Caterpillar Q1 2022 Earnings Results & Report

Caterpillar EPS Results

• Actual EPS: $2.88
• Consensus EPS: $2.66
• Beat/Miss: Beat by +$0.22
• One Year Ago EPS: $2.87
• EPS Beat Rate: 6 of last 8 quarters

Caterpillar Revenue Results

• Actual Revenue: $13.60 billion
• Expected Revenue: $13.49 billion
• Beat/Miss: Beat by +$111.73 million
• YoY Revenue Growth: +14.40%

Caterpillar (NYSE:CAT) is a manufacturer of construction, mining, and industrial equipment. Its product portfolio includes excavators, bulldozers, wheel loaders, motor graders, articulated trucks, and other machinery used in construction, infrastructure development, mining, quarrying, forestry, and related industries. The company also produces diesel and natural gas engines, industrial gas turbines, generator sets, and other power-generation and transportation equipment.

Caterpillar operates through businesses focused on construction industries, resource industries, and energy and transportation. In addition to selling new equipment, the company provides replacement parts, equipment maintenance, repair services, technology solutions, and rental offerings through a global network of independent dealers. Caterpillar Financial Services supports customers and dealers with financing and related financial products.

The company traces its origins to the 1925 merger of the Holt Manufacturing Company and the C. L. Best Tractor Company, which formed the Caterpillar Tractor Co. Caterpillar serves customers in markets around the world, with its products and dealer network supporting projects and operations across North America, Latin America, Europe, Africa, the Middle East, and the Asia-Pacific region. The company is headquartered in Irving, Texas, and trades on the New York Stock Exchange under the symbol CAT.

Caterpillar Q1 2022 Earnings Call Transcript

Key Takeaways

• 14% YoY sales growth to $13.6 billion in Q1 drove EPS of $2.86 (GAAP) and $2.88 (adjusted), both slightly ahead of last year.
• Supply chain constraints—semiconductor shortages, freight and material cost headwinds—limited potential sales upside and pressured margins.
• Backlog expanded by $3.4 billion, led by Energy & Transportation, underscoring robust order demand despite shipment delays from ongoing supply issues.
• Dealers increased inventory by about $1.3 billion in Q1, still near the low end of typical ranges; a seasonal Q2 drawdown is expected but no large restocking benefit is projected for 2022.
• Pricing to more than offset elevated manufacturing costs is expected in 2022, with margins improving in H2 and ME&T free cash flow targeted at $4–8 billion, largely returned to shareholders.

Presentation

[Operator]

Welcome to the Q1 2022 Caterpillar Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ryan Fiedler. Thank you. Please go ahead.

[Ryan Fiedler, VP of Investor Relations at Caterpillar Inc.]

Thank you, Emma. Good morning, everyone, and welcome to Caterpillar's Q1 of 2022 earnings call. I'm Ryan Fiedler, director of investor relations. Joining me today are Jim Umpleby, chairman and CEO, Andrew Bonfield, chief financial officer, Kyle Epley, vice president of the Global Finance Services Division, and Rob Rengel, senior IR manager. During our call today, we'll be discussing the Q1 earnings release we issued earlier today. You can find our slides, the news release, and a video recap at investors.caterpillar.com under Events and Presentations. I would also like to remind everyone that we are hosting Caterpillar's Investor Day on May 17 from 10:30 A.M. to 3:00 P.M. Central Time at the Hilton DFW Lakes Executive Conference Center in Grapevine, Texas. Our theme is Services, Technology, and Sustainability: Helping Our Customers Build a Better World. Please check out the details on our investor website.

[Ryan Fiedler, VP of Investor Relations at Caterpillar Inc.]

Caterpillar has copyrighted this call, and we prohibit use of any portion of it without our prior written approval. Moving to slide 2. During our call today, we'll make forward-looking statements which are subject to risks and uncertainties. We'll also make assumptions that could cause our actual results to be different than the information we're sharing with you on this call. Please refer to our recent SEC filings and the forward-looking statements reminder in the news release for details on factors that, individually or in aggregate, could cause our actual results to vary materially from our forecasts. On today's call, we'll also refer to non-GAAP numbers. For a reconciliation of any non-GAAP numbers to the appropriate US GAAP numbers, please see the appendix of the earnings call slides.

[Ryan Fiedler, VP of Investor Relations at Caterpillar Inc.]

Today, we reported profit per share of $2.86 for the Q1 of 2022, compared with $2.77 of profit per share in the Q1 of 2021. We're including adjusted profit per share in addition to our US GAAP results. Our adjusted profit per share was $2.88 for the Q1 of 2022, compared with adjusted profit per share of $2.87 for the Q1 of 2021. Adjusted profit per share for both quarters excluded restructuring costs. Now, let's flip to slide three and turn the call over to our Chairman and CEO, Jim Umpleby.

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

Thanks, Ryan. Good morning, everyone. Thank you for joining us. I'd like to start by thanking our global team for their contributions to another good quarter. We continue to execute our strategy for long-term profitable growth, as demonstrated by ourQ1 results. I'll begin with my perspectives on our performance in the quarter, and then I'll provide some insight on our end markets. Before discussing our results, I'd like to take a moment to say we remain deeply saddened by the tragic events continuing to occur in Ukraine and hope for a peaceful resolution. Through the Caterpillar Foundation, we have donated more than $1 million to support both urgent and long-term needs of the Ukraine humanitarian crisis. I am proud of our employees for their generous contributions through the foundation matching gifts program, which added nearly an additional $1 million of support for Ukrainian refugees.

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

On the operations front, we suspended production in our Russian manufacturing facilities and will continue to comply with all applicable laws and evolving sanctions. Moving on to our quarterly results, sales rose in all three of our primary segments due to volume gains and favorable price. Sales and margins were both slightly better than we expected. Similar to the second half of 2021, our top line would have been even stronger without the continuing supply chain constraints. Overall, we remain encouraged by the strong demand for our products and services. The Q1 of 2022 marked the fifth consecutive quarter of higher end user demand compared to the prior year. Services remained strong in the quarter. We continue to make progress on our service initiatives, including Customer Value Agreements, e-commerce, connected assets, and Prioritized Service Events. Moving to slide four.

