Q1 2025 Caterpillar Inc Earnings Call
Welcome to the first quarter 'twenty twenty-five 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 Kapur. Thank you. Please go ahead.
Speaker Change: Thank you Audrey and good morning, everyone and welcome to Caterpillar's first quarter of 2025 earnings call.
Speaker Change: I'm, Alex catheter, Vice President of Investor Relations, joining me today are Jim <unk>, Chairman and CEO.
Speaker Change: Joe Creed, cheap operating operating officer and incoming CEO Andrew.
Speaker Change: Andrew Bonfield, Chief Financial Officer.
Speaker Change: I believe <unk> senior Vice President of Global Finance Services Division, and Rob Rengel Senior director of Investor Relations.
Speaker Change: During our call we will be discussing our first quarter earnings release, we issued earlier today you can find our slides the news release and a webcast replay at investors that caterpillar com under events and presentations.
Speaker Change: The content of this call is protected by U S and international copyright law, any rebroadcast retransmission reproduction or distribution.
Speaker Change: We're part of this content without caterpillars prior written permission is prohibited.
Speaker Change: Moving to slide two during our call today, we will make forward looking statements, which are subject to risks and uncertainties. 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.
Speaker Change: Please refer to our recent S E C 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: 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 S. E C filings.
Speaker Change: On today's call. We'll also refer to non-GAAP numbers for a reconciliation of any non-GAAP numbers to the appropriate U S. GAAP numbers. Please see the appendix of the earnings call slides.
Speaker Change: Now, let's advance to slide three and turn the call over to chairman and CEO Jim Ogilvie.
Jim Ogilvie: Thanks, Alex Good morning, everyone. Thank you for joining us since the beginning of the year, we have been celebrating our centennial has facilities in trade shows around the world earlier. This month, we commemorated caterpillars founding on April 15th by hosting events across the company and I had the honor of bringing the opening bell at the New York Stock Exchange.
Jim Ogilvie: Surrounded by all living past Ceos of Caterpillar It was a historic celebration.
Jim Ogilvie: On the same day, we also announced that Joe Creed will succeed me as CEO Tomorrow may 1st the announcement, followed a multiyear succession planning process by caterpillars board of directors I.
Jim Ogilvie: I have great confidence in Joe and the rest of the executive office to lead Caterpillar going forward.
Jim Ogilvie: It's been a great honor and privilege to serve as chairman and CEO for the past eight years and I look forward to my new role as executive Chairman.
Jim Ogilvie: Now moving to slide four I want to thank our global team for another quarter of solid results, which reflect the benefit of the diversity of our end markets and the disciplined execution of our strategy for long term profitable growth.
Jim Ogilvie: Although sales were broadly in line with our expectations when we when.
Jim Ogilvie: When excluding the negative impact from currency, we delivered adjusted operating profit and adjusted operating profit margin above our expectations.
Jim Ogilvie: Very strong order rates resulted in backlog growth of $5 billion, an all time record for organic backlog growth in the quarter the.
Jim Ogilvie: The backlog increased for all segments and was led by energy and transportation.
Jim Ogilvie: Our strong balance sheet allowed us to deploy over $4 billion to shareholders through share repurchases and dividends during the quarter.
Jim Ogilvie: As you know the current environment is dynamic and we will discuss the potential impacts to 2025 in a moment.
Jim Ogilvie: But to start I'll share my perspectives about this quarter's performance.
Speaker Change: Joe will then discuss the second quarter outlook and our full year scenarios. Finally, Andrew will provide a detailed overview of results in key assumptions looking forward.
Joe Creed: For the first quarter sales and revenues were down 10% versus last year. The sales decrease was primarily due to lower sales volume and favorable price realization versus for the first quarter of 2024.
Joe Creed: Lower sales volume was primarily driven by the impact from changes in dealer inventories.
Joe Creed: Total dealer inventory increased by about $100 million in the first quarter of 2025 compared to about $1 $4 billion in the first quarter of 2024.
Joe Creed: Machine sales to users were stronger than we expected in the first quarter, resulting in flat machine dealer inventory versus our expectation for growth in dealer inventory during the quarter.
Joe Creed: First quarter adjusted it up operating profit margin was 18, 3% above our expectations, primarily due to favorable manufacturing costs.
Joe Creed: We achieved quarterly adjusted profit per share of $4.25.
Joe Creed: Turning to slide five as I mentioned earlier sales and revenues declined 10% in the first quarter to $14 $2 billion.
Joe Creed: Compared to the first quarter of 2020 for machine sales to users, which includes construction industries and resource industries declined by 1%, but were better than our expectations.
Joe Creed: Energy and transportation continues to grow as sales to users increased 13% driven primarily by power generation.
Joe Creed: Sales to users in construction industries were up 3% year over year.
Joe Creed: In North America sales to users were slightly higher than the prior year and better than we expected.
Joe Creed: Growth in sales to users for residential construction more than offset a slight decline in nonresidential and lower rental fleet loading.
Rental fleet loading was in line with our expectations and dealers rental revenue continued to grow in the quarter.
Joe Creed: Sales to users increased in the Amy driven by better than expected sales to users in Africa, and the middle East.
Joe Creed: In Asia Pacific sales to users declined in line with our expectations.
Joe Creed: Sales to users in Latin America continue to grow and at a higher rate than anticipated.
Joe Creed: In resource industries sales to users declined, 10%, which was better than we expected.
Joe Creed: Mining as well as heavy construction and quarry and aggregates were both better than expected primarily due to off highway trucks placed into service sooner than anticipated.
Joe Creed: In energy and transportation sales to users increased by 13% powered.
Joe Creed: Power generation sales to users grew significantly by 58% primarily due to demand for reciprocating engines for data center applications.
Joe Creed: Turbines and turbine related services for power generation also group <unk>.
Joe Creed: Sales to users of reciprocating engines declined in oil and gas applications due to softness in well servicing <unk>.
Joe Creed: Turbines and turbine related services for oil and gas declined due to a difficult comparison versus the first quarter of 2024, and some delay in timing of deliveries in the first quarter of 2025.
Joe Creed: Transportation sales to users increased industrial sales to users grew slightly from a relatively low level.
Joe Creed: Moving to dealer inventory in our backlog in total dealer inventory increased by approximately $100 million versus the fourth the.
Joe Creed: The fourth quarter of 2024 machine dealer inventory was about flat and grew less than we had anticipated due to better than expected machine sales to users and construction industries and resource industries.
Joe Creed: As I mentioned backlog increased versus year end 2024 by $5 billion or 17% driven by strong order rates in all three of our primary segments.
Joe Creed: Our backlog of $35 billion is a record.
Joe Creed: Moving to slide six we generated M E T pre cash flow of $200 million in the first quarter.
Joe Creed: The decline versus last year is primarily due to lower profit we.
