they determine what level of inventory they hold.
Speaker Change: They based on their expectations for the outlook for the markets, obviously, our expectation based on what we're seeing today.
Speaker Change: As as you know that all of our end markets are exactly in sync.
Speaker Change: As we think about from a Ci perspective.
Speaker Change: And based on our conversations we don't expect a material reduction in dealer inventory as we go through the year, Yes, we did see students with slightly better in North America.
Speaker Change: We expected in the fourth quarter that is probably one of the first times, we've actually seen that trend and may be some benefit from some of the post sales merchandising programs.
Speaker Change: We're not calling that for 2025, yet we still think thats somewhere where we need some more work still to be seen to make sure that we are actually seeing that continue to flow through.
Rob Wertheimer: We'll move next to Rob Wertheimer Melius research.
Rob Wertheimer: Hi, good morning, and thank you.
Speaker Change: My question is on you have a large and diverse oil and gas business I'm wondering if you could characterize especially if you will on gas compression.
Speaker Change: Or you think you are in the cycle and obviously, we've had Europe, we've had Russia, we've had lots of different demand shifting around.
Speaker Change: There may be other growth areas brick and mortar et cetera, I just wonder if you could give a little bit of an outlook on oil and gas. Thank you yes.
Speaker Change: Yes, certainly we are expecting moderate growth in 2025 for oil and gas and total.
Speaker Change: For <unk>, we expect.
Speaker Change: Engineered surfaces to be slightly down for the year really really driven by gas compression and well servicing we did see some order pickup in recip gas compression in late 2024.
Speaker Change: On the solar turbine side very healthy backlog of health.
Speaker Change: Healthy order intake and inquiry activity, we do expect growth in oil and gas in the year. We are seeing to your specific question about gas compression chill largest ever.
Speaker Change: So a lot of activity around gas transmission gas compression, particularly United States. So many many pipeline customers are adding compression to existing pipelines. So again that that businesses is quite strong and a lot of lot of quotation activity as well.
Speaker Change: Thank you.
Speaker Change: We'll go next to David Raso at Evercore ISI.
David Raso: Hi, David Hi, Thank you, Hi, hi, everybody. Thanks for the time.
Speaker Change: Curious.
Speaker Change: I'm just trying to think about margins for 25 for the segments and I was I was little surprised by price cost being negative right. The manufacturing cost had been a positive year over year all of a sudden the comp gets harder right. That's why the fourth quarter wasn't going to be as easy but to see the cost up I noticed you called out <unk>.
Speaker Change: <unk>.
Speaker Change: But does that imply Ci and <unk> manufacturing costs were still a benefit year over year and all of the cost is in E&P and maybe if you can just provide that kind of framework from the fourth quarter to how to think about full year 25 price cost yes.
Speaker Change: Yes, David if you if you will call actually in my comments I did call out within Ci negative absorption in the fourth quarter is we did reduce <unk> inventory sold manufacturing costs were also negative.
Speaker Change: Ci.
Speaker Change: In E&C most of that was a function actually of putting more labor in the factories to get more machines out the door or <unk> engines out the door at the end of the year.
Speaker Change: And that obviously reflects the demand we're seeing and obviously remain but we are we are still trying to build up capacity, particularly on the large engine sides.
Speaker Change: Really is what's driving that in particular on material costs, our expectations. All the material costs will decline in 2025. However, there are some offsets within manufacturing costs, which go the other way.
Speaker Change: Some of that relates to volume.
Speaker Change: And absorption as a result of that.
Speaker Change: Which which means that we don't get the.
Speaker Change: The cost price offset that we've had in previous years. So most of that is.
Speaker Change: Is the reason and the rationale by segment.
Speaker Change: For that so yes manufacture material costs will be favorable but manufacturing costs will be broadly in line with our expectations remember almost all of the things come in mix and so forth as well and finally, just one thing to remember the depreciation I called out actually most of that is within manufacturing costs as well.
Speaker Change: We will go next to Jerry Revich with Goldman Sachs.
Jerry Revich: Yes, hi, good morning, everyone.
Speaker Change: Morning, Jim.
