Andrew R. J. Bonfield
Chief Financial Officer at Caterpillar
Thank you, Jim, and good morning, everyone. I'll begin by commenting on the first quarter results, including the performance of our segments. Then I'll discuss the balance sheet and ME&T free cash flow before concluding with a few comments on the full year and our assumptions for the second quarter. Beginning on slide eight. Our operating performance was strong with both adjusted operating profit margin and adjusted profit per share being better than we had expected. Sales and revenues of $15.8 billion were about flat compared to the prior year, broadly in line with our expectations.
Adjusted operating profit increased by 5% to $3.5 billion, and the adjusted operating profit margin was 22.2%, an increase of 110 basis points versus the prior year, which was slightly better than we had expected. Profit per share was $5.75 in the first quarter compared to $3.74 in the first quarter of last year. Adjusted profit per share increased by 14% to $5.60 in the first quarter compared to $4.91 last year. Adjusted profit per share excluded net restructuring income of $0.15 per share. This compares to restructuring expense of $1.17, which was excluded in the first quarter of 2023. Other income of $156 million for the quarter was higher than the first quarter of 2023 by $124 million.
This is primarily related to favorable ME& T balance sheet translation. The provision for income taxes in the first quarter, excluding discrete items, reflected a global annual effective tax rate of 22.5% compared with 23% in the first quarter of 2023. Included in profit per share and adjusted profit per share was a benefit of $38 million or $0.08 for a discrete tax item related to stock-based compensation.
A comparable benefit of $32 million or $0.06 per share was included in the first quarter of 2023. The year-over-year impact of a reduction in the number of shares, primarily due to share repurchases over the past year had a favorable impact on adjusted profit per share of approximately $0.24. This included a favorable impact from the initial shares we received to the $3.5 billion accelerated share repurchase agreement that Jim mentioned earlier. Before I move on, you will have seen some additional detail on the earnings release segment commentaries.
We continue to highlight the primary drivers of year-over-year changes in sales and profit by segment, as we have done previously, but in addition, we are now also quantifying those significant variances. You will also find some additional information on historical dealer inventory, including at the machine level in the appendix of today's slide s. Moving to slide nine. I'll discuss our top line results in the first quarter. Sales remained about flat compared to the prior year as lower volume was largely offset by favorable price realization.
The decline in volume was primarily due to lower sales to users. As Jim mentioned, the 5% decrease in sales to users was slightly more than our expectations, mainly driven by weakness in Europe for Construction Industries. Changes in total dealer inventories did not have a significant impact on sales as the increase of $1.4 billion in the quarter was similar to the increase last year. As Jim mentioned, the $1.1 billion increase in machines was slightly higher than we had anticipated, primarily as sales to users were modestly lower than we had expected.
As compared to our expectations for the quarter, sales were broadly in line. Sales volume was slightly lower than we had anticipated, while price realization, including geographic mix, was better than we had expected. By segment, sales in Construction Industries were lower than we had anticipated, while sales in Energy & Transportation exceeded our expectations. Resource Industries sales were about in line. Moving to operating profit on Slide 10. First quarter operating profit increased by 29% to $3.5 billion. As a reminder, the prior year included a $586 million charge that rose from the divestiture of the company's Longwall business. Adjusted operating profit increased by 5% to $3.5 billion. Price realization benefited the quarter, while lower sales volume acted as a partial offset. The adjusted operating profit margin of 22.2% improved by 110 basis points versus the prior year.
Margins were slightly better than we had anticipated, mainly due to favorable manufacturing costs as freight costs were lower than we had expected. Price including a benefit from geographic mix was also better than we had anticipated. Now on Slide 11, I'll review segment performance starting with Construction Industries. Sales decreased by 5% in the first quarter to $6.4 billion, primarily due to lower sales volume, partially offset by favorable price realization. Sales were slightly lower than we had anticipated. Sales in North America increased by 6% in the quarter.
In the EAME region, sales fell by 25%, and in particular, Europe was lower than we had anticipated, impacted by weakness in residential construction and economic conditions. In Latin America, our sales decreased by 1%. In Asia Pacific sales decreased by 14%. First quarter profit for Construction Industries was $1.8 billion, a slight decrease versus the prior year. The decrease was mainly due to lower sales volume, partially offset by favorable price realization and manufacturing costs. The segment's margin of 27.5% was an increase of 100 basis points versus the last year. This was better than we had expected due to favorable manufacturing costs, which largely reflected lower freight costs. Turning to Slide 12. Resource Industries sales decreased by 7% in the first quarter to $3.2 billion, which was about in line with our expectations.