Joe Creed: We deployed $4 $3 billion to shareholders through nearly $3 $7 billion of share repurchases and about $700 million of dividends paid we.
Joe Creed: We remain proud of our dividend to risk aristocrat status as we have paid higher annual dividends for 31 consecutive years.
Joe Creed: We continue to expect to return substantially all M E T free cash flow to shareholders over time through dividends and share repurchases.
Joe Creed: Now I'll turn it over to Joe.
Joe Creed: Alright, Thank you Jim and good morning, everyone.
Joe Creed: I'll start today with a discussion of our second quarter outlook and a range of scenarios for the full year for discussing our end markets.
Joe Creed: The first quarter ended with positive momentum after another quarter of better than expected sales to users and record organic growth in our backlog.
Joe Creed: However, the potential impact of tariffs has increased uncertainty and the situation remains fluid.
Joe Creed: I'll start with our expectations for the second quarter, where we have the best visibility and then cover the full year.
Based on our current view, we anticipate sales in the second quarter to be similar to prior year.
Joe Creed: Sales growth in energy and transportation will be offset by lower machine sales in both resource industries and construction industries, primarily driven by unfavorable price while volume is expected to be about flat.
Joe Creed: We expect lower enterprise adjusted operating profit margins versus the prior year without the additional headwind of tariffs primarily due to lower price realization.
Joe Creed: Additionally for the second quarter, the tariffs, which have been announced and implemented. This year are currently estimated to be a cost headwind of about 250 million to $350 million.
Joe Creed: This estimate is net of our initial mitigation efforts and cost controls, which represent limited short term actions that we were able to implement quickly.
Joe Creed: As you would expect.
Joe Creed: We are evaluating a broad range of longer term mitigation actions.
Joe Creed: Many of these actions require more time to implement are more difficult to reverse and therefore require more clarity and certainty on our long term environment around tariffs.
Joe Creed: As I mentioned the situation remains fluid and we will continue to monitor it closely.
Joe Creed: Throughout our history, we have demonstrated the ability to navigate many different environments I'm confident we're well positioned to manage the impact of tariffs over time cat.
Joe Creed: Caterpillar is a global company and we are manufacturing locations around the world.
Joe Creed: Our largest manufacturing base is in the United States, where we employ over 50000 full time employees and we continue to be a net exporter.
Joe Creed: Caterpillars business is resilient due to the diversity of our portfolio and the end markets we serve.
Joe Creed: Moving on to the full year.
Joe Creed: I remain cautiously optimistic based on how we finished the first quarter.
Jim Ogilvie: As Jim mentioned machine sales to users in the first quarter were better than expected, especially in construction industries.
Jim Ogilvie: This is a continuation of the positive momentum we saw at the end of last year and evidence that the merchandising programs. We put in place are yielding results.
Jim Ogilvie: I'm also pleased with the continued growth in power generation as well as the first quarter order intake in all three segments, which led to record organic growth and our backlog.
Jim Ogilvie: As a result in a pre tariff scenario, which does not include any impact from tariffs, we would've expected full year 2025 sales and revenues to be about flat versus 2024.
Jim Ogilvie: This would represent a slight improvement since our outlook last quarter.
Jim Ogilvie: In this scenario, we would also expect adjusted operating profit margins to be in the top half of the target margin range based on the corresponding level of sales and revenues.
Jim Ogilvie: <unk> free cash flow would also be in the top half of the $5 billion to $10 billion target range.
Jim Ogilvie: However, due to the tariff announcements and increasing economic uncertainty, we have evaluated a variety of scenarios to estimate the potential impact on our results for the remainder of the year.
Jim Ogilvie: In the event, we see negative economic growth in the second half of the year we.
Jim Ogilvie: We would expect full year 2025 sales and revenues to only be down slightly versus 2024.
Jim Ogilvie: This expectation is a reflection of the diversity of our end markets and the strength of our record backlog.
Jim Ogilvie: Especially for large engines and solar turbines, where we have line of sight to production for the remainder of 2025.
Jim Ogilvie: Before considering additional mitigating actions, we might take and assuming the tariffs in place today remain for the duration of 2025.
Jim Ogilvie: Would still expect to be in the target margin range for adjusted operating profit as well as in the M. N T free cash flow target range for the year.
Jim Ogilvie: Andrew will provide more details on key assumptions for the second quarter and full year in a moment.
Jim Ogilvie: To further support our range of scenarios I will now share the latest view of our end markets based on current conditions.
Jim Ogilvie: Starting with construction industries.
Jim Ogilvie: As I said earlier, we are encouraged by another quarter of better than expected sales to users and strong order rates across many of our regions as customers are responding to the attractive rates offered through cat financial.
Jim Ogilvie: In North America overall construction spending remains at healthy levels and infrastructure projects funded by the Iga a continue to be awarded.
Jim Ogilvie: Sales to users in residential construction and dealer rental revenues continue to show growth.
Jim Ogilvie: China has shown positive momentum in the 10 ton and above excavator industry.
Jim Ogilvie: But from a very low level of activity.
Jim Ogilvie: In Asia Pacific outside of China, economic conditions continue to be soft.
Jim Ogilvie: And Amy weak economic conditions in Europe remain while conditions are supportive of investment in Africa, and the middle East.
Jim Ogilvie: Construction activity in Latin America is expected to decline moderately throughout the year.
Jim Ogilvie: Moving onto resource industries.
Jim Ogilvie: Okay.
Jim Ogilvie: We are starting the year with strong order rates and backlog growth, particularly for large mining trucks.
Jim Ogilvie: Rebuild activity is expected to remain healthy.
Jim Ogilvie: Although most key commodities remain above investment thresholds customers continue to display capital discipline.
Jim Ogilvie: Customer product utilization remains high and the age of the fleet remains elevated we also continue to see growing customer acceptance of our autonomous solutions.
Jim Ogilvie: We believe the evolving energy landscape will support increased commodity demand over time, providing further opportunities for long term profitable growth.
Jim Ogilvie: And finally in energy and transportation.
Jim Ogilvie: The growth in backlog was driven by robust order activity in both oil and gas and power generation.
Jim Ogilvie: Demand remains strong in power generation for both cat reciprocating engines and solar turbines.
Jim Ogilvie: Our ongoing discussions with datacenter customers give us confidence in our long term outlook.
Jim Ogilvie: We are focused on operational improvements to deliver orders today, while increasing our large engine output capabilities through the previously announced multi year capacity investments.
Jim Ogilvie: For oil and gas reciprocating engines and services, we expect continuing softness in well servicing due to ongoing capital discipline by our customers industry consolidation and efficiency improvements in our customers' operations.
Jim Ogilvie: We do see positive momentum however in gas compression.
Jim Ogilvie: As we previously mentioned, we can leverage our large engine platforms across a variety of applications.