Speaker Change: Hi, Jim Andrew I'm wondering if you just talk about your solar turbine lead times and how are you thinking about potentially adding additional roofline capacity for turbine specifically, we're hearing optimism on the title III <unk> from.
Speaker Change: The customer base and assuming what we saw earlier this week as a blip on the radar Im just wondering how are you thinking about capacity for.
Speaker Change: That range of products.
Speaker Change: Yes, as I mentioned earlier.
Speaker Change: Seen strong with strong backlog and strong inquiry and order activity for solar for both power generation and in gas compression, we can increase capacity without building new factories since you used the roofline.
Speaker Change: <unk> mentioned the Brookline in your question. So certainly there are things that we can do within our facilities. One is just increasingly manufacturer and you can do things like add an additional test sell to an existing facility maybe add an engine built things like that one of the big issues of courses is working with suppliers to ensure that we get enough components.
Speaker Change: <unk> from suppliers and of course, just given the strength of the business. There's a lot of companies out there working with those same supplier so that as that can be a bit of a limiting factor, but in terms of actual investments required to increase capacity based on what we see coming we don't see a need to build a brand new factor or anything like that.
Speaker Change: Yeah.
Speaker Change: We'll move next to Chad Dillard at Bernstein.
Speaker Change: Hey, good morning, guys. Thanks for taking my question.
Speaker Change: So my question is on Hey, how are you.
Speaker Change: So my question is on the 25 operating profit guide.
Speaker Change: You're guiding to the top end of the range.
Speaker Change: For a given level of revenue for the full year.
Giving guidance that way I think for the last year and actually have been heading it.
Speaker Change: So I guess like what would give you what was.
Speaker Change: What do you think we are driving to bring that guide back to the midpoint.
Speaker Change: Is it price cost normalizing and in that same vein I guess like how are you thinking about the evolution of our price cost $2 25, I guess like when does that pressure peak and comps get easier.
Speaker Change: Maybe I'll start then I'll kick it over to over to Andrew.
Speaker Change: Firstly I believe what we said is we expect to be in the top half of the range for margins for 2025 and of course, our key measure here is for our team is to grow absolute <unk> dollars, because we believe that most closely aligns with tsi over time of course of OPEC being operating profit after capital charge. So given your return on the capital that we.
Speaker Change: Do we invest and so again, a reminder, week, what we expect for 'twenty to advise being the top after the range with that I'll turn it over to him and so on the price realization point. This really is related to the post sales merchandising programs, we discuss a little bit in the in the third quarter.
Speaker Change: Remind you just that.
Speaker Change: As I explained in the third quarter that will take about a year to flow through and that relates to the fact that obviously.
Speaker Change: <unk> web.
Speaker Change: Demand demand is normalizing.
Speaker Change: Supply is less constrained obviously, we make we have merchandizing programs to offer customers, particularly the things are buying down interest rates as we said before thats also an attractive option for us because obviously, we get some margin benefit from that within cap financial over the term of the financing deal what that does mean those.
Speaker Change: You saw from the Cat financial numbers, New business volume is very high actually their share is up so effectively over time, we will recover a little bit through cat financial but we will have some margin pressure in the short term from those as those.
Speaker Change: Programs normalized that mostly impacts machines, mostly impacts the first quarter first and second quarters first half of the.
Speaker Change: Once we get pass Q3, we'll be past that and actually then return probably much more to a normal evolution of price and cost, which obviously, we always try and work to make sure we can offset the two.
Speaker Change: Okay.
Speaker Change: We will move to our next question from Jamie Cook at Euro Securities.
Speaker Change: Hi, Good morning, My question I joined Hi.
Speaker Change: Hi, how are you my question relates to <unk> I guess first you called out sort of delays in shipments I think in the fourth quarter can you just give us color on that you know how big that was and how when that hits in terms of 2025, and then I was also surprised just your topline growth wasn't better in 2024, so how do we think about.
Speaker Change: Topline growth in 2025, and the incremental capacity coming online and how that helps your top line just any color there on how much or I guess top line in <unk> with constrained in 2025 because of lack of capacity. Thank you.