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

Sales and revenues increased by 14%, slightly better than we expected. The increase was primarily driven by higher end user demand and the impact of changes in dealer inventories, as well as strengthening price realization. The impact of our price action started to accelerate in the second half of 2021. We generated double-digit sales growth in all primary segments, and sales rose in North America, Latin America, and EAME. Asia Pacific was down by 4%. Compared to the Q1 of 2021, sales to users rose 2%, which was about as we expected. For machines, including Construction Industries and Resource Industries, sales to users increased by 3%, while Energy & Transportation decreased 1%. Sales to users in Construction Industries were about flat overall, with good growth globally in the Q1, except for China.

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

North America grew by double digits as residential construction remained strong and non-residential contributed to show signs of improvement. Latin America saw higher end user demand, supported by construction and strong commodity prices. End user demand increased in the EAME due to residential growth and supportive commodity prices. I'll briefly discuss China. In the Q1 of 2021, China's greater than 10-ton excavator industry was at an all-time high, which resulted in a difficult comparable in the quarter. In the Q1 of 2022, China was lower than we expected due to weaker residential construction and COVID-19 related shutdowns. Overall, sales in China were about half the level we saw in the prior year's quarter. Keep in mind, China sales are typically 5%-10% of our enterprise sales. Outside of China, Asia Pacific sales to users grew as we continue to see strong demand in the region.

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

In Resource Industries, the overall environment remained positive, with sales to users up 13%, an improvement from the Q4. Mining increased at a measured pace, which is in line with the expectations that we've been communicating to you for the last couple of years. Strong commodity prices supported the high utilization and a low number of parked trucks. In heavy construction, quarry and aggregates, sales to users increased versus the prior year for the fourth straight quarter as end user demand continues to improve. In Energy & Transportation, sales to users declined 1% versus the prior year. Solar Turbines declined as expected due to the timing of projects. Excluding Solar, sales to users were strong. Oil and gas sales to users were down in the Q1, with improvement in reciprocating engines more than offset by Solar.

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

Despite continued data center and rental strength, demand strength, power generation sales to users were down overall due to timing of some larger projects. Industrial end user demand strengthened across all regions. Lastly, transportation benefited from growth off a low base, primarily in marine applications. Now we'll spend a moment on dealer inventory. Dealers who are independent businesses increased their inventories by about $1.3 billion in the Q1. This compares to a $700 million increase in the Q1 of last year. While dealer inventories remain near the low end of the typical range, we continue to work closely with dealers to satisfy higher end user demand. Andrew will provide additional color about dealer inventory later in the call. Regarding ongoing supply constraints, we experienced similar challenges to what we highlighted in the Q4, which was in line with our expectations.

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

We continue to experience constraints with semiconductors and certain other components. Our team continues to implement solutions to help mitigate the overall situation. For example, we executed engineering redesigns to provide customers with alternative options. We also increased dual sourcing of components and placed specialized Caterpillar resources at suppliers to help ease constraints. I remain proud of our global team's ability to deliver double-digit sales growth despite supply chain challenges. Similar to previous quarters, absent the supply chain constraints, our top line would have been even stronger. When the supply chain conditions ease, we expect to be well positioned to fully meet demand and gain operating leverage from higher volumes. Operating profit increased 2% in the quarter to $1.9 billion, driven by strong volume and favorable price realization across all segments, which was partially offset by higher manufacturing costs and SG&A and R&D expenses.

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

The higher manufacturing costs primarily reflected increased material and freight costs in the quarter. While we did see some labor inefficiencies, these were not as significant as they were in the Q4. Operating profit margins were 13.7% in the Q1, which was lower than the Q1 of 2021. We expected comparisons would be difficult as inflationary impacts to manufacturing costs accelerated in the back half of 2021 and remained at a similar level in the Q1 of 2022. On a sequential basis, our margins improved versus the Q4 as we expected. Our profit per share was $2.86 versus $2.77 in the Q1 of 2021. The adjusted profit per share was $2.88 versus $2.87 in the Q1 of last year.

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

On slide five, we had an ME&T free cash outflow of about $400 million in the quarter, which Andrew will discuss in a few moments. To remind you, our Investor Day target is to deliver ME&T free cash flow of between $4 billion and $8 billion per year. We expect to be within that range through 2022. Regarding capital deployment, we completed $800 million of share repurchases and returned $600 million in dividends to shareholders. We remain proud of our Dividend Aristocrat status. We continue to expect to return substantially all of our ME&T free cash flow to shareholders over time through dividends and share repurchases. Now, I'll share some high-level assumptions on our expectations for the full year.

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

We expect to achieve our Investor Day targets for adjusted operating profit margins and, as I just mentioned, deliver ME&T free cash flow within our targeted range in 2022. As I previously indicated, we continue to be encouraged by strong order demand across our segments. In the Q1 of 2022, our total backlog increased by $3.4 billion as we experienced continued strong demand and supply chain challenges. Backlog increased in all segments, with the largest increase in Energy & Transportation. The environment continues to be challenging due to supply chain constraints and the more recent COVID-19 related shutdowns in China. Although manufacturing costs are expected to remain elevated, we expect price to more than offset these cost increases for the full year. Turning to slide 6, I'll discuss our expectations for key end markets this year.

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

In construction industries in North America, residential construction remains strong, with non-residential continuing to improve. Despite rising interest rates, infrastructure investment is expected to improve in late 2022 and beyond, supported by the US Infrastructure Investment and Jobs Act. The 10-ton and above excavator market in China was very strong in 2020 and 2021. We now anticipate this market will be slightly lower than 2019 levels. The rest of Asia Pacific region is expected to grow due to higher infrastructure spending. In EMEA, despite the broader geopolitical concerns, we remain cautiously optimistic due to housing growth and the EU investment package that is expected to drive construction demand. Construction and mining activity in Latin America are supportive of growth, but could be impacted by inflation and interest rate policy decisions.