Jim Ogilvie: Based on current market conditions, and well servicing applications, we are able to serve additional power generation and gas compression demand while meeting customer needs.
Jim Ogilvie: Solar turbines oil and gas backlog remains strong and we continue to see healthy order and inquiry activity.
Jim Ogilvie: Demand for products in industrial applications is expected to remain at a relatively low level, while transportation remains stable.
Jim Ogilvie: With that I'll turn it over to Andrew for a detailed overview of results and key assumptions looking forward.
Joe Creed: Joe and good morning, everyone.
Speaker Change: I'll begin with a summary of the first quarter and then provide more detailed comments, including some of the performance of the segments.
Speaker Change: Next I'll discuss the balance sheet and free cash flow before concluding with comments on our current assumptions for the full year as well as our expectations for the second quarter.
Speaker Change: Beginning on slide eight sales in revenue revenues were $14 2 billion.
Speaker Change: A 10% decrease versus the prior year.
Speaker Change: Adjusted operating profit was $2 $6 billion and our adjusted operating profit margin was 18, 3% boats was slightly better than we had anticipated.
Speaker Change: Profit per share was $4 20 in the first quarter compared to $5 75 in the first quarter of last year.
Speaker Change: Adjusted profit per share was $4 25 compared.
Speaker Change: Compared to $5 60 last year.
Speaker Change: Adjusted profit per share excludes restructuring costs of five cents in the quarter.
Speaker Change: Other income and expense was unfavorable versus the prior year by $49 million, primarily driven by unfavorable foreign currency impacts.
Speaker Change: Excluding discrete items the estimated annual effective global tax rate was 23%.
Speaker Change: 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> 17 cents.
Speaker Change: Moving to slide nine I'll discuss our top line results for the first quarter.
Speaker Change: Sales and revenues decreased by 10% compared to the prior year, primarily impacted by lower sales volume.
Speaker Change: Lower volume was mainly driven by the impact from changes in dealer inventories.
Speaker Change: In addition price realization and currency were unfavorable year over year.
Speaker Change: Sales were broadly in line with our expectations. If you exclude the impacts of currency movements, which we do not anticipate.
Speaker Change: The net sales impacts of better than expected machine sales to users and the lower than anticipated machine dealer inventory was about neutral.
Speaker Change: Price realization was also about in line with our expectations.
Speaker Change: Moving to operating profit on slide 10.
Speaker Change: Operating profit in the first quarter decreased by 27% to $2 6 billion.
Speaker Change: Adjusted operating profit decreased by 26% to $2 6 billion.
Speaker Change: Mainly due to the profit impact of lower sales volume and unfavorable price realization.
Speaker Change: The adjusted operating profit margin was 18, 3%, a 390 basis point decrease versus the prior year.
Speaker Change: This was better than we had anticipated mainly due to favorable manufacturing costs, including freight and cost absorption impacted by higher inventory levels in the quarter.
Speaker Change: On Slide 11, I'll review the performance of the segments, starting with construction industries sales decreased by 19% in the first quarter to $5 2 billion.
Speaker Change: Slightly below our expectations due to unfavorable price realization and currency impacts.
Speaker Change: Price realization was more unfavorable than we anticipated mainly due to the higher than expected volume of sales to users.
Speaker Change: Compared to the prior year, the 19% sales decrease was primarily due to lower sales volume and an unfavorable price realization.
Speaker Change: The decrease in sales volume was mainly driven by the impact from changes in dealer inventories.
Speaker Change: By region construction industry sales in North America decreased by 24%.
Speaker Change: In Latin America sales decreased by 15%.
Speaker Change: Sales in the EMEA region decreased by 13% in Asia Pacific sales decreased by 12%.
Speaker Change: First quarter profit for construction industries was 1.0, billion% to 42% decrease versus the prior year.
Speaker Change: This decrease was mainly due to the profit impact of lower sales volume and unfavorable price realization.
Speaker Change: The segment's margin of 19, 8% was a decrease of 770 basis points versus the prior year.
The margin was slightly stronger than we had expected mainly due to the lower than anticipated manufacturing costs and lower than expected SG&A and R&D expenses.
Speaker Change: Price realization was slightly unfavorable compared to our expectations and acted as a partial offset.
Speaker Change: Turning to slide 12 resource industries sales decreased by 10% in the first quarter to $2 9 billion.
Speaker Change: Sales were slightly higher than we expected on stronger than anticipated sales to users, which benefited from the timing of deliveries of our highway trucks.
Speaker Change: As we compared to the prior year, the 10% sales decrease was primarily due to lower sales volume.
Speaker Change: Favorable price realization and currency impacts.
Speaker Change: Lower sales to users drove the sales volume decline.
Speaker Change: First quarter profit for resource industries decreased by 18% versus the prior year to $599 million.
Speaker Change: This was mainly due to the profit impact of lower sales volume.
Speaker Change: The segment's margin of 28% was a decrease of 210 basis points versus the prior year.
Speaker Change: Margin was stronger than we had anticipated due to better than expected volume price realization and manufacturing costs.
Speaker Change: Now on slide 13.
Speaker Change: Energy and transportation sales of $6 6 billion decreased by 2% versus the prior year.
Speaker Change: Sales was slightly below our expectations due to volume as a result of the delay in an unexpected delivery and unfavorable currency impacts.
Speaker Change: The sales decrease versus the prior year was mainly due to lower sales volume and unfavorable currency impacts partially offset by favorable price realization.
Speaker Change: By application power generation sales increased by 23% industrial sales decreased by 2%.
Speaker Change: <unk> sales were lower by 10% and.
Speaker Change: In oil and gas sales decreased by 20%.
Speaker Change: First quarter profit for energy <unk> transportation increased by 1% versus the prior year to $1 3 billion.
Speaker Change: The slight increase was primarily due to favorable price realization, mostly offset by the profit impact of lower sales volume and unfavorable manufacturing costs.
Speaker Change: This segment's margin of 20% was an increase of 50 basis points versus the prior year.
Speaker Change: This was slightly stronger than we had anticipated primarily due to favorable cost absorption and price realizations post pre option set by the lower than expected volume.
Moving to slide 14.
Speaker Change: Financial products revenues increased by 2% versus the prior year to over $1 billion, primarily due to higher average, earning assets in North America, partially offset by lower average financing rates also in North America.
Speaker Change: Segment profit margin profit decreased by 27% to $215 million.
Speaker Change: The decrease was mainly due to the absence of a favorable insurance settlement that occurred in the prior year and higher provisions for credit losses.
Speaker Change: The increase in the provision reflected the absence of a nonrecurring reserve release in the prior year.
Speaker Change: And a specific reserve related to a single customer that was provided in the current quarter.
Speaker Change: Our customers' financial health remains strong.
Speaker Change: Postures, 158% in the quarter down 20 basis points versus the prior year.