Speaker Change: I'll answer the second part of the question first and I'll kick it to Andrew for the first part. So so so as we've mentioned you are making that investment to increase our capacity and largest opinion engines by 125% that takes some time I think we talked about at about a four year period due to increase that capacity. So it does take time. So we do not expect that to be to be complete.
Speaker Change: And in fact in 2024 and Thats the case so.
Speaker Change: We are we could in fact ship more if we could build more but we're working hard to increase that capacity.
Speaker Change: And as regards the fourth quarter most of the impacts as I indicated in my comments was relating to services, particularly in oil and gas.
Speaker Change: That will need to see how that pans out as we go through.
Speaker Change: First quarter with regards to the OE side, most of that was international locomotives and that should hit early in the first off of 2025.
Speaker Change: And overall just to remind you we do expect A&P sales growth in 2025.
Mig: We will go next to Mig <unk> of Baird.
Speaker Change: Thank you good morning.
Speaker Change: Good morning, Andrew just a very quick clarification on.
Speaker Change: On your comments for Ci, Lisa Ryan Howard as I understood. It.
Speaker Change: But relative pressure that we've seen in Q1 might be associated with this segment.
Can you give us a sense for how you see this segment revenue and margin progressing sequentially silver relative to what you had in the fourth quarter. Thank you. Yes. So obviously normally what you would see in Ci is.
Speaker Change: First quarter benefit.
Speaker Change: Sales and revenues.
Speaker Change: Mainly due to dealer inventory builds last couple of years thats been up around about $1 billion.
Speaker Change: We expect that to be significantly less in the first quarter of this year.
Speaker Change: Correspondingly, we've actually seen quite a significant dealer inventory reduction in the fourth quarter that will be a little bit less. So this is really just a nonoperating actually as we look at underlying sales to users they will be pretty much in line throughout the whole of the year and we will be down slightly for the full for the full year. So that is the sort of underlying character.
Speaker Change: <unk> from the top line. The other overlay is really around price price will impact the first half.
Speaker Change: Impacts on price if you saw in the.
Speaker Change: And for <unk> in the fourth quarter was around $300 million that will be the impact we estimate their impact on the first quarter and obviously as we go through the rest of the and particularly in the second half the comps become easier and that will actually neutralize as we get into the second half.
Speaker Change: So it's really just overall, just really a timing issue relating to dealer inventory, mostly in the timing of price when you take those two things out.
Speaker Change: <unk> b sales to users should actually be broadly much. So I'm first half second half there is no demand change we're expecting as we go through the year.
Speaker Change: And next we'll move to Tami Zakaria at J P. Morgan.
Tami Zakaria: Hi, good morning.
Hi, how are you.
Tami Zakaria: So the order growth in the fourth quarter I'm curious how did.
Tami Zakaria: Drops in resources.
Tami Zakaria: Sequentially in the quarter versus the third quarter. It seems like Emt with strong, but would love any directional commentary on the other two segments. If you are able to provide.
Tommy: Yes Tommy.
Speaker Change: Our role as E&P was the major driver we did see.
Tommy: Some improvement in orders in <unk>.
Tommy: Resource industries, particularly related to some large contracts that we've announced previously.
Tommy: And then in.
Tommy: Sure.
Tommy: <unk> was broadly flat for the quarter year over year.
Speaker Change: We'll go next to Tim Thein at Raymond James.
Tim Thein: Thank you.
Speaker Change: Good morning, maybe Andrew just back to the you had mentioned within that.
Tim Thein: Commentary around Ci.
Tim Thein: Inventory absorption are.
Tim Thein: Or the headwind from it.
Tim Thein: As you think about just cat more broadly should we in an environment, where the top line is slightly lower should we think about that.
Tim Thein: As a headwind more broadly for for Canada as a whole in 'twenty five.
Tim Thein: And given where our inventory levels are for the company is that something we should be factoring in in terms of that discussion around material costs or is it.
Tim Thein: Hum.
Tim Thein: And as you kind of think about that.
Tim Thein: Margin outlook. Thank you.
Tim Thein: Yes, Tim Thanks, I think as I tried to indicate to David there are other factors within manufacturing costs, which go the other way absorption will be one of them slightly going against obviously, because our intention would be.