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

In Resource Industries, we believe commodity prices will continue to drive higher production and utilization levels, which support more investments in equipment and services in 2022 and beyond. Within heavy construction, quarry and aggregates, we also anticipate continued growth in 2022. Lastly, we are seeing increased quoting for our autonomous solutions, which includes large mining trucks, drills, truck type tractors, water trucks, and underground machines. In Energy & Transportation, we expect improving momentum in 2022 with strong order rates in most applications. In oil and gas, although customers remain disciplined, we are encouraged by continued strength in reciprocating engine orders, especially for large engine replacements as asset utilization increases. Power generation orders remain healthy due to positive economic growth and continued data center strength.

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

In 2022, while Solar services are expected to remain steady, we continue to expect new equipment shipments to be lower than last year due to the lead time of Solar's products. Solar's new equipment orders strengthened significantly in the Q1, and shipments are expected to improve in late 2022 or early 2023. Industrial remains healthy with continued momentum in construction, agriculture and electric power. In rail, North American locomotive sales are expected to remain muted, but international locomotives are more promising. We also anticipate growth in high-speed marine as customers upgrade aging fleets. Now on to slide seven. In 2021 and into the Q1 of 2022, Caterpillar and our customers announced a number of projects that will contribute to a reduced carbon future. We recently entered into an agreement with ioneer, a U.S.-based lithium-boron miner.

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

This will be the first greenfield site in the U.S. to use autonomous haul trucks. Lithium is a key component for battery electric vehicles, and the minerals from this Nevada mine will help contribute to a more sustainable future. Our autonomous technology is a competitive advantage as it delivers significant benefits to our customers, including improved safety, productivity, and efficiency, while lowering greenhouse gas emissions per ton of material moved. Our commitment to sustainability remains strong as we continue to execute our strategy for long-term profitable growth. I look forward to hosting you at our Investor Day on May 17, where we will be talking more about services, technology, and sustainability. With that, I'll turn the call over to Andrew Bonfield.

[Andrew Bonfield, CFO at Caterpillar Inc.]

Thank you, Jim, and good morning, everyone. I'll begin with a recap of our Q1 results, including the performance of our segments. I'll comment on the balance sheet and free cash flow before concluding with a few comments on our expectations as we move into the Q2 of 2022. Beginning on slide 8, sales and revenues for the Q1 increased by 14% or $1.7 billion to $13.6 billion. Volume, including higher dealer inventory build and price, drove the increase in sales and revenues, which, as Jim mentioned, was slightly better than we had expected. Operating profit increased by 2% to $1.9 billion, as price realization and volume growth were partially offset by higher manufacturing and period costs.

[Andrew Bonfield, CFO at Caterpillar Inc.]

Our adjusted operating profit margin of 13.7% was slightly better than we had anticipated, primarily due to the stronger than expected volumes and favorable price realization. Q1 profit per share was $2.86 compared to $2.77 in the prior year. Adjusted profit per share was $2.88 in the Q1, compared to $2.87 last year. Adjusted profit per share for both quarters excludes restructuring costs. Our global tax rate in the quarter was about 24%, slightly lower than we had guided you to in January. However, on a comparable basis, the lower tax rate was offset by lower favorable discrete tax benefits compared to the prior year. Now on slide nine. As we anticipated, the top line improved on stronger volume and price realization.

[Andrew Bonfield, CFO at Caterpillar Inc.]

End-user demand increased versus the prior year, but the growth rate accelerated on a sequential basis due to tougher comparisons, especially in China. Dealer inventory rose by about $1.3 billion. Services revenues remained strong in the quarter. Price realization strengthened while currency was a bit of a headwind. Let me provide some color on dealer inventory. The $1.3 billion increase versus year-end 2021 was nearly double what we had anticipated and about $600 million more than the increase we saw in the same quarter last year. About half of that $600 million increase year-on-year came from Resource Industries due to the timing of shipments from our dealers to their customers, which can be lumpy. These units are backed by firm customer orders but were not recognized in our reported retail sales for the quarter.

[Andrew Bonfield, CFO at Caterpillar Inc.]

This is in part due to variations in on-site assembly times. The other half of the dealer inventory increase was mainly due to the timing of shipments in Construction Industries late in the quarter. We anticipate that dealers will start to sell down their inventories in the Q2 following their normal seasonal pattern on strong sales to users. Our expectations for the full year haven't changed, and we do not expect to see a significant benefit from dealer restocking in 2022 as end user demand remains strong. Q1 sales and revenues increased by double-digit percentages in all regions except Asia Pacific. Sales in North America rose by 23% with continued growth in the three primary segments. In the AME, sales increased by 15%, while Latin America sales grew by 26%.

[Andrew Bonfield, CFO at Caterpillar Inc.]

A 4% decrease in Asia Pacific sales was primarily due to softening in China. Sales in the remainder of that region were positive. Moving to slide 10. As I mentioned, Q1 operating profit increased by 2% on favorable price and volume. Price realization was slightly better than we had anticipated. Manufacturing costs remain elevated, but in line with our expectations, primarily due to continued material and freight cost headwinds. SG&A and R&D costs increased partly due to investments in services and technologies such as digital, autonomy, and electrification. Our Q1 adjusted operating profit margin was 13.7%, a 210 basis point decrease versus the prior year. As we said in our Q4 2021 earnings call, we expected the largest margin headwinds to occur in the Q1. Q1 margins were lower than the prior year.

[Andrew Bonfield, CFO at Caterpillar Inc.]

Favorable price realization did not offset higher manufacturing costs, but did improve compared to the Q4 of 2021. Margins were slightly better than we had anticipated on stronger price and volume, partially offset by higher than expected short-term incentive compensation. I will discuss our expectations for the Q2 and full year margins in a bit more detail later. Moving to slide 11, let's review segment performance starting with Construction Industries. Sales increased by 12% in the Q1 to $6.1 billion, primarily driven by favorable price realization and strong sales volume. End user demand improved in three of the four regions. North America had the highest sales growth in sales dollars, a 28% increase, as non-residential demand improved and residential construction remained strong. Sales in Latin America increased by 60% as construction activity supported higher demand.

[Andrew Bonfield, CFO at Caterpillar Inc.]