Speaker Change: The lowest first quarter since 2006.
Speaker Change: The allowance rate was zero point, 95% remaining near historic lows.
Speaker Change: Business activity at Cat financial remains healthy.
Speaker Change: Retail credit applications increased by 13% and retail new business volume grew by 8% versus the prior year with increases in all regions.
Speaker Change: This reflects the attractiveness of ourselves merchandising programs.
Speaker Change: In addition used equipment inventory levels remain low and conversion rates remain above historical averages.
Speaker Change: As customers choose to buy their equipment at the end of their lease term.
Speaker Change: Moving on to slide 15, <unk> free cash flow was about $200 million in the first quarter.
Speaker Change: This is about a $1 billion decrease versus the prior year, primarily driven by lower profit.
Speaker Change: The quarter included annual payment for 2020 for short term incentive compensation and capex spend of about $700 million.
Speaker Change: We continue to anticipate higher capex spend this year likely to be around $2 5 billion.
Speaker Change: Moving to capital deployment, we deployed $4 $3 billion to shareholders in the first quarter.
Nearly $3 7 billion was for share repurchases, which included a $3 billion accelerated share repurchase or ASR that may last drop to nine months.
Speaker Change: The ASR provides us with favorable pricing, which is finally determined at an attractive discount to the volume weighted average price will be web over the full period of the agreement.
Speaker Change: Our balance sheet remains strong.
Speaker Change: Have ample liquidity with an enterprise cash balance of $3 6 billion.
Speaker Change: In addition to $1 2 billion and slightly longer dated liquid marketable securities to improve yields on that cash.
Speaker Change: Okay.
Speaker Change: Now on Slide 16, let me start with a few comments on the full year.
Speaker Change: We are closely monitoring the evolving economic conditions.
Speaker Change: Demand signals were stronger than we had expected in the first quarter, including backlog growth across our three primary segments and stronger than expected sales to users, particularly in construction industries.
Speaker Change: These indicators boost our confidence in the resilience of the topline this year.
Speaker Change: As Joe mentioned, our sales expectations would be about flat for the full year and our pre tariff scenario, which excludes any impact from tariffs.
Speaker Change: As a reminder, this compares to our prior expectations for slightly lower full year sales when we communicated to you a quarter ago.
Speaker Change: Also as Joe noted, we have run a number of scenarios to estimate the full potential impact of tariffs for the remainder of the year.
Speaker Change: Our alternative some Oreo also assumes negative economic growth in the second half of 2025.
Speaker Change: This scenario could result in full year, 2025 sales and revenues to be only down slightly versus 2024.
Speaker Change: This was this result highlights the resilience of our top line, which is supported by the strength of our backlog and the diversity of our end markets.
Speaker Change: Now on to margins.
Speaker Change: And our pre tariff scenario, which assumes no impact from tariffs, we would've expected full year margins to remain in the top half of the adjusted operating profit margin range at the expected levels of sales and revenue.
Speaker Change: We have also assess potential cost impacts from the current tariffs for the remainder of the year before any additional mitigation actions.
Speaker Change: Given the uncertainty of what tariff rates could be and the timing of any additional mitigation mitigation actions that we may take once the situation becomes clearer.
Speaker Change: It is not possible to derive an accurate estimate of the net full year impacts of tariffs.
Speaker Change: However, in our alternative scenario, assuming the tariffs in place today remained for the duration of 2025 and without any additional mitigation actions, which is unlikely to happen. We would still expect to remain within the margin target range at the expected levels of sales and revenues.
Speaker Change: Also want to remind you about two important points impacting our year over year comparisons.
Speaker Change: As we said in January we expect the impact of negative price realization to be greater in the first and second quarters of the year.
Speaker Change: This will moderate as we move into the second half.
Speaker Change: In addition, we also do not expect a significant decrease in machine dealer inventory as we saw in the fourth quarter of 2024, and still expect dealers to hold inventories about flat for the full year.
Speaker Change: These factors helped to underpin our confidence about the second half of the year.
Speaker Change: Moving on we continue to expect restructuring costs of approximately $150 million to $200 million in 2025.
Speaker Change: And our anticipated annual effective global tax rate remains at 23% for 2025% excluding discrete items.
Speaker Change: Turning to slide 17 to assist you with your modeling I will provide our second quarter assumptions.
Speaker Change: Based on what we see today, we anticipate second quarter sales will be similar to the prior year as sales growth in energy and transportation is offset by lower sales in construction industries and resource industries.
Speaker Change: By segment, we anticipate lower sales and construction industries in the second quarter versus the prior year, mainly due to lower price the impact of which is expected to be similar to the headwind. We saw in the first quarter of 2025.
Speaker Change: We expect slightly positive volume, Texas, a partial offset.
Speaker Change: In resource industries in the second quarter, we expect lower sales versus the prior year, primarily due to unfavorable price realization.
Speaker Change: Impact of which is expected to be larger than we saw in the first quarter of 2025.
Speaker Change: We also expect a slight decrease in volume.
Speaker Change: As I mentioned, we anticipate higher sales in energy and transportation in the second quarter versus the prior year driven by continued strength in power generation and in oil and gas driven by solar turbines.
Speaker Change: We also anticipate favorable price.
Speaker Change: Now I'll provide some color on our second quarter closer margin expectations.
Speaker Change: Compared to the prior year, excluding any tariff impacts we would have expected margins to be lower than the prior year, primarily due to a net headwind from price realization and some unfavorable manufacturing costs and SG&A and R&D increases.
Joe Creed: In addition, as Joe mentioned Caris will represent a net headwind of about $250 million to $350 million for the quarter.
Joe Creed: I'll make a few comments regarding our segment margin expectations as well.
Joe Creed: In the second quarter and construction industry, excluding any tariff impacts.
Joe Creed: We would've expected lower margins compared to the prior year with a strong prior margins make for a challenging comparison.
Joe Creed: The main driver of lower margins year over year as unfavorable price.
Joe Creed: While lower than the comparative quarter last year, we would have expected margins to be higher when compared to the first quarter of this year.
Joe Creed: Now taking tariffs into account, we would expect about 50% of the second net quarter net tariff enterprise tariff impacts of $250 million to $350 million to be incurred and construction industries.
Joe Creed: In resource industries, some of its construction industries, a strong prior year margin sets a challenging comparison in the second quarter.
Joe Creed: Excluding any tariff impacts we would have expected lower margins versus the prior year, primarily due to unfavorable price, which I commented on a moment ago and higher SG&A and R&D costs.
Joe Creed: In addition resource industries will be expected to incur an additional headwind of about 25% of the net tariff quarters.
Joe Creed: <unk> costs in the second quarter.
Joe Creed: In energy and transportation, excluding any tariff impacts we would have expected slightly higher margins compared to the prior year with favorable volume and price realization, partially offset by manufacturing costs and SG&A and R&D increases.
