Caterpillar (CAT) 5 Feb 242023 Q4 Earnings call transcript

Ladies and gentlemen, welcome to the Fourth Quarter 2023 Caterpillar Earnings Conference Call. Please be advised that today's conference is recorded. I would now like to hand the conference over to your speaker today, Ryan Fiedler. Thank you, and please go ahead.

Thanks, Abby. Good morning, everyone, and welcome to Caterpillar's Fourth Quarter of 2023 Earnings Call. President Relations. Vice Fiedler, Ryan of Investor I'm

Rob Joining Andrew Epley, Bonfield, are Jim Division; Senior of and CEO; Umpleby, Chairman and Services Chief Finance President the me Senior of Director IR. today Vice Global Rengel, Financial Officer; Kyle

call, the fourth we'll issued release quarter discussing today. be our earnings we During earlier

investors.caterpillar.com find Presentations. and our release You Events the can and a under news slides, webcast recap at

of retransmission, all permission U.S. of part and protected international reproduction this or Any law. is content content distribution The this by rebroadcast, or written of without call copyright prior is Caterpillar's prohibited.

X. Slide to Moving

our statements, the materially on forward-looking actual with statements detailed contained news to could this call. we risks SEC assumptions on to During the on actual aggregate our details factors the to we'll effect many our today, also have could you our on recent that results believe ongoing basis call that than make sharing results which an our business are make in in we're refer We'll and uncertainties. forward-looking reminder filings. or Please that may from be subject a filings our factors SEC individually cause in release of the different for and material to our forecast. vary cause is discussion A information

call, we'll today's On also refer numbers. to non-GAAP

call appropriate numbers, please GAAP slides. U.S. see of the of reconciliation to a appendix our numbers For earnings non-GAAP any the

call over the our to Jim turn let's and Now to Chairman CEO, Umpleby.

Thank Good morning, everyone. Thanks, for you us. joining Ryan.

strong quarter in best our like start recognizing another team out our global for year I'd close delivering the XXXX, to we XX-year history. As and by

flow. adjusted free sales record record delivered share profit margin, we profit cash and adjusted record year, and revenues, per the record ME&T For

long-term across Our focused for We results our continuing continue growth. and executing products reflect markets services. for to on our remain invest demand profitable and most of strategy end healthy our to

provide I'll the some end markets, and journey. about on begin followed performance I'll insights quarter update year. sustainability by with in our our full and the an then for my perspectives strategy about our

results. It to Moving another was quarter. strong quarterly

and revenues XX.X%, adjusted by versus operating quarter the XXX fourth profit improved last to a basis last sales increased While in year. XX%. points strong increased Adjusted year, margin quarter up X% operating our profit versus

ME&T also $X.X adjusted profit in cash were flow generated We free share billion cash operating, we of than quarter. fourth all flow free the and margin, Sales, in the ME&T per adjusted better profit quarter expected.

of record. we adjusted sales This XX% to year, in full full the our XXX-basis-point for operating the XX% profit by generated X% to in Services points. level Adjusted the revenues $XX.X was top $XX For Adjusted prior range billion, increase of sales We the and for exceeded margin a this billion. by $XX.X XXXX. increase XX% a XXXX, increase generated XXXX basis profit over over billion XX share margin per total year a also from in XX.X%, $XX.XX, increased up of year. target end profit a was operating XXXX.

full end for OPACC of which performance also ME&T target is dollars, by internal we continued flow, billion profitable our of $X addition, $XX the high absolute our In cash in year. of generated to range free growth the billion measure over exceeding led growth. This

free execution adjusted operating strong financial our are margin flow. for of increasing profit we result a cash our range As ME&T target and record performance, and

by our relative margin sales. We of operating basis adjusted end level range the XXX to profit of top are increasing the points corresponding

additional generate billion last $XX Moving flow generated $X We've more $X billion. strong provide demonstrated updated from details billion free $X the cash to years, our billion, to XXXX. are in target targets. billion a cash raising Andrew on up ME&T we over will record range X to including our billion flow, around flow. to $XX to ME&T these free $XX than Based cash free ability

Slide the and to billion, price driven by to quarter increased and and our than revenues sales expected. by slightly $XX.X In favorable users fourth volume. by X% better we volume XXXX, Turning XXXX, X. partially X%, were the quarter sales slightly Compared better of increased Both offset of fourth expectations. lower to to price realization overall than

& XX%. sales Transportation Energy to users increased

to quarter. demand for X%. Resource continued which to Industries and machines, X%. benefit and North EAME declined North residential the in nonresidential relative infrastructure government-related comparative. America were users Latin in up a Sales construction. Construction American the sales in and Construction to Sales as were to users to increased users by Pacific, For sales users includes America Industries strong slightly sales quarter. remained In also sales Industries, and construction healthy in users in to to Asia users to Nonresidential Residential from projects. rose increased down

users benefited mining, sales also aggregates, Industries, and In declined in XXXX. strong turbines Resource a users in In services. Transportation, users to by and from increased. construction users sales to turbine-related sales sales Energy to strong XX%. sales to of gas users quarry and X%. increased against & In heavy to increased comparative sales And Oil and

excuse engines users including in strong We gas Power to reciprocating generation positive including generation used to remain engines in into to also users strength applications, favorable continued due gas sales power compression Tier sales growth. dynamic the oil and me, market increased X of gas to sales well-servicing data center saw and -- continued well-servicing blending fleets. conditions,

