Caterpillar Inc Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Michael Feniger - Bank of America - Analyst : Yeah, 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 evaluating in terms of the mitigation as you move through the year? Can we see pricing or cost reduction that can fully offset that as we move through the year? And is there anything you're seeing in the environment right now in terms of surcharges or price increases as we look at the competitive environment where you guys are positioned in terms of your manufacturing footprint versus maybe other OEMs and brands that might have more imports. So just kind of wondering how you're looking at that cost headwind, and if we're thinking about pricing as you move to the back half as a lever to mitigate that as we move through the year. Thanks everyone.

Question: Rob Wertheimer - Melius Research - Analyst : Thank you. Just first off, Jim, congratulations to you and really everybody at Cat for a remarkable kind of improvement over the past several years. And Joe, congratulations to you as well, you're taking over in an interesting time. So my question is going to be on construction. Okay. There's lots of [ cross-prints ] going on with kind of the dealer inventory build being de minimis in contrast to a normal quarter. The price being negative despite apparently stronger sell-through, and then maybe full year dealer inventory not declining. So 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 you expected and that kind of explains most of it? You would have priced stronger if you thought it was this strong? I mean maybe just talk about how you're managing construction what those [ cross-prints ] are. Thank you.

Question: Tami Zakaria - JPMorgan - Analyst : Hey, good morning. Thanks for taking my question. Congrats to Jim on your stellar career at Caterpillar. And congrats to Joe. Big shoes to fill, but who else better than you? So my question is on -- of course. So my question is on the tariff impact, $250 million to $350 million. I just want to understand, how should we think about this for the remainder of the year as 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 1Q already had some impact, so $250 million and $350 million is the right range for 3Q and also 4Q?

Question: Kyle Menges - Citigroup - Analyst : Thank you. I just wanted to ask a little bit more on pricing within CI and RI particularly for the back half. I mean it sounds like you might be exploring some mitigation on price. So I'm just thinking, like, could we actually see, as we start to lap these merchandising programs, do we 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 just could you elaborate on just what you're hearing in the market from just competitors and what they're doing on price so far, especially the international ones that may be seeing -- experiencing more tariff impacts? Thank you.

Question: David Raso - Evercore ISI - Analyst : Hi, thank you for the time. Obviously, congrats, Joe and Jim. For folks looking at the strong order growth, and skeptical comments about, oh, it's just a prebuy. But is it true though that you're saying you're not necessarily putting price increases in yet because you're waiting for the tariffs? But is it fair to say that you're not price protecting the backlog? Because I would think if I'm prebuying, I'm locking in a price, but if I'm putting an order in knowing there is variability on the price, it's a little more reflective of legitimate demand. So are we price protecting the backlog or not? And also on the mitigation factors, right, you mentioned China is a big impact. But it appears you are moving some orders into the US that were coming from China down to Piracicaba. So I would think that's already some mitigating factor. So I'm just trying to think about, is that mitigating factors sort of in the guide, or is that something that's not -- you're 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, are we price-protecting the backlog of the orders that we got through June -- through March 31? Thank you.

Question: Jamie Cook - Truist Securities - Analyst : Hi, good morning and congratulations, Jim. Congratulations, Jim, and congratulations, Joe. I guess my question -- long period of time in looking at the margin performance of your company, and down sales and an uncertain macro, I mean the margins you put up this quarter and what's implied for the year, is fairly impressive and you talked to your backlog and your diversity of earnings. But I guess my longer-term question for you is, obviously, you guys have your longer-term margin targets that are pegged to a certain revenue level that's there, but I'm wondering, over time, and in particular, Joe, perhaps this could be the story under your leadership, do you think the market underappreciates -- is there a story potentially for Cat where the volatility of margins over time should decrease? When we look at your margin target, I guess, the 10% to whatever 20-some percent, that over time margins can be within a more narrow range just because of the diversity of the earnings, the operational execution model, the growth in services. I'm just wondering if there's a story there where margins can structurally move higher within a more narrow band. No pressure. Thank you.

Question: Angel Castillo - Morgan Stanley - Analyst : Hi, good morning. Thanks for taking my question. Jim, wish all the best. Joe, congrats on the new role. Looking forward to working with you more. Maybe just a little bit of a bigger picture question. With the current market backdrop and just the amount of uncertainty out there, could you just talk about your dealers' rental businesses and maybe what you're seeing more specifically in terms of customers kind of rent versus buy decisions? And then just really from a longer-term perspective, what does this ultimately mean for your CI business as we think about the potential for growth in that rental vertical versus maybe the potential headwinds either to pricing power or volume as you think about more of a rent versus buy?

Question: Stephen Volkmann - Jefferies - Analyst : Thank you guys. My congrats to everyone as well. I wanted to drill down into E&T and power gen specifically. There's been some concerns around sort of what the adoption curve for various data centers, et cetera, is going to be. It sounds like you haven't seen any real change there. But I'm curious if you can comment on that. And then also on the capacity side, are you basically kind of sold out at this point or is there still a little bit more upside in terms of what you can get through the channel? Thank you.

Question: Kristen Owen - Oppenheimer - Analyst : Good morning. Thank you for the question. Congrats to Jim and Joe both. Understanding that it is difficult to assess at this stage, as we are sort of building out our models and assessing 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 in your tariff scenario. Just help us understand where you could see more or less of that impact, what could potentially be an opportunity, how that's offset with your backlog, just those big moving pieces around the demand deterioration assumption. Thank you.

Question: Jerry Revich - Goldman Sachs - Analyst : Hi, good morning. A pleasure to send off, Jim, with the last question here. Jim, congratulations on everything the team's done in tripling earnings power over the last 8 years, really well done. And Joe, congratulations. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 30, 2025 / 12:30PM, CAT.N - Q1 2025 Caterpillar Inc Earnings Call Joe, I was hoping to ask you, can you just spend a minute or 2 just talking about your biggest strategic priorities over the next, call it, 2 to 3 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 in the big seat?