Joe Creed: For energy and transportation, we would be expected to incur an additional headwind of about 25% of the net tariff costs in the second quarter.
Joe Creed: So turning to slide 18, let me summarize despite the evolving environment, we would expect a range of sales will be flattish to slightly lower as we and we currently expect.
Joe Creed: Be comfortably within our target ranges for adjusted operating profit margins in EMEA achieved free cash flow.
Joe Creed: Business activity in customer financial health remains resilient, while our balance sheet and liquidity positions are strong.
Joe Creed: We continue to reward our shareholders deployed $4 $3 billion of cash in the quarter.
Joe Creed: We continue to execute our strategy for long term profitable growth.
Joe Creed: And with that we'll take your questions.
Joe Creed: Thank you we will now begin the question and answer session. If you have dialed in I would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue.
Joe Creed: Please note we are only allowing one question per analyst.
Speaker Change: Your first question comes from Michael Feniger at Bank of America.
Speaker Change: Yes. Good morning, everyone. Thanks for having me on just the cost headwind of the $250 million to $350 million you guys identified in Q2, just what are you in evaluating in terms of the mitigation as we move through the year can we see pricing or cost reduction that can fully.
Speaker Change: Offset that as we move through the year and is there anything youre seeing in the environment right now in terms of surcharges or price increases as we look at the competitive environment, where you guys are positioning in terms of your manufacturing footprint versus maybe other Oems and brands that might have more import.
Speaker Change: So just kind of wondering how you're looking at that cost headwind and if we're thinking about pricing as you move into the back half as a lever to mitigate that as we move through the year. Thanks, everyone.
Speaker Change: And good morning, Mike. This is Joe I'll, maybe I'll take a shot at that and others can chime in here, there's a lot to unpack in that question.
Speaker Change: As far as the second quarter goes as I mentioned in prepared remarks, where we have taken a number of short term actions and things that we would call no regrets type of actions that we can be pretty nimble with.
Speaker Change: Examples of those would be obviously, some short term cost reductions will have a look at our overhead costs.
Speaker Change: Things that would fall into the belt tightening situation, so cutting back on travel and discretionary spending.
Speaker Change: We're able to slow some inbound shipments for certain products.
Speaker Change: Keep in mind and many of you know this we have.
Speaker Change: Three five months of sales of dealer inventory on the ground for most products and in some products we have more.
Speaker Change: So by slowing down the shipments it gives us time to see how this fluid situation plays out.
Speaker Change: And during Covid, we've been since Covid, we've been working on.
Speaker Change: Making our supply chain more resilient and adding some dual sourcing where we can.
Speaker Change: I would say a fairly limited opportunity for us, but where we have the opportunity and it benefits us.
Speaker Change: We're taking advantage of that.
Speaker Change: We need to see obviously in this fluid situation, where it shakes out some of the longer term things that we would consider here.
Speaker Change: Require investments they take time to implement and they're very difficult to change or pivot from once we do that.
Speaker Change: Those types of things like moving.
Speaker Change: <unk> moving sourcing our supply chains.
Speaker Change: We really need to see the amount of the tariff is going to depend on the product the situation, where its coming from which market we're talking about.
Speaker Change: When we move sourcing on components, particularly critical components. It requires a lot of testing and validation to make sure. It's the caterpillar quality and durability.
Speaker Change: So those take time and so we would obviously look throughout the year it potentially deeper cost reductions.
Speaker Change: Depending on how this plays out my preference is to protect our investments in in our.
Speaker Change: Funding for items that we think are going to really help our future growth.
Speaker Change: And then your question on price there is theres a lot of things that go in to pricing.
Speaker Change: And so we need to balance that in context with the amount of tariffs that we can't offset with these other mitigating efforts.
Speaker Change: Along with market conditions, our competitive position.
Speaker Change: And just sort of remind you our focus here is dollar APAC growth.
Speaker Change: The current merchandising programs, we put in place last year are yielding really positive results over the last.
Speaker Change: Starting in the fourth quarter of last year continued into the first quarter of this year. So any actions we take there.
Speaker Change: I'm, not saying, we won't but we will have to consider volume impacts with that as well so.
Speaker Change: It's a fluid situation I think.
Speaker Change: We would like to see a little more clarity, we're obviously going to take the actions that are required.
Speaker Change: But we sit in a really good position right now being able to to give you the variety of scenarios and feel comfortable will be in our target ranges.
Speaker Change: And in any of those scenarios.
Speaker Change: And maybe this is generally in adding is obviously, it's a very dynamic situation depending on what the administration.
Speaker Change: In the end decided to do around tariffs and so there have been certain.
Speaker Change: Statements made by members of the administration on China for example that the current <unk>.
Speaker Change: Current tariff levels are not sustainable and so again were.
Speaker Change: We're cautiously optimistic here that there'll be some trade deal struck and that the tariff impact will be lower than it is currently so again as Joe mentioned yogurt, we're being cautious and prudent here taking into account all factors that we have to keep in mind.
Speaker Change: We will move to our next question from Rob Wertheimer of Melius research.
Speaker Change: Just first off Tim Congratulations to you and everybody a cat or a remarkable kind of improvement over the past several years and Joe.
Speaker Change: Congratulations to you as well as taking over an interesting time.
Speaker Change: My question is going to be on construction.
Speaker Change: Theres lots of cross currents going on with kind of the dealer inventory.
Speaker Change: Bill being de Minimis.
Speaker Change: In contrast to a normal quarter.
Speaker Change: The price being negative despite apparently stronger sell through and then maybe full year dealer inventory not decline because there's a lot of back and forth I Wonder if you can put color about what customers and dealers are really feeling is there just more optimism out there than we expected and that kind of explains most of it you would have priced stronger ish. If you dial is the strong and maybe just talk about how you're managing construction.
Speaker Change: What those craft brands. Thank you.
Speaker Change: Yeah, Thanks, Rob I.
Speaker Change: I would say those metrics all sort of coincide with each other we put the merchandising programs in place last year.
Speaker Change: They are yielding results, we've had multiple quarters in a row of better than expected sales to users frankly better than than the industry, which is.
Speaker Change: A positive thing so those are yielding good results.
Speaker Change: That caused us remember we entered the first quarter with what we felt like was the high side of dealer inventory. So we expected dealer inventory build in the first quarter to be lower than last year, but still have a build in.
Speaker Change: And those higher sales to users.
Speaker Change: Cause our dealer inventory to really not have a build in ci.
Speaker Change: And then also our backlog is going up.
Speaker Change: As a result, so dealers are or ordering to replenish and that will also cause.
Speaker Change: Our seasonal pattern to be a little bit different we probably won't have the level of a burn down of dealer inventory in the second half that we saw last year, which which gives us confidence.
Speaker Change: And in the ranges of sales that we put out there when it comes to customer sentiment.
