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Caterpillar Inc Earnings - Analysis & Highlights for Q4 2024
Overview
PositivesNegativesOutlook
- Profit for Energy & Transportation increased by 3% YoY to $1.5 billion in Q4.
- Results reflect the benefit of the diversity of end markets and the disciplined execution of the strategy for long-term profitable growth.
- Strong order activity for reciprocating engines and power generation in turbines and turbine-related services in both oil and gas and power generation.
- Mining was better than expected due to large mining and off-highway trucks being placed into service earlier than anticipated.
- Services growth remains resilient despite the decline in the overall top line.
- Sales and revenues decreased by 5% YoY, due to lower sales volume.
- Operating profit in Q4 decreased by 7% to $2.9 billion.
- Adjusted operating profit margin in Q4 was below expectations at 18.3%, due to lower volume and an unfavorable mix of products.
- Sales in Construction Industries decreased by 8% in Q4 to $6 billion, due to lower-than-anticipated volume.
- Segment profit decreased by 29% to $166 million, due to an unfavorable impact from equity securities, lower margin, and a higher provision for credit losses.
- The company expects volume to have an impact on absolute margins, but the target is adjusted for lower sales.
Q&A Highlights from Caterpillar Inc Earnings Call Q4 2024
- Analyst asked about dealer inventories and how the company gets comfortable with where they are.
- The company sees a dealer inventory build for machines in 2023, mostly in the Resource Industries rather than Construction Industries. The company does not expect a material reduction in dealer inventory as they go through the year.
- The company sees a dealer inventory build for machines in 2023, mostly in the Resource Industries rather than Construction Industries. The company does not expect a material reduction in dealer inventory as they go through the year.
- Analyst asked about the cost up in E&T.
- The company called out E&T as a negative absorption in the fourth quarter due to reduced CI inventory. Manufacturing costs were also negative in CI. In E&T, most of that was a function of putting more labor in the factories to get more machines out the door or more engines out the door at the end of the year. The company expects material costs to decline in 2025, but manufacturing costs will be broadly in line with expectations due to volume and absorption. Other factors like mix also come into play. The depreciation called out is mostly within manufacturing costs.
- The company called out E&T as a negative absorption in the fourth quarter due to reduced CI inventory. Manufacturing costs were also negative in CI. In E&T, most of that was a function of putting more labor in the factories to get more machines out the door or more engines out the door at the end of the year. The company expects material costs to decline in 2025, but manufacturing costs will be broadly in line with expectations due to volume and absorption. Other factors like mix also come into play. The depreciation called out is mostly within manufacturing costs.
- Analyst asked about solar turbine lead times and potential additional roofline capacity for turbines.
- The company is seeing strong backlog and order activity for solar power generation and gas compression. They can increase capacity without building new factories by adding additional test cells, engine build pits, and working with suppliers to ensure they get enough components. However, there may be a limit to how much capacity can be increased due to competition for components from other companies.
- The company is seeing strong backlog and order activity for solar power generation and gas compression. They can increase capacity without building new factories by adding additional test cells, engine build pits, and working with suppliers to ensure they get enough components. However, there may be a limit to how much capacity can be increased due to competition for components from other companies.
- Analyst asked about price cost normalizing and the evolution of price cost to 2025.
- The company expects to be in the top half of the range for margins in 2025, and their key measure is to grow absolute OPACC dollars, which aligns with TS over time. They expect to be in the top half of the range for margins in 2025, and their post-sales merchandizing program will take about a year to flow through, offering customers attractive options like buying down interest rates, which will lead to margin pressure in the short term. However, they will recover some of the margin pressure through Cat Financial, and the evolution of price cost will return to normal in the long term.
- The company expects to be in the top half of the range for margins in 2025, and their key measure is to grow absolute OPACC dollars, which aligns with TS over time. They expect to be in the top half of the range for margins in 2025, and their post-sales merchandizing program will take about a year to flow through, offering customers attractive options like buying down interest rates, which will lead to margin pressure in the short term. However, they will recover some of the margin pressure through Cat Financial, and the evolution of price cost will return to normal in the long term.