The decrease was primarily due to lower sales volume, partially offset by favorable price realization. The decrease in sales volume was mainly driven by lower sales of equipment to end users, which Jim explained. First quarter profit for Resource Industries decreased by 4% versus the prior year to $730 million. The decrease was mainly due to lower sales volume, partially offset by favorable price realization. The segment's margin of 22.9% was an increase of 60 basis points versus last year.
This is better than we had expected on stronger price and favorable manufacturing costs, driven mainly by lower freight costs. Now on slide 13. Energy & Transportation sales increased by 7% in the first quarter to $6.7 billion. The increase was primarily due to higher sales volume and favorable price. Sales were stronger than we had expected, mostly due to increased deliveries of large engines. By application, power generation sales increased by 26%. Oil and gas sales improved by 19%, transportation sales were higher by 9%, while industrial sales decreased by 21%. First quarter profit for Energy & Transportation increased by 23% versus the prior year to $1.3 billion. The increase was primarily due to favorable price realization.
The segment's margin of 19.5% was an increase of 260 basis points versus the prior year. The margin was significantly stronger than we had anticipated due to lower-than-expected manufacturing costs, higher volume and better price. Moving to slide 14. Financial Products revenues increased by 10% to $991 million primarily due to higher average financing rates across all regions and higher average net earning assets in North America. Segment profit was strong, increasing by 26% to $293 million. The increase was mainly due to an insurance settlement and a favorable impact from equity securities.
Our portfolio continues to perform well as past dues remain near historical lows at 1.78%, a 22 basis point improvement compared to the first quarter of 2023. This is the lowest first quarter past dues since 2006. In addition, the allowance rate was our lowest on record of 1.01%. Business activity remains strong as new business volume increased versus the prior year, primarily driven by North America. We continue to see strong demand for used equipment and inventories remain close to historically low levels, with just slight increases over recent quarters. Moving on to slide 15. As Jim mentioned, ME& T free cash flow remained strong. We generated $1.3 billion in the quarter after taking into account the $1.7 billion payments made for 2023 short-term incentive compensation and capex spend of about $500 million.
Spend for both short-term incentive compensation and capex was higher than it was in the first quarter of 2023. For the full year, we expect to be in the top half of our ME& T free cash flow target range, which correlates to between $7.5 billion and $10 billion. We still expect to spend between $2 billion and $2.5 billion in capex and we will continue to prioritize investments around AACE, which is autonomy, alternative fuels, connectivity and digital, and electrification. Moving to capital deployment. We continue to expect to return substantially all ME& T free cash flow to shareholders over time through dividends and share repurchases. Of the record $5.1 billion of cash deployed in the first quarter share repurchase spend was $4.5 billion, including the $3.5 billion accelerated share repurchase, or ASR, the $3.5 billion were deployed in the first quarter and the ASR agreement may last for up to nine months.
The ASR provides us with favorable pricing as compared to shorter-term ASRs, which we have carried out previously, which makes it more attractive. Prices finally determined relative to the volume weighted average price or VWAP over the duration of the agreement. Approximately 70% of the shares were delivered to the company upfront, but the balance calculated when the agreement is terminated based on the actual average VWAP. As a reminder, our objective is to be in the market on a more consistent basis for share repurchases.
So this is a great mechanism for us to use. As I mentioned, our balance sheet remains strong. We have ample liquidity with an enterprise cash balance of $5 billion, and we hold an additional $2.2 billion in slightly longer-dated liquid marketable securities to improve yields on that cash. Moving to slide 16, I will share our high-level assumptions for the full year. As compared to a quarter ago, our assumptions for the full year generally remain unchanged. On the top line, we anticipate broadly similar sales and revenues as compared to the record 2023 level, consistent with what we mentioned last quarter.
Although our top level sales expectations remain the same, segment inputs have shifted a bit. We now see a slightly stronger top line in Energy & Transportation after a strong first quarter, while our expectations have been tempered slightly in Construction Industries due to economic conditions in the European market. We continue to expect slightly favorable price realization versus the prior year. Our expectations on dealer inventory also remain unchanged. We currently do not expect a significant change in dealer inventory of machines in 2024 compared to a $700 million increase in 2023. This is expected to be a headwind to sales. We also continue to anticipate another year of services growth across each of our primary segments as we strive to achieve our 2026 target of $28 billion in services revenues.