The AME sales increased by 18% primarily due to growth in residential construction demand. However, Asia Pacific sales decreased by 21% due to a reduction in sales in China, which had a very strong quarter a year ago. The segment's Q1 profit increased by 1% versus the prior year to $1.1 billion. Price realization and higher sales volume drive the increase, more than offsetting increases in manufacturing costs. Price realization was stronger than we had anticipated, but lagged manufacturing costs in the quarter. The segment's operating margin decreased by 180 basis points to 17.3%. Turning to slide 12, Resource Industries sales increased by 30% in the Q1 to $2.8 billion. The improvement was mostly due to higher end user demand, the impact from changes in dealer inventories and favorable price.

[Andrew Bonfield, CFO at Caterpillar Inc.]

End-user demand increased in heavy construction and quarry and aggregates as well as mining. Q1 profit for Resource Industries increased by 16% to $361 million. Higher sales volume and favorable price realization were partially offset by higher manufacturing costs and increases in SG&A and R&D expenses. Manufacturing cost increases were primarily due to freight and material. The segment's operating margin decreased by 150 basis points versus last year to 12.8%. Now slide 13. Energy & Transportation sales increased by 12% to approximately $5 billion, with sales up across all applications. This included a 4% sales increase in oil and gas, including aftermarket parts for reciprocating engines. Power generation sales increased by 5% as small reciprocating engine sales improved.

[Andrew Bonfield, CFO at Caterpillar Inc.]

Solar Turbines sales were lower in the quarter for oil and gas and power generation applications, impacted by a higher than usual Q1 in 2021. Industrial sales rose by 25% with strength across all regions. Finally, transportation increased by 9% on reciprocating engine sales for both aftermarket parts and marine applications. Profit for Energy & Transportation decreased by 20% to $538 million. Higher sales volume and price realization were more than offset by higher manufacturing costs, reflecting continued headwinds from freight and material. In addition, SG&A and R&D expenses increased. The segment's operating margin decreased by 430 basis points versus last year to 10.7%. Let me take a moment to provide a bit more color on Energy & Transportation margins.

[Andrew Bonfield, CFO at Caterpillar Inc.]

Seasonally, Q1 margins are typically lower compared to the rest of the year in this segment. However, the Q1 2022 proved a bit more challenging due to continued supply chain constraints, including elevated freight and material costs. I discussed freight generally, but note that increased freight costs have impacted this segment more than others. Also, Energy & Transportation took price increases later in the year in 2021, given the differing marketing dynamics as compared to the other primary segments. However, similar to the other segments, we expect margins to improve through 2022 as the benefit of higher price realization starts to pull through. Moving to slide 14. Financial Products had another good quarter. Revenue increased by 3% to $783 million. Segment profit decreased by 2% to $238 million.

[Andrew Bonfield, CFO at Caterpillar Inc.]

While profit was down, this represents our second highestQ1 profit in 8 years. The decrease was mainly due to higher provision for credit losses at Cat Financial related to reserves associated with Russia and Ukraine. Note that Russia and Ukraine generally accounts for about 2% of Cat POS and Enterprise sales and less than 1% of the Cat Financial portfolio. Demand for used equipment remained very strong in the quarter, and that helped mitigate the impact of higher provisions. Looking at credit portfolio, it remains high quality as customers and dealers continued to perform well in the quarter. Past dues were 2.05%, the best Q1 performance we've seen in 15 years. That's down 85 basis points year-over-year, and up just 10 basis points compared to the Q4, which had marked a 15-year low.

[Andrew Bonfield, CFO at Caterpillar Inc.]

While new business volume typically decreased versus the Q4, this is typical seasonality. New business volume was our second-highest Q1 performance in eight years, second only to the prior year, which benefited from pent-up demand following COVID-related shutdowns. Regarding interest rate changes, we are in a good position as our matched funding strategy serves to mitigate that risk. We also maintain healthy spreads on new business. Now on slide 15. We had an ME&T free cash outflow of about $400 million, a decrease of $2.1 billion versus the Q1 of 2021. Let me take a moment to discuss the changes. In a typical year, the Q1 is our weakest from a cash generation perspective, primarily due to the payment of our incentives.

[Andrew Bonfield, CFO at Caterpillar Inc.]

We paid approximately $1.3 billion in short-term incentive compensation during the Q1 compared to 0 in the prior year. This counts for the majority of the difference year-over-year. In addition, we continue to build production inventory in the quarter by about $1 billion, which contributed to a negative net working capital impact of approximately $600 million. Despite these first-quarter impacts, we continue to expect to achieve our Investor Day free cash flow target of between $4 billion and $8 billion for the full year. Moving to shareholder return, we paid around $600 million in dividends during the Q1. We also repurchased about $800 million worth of common stock, supporting our objective to be in the market on a more consistent basis.

[Andrew Bonfield, CFO at Caterpillar Inc.]

Enterprise cash was $6.5 billion, a $2.7 billion decrease compared to the year-end. The $400 million free cash outflow and the $1.4 billion in shareholder returns accounted for the majority of the decrease in our cash position. In addition, we have moved some of our cash balances into slightly longer-dated liquid marketable securities in order to improve the yield on that cash. This amounted to about $800 million in the quarter. Now slide 16. In light of the current environment, including supply chain constraints, we continue to refrain from providing annual profit per share guidance. However, I do want to share some thoughts on the Q2 and the full year. The Q1 played out slightly better than we had anticipated on the top line, resulting from higher volume and better-than-expected price tailwinds.

[Andrew Bonfield, CFO at Caterpillar Inc.]

Supply chain challenges remained steady, which we expect to continue into the Q2. Despite these challenges, we anticipate the top line will increase compared to the Q1 on continued strong end user demand and favorable price realization. Looking to the remainder of the year, our order books and backlog remain robust. We expect continued strong end user demand and pricing, although supply chain challenges will impact the extent to which we'll be able to fully meet demand. As I mentioned, we do not expect to see a significant benefit from dealer restocking in 2022. On margins, as we discussed in January, we do not expect a typical year. In a normal year, we'd see strong margins in the Q1, with margins decreasing sequentially through the Q4.

[Andrew Bonfield, CFO at Caterpillar Inc.]

However, this year, we expect margins to improve in the second half of the year compared to both the first half and the comparable period of 2021 as the impact of price actions accelerate. Comparisons ease in the back half of the year as well as we lap the manufacturing cost increases from the prior year. As Jim mentioned, we continue to expect price to more than offset manufacturing costs for the full year. Specific to the Q2, we expect similar margins to the prior year as additional price actions should offset manufacturing cost increases. Looking at the Q2 by segment, we do expect margins in both Construction Industries and Resource Industries to be closer or higher than the prior year as price improves and manufacturing cost headwinds are in line with the Q1.