expected. increased, than by the levels also decreased users in $X.X from across decreased slightly decline was Dealer dealer Industries, the declined regions. in We Machines largest XXXX. industrial Construction as to inventory excavators. in third historically inventory while all saw by million largest strong versus The quarter. declined decline $XXX more sales we Transportation billion,

price operating anticipated. sales realization was level quarter, higher to with expected. marginally margin XX.X% margin saw Adjusted operating volume, our profit higher comfortable year. and we the we total within better the had which both slightly increased to last Adjusted is than better than over range. We Relative the machine expectations, XXX-basis-point dealer remain of profit increase fourth a in margin inventory, typical

billion, Turning to XX% sales up sales highlights. higher X. by driven now In This full to last due of volume, higher primarily Slide year. of generated favorable revenues versus end year and I'll we to equipment $XX.X sales XXXX, price provide users. was and

of revenue As $XX we increase a in XXXX, mentioned, over generated services billion X% I XXXX.

our right We We online as to continue make to growth see than added with to an agreements tools channel. new of it continue improvement services part remains customer XXX,XXX e-commerce easier to more saw our our which for strong initiatives. equipment, parts. identify purchase the customers to of value We sales important new and enhance customers digital we growth

we Investor XXXX e-commerce exceeded goal shared at also We May our the Day.

avoid the combining with downtime we call expertise, advanced X.X our than analytics from data By more million leads, AI, helping assets customers and are which we prioritized intelligent through events, unplanned service or connected engineering PSEs.

$XX service we target continue strive our of execute as various achieve We to initiatives to XXXX billion. our

Our XX.X%, profit margin full year adjusted a operating over increase XXX-basis-point was XXXX.

shareholders to all of Moving to billion Slide flow remain returned ME&T increase in ME&T billion and status free flow over dividends through or to our time over $X.X continue X. repurchases. shareholders and We cash aristocrat dividends. share record a $XX our to substantially a through We and strong XX% expect dividend $X.X free of XXXX, previous proud return to generated billion record. repurchase cash We stock

XXXX record markets remains anticipate historical XXXX compared across healthy describe broadly $XX.X our Slide X, services. levels. most expectations We I'll a to as end products to revenues demand forward. We remains XXXX a percentage backlog currently billion, moving the Overall on for of our of sales to our which with of be Now and ended elevated revenues level. similar and

We was compared benefit services a XXXX machines do XXXX. in significant a in in XXXX. offset $X.X dealer inventory billion in increase strength growth in inventory expect We end from demand, currently which user pricing, continued anticipate of including an carryover slight headwind, dealer a to not as by a and change benefit

discuss end healthy I'll for markets, region remain a we our expect Now after America, Construction the In starting XXXX. to Industries. in with outlook strong XXXX, North very key

is to relative to investments. expect remain We to expected similar to levels. healthy infrastructure remain historical government-related nonresidential due construction Residential levels demand construction at

In excavator the by the are level America is Latin relatively slightly uncertainty economic Europe, softening to will at excluding will China, In We low the anticipate due EAME, Asia in China we demand easing anticipate in XX-ton for conditions. we due to construction offset some seeing in strong in region Pacific, above activity increase industry. down remain continuing economic somewhat expected to be East. Construction Middle conditions. the financial a

impact of services also our ongoing positively will Industries initiatives In addition, in Construction XXXX. benefit anticipate we the

articulated XXXX Resource volume I'll versus and trucks. After due lower Next, to strong mining, we off-highway year, primarily last construction in Industries. performance and machine anticipate quarry discuss in aggregates, and heavy

increase slight In XXXX decrease in addition, last we in inventory during a small year. dealer versus dealer inventory a anticipate

anticipate a lower we activity level While customers of quoting see order we as rates capital display continue high to discipline. overall,

revenues, activity. including rebuild We expect to robust see higher services

the product autonomous truck Customer and customer remains high, the solutions elevated see utilization our continue of fleet remains low, to acceptance. the remains age number parked strong of

commodity to and further time, expanding transition increased will We addressable energy demand profitable providing support long-term total over continue for market the our believe opportunities growth.

services and to slightly strong expect oil after to Moving XXXX. Energy a reciprocating & increase engines In gas, and Transportation. we

about in healthy. remain As continue moderation. quarters, short-term during is And compression remains the we we North said overall, order optimistic well America servicing backlog last some demand. X Gas showing to future

center expected is growth. strong due for demand continued engine reciprocating to CAT to data generation remain power

Solar strong and quoting backlog a activity. has turbines robust experience to continues

we upgrade in to slightly anticipate near in the term fleets. industrial to As from to transportation, aging high-speed demand XXXX. soften we a marine quarter, customers is continue increase said the expected as In last strong

Slide Moving to X.

