CATERPILLAR INC Q1 FY2025 earnings call

• Caterpillar celebrated its centennial, with Joe Creed succeeding Jim Umpleby as CEO. - First quarter sales and revenues were down 10% y/y, but adjusted operating profit and margin were above expectations. Backlog grew $5 billion, a record organic backlog growth. Over $4 billion was deployed to shareholders through share repurchases and dividends. - Construction Industries had mixed regional performance; Resource Industries had strong order rates and backlog growth, particularly for large mining trucks; Energy & Transportation saw growth in power generation but softness in oil & gas due to capital discipline and industry consolidation.

Construction Industries: Sales decreased by 19% to $5.2 billion in Q1, slightly below expectations due to unfavorable price realization and currency impacts. Profit was $1.0 billion, a 42% decrease versus the prior year, with a margin of 19.8% (down 770 basis points). Resource Industries: Sales decreased by 10% to $2.9 billion, with profit decreasing by 18% versus the prior year to $599 million. Margin was 20.8% (down 210 basis points). Energy & Transportation: Sales of $6.6 billion decreased by 2% versus the prior year. Profit increased by 1% versus the prior year to $1.3 billion, with a margin of 20% (up 50 basis points). Financial Products: Revenues increased by 2% versus the prior year to over $1 billion, but profit decreased by 27% to $215 million due to absence of a favorable insurance settlement and higher provisions for credit losses.

• Second quarter outlook: Anticipates sales similar to prior year, with lower margins due to tariffs estimated at $250M-$350M headwind. Pre-tariff scenario sees full year 2025 sales and revenues flat versus 2024, with adjusted operating profit margins in the top half of the target range. - Full year scenarios: Various scenarios considered due to tariff announcements and economic uncertainty, but expects to stay within target margins for adjusted operating profit and ME&T free cash flow.

• Tariffs: Uncertainty and potential cost headwind of $250M-$350M in Q2, impacting margins and sales. - Economic Uncertainty: Dynamic environment affecting end markets and customer capital discipline, with varying conditions across regions.

Q: Michael Feniger on tariff mitigation and pricing A: Joe Creed discussed short-term actions like cost reductions and supply chain resilience, noting limited dual sourcing opportunities and the need for clarity on tariff levels. He also mentioned pricing considerations in a competitive environment.

Q: Rob Wertheimer on construction trends A: Joe Creed spoke about merchandising programs yielding better-than-expected sales to users, dealer inventory not building as expected, and cautious optimism from customers reflected in dealer ordering trends.

Q: Tami Zakaria on tariff impact phasing A: Andrew Bonfield explained that tariff impact is not fully realized in one quarter, mitigation actions are ongoing, and potential trade deals could reduce China-related tariff impacts.

Q: Kyle Menges on pricing in CI and RI A: Joe Creed noted a competitive environment, with Caterpillar monitoring pricing decisions based on various factors, and Andrew Bonfield discussed phasing of margin impacts and pricing decisions in different segments.

Q: David Raso on price protection and mitigation factors A: Joe Creed clarified that there's no widespread pre-buying, backlog pricing has flexibility, and mitigation factors like moving orders from China to Brazil are being considered but not fully articulated yet.

Q: Jamie Cook on margin story A: Joe Creed and Andrew Bonfield discussed margin targets, the importance of services in dampening cyclicality, and the business's resilience leading to a reduced likelihood of reaching the lower end of historical margin ranges.

Q: Angel Castillo on dealers' rental businesses A: Joe Creed stated that dealer rental load was in line with expectations, rental revenue continued to grow, and Caterpillar is focused on providing a strong rental offering to customers.

Q: Stephen Volkmann on E&T power gen A: Joe Creed and Jim Umpleby mentioned strong demand in power generation for data centers, ongoing communication with customers, and confidence in the long-term outlook for solar turbines and large engines.

Q: Kristen Owen on demand deterioration A: Andrew Bonfield discussed demand assumptions in different scenarios, with the bulk of demand deterioration impact expected in Construction Industries due to negative economic growth in the second half.

Q: Jerry Revich on strategic priorities A: Joe Creed outlined focus on services growth, instilling discipline through the model, cash deployment priorities including dividends and share repurchases, and accelerating growth opportunities in power generation, minerals, and critical infrastructure.