[Andrew Bonfield, CFO at Caterpillar Inc.]

Margins in Energy & Transportation should still lag the prior year as the timing of price actions was later compared to the other segments. However, we expect the lag in the Q2 will not be as significant as it was in the Q1. As we move into the second half of the year in Energy & Transportation, we expect a reduction in expediting costs and an improvement in efficiencies. Increases in large turbine volumes versus 2021 should also positively contribute to margins in the second half of the year. However, it's important to note that the majority of our core investments related to the energy transition will impact this segment. Finally, to assist you with your modeling, we currently expect our accrual for short-term incentive compensation expense to be over around $1.3 billion this year.

[Andrew Bonfield, CFO at Caterpillar Inc.]

We anticipate a global effective tax rate of around 24% and restructuring costs of approximately $600 million for the full year. Turning to slide 17. In summary, we performed well in a challenging environment. End user demand remains strong and we realized $1.7 billion more in revenues.

[Andrew Bonfield, CFO at Caterpillar Inc.]

Sales and margins were slightly better than we expected. Looking ahead, comparisons ease in the second half of the year, and we expect to achieve our Investor Day targets for adjusted operating profit margins and ME&T free cash flow. With that, we'll take your questions.

[Operator]

As a reminder, management asks that we limit to one question per analyst. Your line will close once the question has been posed. If clarification is desired, please rejoin the queue. Your first question comes from the line of Rob Wertheimer with Melius Research. Your line is now open.

[Rob Wertheimer, Director of Research at Melius Research]

Thanks, and good morning, everyone.

[Andrew Bonfield, CFO at Caterpillar Inc.]

Good morning, Rob. Welcome.

[Rob Wertheimer, Director of Research at Melius Research]

If I have it right, I think your backlog increased by the most in a decade. Maybe, you know, one of the couple best order quarters, implied order quarters you've had. Obviously, there's some moving parts. You guys addressed the fact that you'd like to ship a little bit more. I don't know if you can quantify that. I know you've done a lot of work with dealers, helping them forecast to, you know, to get the right levels of inventory rather than too much or too little. I don't know whether you can sort of give context around that backlog increase, how much more you would like to ship. Does dealer optimism drive a lot of it, or is it really end user demand? Anything you can say to help us out. Thank you.

[Ryan Fiedler, VP of Investor Relations at Caterpillar Inc.]

Well, thanks for your question, Rob. Just in terms of the backlog, the largest backlog increase was actually in Energy & Transportation. As orders continue to strengthen for both solar and for recip oil and gas. As you know, those products tend to have longer lead times. Having said that, we are certainly working with our dealers to help them satisfy end user demand. We do have a new S&OP process, and we do feel good about the quality of the orders that we're getting in E&T and RI, again, which tend to have some of those longer lead times. Again, just a real positive backdrop moving forward.

[Operator]

Your next question comes from the line of Jamie Cook with Credit Suisse. Your line is now open.

[Jamie Cook, Managing Director and Sector Head of U.S. Capital Goods Research at Credit Suisse]

Hi, good morning, and nice quarter. Jim, I guess my question.

[Andrew Bonfield, CFO at Caterpillar Inc.]

Hey, Jamie.

[Jamie Cook, Managing Director and Sector Head of U.S. Capital Goods Research at Credit Suisse]

I'll direct it towards you because it's with regards to E&T, and you used to run that business. Can you help me understand, you know, the top line was a little lighter than I would have thought. What are you hearing from your oil and gas customers, and how does that impact the trajectory of growth for E&T, you know, in this year? I guess, you know, on the margin side, I understand the puts and takes with Solar and pricing having to come through in investment. Is there any way you can help us with how to think about sort of E&T margins, you know, as we exit the year? You know, I don't know if investment, some of the investments you're making will, you know, sort of have.

[Jamie Cook, Managing Director and Sector Head of U.S. Capital Goods Research at Credit Suisse]

Create pressure on margins, I guess, over the longer term. Thank you.

[Ryan Fiedler, VP of Investor Relations at Caterpillar Inc.]

You bet. Well, you know, oil and gas customers do continue to display capital discipline. However, we are encouraged by the improvement in orders for both recip and solar. As I mentioned earlier, those products tend to have longer lead times. You know, higher oil prices, you know, leading to increased utilization and refurbishment of frack assets, and it's an improved opportunity for pump and flow iron as well. You know, in terms of your question around margins, as you can imagine, as volume increases in solar and oil and gas, that will help. Also, we've mentioned previously that we took price action in Energy & Transportation around engines later than we did machines. As those price actions continue to take effect, that will also help margins as we move throughout the year.

[Jamie Cook, Managing Director and Sector Head of U.S. Capital Goods Research at Credit Suisse]

No structural headwinds in margins?

[Ryan Fiedler, VP of Investor Relations at Caterpillar Inc.]

You know, again, certainly we're making investments in in sustainability and some of the things we're doing there around alternative drivetrains. We're making those investments. Again, the other side of it is, of course, improving volume and price.

[Jamie Cook, Managing Director and Sector Head of U.S. Capital Goods Research at Credit Suisse]

Okay, thank you.

[Andrew Bonfield, CFO at Caterpillar Inc.]

Yeah, and

[Jamie Cook, Managing Director and Sector Head of U.S. Capital Goods Research at Credit Suisse]

Sorry. Go ahead, Andrew.

[Andrew Bonfield, CFO at Caterpillar Inc.]

As I indicated, Jamie, we would expect just the same for the other segments, margins to improve in the second half of the year in Energy & Transportation.

[Jamie Cook, Managing Director and Sector Head of U.S. Capital Goods Research at Credit Suisse]

Okay, thanks.

[Operator]

Your next question comes from the line of Mircea Dobre with Baird. Your line is now open.