I think it's the same as everybody.
Speaker Change: No we.
Speaker Change: Prefer certainty but.
Speaker Change: There is cautious optimism and that's resulted in continuing sales caesars trends and dealer ordering I've been.
Speaker Change: Personally with a number of our dealers in North America, two weeks ago, and then once this week with a handful of them and.
Speaker Change: They are not.
Speaker Change: What theyre seeing and saying trends with the information we've given you today so.
Speaker Change: Where we sit right now.
Speaker Change: I feel like we put ourselves in a really good position to manage our way.
Speaker Change: Through the uncertainty.
Tami Zakaria: We'll go next to Tami Zakaria at J P. Morgan.
Tami Zakaria: Hey, good morning. Thanks.
Speaker Change: Thanks for taking my question and congrats again.
Speaker Change: On your stellar caterpillar and congrats Joe.
Speaker Change: <unk> shoes to fill but who else better than you.
Speaker Change: So my question is on <unk>.
Speaker Change: Of course, so my question is on the.
Speaker Change: Caris impact $250 million to $315 million.
Speaker Change: I just wanted to understand how should we think about this for the remainder of the <unk>.
Speaker Change: And then in the back half should we just annualize that number for now until this is lapped in the first quarter of next year or this is more like.
Speaker Change: <unk> already had some impact.
Speaker Change: So if we if the answer is it is the right range for <unk> and also for Q.
Speaker Change: Yes, so a couple of things Tammy is Andrew.
Speaker Change: First of all just to remind you that obviously not all the terrorists were impacted for the full impact for the full quarter. Some of it will be a little bit later, so that is not a 400% for the full quarter. Secondly, obviously as we've said we have not implemented all the mitigating actions we can take.
Speaker Change: And so hopefully as time goes on we will keep you updated as.
Speaker Change: As we go through the year, we will be able to mitigate some of that and offset some of the.
Speaker Change: That's a tariff impact as we go through finally also obviously.
Jim Ogilvie: We are as Jim.
Speaker Change: Let's see what the final actually ranges, particularly if we do get some deals done.
Jim Ogilvie: Some of those for example.
Jim Ogilvie: Around about just over 50% of our tariffs actually come from China and.
Jim Ogilvie: And that obviously is the highest level.
Jim Ogilvie: And so again, if that gets moderated at some point in time that will actually mean quite a significant reduction in the cost base for us as well.
Kyle Mangus: And next we'll go to Kyle Mangus at Citigroup.
Kyle Mangus: Thank you I just wanted to ask a little bit more on pricing within <unk>.
Kyle Mangus: In particular.
Kyle Mangus: Particularly for the back half I mean, it sounds like you might be exploring some mitigation on price.
Kyle Mangus: Just thinking like could we actually see as we start to lap these merchandising programs.
Kyle Mangus: Actually see within those segments pricing be flat to positive just as you lap the merchandising and then also maybe do some mitigation and then and then just could you elaborate on just what you're hearing in the market.
Kyle Mangus: Just competitors and what they're doing on price, so far, especially the international ones that may be seeing.
Kyle Mangus: <unk> more tariff impacts thank you.
Kyle Mangus: Yes, as I said earlier that this Joe what we're seeing in the market. It's obviously a competitive environment is going to be different by region.
Kyle Mangus: We're happy with the merchandising programs that we put in place in traction that's gained.
Kyle Mangus: In better than expected sales to users and better orders for us, which will create better sales volume for us.
Kyle Mangus: I'm also pleased that that's not just in North America, we saw.
Kyle Mangus: Healthy activity in African Middle Eastern and South America as well so.
Kyle Mangus: It's a competitive environment, we will continue to to watch it like we always do and when it comes to pricing decisions a variety of factors always go into that.
Kyle Mangus: And so.
Kyle Mangus: Like I said earlier I feel like we put ourselves in a really good position to manage our way through this we'll monitor the situation and then we'll make any adjustments moving forward, yes as regards the phasing of the year. So.
Kyle Mangus: Sort of no tariff scenario.
Kyle Mangus: That's.
Kyle Mangus: Basically assuming that there was no price increase in the second half of the year. So effectively though we start lapping the impact of the merchandising programs, which started to come through stronger in the third quarter. So we will still be some impacts in the third quarter moderating from where we are currently and obviously as we move into the fourth quarter would get year on year about the same.
Kyle Mangus: As far as the B.
Kyle Mangus: The alternative case.
Kyle Mangus: We have not assumed any price increases at this point in time, because as we said that is not with no mitigation whatsoever, obviously, it's going to be somewhere between the two as we go through.
Speaker Change: The city at this stage as Joe indicated we're not taking action until we actually get more clarity obviously.
Speaker Change: And then we will have to weigh those pricing decisions up against what we see from a volume perspective, and a competitive situations. So all of those will be part of that equation and then I just want to be clear a lot of that pricing commentary is around <unk>, which is where I think a lot of the questions are coming in to remind everyone. Each of our segments and businesses in a different position, we will make the right appropriate decision.
Speaker Change: For that part of the business.
Speaker Change: We will move to our next question from David Raso at Evercore ISI.
David Raso: Hi, Thank you for the time, and obviously, congrats Joe and Jim.
David Raso: Looking at the strong order growth.
David Raso: <unk>.
David Raso: Skeptical comments about Oh, it's just a pre buy.
David Raso: But.
David Raso: Is it true, though that youre, saying youre not necessarily putting price increases in yet because you're waiting for the tariffs, but is it fair to say that youre not price protecting the backlog.
David Raso: Because I would think if im pre buying I'm locking in a price, but if I'm, putting an order and knowing there is variability on the price, it's a little more reflective of legitimate demand.
Speaker Change: So are we price protecting the backlog or not and also on the mitigation factors right. You mentioned, China is a big impact but yes.
Speaker Change: It appears you are moving some orders into the U S that were coming from China down our piracicaba. So I would think thats already some mitigating factor.
Speaker Change: So I'm just trying to think about is that mitigating factors sort of in the guide or is that something thats not.
Speaker Change: Youre not articulating so I'm just trying to get a sense of the mitigating factors from the move from China to Brazil, but most importantly.
Speaker Change: Are we price protecting the backlog the orders that we got through June through March 31.
Speaker Change: Thank you.
Joe: Yeah. Thanks, David So this is Joe I would say.
Joe: Remind you the two scenarios, we gave in the lower scenario.
Joe: No.
Joe: We talked about before any mitigating actions. So we will obviously take what actions, we can and will.
Joe: We'll see how this situation that's very fluid plays out and we will continue to take the appropriate action is to the first part of your question I think there is a few things that I would point out there.
Joe: I guess the specific answer to your question in the backlog depending on the part of the business, sometimes we have contractual arrangements and pricing. If we have frame agreements are solar along orders or certain parts of the business, but generally speaking we have flexibility on pricing in the backlog.