At the segment level, we now expect Construction Industries sales to users to be slightly lower compared to 2023 due to the softer economic conditions in Europe. We expect demand in North America to remain at healthy levels, as Jim discussed. We also anticipate changes in dealer inventory to act as a headwind to Construction Industries sales in 2024. We expect sales service revenues to be positive versus the prior year. In Resource Industries, we continue to expect lower sales impacted by lower machine volume, primarily in off-highway and articulated trucks where the comparison versus the prior year is challenging.
We anticipate changes in dealer inventory to act as a headwind to sales in this segment as well. In Energy & Transportation, our 2024 sales expectations have increased slightly after the strong first quarter. We continue to see strong demand for reciprocating engines in power generation as well as healthy order and quoting activity for solar turbines for both oil and gas and power generation. This supports our improved optimism for higher sales in Energy & Transportation in 2024. Also, as typical seasonality would suggest, we expect to see some sales ramp in Energy & Transportation as we move through the full year. On full-year adjusted operating profit margin, we continue to expect to be in the top half of the margin target range at our expected sales levels.
As I mentioned last quarter, we expect a relatively small pricing benefit to be weighted towards the first half of the year, given carryover from increases in the second half of last year. We now expect flattish manufacturing costs this year versus the prior year as we anticipate more favorable freight costs, although the unfavorable impact from cost absorption could act as a partial offset.
As I mentioned a quarter ago, given better availability this year, we anticipate shipping a more normal mix of products this year. We anticipate this dynamic may act as a slight headwind to margins. SG& A and R& D expenses are expected to ramp through the remainder of the year as we continue to invest in strategic initiatives and in future long-term profitable growth. This will be offset by the benefit of lower short-term incentive compensation. In addition, from a segment perspective, keep in mind that margins in Construction Industries tend to trend lower as the year progresses.
Finally, we continue to anticipate restructuring costs to $300 million to $450 million this year, and our expectation for annual effective tax rate, excluding discrete items, is now 22.5%. Now on Slide 17, I'll discuss our expectations for the second quarter, starting with the top line. We expect lower sales in the second quarter compared to the prior year as we anticipate a headwind due to changes in dealer inventory of machines which will impact volumes. We expect the dealer inventory machines to decline this quarter in line with normal seasonal trends versus the atypical $200 million increase that occurred in the second quarter of 2023.
However, we anticipate a continuation of healthy demand across most of our end markets for our products and services and price is expected to remain positive year-over-year. Following the typical season of the pattern, we do expect higher sales in the second quarter as compared to the first. By segment compared to the prior year, we anticipate lower sales in Construction Industries as we expect changes in dealer inventory to act as a headwind. Favorable price should that provide a partial offset. We expect lower sales in Resource Industries versus the prior year driven by lower volume, partially offset by favorable price.
In Energy & Transportation, we anticipate similar sales versus the prior year. On enterprise margins in the second quarter, we expect the adjusted operating profit margin to be similar to the prior year and lower versus the first quarter following the typical seasonal pattern. As compared to the prior year, we expect that price will remain favorable from the continued carryover benefit from increases taken in the second half of 2023. We expect flattish manufacturing costs compared to the prior year as favorable freight is expected to offset the impacts of unfavorable cost absorption. We also anticipate an increase in SG& A and R& D expenses related to strategic investments although this will be offset by lower short-term incentive compensation.
By segment, in both Construction Industries and Resource Industries, we expect similar margins in the second quarter compared to the prior year as we expect favorable price to be offset by lower volume. In Energy & Transportation, we expect a higher margin versus the prior year on better price and favorable mix. Unfavorable manufacturing costs and SG& A, and R& D spend related to strategic investments are expected to act as a partial offset in this segment. Note that we expect a headwind to enterprise margins and corporate costs in the quarter where we anticipate unfavorable year-over-year impacts from timing differences.
So turning to slide 18, let me summarize. The strong operating performance continued in this quarter with the adjusted operating profit margin at 22.2% and record adjusted profit per share of $5.60. We deployed a record $5.1 billion of cash for share repurchases and dividends in the quarter. Our assumptions for the full year remain similar, and we expect to be in the top half of our target ranges for both adjusted operating profit margin and ME& T free cash flow. We continue to execute our strategy for long-term profitable growth.
And with that, we'll take your questions.