our I'll sustainability Now on journey. provide update an and strategy

robust relating gas. have market past cloud total engines, the believe that centers expanding large in in the due is the to our generative for computing to secular power and and constraints oil data AI. we addressable generation demand our growth and for centers data Over for trend discussed year, We given

create expect the energy also for to transition generation. distributed opportunities We

renewables engine more to our grid, reciprocating and are added can stability. turbine help As sets gas grid generator provide the

multiyear our and capital us the time. customer demand total return dollar are satisfy correlation both contribute we division, investment future growth, help over increasing large believe aftermarket growing This to capacity parts. absolute shareholder to engine which in including highest We and a will making has OPACC for new engines large

had a sustainability corresponding advance than sustainable to our the I'll in carbon recent consumption generation, fuel goal highlight of will that and future. new reduced by to journey thus, Caterpillar XXXX. our more announcements including be demonstrating emissions. XXX% commitment previous some lowering products a continue We

fuel previous Ballard collaboration with XXX X.X the pipe internal to our mix applications, the consumed produced and XE of this typical of tail less it One recent to with using up up fuel large-format our and is Earlier a emissions CAT the hydrogen model. less testing demonstrate backhaul to the Microsoft success XX% Systems in XX% of than example loader engine. announced we year, Power system backup more reliable viability systems to cells level cell The hydrogen supply power and controls the Caterpillar and hydrogen the overall feet above performance led demonstration providing sustainable than below electronics solution. X,XXX the data conditions. sustainability our centers. These integration, and in project, freezing central ongoing that leadership. form in sea the power of reinforce validated power fuel microgrid the structure power for Through examples

it Andrew. turn over I'll that, With to

high-level Thanks, and update operating everyone. conclude Jim, by for margins balance ranges for cash our cash discuss quarter. the begin the an for including first sheet expectations our I'll target fourth good and I'll our profit quarter the commentary ME&T flow. segments. with and our of followed with free adjusted Then XXXX performance morning, on I'll results, flow, assumptions to and the

flow Strong per profit XXX on by better of profit adjusted Slide all $X.X than fourth in an continued we prior sales revenues were share to expected. X% adjusted and basis versus XX.X%, and as operating quarter operating and operating The XX% profit operating Adjusted Beginning adjusted In ME&T margin X. revenues, cash the free margin, performance had $XX.X summary, the points profit billion. increased year. billion. was by increased to increase sales

gains mark-to-market Profit the quarter certain $XX to year. or in quarter $X.XX. costs deferred the OPEB of $X.XX per included remeasurement in tax the It was compared $X.XX of fourth and last $X.XX Profit of plans share fourth $X.XX. million in of quarter the and for of valuation also included pension adjustments favorable per favorable share restructuring

The This by Adjusted last $X.XX. of items, fourth by in XX.X%. of about excluding the due to quarter, share expected changes rate tax effective had quarter annual we performance compared global the taxes lower year. profit a favorable mark-to-market the income $X.XX per related to for in ago and profits. amounts lower increased $X.XX than the to quarter to quarter rate fourth geographic was The in the discrete reflected provision benefited a in mix XX%

line X% impacts in quarter. inventory Slide slightly had was year the in increase increase top fourth on offset offset was driven realization, primarily the the by than The more XX. price Moving Both from X% prior users. volume partially sales better by lower anticipated. versus dealer as to sales price to discuss results volume we I'll and than changes

$XXX dealer Industries, during where expectations. inventory of the an $XXX end resulted in million quarter high at in decreased sales quarter billion dealer reduction decrease The Dealer million versus overall Construction increase of quarter of an approximately was year. inventory compared was fourth The XXXX. the fourth our fourth the impact led inventory by prior the by of the change unfavorable to in the $X.X

Dealers cat the have was Overall, the the in calls. billion in engine in decrease and reduced led construction their mentioned industries. was impact that in decrease dealer we changeover building of inventory excavators machines earnings this in The segment quarter. also in of inventories previous resource products by $X.X the

Conversely, increase was Transportation healthy due supported Energy extended by to shipments, demand. and strong time resulting dealer inventory which from mostly & lines, commissioning

reminder, Resource is and of Transportation Industries backed these a dealer dealer of and orders. inventory Energy customer the is over XX% in in function pipeline, a commissioning segments firm & by As both inventory mainly

higher in was while at sales line had than about segment. Industries Industries Energy anticipated, slightly in Sales Construction transportation expectations. Looking our were with sales by and in Resource we

adjusted quarter, a SG&A billion. while XX% XX. favorable expenses we and volumes spend. better higher on in Moving higher Price The improved margin profit sales marginally of R&D driven as than being Slide profit exited The expected. the costs lower XXX and offset. to volumes investment anticipated points had basis short-term prior increase to operating R&D SG&A manufacturing slightly primarily on were than benefited by partial operating the and increased XX.X% profit higher and expense realization Adjusted $X.X expenses was Margins incentive year. by strategic compensation and versus we had and operating price by

mentioned fourth was Now decreased impacted billion inventory in dealer all favorable the the quarter regions. sales more sales to Industries to to sales price sales realization. on changes users. The that the XX. Slide Lower primarily Construction in than the partially X% and due offset of favorable changes $X.X to lower by by offset volume, inventories I earlier due dealer volume

Sales X%. sales increased by in This in the EAME XX%. America, America accounted -- sales decreased X%. decline North In Latin region, By Pacific, increased for region decreased by In largest decreased XX%. inventory by Asia by in dealer the quarter. sales

$X.X This XXX impact The an Fourth an due quarter of increase segment's versus expectations. our The was primarily of volume. Construction was partially favorable versus profit margin lower offset for with the line Industries from was broadly price, increase X% in increase last sales year. prior by profit XX.X% basis to points by year. operating billion, the is