Tim Thein: <unk> lead to reduced volume next year, which will impact our rates of absorption and potentially.
Inventory as well inventories a little bit of a more difficult subject just to remind you.
Tim Thein: We are a very large complex company.
Tim Thein: We have hundreds of products that we hold.
Tim Thein: Inventory for and not all of those products have exactly the same lead time.
Tim Thein: And some of the longer lead time projects, all where we have strongest at the moment things like Sola and also large engines.
Tim Thein: And so some of those may actually continue to build inventory, where we may see some inventory trimming with NCI for example, our slightly lower volumes and also our ROI as we go through the year. So it's going to be a little bit of a mixed bag, but there may be some impact on absorption that was built into the fact that obviously, we're not going to see a favorability from material cost coming through manufacturing cost.
Tim Thein: <unk> added to the depreciation I talked about a moment ago as well.
Angel Castillo: Our next question comes from Angel Castillo at Morgan Stanley.
Angel Castillo: Hi, good morning, and thanks for taking my question, Hi, How's it going.
Angel Castillo: Just wanted to maybe go into the competitive environment, a little bit more.
Angel Castillo: Think about the first quarter, we are continuing to see some of the flow through of the merchandise programs that you mentioned I guess as we evolve into the second half I get the comps getting easier I guess, maybe what gives you confidence to that.
Angel Castillo: The pricing and competitive environment doesn't worsen and maybe if you could overlay on that just any views on kind of Trump policies and implications on kind of construction activity in the U S and weather.
Angel Castillo: How are you kind of see that impact on demand overall.
Angel Castillo: Yes, so on the.
Angel Castillo: Merchandising programs that is some of that is actually within our control.
Angel Castillo: Just but obviously our focus is actually growing absolute opex dollars remind you. So we don't necessarily focus on margin per product.
Angel Castillo: But obviously, we would take that into account and pricing takes into account the value we provide customers and a lot of other things. Obviously this is relating to price. We're talking about is relating to the merchandising programs and we don't expect those to change much from where we have them today and in fact actually in a lower interest rate environment.
Angel Castillo: Actually they will become less of the total semi actually be the opposite.
Angel Castillo: If interest rates do start to fall as we go through the yet based on.
Angel Castillo: That being buying down of interest rates.
Angel Castillo: Yes, just in terms of the administration has certainly.
Angel Castillo: The push for deregulation and other kinds of changes.
Angel Castillo: From a regulatory perspective.
Angel Castillo: It helps increase economic growth, particularly United States that should be that should be a positive again with to see how that all plays out but that certainly has the potential to be positive for us.
Speaker Change: Next we'll move to Christian Owen at Oppenheimer.
Christian Owen: Good morning, Thank you for the question.
Speaker Change: Now to come back to the margin target guidance coming in at the upper half of the range you did make some adjustments to that margin target. When we were at the height of the supply chain dislocation.
Speaker Change: Given the strong performance since then the outlook even increases does that negative price impact I'm wondering how we should think about this range is it still valid or should we be actually thinking about an upward shift in that range. Okay. Thank you.
Speaker Change: Yes, again as we as we think about 2025 would that we're talking about being in the top half of that range and so certainly for this year, we're not anticipating changing it and again just as a reminder, as I mentioned earlier are our driver here is really absolute OPEC dollars because that most closely we believe corresponds to increase <unk> over time and so what we tried to do is give invest.
Speaker Change: Or is that guide to give you a sense of where it will be and we make very various investments to grow our business profitably and for 25, we said we'd be in the top half of the range and as we always do you know a year from now we'll we'll reassess and let you know what we think for 2026 and Christian just the other point to always remember is our margin targets all very progressive the top end of the range.
Speaker Change: Margins have to.
Speaker Change: <unk>.
Speaker Change: The <unk>.
Speaker Change: Margin is up around about 40% at the top end of that target range, which is well above.
Speaker Change: Average gross margin for our products across the whole. So it does require a lot of operating leverage so that is one of the reasons again, while we took into account.
Speaker Change: The fact of well performance has been strong with back in the range now we still think that actually is a valid range for us to work with.
Steven Fisher: We will go next to Steven Fisher of UBS.