Joe: Specifically to your question on the potential of a pre buy we have seen no.
Speaker Change: Evidence of widespread pre buying our team has been on the ground at the bomber.
Speaker Change: As I mentioned I've been with North American dealers two times over the last.
Speaker Change: Month, and we just haven't seen that and if you think about our backlog right. We saw growth in all three segments remember E&P NRI majority of those orders that are in the backlog are backed by a true customer order theyre not.
Speaker Change: Dealer inventory stock.
Speaker Change: And even in Ci there, maybe a few customers right, who will have capex budgets and maybe they are trying to push them up in the year, but by and large if you don't have work or if you're uncertain about having work in the future you're not probably going to buy a machine to try to get ahead of any any sort of pricing. So.
Speaker Change: We don't have any evidence of that right now.
Speaker Change: And feel like we're in a really good position with the growth in our backlog.
Speaker Change: We'll go next to Jamie Cook at <unk> Securities.
Jamie Cook: Hi, good morning, and congratulations Jim and congratulations Joe.
Speaker Change: I guess my question.
Speaker Change: Long period of time and looking at the margin performance of your company and down sales in an uncertain macro I mean, the margins you put up this quarter and what's implied for the year.
Speaker Change: It's fairly impressive and you talk to your backlog and your.
Speaker Change: Diversity of earnings, but I guess my longer term question for you is.
Speaker Change:
Speaker Change: Obviously, you guys have your longer term margin targets that are <unk>.
Speaker Change: Revenue level that there, but im wondering over time and in particular count perhaps this could be the story under your leadership do you think the market under appreciated.
Speaker Change: Is there a story potentially for cat, where the volatility.
Speaker Change: <unk>.
Speaker Change: Over time sheet.
Speaker Change: Decrease.
Speaker Change: When you look at your margin targets I guess, the 10 to whatever 27% that over time margins can be within a more narrow range just because of the diversity of the earnings the operational execution model that the growth in services I'm. Just wondering if there's a story there where margins construction lead with higher within a more narrow band. Thank you.
Speaker Change: And no pressure.
Jamie Cook: Thanks, Jamie Thanks for setting me up there.
Jim Ogilvie: What you say is correct right and this is a testament to the to Jim's leadership, the last eight years and the strategy that we all as a team have put in place and continue to execute well.
Jamie Cook: We're comfortable with the margin ranges that we have out there.
Jamie Cook: But when you focus on services why services is such an important part of our strategy.
Jamie Cook: Our goal is to dampen some of the cyclicality, we're always going to have cycles in certain parts of the business.
Jamie Cook: We are seeing some tremendous secular.
Jamie Cook: Trends in power, so the need for power and data centers gives us.
Jamie Cook: We are at a record backlog. So we have a lot more line of sight.
Jamie Cook:
Jamie Cook: We've worked really hard through the <unk> model to instill discipline and so I would expect all of those things to continue.
Jamie Cook: And obviously the more we grow the better shape, we're going to be from a margin standpoint.
Jamie Cook: Yes, Jamie let me just add obviously the range was set based on a 2010 to 2016 timeframe. So that is obviously adjusted one year for inflation, so thats where the.
Jamie Cook: The bottom end of the range came from.
Jamie Cook: That does not necessarily mean.
Jamie Cook: As we've made the business more resilient and the diversity of end markets the likelihood of going back to that low end of the range is less likely so probably.
Jamie Cook: The bottom end of that 10% range, probably is no longer really valid unless there is some extreme economic scenario.
Jamie Cook: Where we saw that that's also a level of sales again, so given everything we've done services.
Jamie Cook: And also around the segments I think we're in a lot better position as well.
Speaker Change: Well move next to Angel Castillo at Morgan Stanley.
Angel Castillo: Hi, Good morning, Thanks for taking my question, Jim Wish you all the best Joe Congrats on the Noel and look forward to working with you Mark.
Angel Castillo: Maybe just a little bit of a bigger picture question with the market.
Speaker Change: Drop in just the amount of uncertainty out there could you just talk about your dealer channel businesses, and maybe what you're seeing more specifically in terms of customers kind of rent versus buy decision and then just really from a longer term perspective.
Speaker Change: What does it ultimately mean for your <unk> business as we think about the potential for growth.
Speaker Change: And that rental.
Speaker Change: Vertical versus maybe the potential headwind is either to pricing power volume as you think about.
Speaker Change: More of a rent versus buy.
Speaker Change: Yes.
Speaker Change: What we've seen in the first quarter I can speak to what we see what we're seeing right now right I mean dealer rental load was down a little bit that was expected. So it was in line with what we expected the dealer rental revenue continuing to grow. So we have we're in a great position to take care of our customers, whether they want to rent equipment or whether they want to buy equipment.
Speaker Change: My goal is to make sure they're using cat equipment.
Speaker Change: We haven't seen any massive change in that trend. We think rental is a great opportunity for us. So we continue to lean in with our dealer network.
Speaker Change: To have a great.
Speaker Change: Our rental offering for our customers as we move forward so.
Speaker Change: I don't have anything really different to report on that front.
Speaker Change: Well move next to Stephen Volkmann at Jefferies.
Speaker Change: Thank you guys and Mike Congrats to everyone as well I wanted to drill down into E&P and power Gen. Specifically, there's been some concerns around sort of what the.
Speaker Change: Adoption curve for various data centers et cetera is going to be it sounds like you haven't seen any real change there.
Speaker Change: But I am curious if you can comment on that and then also on the capacity side or are you basically kind of sold out at this point or is there still.
Speaker Change: Still a little bit more upside in terms of what you can get through the channel. Thank you.
Speaker Change: Yes, I would say in this year.
Speaker Change: We're pretty full on large engines.
Speaker Change: Related to the data center standpoint.
Speaker Change: As I mentioned, well servicing is down a little bit so we could maybe get a little more power generation orders out because those engine platforms can move between products. We're focused on getting the capacity and we have direct relationships with all the hyper scaler and other data center large data center customers. So we're in constant communication with them.
Speaker Change: And we're confident in.
Speaker Change: The outlook that we have in front and the need for this capacity our goal is to get as much product out to them to support their schedules as we can there's been a lot of some articles going around the we will schedule around for customers all the time aside.
Speaker Change: Aside from doing things like that that we would normally do we're not seeing any any weakness in our plans there.
Speaker Change: And maybe just to add in from the solar turbine side, you know when things were quite encouraged by is that we're seeing strong order and continuing strong very strong inquiry activity to sell solar turbine driven generator sets for prime power for data centers, you'll recall at our Investor day, a few years ago, we talked about the opportunity for distributed generation and of course.
Speaker Change: And those there was a number of years ago, none of us saw the the data center.