The to Lower lower decrease was XXXX Turning realization. volume, $X.X billion. of volume to dealer during partially Resource changes dealers offset quarter. price fourth the inventories as the X% by inventories primarily decreased by was sales sales to fourth year's to in XX. compared prior quarter favorable the quarter decreased an by Slide impacted increase in in Industries due

to for was to impacted dealer profit versus by the an XX line $XXX basis expectations. also market volume, was segment's with versus prior operating year buying quarter lower XX.X% year was of by The Volume and Fourth sales in decreased patterns. Industries of our X% slightly points due margin partly last Resource part increase aftermarket million.

services volume and quarter. by and transportation by by power in from volume to primarily price Transportation billion. solar decreased turbines sales sales higher oil quarter Slide $X.X shipments and XX. due engines fourth XX%, by favorable benefited application, on XX%. & higher gas increase and were higher in sales sales large of increased realization. XX% the The the By X% turbine-related XX%, increased increased Now by Sales sales generation and sales was to Energy industrial

they While sales decreased, levels. healthy remain industrial at

higher Energy strategic R&D and volume, year and ramping by higher growth investments sales to in higher impacts unfavorable SG&A the billion. by favorable Fourth expenses, The reflected primarily Transportation and initiatives incentive short-term for offset to manufacturing costs. The and partially & due XX% currency R&D to expense. increased versus expenses increase compensation quarter SG&A prior and increase related price profit was $X.X

XX.X% most including a of & favorable alternative our As the was points higher expectations increase XXX versus on Energy electrification which mix volume, in operating reminder, margin. exceeded basis relating of and our therefore, segment's strategic impacts The of and investments margin to fuels price. year. Margin are prior Transportation, this an

to Products assets to higher $XXX all and rates $XXX a XX% Cat increased revenues credit assets to Financial average by primarily higher for The average increased by Financial, profit higher at XX. regions net Segment Slide higher million, provision in financing earning earning losses XX% on America. across lower average to million. average was mainly due Moving earning due to assets. increase a and yield North

in Our improvement past XX-basis-point dues and well lowest quarter This the since fourth X.XX%. historic levels XXXX of is to portfolio of to a quarter to improvement percentage perform fourth compared dues saw continues with a We the third the past XX-basis-point XXXX. compared quarter.

our fourth quarterly lowest record and was rate the ever. year-end rate X.XX% was allowance The quarter second of on rate lowest

over sales increase the XX expense in business versus the The In years. conversions remains U. S. year higher third end user the volume lowest strong, increased and the prior reflected level retail seen the and year XXXX addition, provision at Business was we've prior versus in in new rental as activity quarter.

pricing Despite levels. see we historic equipment. addition, have close it slightly, strong up used inventories demand to Though ticked comfortably improved availability, above continue is remain some to norms. still moderation used low used on for In in historically they

ME&T billion make quarter, $X.X our We Slide are included spent $XXX flow to by billion year. for XXXX. the dollars. we versus cash about in CapEx, year million XX. OPACC billion $X.X focus governed the on in of prior in our right $XX to for The absolute On investments an increase that Moving free on disciplined record growing continue fourth the business,

in we ago. XXXX, the higher billion recent CapEx and capacity, is range which expect a to Looking billion. run in referenced engine $X This moment the than investment our includes rate of $X.X Jim to large

We also alternative is autonomy, electrification. plan connectivity invest ACE, around and digital which to and more fuels,

supply chain to addition, our we make In are more resilient. investing

We capital fourth returned Moving deployment. in in to billion billion repurchases. share including the $X.X shareholders quarter, $X.X to

share shared ME&T approximately by XXXX, decreased Our count substantially over has since to on all intention XX% to net cash and when we shareholders time return our basis. flow consistent a free

Our as we XXXX. in by X% dividend priority payout remains our increased a quarterly

You by increase X in high at the that years. those The digits dividend of to our single recall Investor will we next reflected years. X Day in shared for second our increase from XXXX, expected we least the XXXX

strong. remains balance Our sheet

liquidity securities cash. ample billion balance an $X.X cash enterprise we longer-dated additional liquid $X in have billion, an to with yields We of improve on that slightly hold and marketable

XX, exceeded the relative adjusted range reflected profit to level corresponding end of the in sales. adjusted in potential XXXX, range range. revised of Now and that for our points profit we progressive have are our increased the operating on targets. target prior execution confident I'll operating we margin were performance discuss top top and operating Slide higher Therefore, the basis We our XXX supports by strong the than end margins

strategic investments will the Achieving end our range in profitable the unchanged. supporting as growth. to committed target top initiatives long-term remains of the The are remain bottom increase challenging, of range end we

that of of increasing higher top margin To margins periods pressure volume. gross range, in support explain, end actually decreasing while the our the

bottom of challenging, reason, remains we that but For end achievable. the range that the believe

operating XX% billion revenues. adjusted of margins target $XX profit XX% revenues, at to $XX sales at billion now to will and of sales to increasing XX% of XX% and We

our flow lead is and higher to on dollars. absolute of X execution free dollars higher, Now the deliver as shareholder XX. over years This over define When believe will model result absolute we I of how generating and just ME&T I more impressed OPACC We Slide cash Caterpillar. a ago, at focus joined operating returns our was the consistent Caterpillar time. on winning to potential with OPACC increasing business

we Since record cash ME&T the XXXX, flow, have beginning billion a of XXXX. $XX $XX including free generated in billion in