- Analyst asked about the company's top line growth in 2025 and how the incremental capacity coming online will impact it.
- The company's top line growth in 2025 will be impacted by the incremental capacity coming online. The company is investing in large reciprocating engines, and this investment will take some time to complete, so the company does not expect it to have an impact on 2024. The company is working hard to increase its capacity, but it takes time, and the company does not expect to ship more than it can build.
- The company's top line growth in 2025 will be impacted by the incremental capacity coming online. The company is investing in large reciprocating engines, and this investment will take some time to complete, so the company does not expect it to have an impact on 2024. The company is working hard to increase its capacity, but it takes time, and the company does not expect to ship more than it can build.
- Analyst asked about the relative pressure that the company has seen in Q1, and how the company sees its segment revenue and margin progressing sequentially.
- The company expects to see a first quarter benefit on sales and revenues, mainly due to dealer inventory builds. The company expects this benefit to be significantly less in the first quarter of 2025, and it has seen a significant dealer inventory reduction in the fourth quarter. The company expects the underlying sales to users to be aligned throughout the year and will be down slightly for the full year. The company also expects to see an impact on price, with a $300 million impact in the first quarter, and a neutralization of the impact as the company goes through the rest of the year.
- The company expects to see a first quarter benefit on sales and revenues, mainly due to dealer inventory builds. The company expects this benefit to be significantly less in the first quarter of 2025, and it has seen a significant dealer inventory reduction in the fourth quarter. The company expects the underlying sales to users to be aligned throughout the year and will be down slightly for the full year. The company also expects to see an impact on price, with a $300 million impact in the first quarter, and a neutralization of the impact as the company goes through the rest of the year.
- Analyst asked about the order growth in Q4 and how it compared to Q3 in the Construction and Resources segments.
- The company saw an improvement in orders in the Resource Industries segment, particularly due to some large contracts announced previously. However, the CI segment was broadly flat for the quarter compared to the same period in 2023.
- The company saw an improvement in orders in the Resource Industries segment, particularly due to some large contracts announced previously. However, the CI segment was broadly flat for the quarter compared to the same period in 2023.
- Analyst asked about the impact of a slightly lower top line on Cat's performance in 2025, considering inventory levels.
- The company expects a mixed bag of results in 2025, with some inventory trimming in certain segments, such as CI and RI, due to lower volumes. The company also expects to see some impact on absorption due to lower material costs and depreciation, which were built into the manufacturing costs.
- The company expects a mixed bag of results in 2025, with some inventory trimming in certain segments, such as CI and RI, due to lower volumes. The company also expects to see some impact on absorption due to lower material costs and depreciation, which were built into the manufacturing costs.
- Analyst asked about the company's competitive environment and pricing, as well as the impact of Trump policies on construction activity in the US.
- The company's management expressed confidence in their ability to maintain pricing and competitive environment, citing their focus on growing absolute OPACC dollars and the value they provide to customers. They also mentioned that interest rates could impact the merchandising programs and pricing, but they don't expect significant changes. In terms of Trump policies, the company believes that if the push for deregulation and other changes from a regulatory perspective helps increase economic growth, particularly in the United States, that should be a positive for them.
- The company's management expressed confidence in their ability to maintain pricing and competitive environment, citing their focus on growing absolute OPACC dollars and the value they provide to customers. They also mentioned that interest rates could impact the merchandising programs and pricing, but they don't expect significant changes. In terms of Trump policies, the company believes that if the push for deregulation and other changes from a regulatory perspective helps increase economic growth, particularly in the United States, that should be a positive for them.
- Analyst asked about customer conversations and pricing actions in RI.
- The company's management stated that they continue to see strong customer acceptance of their autonomous solutions, and that they are encouraged by the fact that the key commodities that their products help their customers produce remain above investment thresholds. They also mentioned that they continue to invest in their autonomous solutions and that they are seeing strong customer acceptance of that.
- The company's management stated that they continue to see strong customer acceptance of their autonomous solutions, and that they are encouraged by the fact that the key commodities that their products help their customers produce remain above investment thresholds. They also mentioned that they continue to invest in their autonomous solutions and that they are seeing strong customer acceptance of that.