Speaker Change: Opportunity come in as quickly and as significantly as it has so we're we're very encouraged by again the orders that we've received to provide prime power for those data centers and also the very strong inquiry activity, particularly for our larger our new larger gas turbine. The tightened through 50 was which is about 38 39 megawatts.
Kristen Owen: Well move next to Kristen Owen at Oppenheimer.
Kristen Owen: Good morning, Thank you for the question and congrats to Jim and Joe.
Kristen Owen: That it is difficult to assess at this stage as we are building out our models.
Speaker Change: Some of those sensitivities wondering if you can help us unpack some of the bigger moving pieces around your demand deterioration assumptions that are in the back half and your tariff scenario just help us understand where you could see more or less of that impact could potentially be an opportunity. How that's all set with your backlog just this big moving pieces around the demand.
Kristen Owen: Generation assumption thank you.
Kristen Owen: Yes. So in this scenario, obviously we've assumed.
Kristen Owen: Negative economic growth in the second half of the year, which I think actually exceeds what most economists are expecting and thats globally.
Kristen Owen: So obviously the most sensitive area, obviously would be Ci, so that would be where most of the sales deterioration would go from a segment perspective, obviously, there will be a little bit impact in both RIS and <unk>, mostly probably driven by levels of activity, but the vast majority.
Kristen Owen: Would be within with NCR.
Kristen Owen: Or would it be the bulk of it.
Jim Ogilvie: Alright, Andrew we have time for one more question.
Speaker Change: Thank you today's final question comes from the line of Jerry Revich from Goldman Sachs.
Speaker Change: Hi, good morning pleasure to send of Jim with the last question here, Jim Congratulations on everything <unk>.
Speaker Change: And then tripling earnings power over the past eight years really well done.
Joe: Joe Congratulations.
Speaker Change: Joe I was hoping to ask you can you just speak.
Speaker Change: Spend a minute or two just talking about your biggest strategic priorities over the next call. It two to three years, obviously near term we're focused on global trade flows, but taking a step back what are the biggest opportunities that you see going forward and your strategic priorities.
Speaker Change: In the big feet.
Speaker Change: Yeah. Thanks, Jerry.
Speaker Change: Obviously immediately we're focused on taking care of our customers and in executing our strategy, maybe just as a reminder of my background.
Speaker Change: Back in 2017, when Jim became CEO and put this strategy in place I was.
Speaker Change: Senior Vice President of.
Speaker Change: Corporate finance, which included running our strategy groups are as part of the core team along with executive office that put the strategy that we have today together.
Speaker Change: I've had the pleasure to execute that strategy over the last six months out in the E&P business.
Speaker Change: That strategy served us well and its driving good results and it's served us well through some some challenging times and COVID-19 and supply chain challenges and other things so things that.
Speaker Change: You should expect to continue our focus on services we.
Speaker Change: More work to do there to continue to grow services. It's a good thing for our customers. It's a good thing for our dealers and a good thing for us.
Speaker Change: The only model I believe is the right framework for us to look at our business and how we allocate resources to growth opportunities.
Speaker Change: There's still a great discipline in our business, which I think has led to the performance.
Speaker Change: And contributed to the margin performance that we have.
Speaker Change: Our ultimate goal is still going to be growing <unk> dollars that is what I believe.
Speaker Change: Correlates to the best shareholder return over time.
Speaker Change: Having said that I am comfortable with the margin framework as we talked about and I think.
Speaker Change: The strength of our strategy is helping us there cash deployment priorities.
Speaker Change: I'm committed to those as well.
Speaker Change: We are a dividend aristocrat, we want to remain that we will be consistently in the market with share repurchases, but where I'm really focused is can we accelerate our growth opportunities and how are we going to how are we going to we're going to put those resources to work and fund the greatest opportunities there and we have opportunities in all three segments in the last 18 months as Chief operating officer I've been able to.
Speaker Change: Spent a lot of time with with.
Speaker Change: With all the segments and the teams we have mentioned in your all well aware of the opportunities in <unk>.
Speaker Change: Power generation and demand for powerful distributed generation and data centers, we are going to move a lot of natural gas I believe we're well positioned there.
Speaker Change: <unk> term need for minerals, it is going to really benefit IRI.
Speaker Change: And then the continued need for critical infrastructure around the globe, we have specific opportunities I think to accelerate.
Speaker Change: Our growth in in Ci and certain areas ECP in rental.
Speaker Change: We'll continue to try to get more adoption of our technology like autonomy.
Speaker Change: And digital capabilities to support our customers so.
Speaker Change: A lot of opportunity over the next few months will continue to to look at are there areas that we can really lean in and accelerate.
Speaker Change: The growth in those opportunities, while we obviously manage our way through today's environment, but I have a lot of confidence in our team and the experienced executive office team members that I have worked together for a really long time, we have an amazing team.
Speaker Change: Have a talented group of caterpillar employees around the globe and our great Global dealer network. So I'm confident we'll be able to deliver.
Speaker Change: Great results moving forward.
Speaker Change: So with that I think that was our last question.
Speaker Change: Before I pass it to Jim It's just I want to say, it's an honor and true privilege to be named the next CEO of Caterpillar and lead an extraordinary company that has been building a better world for 100 years I'm excited to work alongside our talented team and the cat dealer network as we focus on serving our customers.
Speaker Change: I'd also like to recognize Jim for his leadership and success throughout his distinguished 45 year career in particularly.
Speaker Change: His leadership for us over the last eight years as our CEO I've really enjoyed working closely with Jim for many years and I look forward to support in the future.
Speaker Change: In his new role so with that Jim I'll turn it over to you for final remarks here well. Thank you Joe and thanks to everyone that we appreciate all your questions as always and I've really enjoyed working with all of you in and you've made is better. So thank you for that.
Speaker Change: Setback in reflecting on my time as CEO over the last eight years I'm just incredibly proud of what our teams accomplished in their strong performance.
Speaker Change: For AG for long term profitable growth has served us well as we focused on serving our customers investing in the best opportunities for growth and of course rewarding shareholders and Joe talked about some of the macro trends that are out there and based on that and based on I know, what's going to be outstanding leadership by Joe and the executive office here moving forward I really believe that.
Speaker Change: Caterpillars best.
Speaker Change: Days lie ahead, so I know that Joe and the Holy O will will do a great job, leaving their companies as we embark on our second century of helping customers build a more sustainable world and with that I'll turn it over to Alex. Thank.
Alex: Thank you, Jim Joe 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.
Alex: Also find our first quarter results video with our CFO and an FCC filing with our sales to users data visit investors Dot Caterpillar Dot com and then click on financials to view those materials.
Rob Rengel: You have any questions. Please reach out to me are Rob Rengel Investor Relations General phone number is 3% or $9 $6 545 to 49 now lets turn it back to Andre to conclude our call.
Rob Rengel: That concludes our call. Thank you for joining you may all disconnect.
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