Therefore, ME&T flow, in target and consistently confident $XX for our between are time. is We which updated range introducing ability billion. generate flow cash to an billion we cash free $X positive ME&T are over free

our operating as strong as performance well execution in future higher range. confidence supports Our the

strategic updated range flexibility The a is initiatives, still our target priority. maintains to our in invest which

We repurchases. return expect also ME&T to to and time dividends over continue free shareholders through substantially of all our cash share to flow

Slide the I for share will high-level XX. Moving full year. to assumptions our

XXXX. As sales anticipate Jim mentioned, broadly in be will XXXX, to similar revenues we and

of demand We by expect and growth another healthy favorable slightly billion a business we target $XX continue continued We realization as XXXX. underlying services price to whole. across as the year anticipate

total, do this certainty discussed expect in in for Energy by In we significant inventory dealer billion change for a We by And dealer to year. have is predict what difficult increased will as of XXXX. the inventory to happen machines previously. not $X.X end inventory it Transportation, with & dealer

in Construction we segment, to in users similar remain XXXX. strong sales saw year for should compared Industries, By roughly end the to equipment

do not as expect last saw year. However, a inventory dealer we build we

the in XXXX. services We initiatives segment our will also anticipate benefit

sales XXXX, volume had sales, in these for we versus primarily off-highway strong we machine making In in Resource XXXX products lower as into sales We backlog our challenging impacted elevated lower by articulated anticipate comparison. converted Industries, of trucks. and a

an anticipate change inventories. year-over-year also unfavorable in dealer We

increase segment. this in will revenues services expect we However,

be In the we top expected strong should Energy sales expected to in our historically margin compared in full be at and expect of target while sales be year profit operating half we range our levels. higher sales levels margin, oil updated to slightly and On positive, XXXX. & the in to adjusted sales lower gas industrial Transportation, generation, Power expect XXXX. transportation are currently

the the I'll of pricing half takes. a taken XXXX. we XXXX, year of increases given discuss carryover small puts and expect the from second of some in first benefit weighted half In the towards

year, in costs. dollar price absolute the we as expect we Versus year, pricing full let more last manufacturing moderate terms price should exceed from modestly favorable trends the XXXX. to For

billion expense we while XXXX. was incentive $X.X in billion Short-term XXXX, in compensation about anticipate $X.X

of expense expect services, in of we that ACE. offset strategic product and expenses new and R&D to will growth. Investments increases long-term low in continue in profitable the benefit be are initiatives introductions by SG&A and We as focused invest future

may also negative there some We anticipate year. be mix due impact margin this to

I'll explain.

During production we XXXX, when biased to was somewhat OPACC our products the potential. availability and highest shipments challenged, with

Given anticipate products more that anticipate more were we availability in will has We the in normalized Energy mix XXXX sales from of XXXX. margins they be weighted also may a we in mix improved, segments see an XXXX. as on than impact different slightly & in of Transportation towards

half Moving $XX billion. be top on, to cash free range flow of updated the of expect $X we ME&T our target to within billion

keep the cash billion first mind quarter our position, consider in incentive outflow $X.X the payout in expense. you of related the As to year's cash last compensation

anticipate year. of this $XXX million charges also to We million $XXX restructuring

XXXX. to tax effective XX.X% in range increase XX.X%, versus XX.X% global expect in the an we Finally, the of rate

on Now XX. Slide

the quarter, starting for expectations line. with Our first the top

quarter expect anticipate and be We had be sales dollar to favorable, to less than although in broadly to XXXX. prior the revenues occurred We through price year. terms similar first absolute significantly

demand expect to We remain healthy.

This dealer quarter the quarter lower a billion in slightly to a first in headwind act inventory anticipate XXXX. of compared sales. build the we as a to machines for However, $X.X first will build

We Resource lower versus prior the sales price. the benefiting quarter upside year, we volume, level, to in driven In offset Transportation, with prior primarily the expect updated year, sales At favorable higher versus scenario. flattish Construction segment favorable Industries Energy & lower the higher by compared price. to sales to slightly due slightly volume anticipate favorable partially by the flattish year, prior in anticipate we first Industries, to

the costs expect price year. broadly we offset profit into quarter enterprise margins, from Price should XXXX first than operating adjusted be actions rolled to as the first more in XXXX. to manufacturing On the margin similar prior

by absorption the will the absolute principally price We We year, cost an expect lower costs be dollar year. in to as quarter anticipate terms last saw we of increase do like in impacted compared inventory to manufacturing expect XXXX. build prior versus we first not

the anticipate and expenses also R&D in an spend. We investment strategic increase related SG&A to

compared margin in prior segment, a By similar anticipate Construction the to as we year. Industries,

We Energy Resource a partially expect higher strategic similar & a price In and margin investment impacted A year. Transportation, stronger including by versus we Industries, to lower to we costs, slightly margin favorable volume, prior costs. offset expect be by higher anticipate manufacturing year, absorption. In the the spend cost manufacturing offset price by prior offset compared price. slightly lower should

Slide to Turning XX.

Let end of ranges $XX.XX per We free and profit me XX%. summarize. record top our adjusted the Adjusted share of year exceeded our cash full flow. for by exceeded targeted previous operating profit margin ME&T

flow and increased end the top our raised our range, of range. adjusted have We cash profit have free margin ME&T target we

year of continue growth target XXXX, and we the expect another profitable ranges services updated to We cash flow as we our growth. for be in top half our anticipate strategy to of margin long-term and execute free ME&T in

that, take And with we'll your questions.