[Mircea Dobre, Senior Research Analyst at Robert W. Baird]

Thank you for the question. Appreciate it. I guess, maybe a question for Andrew, looking to kinda clarify some of your comments. In terms of price realization, I guess you were pretty clear that this continues to build momentum. You talked about E&T. I'm curious as to how you were thinking about variable manufacturing costs sequentially Q2 and the back half of the year. Recognizing that the comps are a little bit different, but obviously, input costs have changed a little bit versus previous assumptions, given all that's been happening in the world. How should we think about that framework?

[Andrew Bonfield, CFO at Caterpillar Inc.]

Yeah. If you recall, I think, Q4, we had about $600 million of price and about $800 million increase in manufacturing costs. Obviously, this quarter was a similar level in manufacturing cost increases and price was a little bit better at $700 million. We thought we would probably be about around the same in the Q1as we have been in the Q4. We also indicated that we would expect manufacturing cost increases to continue at this sort of level at least Q1 and Q2, and then moderate as we get into Q3, Q4 because of the impact of lapping the increases that have occurred in Q3, Q4 of the previous year.

[Andrew Bonfield, CFO at Caterpillar Inc.]

Yes, it is likely that those costings will be slightly higher than we had originally anticipated back in January, because obviously the input costs are continuing to grow. However, we have taken extra price actions, so that's why we're still more than comfortable.

[Andrew Bonfield, CFO at Caterpillar Inc.]

Price will more than offset manufacturing cost increases for the year. That will be probably the way I would look at it as we go out for the remainder of 2022.

[Operator]

Your next question comes from the line of Stephen Volkmann with Jefferies. Your line is now open.

[Stephen Volkmann, Managing Director and Equity Analyst at Jefferies]

Thanks. Good morning, everybody. Jim, I think in your prepared comments, when you were speaking about Construction Industries, you mentioned a couple of times support of commodity prices was helping demand there. I'm curious for a little more detail, can you just talk about how much of CI you think is kind of driven by commodity prices and sort of how that unfolds going forward?

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

Yeah, Steve, I believe I mentioned commodity prices being supportive of RI as opposed to CI. Just to talk about CI a bit, you know, again, we talked about residential, non-residential improving, infrastructure investments being made by various governments around the world. Those are all tailwinds for CI. The commodity prices certainly are supportive of investment in RI and of course E&T as well with oil prices being.

[Stephen Volkmann, Managing Director and Equity Analyst at Jefferies]

Thank you.

[Operator]

Your next question comes from the line of David Raso with Evercore ISI. Your line is now open.

[David Raso, Senior Managing Director, Partner and Head of Industrials and Machinery Research at Evercore ISI]

Hi, good morning. Given the last three months-

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

Hi, David.

[David Raso, Senior Managing Director, Partner and Head of Industrials and Machinery Research at Evercore ISI]

It seems like a theme that maybe people wouldn't have expected three months ago was sort of a rebirth of old energy, let's call it. You mentioned a bit about oil and gas, you know, picking up on the recip side and maybe the turbine activity on the order book, at least. I'm curious on the mining side. Can you give us a little more color on any change in tone? And obviously, coal comes to mind, but even more broadly, what are you hearing in the last three months, any tone change, particular on some of the old energy customers?

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

Well, thanks for your question, David. As you know, we've been talking about for a couple of years, you know, we've been expecting moderate increase over time in mining, and that's really how it's played out. Our customers are continuing to display capital discipline. In fact, we're seeing investments, we're seeing new orders for trucks. Parked trucks remain at low levels as utilization increases. In terms of coal, you know, certainly coal prices have been up for the last year or so. You know, it remains to be seen exactly how this plays out. You know, if there are prolonged restrictions on natural gas, you know, what we're seeing in Europe and other places there in fact could be increased demand for coal.

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

Having said that, again, we've seen improved coal prices over the last year. You know, commodities in the mining sector have been supportive of investment across a wide range of commodities, and I'd put coal in that bucket as well.

[Operator]

Your next question comes from the line of Tami Zakaria with JPMorgan. Your line is now open.

[Tami Zakaria, Executive Director and Equity Research Analyst at J.P. Morgan]

Hi, good morning.

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

Good morning.

[Tami Zakaria, Executive Director and Equity Research Analyst at J.P. Morgan]

Can you update us on your services business? What was the growth in that segment in the quarter? What's the total dollar size of the services segment now versus your Investor Day targets? What are you expecting for services in 2Q and the rest of the year?

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

You bet. Well, we're pleased with services growth in the quarter. We released the annual services sales and revenues once a year. We'll do that in January for full year 2022. Having said that, we continue to make progress with our various initiatives. We're pleased at the way things are going, and we're still driving towards that target of doubling services sales between 2016 and 2026.

[Tami Zakaria, Executive Director and Equity Research Analyst at J.P. Morgan]

Got it. Thank you.

[Operator]

Your next question comes from the line of Chad Dillard with Bernstein. Your line is now open.

[Chad Dillard, Senior Analyst at Bernstein]

Hi. Good morning, guys.

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

Good day.

[Chad Dillard, Senior Analyst at Bernstein]

I just wanna go back to your comments about improving orders on the recip and solar side. I was just hoping you could talk about how Cat is set up for this upcoming oil and gas CapEx cycle versus priors. You can talk about just, you know, from a product standpoint, or even just like how much extra wallet share you can capture, now that you have Weir under the fold. Just, you know, any interesting, like, you know, productivity enhancing technology that you have now that you didn't before that would set you apart versus your competition.

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

Well, thanks for your question. We do feel good about our competitive position. Just starting quickly with Solar. You know, they have strong leadership in the market, and we're very pleased at the way they're positioned moving forward. On the recip side, we made a number of changes. As you know, we made the acquisition from Weir, and we now have a more complete product line, which really does put us in a, we believe, strong competitive position as our customers work to reduce their carbon footprint as they increase oil and gas production. As you can imagine, particularly in North America, there's a real strong focus by our oil and gas customers to do that.

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

Again, you know, we feel good about the way we're positioned there with our portfolio now. e-frac, we have gas engines being purchased by our oil and gas customers for e-frac. Again, a whole variety of things going on there. Customers are buying our DGB engines, which allow them to substitute up to 85% diesel fuel with natural gas. Again, we believe we are quite well positioned.

[Operator]

Your next question comes from the line of Nicole DeBlase with Deutsche Bank. Your line is now open.