Steven Fisher: Thanks, Good morning, I know, it's still very early to really understand exactly all the policies coming out of the administration, but wanted to ask a little bit about tariffs if it hasnt been asked already.
Steven Fisher: Curious about how youre thinking about contingency plans and strategies.
Steven Fisher: For managing tariffs on the products that you import.
Steven Fisher: From China into the U S. I know generally of the strategy of producing for local.
Speaker Change: Think there's maybe some products coming in from China, just curious.
Speaker Change: How are you thinking about the contingency plans and strategies for that thank you.
Speaker Change: Yes, so I'll give that a shot so certainly it's going to take time to see how this plays out certainly a lot of discussions going on.
Speaker Change: Around tariffs and we'll have to see what actually gets put into place in the end we are a global manufacturer, but our largest manufacturing presence is in the United States and we are a net exporter outside of the U S and that positions us pretty well versus many other companies out there I haven't said that as you say, we do tend to try to produce.
Speaker Change: In region for region, but yes, some products and components, particularly move around but you know as you can imagine so that we keep a close eye on and we'll we'll deal with it we've been around 100 years and we've seen many different administrations with different attitudes on these issues and we'll deal with it but again. The fact that we have such a large U S manufacturing press.
Speaker Change: Vince I think positions us pretty well.
Speaker Change: We have time for one more question.
Speaker Change: And today's final question comes from the line of Kyle Mangoes from Citi.
Kyle Mangoes: Thanks for taking the question I was hoping that you could provide a little bit more color on what youre seeing in RIS, just you talked about some order improvement in <unk>.
Kyle Mangoes: How our customer conversations progressing in orders so far in <unk> and maybe just talk a little bit about some of the pricing actions. You are taking NRI I think you said it would be negative in <unk>. So would just love to hear some color on those items. Thanks.
Kyle Mangoes: Yeah, certainly as I mentioned earlier, our customers continue to display capital discipline, but we are encouraged by the fact that that the key commodities that are <unk>.
Kyle Mangoes: Products help our customers produce remain above investment thresholds in and kind of some of the things we look at to get a gauge of what's happening in the industry, we look at product utilization how.
Kyle Mangoes: The hours that are being put at our machines and those are high the number of parked trucks is relatively low and the age of the fleet is relatively elevated as well and again were.
Kyle Mangoes: We're continuing to invest in our autonomous solutions and we start we continue to see strong customer acceptance of that if you stop and think about some of the things that are happening we talked about data center build outs and all the rest I mean again, you think about commodities like copper that should be a positive for that over time, having having having said that again, our customers are displaying capital discipline.
Kyle Mangoes: In terms of price price reduce expect some marginally negative impacts in the first quarter.
Kyle Mangoes: As we said.
Kyle Mangoes: That would be mostly due to the fact that obviously.
Kyle Mangoes: We are also putting merchandising programs, particularly where we think about things like heavy construction Korean aggregates are the major areas will be affected there okay.
Kyle Mangoes: Okay, great well I just wanted to thank everyone again for joining us we always appreciate your questions I'd like to once again, thank our team for their strong performance in 2024, delivering record adjusted profit per share and strong <unk> free cash flow and we've been around 100 years and so as we kick off our centennial year. This year, we certainly remain committed to serving our customers.
Kyle Mangoes: We will continue to execute our strategy and invest for long term profitable growth and with that I'll turn it over to Alex. Thank you, Jim Andrew and everyone, who joined US today, a replay of our call will be available online. Later. This morning, we'll also post the transcript on our Investor Relations website as soon as it's available.
Kyle Mangoes: Also find our fourth quarter results video with our CFO and our seat SEC filing with our sales to users data.
Kyle Mangoes: Click on investors not caterpillar dot com and then click on financials to be those materials.
Kyle Mangoes: Finally, I'd like to thank Brian for his support through our transition and I wish him the best as he moves on to another role and caterpillar.
Kyle Mangoes: If you have any questions. Please reach out to me are Rob Rengel Investor Relations General phone number is 3096 75 or 549 now lets turn it back to Andre to conclude our call.
Speaker Change: That concludes today's call. Thank you for joining you may all disconnect.
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