[Operator first with the Melius comes question Instructions] your line from Wertheimer of Research. And Rob

at kind inventory, of on is all question My levels.

the in quarter. You had a healthy destock

business nice. finished see how X, inventories you elevated. I goods of inventory wanted level sales what to think your volumes and also have so at your the your were and your own been the at out X, versus up where expect at that's retail WIP I down level around raws, dealer

then levels? do And especially just is the So you from -- your those own path performing the on inventory? at feel what's business here, how

internal operations constraints better do starting chain just our efficiently I not we've of opportunity Rob, as calls, a an as discussed our previous We job had, we manufacturing supply as there. are believe would have to because like. running with in the inventory, still we

a things and Certainly, of made ease, started chain are with still the some we areas supply that's constraints to have easier, bit but constraint. dealing

again, have that and opportunities work to I more we'll to So on continue we try lean. and there, get think

inventory, talked remarks. in again, dealer about of prepared our we terms In it

to are decisions reduce independent them dealers ability orders place their And on future see demand. our availability customers their lead to and they businesses, times course, a own and also allows decisions. are Of make our But inventory of in later. what combination

expect make So fact inventories again, decisions. that and they're in independent in significant businesses change again, don't about dealer will talked we but XXXX, the own we've a their

Yes.

inventory to a it's historic Just our things days higher I at about of you Rob, XX% look levels. outstanding, couple mean than add. to if running XX% at

next us a a that So also undue way that outlook. perspective, down in in for manages over opportunity create base supply the years not them an from work problems several to that their to gives

continue look we'll So that. to at

of to just then is construction about we talk middle inventory dealer particularly mention X dealer X inventory, And the months. the on about range, within target range the

on So it's pretty much there. bang

holding dealers expect we probably to what So hold. continue to are would them

And Feniger America. Michael of comes question next with your Bank from

guys reported are view sales a where businesses earnings. your You at you especially record look There's unit overall versus your peak maybe basis operating business I'm a many levels record that on feel you peak are of at at like curious your portfolio, there cycles, a regions just prior still is not levels. or when operating areas levels? and and

bottom in start ease, little a your could a better half Do financial year? and maybe come we you where you the feel is of pick conditions year, like it as this the torque those down, conditions backlog the business in to of back get rates if there as bit up start through go to areas feel

that question. your as All talk some Maybe forward. for excited thanks right. areas we the about move about most Well, just of we're

we dimension O&E addressable believe our commodities is total on this, about the will that that expanding thereby for things that And increase time, over energy market. we've talked without but putting demand the of transition time a

we that, be that you think the few for again, and that satisfy over years. by customers So as like will to forward mining opportunity adoption produced we to moving demand, and of about things EVs of an us our the it next look the creates believe amount minerals increased forward need

the And There's also, generative we're large engines. very related computing trend in excited growth about data a mentioned, AI. around related opportunities secular on -- as centers cloud I to to and going

excited capacity. our engine about investment And so that. making we're to We're very large increase an

and the is talked about relatively of believe previous our think in our And increase as the that again, So again market things X% the XXXX. market area a to in relatively China decline expect sales, is further in decline that and total of of we in fact weak that is this XXXX We to strong still time, years kind well. just market year. been in XXXX, in of XX% we that a market and weak. XXXX, in around had China world, be calls saw about enterprise has one an we addressable we Over

where So happens believe geographic time the is, opportunities both we're all perspective. and on all hitting product on in cycle. over do what in markets around from Europe again, there's in situation world, we're a depending economic the a we not there cylinders

we're So again, where all you can. hitting a they as the as going not if it's at around look cylinders world, situation the good

opportunities we So we believe have here.

Zakaria, Tami next your from comes question JPMorgan. And

a more in medium is to term long question My nature.

So was services XXXX. growth X% in

need $XX seems over want that percent target, the you number it call to, high like to the it, hit X to billion years growth If from annually. next would accelerate single-digit a

growth And industry to you X aspiration? So do that can next growth? this need you or services market the independent can support in during industry of could these help drive remain positive us Or acceleration grow to years end growth? what understand

your We've Well, for been question. made. pleased by thank the you we've progress

billion. XXXX we it to and increased billion, recall, that have we You with started of $XX baseline $XX

strive to Our billion teams $XX achieve continue to number. that

straight didn't digital dealers when be in to the is a things well. And it the we loaded. things e-commerce. of we we're to as invest capabilities, other out relatively would that and I thought with We very the talked it working We're But line. one continue back-end earlier CVAs our laid said target expect we in be doing. our about closely we

So of industry continue number. an to achieve strive regardless to increase we And there's again, to opportunity, services. that that growth do believe we

things that STUs well. the on of of impacts, as positive are our by the would were patterns of were positive. encouraged one buying we also but the that notice is STUs we're And dealer services parts, One sales is things that course, fact

question next with your David Raso And ISI. comes Evercore from

have you margins First, just just you The up flat, I or just could. but operating to a sales clarification if help margin your expect the for you framework, in your do operating be if the us, know down can answer, you year? guidance,