[Nicole DeBlase, Managing Director and Senior Equity Research Analyst at Deutsche Bank]

Yeah, thanks. Good morning, guys.

[Andrew Bonfield, CFO at Caterpillar Inc.]

Good morning, Nicole.

[Nicole DeBlase, Managing Director and Senior Equity Research Analyst at Deutsche Bank]

Just, maybe to look at the 2Q outlook and elaborate a little bit, I guess, you know, you guys said sales up Q on Q and 2Q, and that's, you know, kind of consistent with what's normal in the business. I guess if you were to think about that increase, is there any reason why the magnitude of the increase in 2Q would not reflect typical seasonality?

[Andrew Bonfield, CFO at Caterpillar Inc.]

I mean, the only small factor that I would raise, and it's a very small factor, is that obviously there was $300 million of extra inventories put out by CI very late in the quarter end, which would otherwise not be a normal seasonal impact. That will impact a little bit of their reported revenues in Q2. Aside from that, we expect normal seasonality. As you know, demand is very strong for our product. The biggest challenge is actually being able to supply the market. We would be able to, if we were able to put more product into the channel, we would sell more. That would be the really key factor there.

[Operator]

Your next question comes from the line of Ross Gilardi with Bank of America. Your line is now open.

[Ross Gilardi, Managing Director at Bank of America Merrill Lynch]

Hey, good morning. Thanks, guys.

[Andrew Bonfield, CFO at Caterpillar Inc.]

Hi, Ross.

[Ross Gilardi, Managing Director at Bank of America Merrill Lynch]

Hey, Jim, you know, your North American construction, you know, the retail sales growth, you know, it improved quite a bit from Q4 to Q1, but, you know, it continues to significantly lag the growth for the national, you know, rental companies, particularly you look at what United Rentals put up for rental revenue growth last night. I mean, is there an accelerating structural change to rental over equipment ownership in this world we live in, you know, right now with all these supply chain issues? Anything you're working on with your dealers to better position Cat for this rental channel that's been going on for an awfully long time. If anything, it seems like it's accelerating right now.

[Ross Gilardi, Managing Director at Bank of America Merrill Lynch]

Just with that, your overall dealer sales decelerated to +3% versus +5% last quarter. Does that number get worse and potentially go negative, you know, again, before it gets better, or do we see a re-acceleration in Q2? Thanks.

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

Well, thanks for your question. Firstly, in terms of demand for CI North America, it is quite strong. As I mentioned earlier, supply chain challenges prevented us from having even higher sales in the quarter. Having said that, you know, Caterpillar has a strong rental business. If you add up Cat dealers across North America, it is a strong business and something our dealers are very focused on. We have a relatively new rental leader, so we're working on improving our capabilities there. Having said that, the real issue is supply chain.

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

If we had, in fact, more product, we could have more product in the rental fleets and our dealers are having to make decisions between putting units in the rental fleet and selling to customers because demand is strong everywhere. Really this is a function of our ability to produce more product due to supply chain constraints as opposed to anything structural. Certainly, rental is important. It's a growing part of the business, but it's one that we believe we're very well-positioned to participate in. The big issue we have at the moment is, again, the ongoing supply chain challenges which we've been discussing.

[Andrew Bonfield, CFO at Caterpillar Inc.]

Ross, on your question around on STU momentum, obviously, there were a couple of factors in Q1 which did cause the deceleration. I know you're looking at machines, not at Energy & Transportation. Obviously, solar was the impact on E&T. Obviously, China was disproportionately. It was a very strong quarter in the comps last year, and that had a disproportionate impact, and we'll need to see how that pans out in Q2. Overall, though, we do expect actually to see very positive STU's again in Q2 versus the comparable period.

[Operator]

Your next question comes from the line of Courtenay Yakavonis with Morgan Stanley. Your line is now open.

[Analyst at Morgan Stanley]

Hi, good morning, guys. Thanks for the question.

[Andrew Bonfield, CFO at Caterpillar Inc.]

Morning, Courtney.

[Courtenay Yakavonis, Analyst at Morgan Stanley]

I was wondering if we can dig into resources a little bit more. Obviously, sales were much better than we were expecting this quarter. You know, in the slide deck, you call out heavy construction and quarry and aggregates, you know, ahead of mining. Just, you know, wanted to understand on the OE side, is mining reflective of these numbers that we saw, or is that still a story that's on the come? The incremental flow-through was also a little bit lower than we would have expected. Is that, you know, really just a reflection of these supply chain issues that we're seeing, or is that part of this also OE versus aftermarket mix happening?

[Analyst at Morgan Stanley]

Finally, just, you know, since much of the build this quarter that you mentioned in dealer inventories occurred in resources, just wanted to confirm that the 2Q comment that sales will be up also is applying to that segment as well?

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

Well, we remain positive about mining and continue to see increases in end user demand. Again, it's playing out much as we've been predicting the last couple of years with improving market conditions, improving orders and improving sales. We feel good about that. Miner CapEx is up. You know, commodity prices remain certainly supportive of investment and we're seeing demand for both services, parts and new machines. Parked trucks remain at low levels. Utilization has been increasing and, you know, a lot of interest in our zero emissions as well. We've seen a lot of announcements there, things that we're doing with customers. Machine average age continues to increase, and so parts rebuilt and aftermarket services are expected to benefit from those aged fleets.

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

Again, mining is playing out much as we had anticipated.

[Andrew Bonfield, CFO at Caterpillar Inc.]

Yeah. I think just in the quarter, obviously we did see slightly faster growth in heavy construction and quarry and ags versus mining. They were still both up very strongly. As regards to the retail stats, obviously the dealer inventory, the approximately $300 million of units that are out there, which are being reassembled by the dealers, before being sold out to the customer. Those will be reflected in retail units in Q2. That will help the overall retail stats for RI in the Q2

[Operator]

Your next question comes from the line of Seth Weber with Wells Fargo. Your line is now open.

