Caterpillar Inc Q3 2024 Earnings Call Transcript

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

Question: Jerry Revich - Goldman Sachs Group, Inc. - Analyst : Andrew, I'm wondering if we could just take a step back. Your margin performance this year is really outstanding relative to the long-term targets. And as you see it, is this level of outperformance sustainable? Or should we take the pricing headwinds that we spoke about in the prepared remarks to mean that you folks are evaluating the optimal balance between margins and market share?

Question: Tami Zakaria - JPMorgan Chase & Co - Analyst : My question is on the Resource Industries segment. Volumes in that segment has been down for about a year now. And I think you said the rate of decline you expect to get better in the fourth quarter. I'm curious, how are you planning for this segment for 2025? Do you expect demand or sales to stabilize near term or it could get better or maybe stay weak for a few more quarters?

Question: Angel Castillo - Morgan Stanley - Analyst : I was wondering if you could expand a little bit more on what you're hearing from your dealers and customers around in terms of Construction Industries, particularly in terms of orders, how is that kind of shaking out for that segment specifically, and then more so qualitatively what you're hearing into 2025 in terms of sentiment and kind of inclinations to buy kind of heading into that year versus the macro that remains a little bit uncertain.

Question: Jamie Cook - Truist Securities, Inc. - Analyst : And I'm sorry, I'm flipping between multiple calls. But Jim, I think you said during the prepared remarks that you guys are adding incremental large engine capacity relative to your previous announcement. So I guess my question is, is there any way you can frame the capital investment? And more importantly, what you think the longer-term revenue opportunity for Caterpillar as you continue to increase capacity here? And then sort of what does that imply for margins for this segment? Again, we're adding a lot of capacity, but the margins are below Resource and Construction. So should margins be structurally higher as volumes ramp?

Question: David Raso - Evercore ISI Institutional Equities - Analyst : Yes, looking, as everybody, more breadcrumbs for 2025. My question, I guess, two pieces. The comment about the drag, right, the lag of discounting for CI, it will show itself more as some of those orders get shipped into '25. Can you give us a sense of just where we stand right now? Let's assume no further deterioration maybe in CI pricing. But what we're booking right now at those discounts, what is the most acute period in '25 that, that shows up? Essentially, it's how long are these orders out for? Is this second quarter, third quarter next year that should be the most acute drag from the incremental discounting right now? And then on the positive side, you kind of just said you didn't want to quantify it. But the investments in E&T, the large engines, which I know also go to large mining trucks, but let's think of it as E&T in particular right now, is there any way to think about regular throughput improvement? Any capacity additions that can show up in '25 to give us a sense of at least your throughput capability '25 versus '24, just some order of magnitude?

Question: Michael Feniger - BofA Securities, Inc. - Analyst : I would just love to get a sense on the oil and gas side. Obviously, retail sales were up a little bit. You talked about the differentiation of what you're seeing in terms of the recip side and well services versus maybe gas compression, some of the other areas. Just when we look into 2025, if we see more LNG permitting in the Gulf, is that positive for the Solar business? Do we need a higher nat gas price? Obviously, the oil price has been kind of stuck in a range. So just curious how we're thinking with oil and gas being very strong and up in '24. You kind of made some comments on Q4. What do we kind of think about the breadcrumbs for '25 for that business?

Question: Kristen Owen - Oppenheimer & Co. Inc. - Analyst : Jim, I wanted to come back to the CI competitive dynamics, particularly in North America. You've called out the re-fleeting issue a couple of quarters in a row now, but you are at the higher end of the inventory range. Just wondering, can you help us understand how much maybe incremental international competition you're seeing, given the depreciation of the yen and just continued disappointment in China activity? Just anything you're seeing on a shift in the competitive landscape there? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2024 / 12:30PM, CAT.N - Q3 2024 Caterpillar Inc Earnings Call

Question: Steven Fisher - UBS Investment Bank - Analyst : Jim, you mentioned the 4-year process on power gen capacity expansion, but the power gen growth actually accelerated to about 26% year-over-year from 15% in Q2. So with being at capacity on some of the bigger projects -- products, can you talk about what drove that acceleration? And to what extent is that maybe a function of shifting some of your oil and gas engines into power gen? And should we expect some sort of quarter-to-quarter fluctuations in that rate of growth in power gen going forward based on comps and how you are able to shift capacity around?

Question: Kyle Menges - Citigroup, Inc - Analyst : I was hoping if you could discuss inventories a little bit more. So this planned reduction in dealer inventories in 4Q, is that enough to make you guys feel pretty good about machine inventories heading into next year? And then it would also be helpful just to hear your thoughts on used inventories. It sounds like they remain at low levels, but are you seeing used tick up a little bit? And is there any cause for concern that used inventories could become an issue in 2025?

Question: Charles Albert Dillard - Sanford C. Bernstein & Co. - Analyst : So I just wanted to revisit the comments about pricing in CI. So first, just wanted to understand, when do you actually expect the max pricing pressure? And then secondly, if we think about the other side of the ledger, the cost side, you have fuel coming down. It sounds like you're easing on SG&A and R&D costs. So just trying to think through whether you'll be able to offset some of that pricing pressure with some improved -- the improved cost.

Question: Timothy Thein - Raymond James & Associates, Inc. - Analyst : Jim, I was hoping you could maybe give some color on the backlog and the orders which were pretty strong in the quarter just in terms of maybe a key driver or 2 or kind of what's behind that. And I guess, more significantly, I'm just curious if the -- I presume you're going to highlight data centers as part of that. And is there a shift in terms of how you think -- or how we should think about ultimately the delivery -- the timing of those deliveries in that, given the tightness in capacity? I presume some of your bigger data center customers are like -- looking to secure capacity further out. So anyway, just a question around the -- maybe the driver of the orders. And then should we think about any change in terms of the ultimate delivery cadence of those orders?

Question: Mircea Dobre - Robert W. Baird & Co. Incorporated - Analyst : Yes. And just to follow up on Tim's question, is there a way to maybe quantify what percentage of the backlog is deliverable here in the next 12 months? And I'm also curious, given the fact that the lead times are what they are in power gen, how are competitive dynamics versus your competitors in that part of the business? Is there somebody else out there maybe with better lead times than you? Can you gain share if you improve your lead times faster than others? Appreciate some thoughts on that.

Question: Jairam Nathan - Daiwa Securities Co. - Analyst : I just wanted to go over some of the -- your position in China. There's a lot of talk about stimulus, not sure how helpful it would be. But if you could just remind us of your market position there, the freshness of products a little bit.

Question: Rob Wertheimer - Melius Research - Analyst : So I wanted to follow up, last quarter, you kind of touched on expanding opportunities at solar turbines and power gen. And in today's call, you mentioned some of the strong demand you're seeing in the recip side and capacity expansion, et cetera. On Vernova's call, they had some strong trends in their derivative turbines, which I think are probably still a little bit above your power range. But I wonder if you might just talk about this business and the opportunity you're seeing in the power gen segment for solar. What does that mean? Does it mean behind the gated data center? Does it mean data centers? What is the opportunity you're seeing? And then you've expanded capacity in recips. Do you have room to grow in turbines? Or would you -- is the opportunity big enough that you're thinking about expanding there, too? Just a general overview.