And real would year's lot size the to this of but year-over-year. sales a year inventory That level just come this with backlog, closer dealer okay. I'm question sales drag in has growth the growth relationship year, trying last to the were drag, account next really for a right, the the where trying backlog. would year, quarter it I'm The understand my not backlog. that's of with is to forecasting? stronger orders next you're imply in just usually the than growth But understand the the maybe be one accounting for guided normally

again, backlog orders backlog, flat sales, trying that concern my Just that with size So I'm head just flat that correlate slower sales. for seeing the that orders only is to a -- that trying the good you're put were to around, quarter, coming? to the

single me about backlog machines. and afterwards. conversion talk for start is David, about not is, guidance then you The a let just related again, margin backlog type not of to, varies. On one activity. the thing think obviously, example, It's backlog, always backlog on Yes, should

it of Some it some solar. is is of to and engines related related large to

of are XXXX. the all elements those backlog Not of actually in

Some of XXXX in and beyond. those will convert

So actually, than which the maybe a different of is history. that's bit little factors, versus one

you And necessarily But of so part why it. wouldn't convert that's actually that.

some But half about also we around the outcomes. guiding around We'll of obviously, when will it's there just Again, talk this beginning sales and Obviously, performance of ranges we're flattish the takes. been the what and talking has are ranges, and where indicated we exceptional. we've of top puts year. margin year -- be about guidance

well. focused That's to what performance. continue to that organization is that's focused the aim to on we're as on. drive And Our I of is level what think

with Bank. Nicole comes question next Your from Deutsche DeBlase

on a Just parts. few

magnitude parts on that resource. could the characterize inventory parts And you then on expect you of would parts the right if color saw that network elaborate now? So in you might for how you dealer decline Any growth 'XX? the in levels

Yes.

And dealers improved inventory we patents. It's see include as part talking did Industries decline mentioned part obviously, the parts. in dealer about, and not sales actually we're went little about engines. reduce a to we of in dealer was that's bit. machines XXXX, I We don't through inventory, So -- their what Resource buying availability talked we relating did we see as as

make It's XXX it. decisions. their normalized network. monitor to it's And They you, now. but globally dealers and order, they their complex, more large over a independent remind number continue as we levels Obviously, they that at probably with parts of and always they'll very optimize obviously try

year, an hope benefit in acceleration a Obviously, depend with we little buying does services saw versus little do and on patents. would a bit that a growth. we Obviously, are to XXXX. revenue Next if target, we we achieve of what dealers for our expect bit happens what from the

improve trucks. the need expect we on mining truck And revenues resources, particularly for on go services of given to through as the XXXX based do large the we amount utilization, rebuilds,

So that's where on we services. are

your Dobre Mig with Baird. question comes And from next

Yes.

your us year you to year-over-year, how of Going here. like Are give Is how this to back construction, tremendous think sustainable about you're sounds margin as any you flat And you the curious QX can insight progressing comp see guiding be beyond I'm level? at would which in terms thoughts margin to get it margins there. QX? the given there

a go hard as impact. one predict a be are happen XXXX. we The mix little moment to Mig, any things, potential which couple of going at bit that's the going is there's through to Yes, to

wanted As we production with towards biased highest we XXXX, were the through of That's our well. levels said, machines OPACC. when we as going what customers

particularly demand, customer those met So products.

the as predict bit may given that more the have at beginning some mix we that year, a we're that normal difficult of go year. expect to the stage, Obviously, little at this That the is to it's on but We potentially product. one. through impact a margins

business. continue invest the to will We in

We continuing services services and to growth. drive are

have upside we As the in you know, that's construction, a where possible particularly potential, largest opportunity.

buckets both one things think and look at slightly be other sort will of of or the negative as So big XXXX. And one will through possibly those, slightly we those would be positive. more I big are the

of the at the moment. those puts So are sort takes and

question And next with your Sachs. from Goldman comes Jerry Revich

couple could free years there the $X folks increase cash flow I'm number. Andrew, margin you wondering a guidance, a where more bigger than just billion And Jim, the you on XXXX say increase the of away, we're about framework. below in if were the to

out the talk on outlook confidence stronger just you you the through can a about as for just you performance playing better here And drive expand free what's conversion? we're but seeing could expected comments cycle? well, the wondering on So I'm obviously, much flow folks little than if cash to the

reduce heavily profit to obviously also that teams to OPACC, our for challenging XXXX, our return a our our Jerry, on again, produce really operating we we're recall when we every capital Well, focused charge. you very we've launched capital And we after in strategy cash. helps And to hard that we that ensure really more us And of as get invest. costs. dollar OPACC structural measure, worked with work

If free then demonstrated XXXX, between and produce flow. I line $X XX% our we even our flow. produce when in that to dropped numbers year COVID had the And of billion in XXXX $X of And billion XXXX, free ability Again, the even flows. we line. we cash cash decline produced free top top billion a year, more still remember higher during to cash $X than correctly, XX%, the we

have that we working free and cash that's whole increased the all every helps those single levers again, us and OPACC, drive on day, So organization flow. based

period margins why that upped part And margins, the that, confident gross you where the of there more Obviously, is impact with bottom function through OPACC have the because a flow from perspective. in reason are of margin that the decline, a become will is a time an of what revenues issue of happens line. end we've to bottom of range we now the

actually working some using one flow, that the Actually our we can expect happens. back and on as of free we bringing that's that cash up things cash generate through. And by capital of free if and more flow well

performance, that's our our cash the the question, one to way more honestly, and few just underappreciated higher thing produce ability really last transformed maybe we produce is over about And years business really it's consistently. free think, the to flows the I asked you that cash

And from your comes with Stanley. next Castillo Morgan Angel question

of the operating to Just around low or on bit continue lowering understand that margin I maybe your the kind end thought little not process range. of maybe profit wanted to the a note. reasoning wanted

gross the range. about dynamic, challenged, to potentially talked this also margin gross in the maybe You response, and end more on you volumes leading little prior bit margin the lower but of a gross mentioned

gives you kind that of kind rather rather of through confidence than about maybe how wider cycle So a in that do keeping than you higher? range the well? think overall as what And step a lowering

Yes.

margin the years So progressive leverage mean, have That gross obviously of is the you couple what -- last what is the I effectively the seen will with of is range, benefits improvement range. obviously, things basis. in leverage on the opportunity one over that from we confidence top happens, the that the means of now pressure. more declining end to go through, a There's But more perspective which a drive as there's obviously us us gives volume more margins.

the So range it was bottom why kept the as of really we end was. that reason the

target very marginal Interestingly, had if difference the now range within previous you within go we to ranges, ranges of before. is to is old this that the a very, margin -- back top the end virtually the

next And comes from Bernstein. your question with Chad Dillard

full So But you exceeding on year in talked modestly costs about I for to the full going you also about, talked guess, carryover price year. the manufacturing is first then guide, your part. stay so the I cost, think price in

to be So confirm, just the positive the through of the to year? do balance trying cadence And price cost on X understand that. just expect to quarters you

Yes.

what we guided the to manufacturing to expect think So exceed costs we full year. I for price that is

go positive be in the half We to factors year, the the pricing. there. be there expect price through the of other of will in because of first some first that half more year Obviously, positive carryover

part be the positive not mix, may year. we through positive was as Geographic of go for That year. the example, second as this

but a the price benefit for are will you At of stage, mix So know prediction things that this can what year, in prediction. most come happen. We think not giving a sort that the -- we of firm half. through the we're full first those overall

Your with next from Steve Volkmann question Jefferies. comes

to we to normalize, trying you supply talked Jim, one of chain issues. I bit, it's earlier I'm chain through response has to if to questions, wouldn't where little I as of any supply back? guess get improved a that I And could, productivity productivity wanted reason the but forward, there is a go think causing back, to about continues that if think kind we to go still

just like of certainly, running can also lean of the that that's to I impact in And that we our as we in engines machine driving And clearly, you as things And have constraints of we're Well, one of about, course, engines. do. we're -- our not area. because talked would in course, what we're when large some that well, teams machines is issues -- as shipping lines. the still engines, have of dynamics to not

goal cadence. to go. ways have difficult that And our how into to to we more to lean still So will is But a certainly, but improved, back take long predict improved better it get it again, become operating happen. has and supply to a conditions has and chain

investment, capacity operations an earlier, parts. new engines increase and of And I that for engine us of important that then for some and multiyear as out will inventory element a Our be internally. think we better mentioned both lean investment getting that is achieving to

question comes Oppenheimer. with Kristen next Your from Owen

Great.

fuel balance the cell hydrogen you data is the be components? integration center, capital to pilot of more integration quickly additional supported that cat outlined? opportunity related like vertical this just that should systems model program, we to for this? there And by the that secular and some in Or commercialize here business campaign question longer-term given a growth is being in how systems Just you expect can

we're Again, of around new really parts of is. investments -- engines the that focus the and making that's large around it engines, the most what Yes. capital

Yes.

that. look needed for issue. to there particularly Jim be I of we are so when one system grid things the generation, the of when talking overall, us, will And mean, that an going that, out, projects stability hole was the about system going be fact And was that's is opportunities of is part obviously, one distributed be to

broadly for in us So I definitely think there well. an think there services those to environments opportunity as about is more

more question. one for time have We

And today's final question comes from Stanley Elliott with Stifel.

got billion can at you're targeting. free that more more additional you $X $X bit the flow? and looking little Congratulations. a I cash mean, to you talk about And billion

dividend You've of M&A as there done the there something a Should basis. would a this Any job Is of the be greatly on think we very steady nice activity color 'XX? front? on increasing repurchase helpful. into accelerated

we and repurchases. the a to share Yes. cash continue over that of about to time talk Really, return free combination essentially we shareholders will is what through intend fact to all -- we dividends flow

business we opportunities always In M&A, opportunities. terms outstanding to believe of have But our frankly, we're grow organically. open to we

we to while a have oil SPM gas we games product technology, opportunities or made do around services. about so organically the focused great expand to have relatively on like some growing weird because we're think line small and we think and we bit, really business and acquisitions our our things And

talked trend about data around LNG growth commodities centers. We exports, opportunities We -- the create conditional that fact secular -- will the the transition increase LNG energy for over time.

business. again, organically primary So our on focus is our growing

I would I'd thanking questions. quarter Okay. everyone by the just With call. thank appreciate like exceptional that, great to joining close record for to our team I year. your just for like an another just and all global

and well for operating end strategy long-term range target free ME&T increasing the our to adjusted focused we're our performance. range we executing continue for discussed, continuing our as on healthy profit strong profitable growth. top And demand for target this we've we margins, as And operating remain our raised invest flow. of reflects customer and cash As

Again, I us. Stay appreciate you joining safe.

joined website the post A as this replay be also online you, of thank morning. call as available everyone on transcript today. Jim, available. later and and We'll Andrew our a everybody, Thanks, it's soon Investor call will our who Relations

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