[Seth Weber, Equity Research Analyst of Industrials/Machinery at Wells Fargo]

Hey, good morning. I just wanted to ask a question on pricing. I'm really just trying to understand, you know, how dynamic is the pricing environment? I think pricing was up about 6% here in the Q1. You've talked about E&T pricing getting better, you know, through the year here. I mean, could pricing in aggregate be up more than the 6% that you showed in theQ1? I'm just trying to understand how much flexibility you have to, you know, change pricing real time here through the second, Q3.

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

Yeah. The way we characterize it here is, you know, we do expect price to more than offset manufacturing cost increases in 2022. We expect, you know, more of an impact of pricing in the second half versus the first half. We continually monitor the marketplace in terms of what's going on from a competitive situation. We obviously take into account what's happening from a cost perspective as well. We have the flexibility to do what we need to do, but we have taken pricing action. Again, the pricing actions that we've taken will have a larger impact in the second half of the year versus the first. Certainly, we always have the flexibility to do more if we believe that's prudent.

[Operator]

Your next question comes from the line of Steven Fisher with UBS. Your line is now open.

[Steven Fisher, Managing Director and Equity Research Analyst at UBS]

Thanks. Good morning. It seems like you've raised your incentive compensation expectation for 2022 to now be kind of flat year-over-year. I think previously it was expected to be a tailwind, but I guess the positive in that is now you must be expecting something better than your prior expectations. Wondering if you can just give us a bit of color on what the biggest things are that are contributing to that improvement in incentive comp payout for this year. I know you said, you know, kind of sales were better than expected in Q1, but it sounds like maybe that was a seasonal inventory build. What are there other operational things that are now running better than you expected for the balance of the year? Thank you.

[Andrew Bonfield, CFO at Caterpillar Inc.]

Yeah. Obviously, as you know, our incentive compensation schemes use a variety of measures, not just operating profit, OPACC, services revenues, and there are other non-financial metrics that are out there. As we said, the performance for the Q1 was actually a little bit better than we expected. Not just from a, you know, revenue perspective, but also a little bit better on margins. That is reflective of where that's feeding through into some of that incentive compensation change.

[Steven Fisher, Managing Director and Equity Research Analyst at UBS]

Thanks.

[Operator]

Your next question comes from the line of Timothy Thein with Citigroup. Your line is now open.

[Timothy Thein, Managing Director and Equity Research Analyst at Citi]

Thanks. Good morning. You know, a lot of good color on the dealer inventories, but I just wanted to ask Andrew just about Cat inventories, which, you know, have continued to increase here. Obviously, the complexity in supply chain and is certainly having some impact. I'm just curious, how should we think about that as we go through the balance of the year? I'm especially interested in how the potential implications that have to the extent that's not projected to grow further. What implications that will have just in terms of absorption and ultimately incremental margins. Thank you.

[Andrew Bonfield, CFO at Caterpillar Inc.]

Tim, I mean, obviously what we've been very clear on is in the situation where we are with the supply chain challenges. Switching off supply is not a sensible thing because while you're waiting for individual components to arrive, it's better to make sure that you don't end up with a shortage of something else as opposed to switching off. We've built a little bit more production in stores inventory than we would normally have. We did that at the end of 2020 as well, and that was a deliberate action reflecting the fact that we expected an upturn. Obviously, that has continued.

[Andrew Bonfield, CFO at Caterpillar Inc.]

We know that the demand is out there, so we know we'll be able to burn it off pretty quickly, as and when we are able to work through all the other supply chain challenges that are out there. Our expectation is obviously we saw a build in the Q1. Our aim is probably to be more neutral on working capital for the full year. Obviously start to work some of that inventory down as we go through the remainder of the year. Obviously then that can feed through into positive cash momentum as we move into 2023 and beyond.

[Operator]

Your next question comes from Matt Elkott with Cowen. Your line is now open.

[Analyst at TD Cowen]

Good morning. If I may switch it up a little bit and ask you guys about the locomotive market. Clearly the new build market in North America has been largely non-existent for the last couple of years here. As we look forward to the next two or three years, do you think the railroads might continue to hold off on new builds until they make up their mind on whether they wanna go, you know, battery, electric, hydrogen or even cleaner diesel? And any update on the upgrade market, which I think is like a services revenue for you guys would be helpful. Thank you.

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

Yeah, thank you. Well, as you mentioned, certainly, the North American freight locomotive market is depressed. There's no question about it. We do have a services business that is doing well. We have hope for international this year as well. Hard to answer your question. It's very difficult to predict what the railroads will do over the next couple of years. I mean, well, anyone on the call can build competing cases there for what's happening. There's still parked locomotives. On the other hand, everyone knows what's going on with supply, with some of the freight constraints in the U.S. as well. We'll have to see how it all plays out.

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

We are seeing interest in our battery electric locomotives that are used in certain switching applications, and we're pleased with that. You probably have read about an agreement that we have to work on a longer term solution for a hydrogen based locomotive as well. Again, very difficult to predict what the railroads will do, but I certainly concur that currently the market for freight locomotives in North America is quite depressed.

[Operator]

Your next question comes from the line of John Joyner with BMO. Your line is now open.

[John Joyner, VP and Senior Equity Analyst of Machinery and Multi-Industrials at BMO Capital Markets]

Hi. Good morning.

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

Good morning, John.

[Andrew Bonfield, CFO at Caterpillar Inc.]

Good morning, John.

[John Joyner, VP and Senior Equity Analyst of Machinery and Multi-Industrials at BMO Capital Markets]

Maybe this is not a fair question in today's environment. I appreciate some of the additional assumptions that you provided for the full year. Given that you have internal projections, do you anticipate eventually getting back to offering full year EPS guidance, maybe to help give investors, you know, some goalposts for the year and possibly avoid what can at times be a wide range of EPS estimates?

[Andrew Bonfield, CFO at Caterpillar Inc.]

Yeah, I mean, I think you know, as you know, the challenge in the environment we're in at the moment is predicting what the likely outcome is gonna be within a range that's probably narrow enough for people to do. I mean, unfortunately, part of the reason why your estimates are wide is because our estimates are wide as well because of the uncertainty. You have to take those into account. I think that's part of the reason why we haven't reinstated guidance. I think it is one thing that you know, we will come back to in due course as and when things stabilize in the external environment. Not at this stage.

[Andrew Bonfield, CFO at Caterpillar Inc.]

I've just had a written question in. Somebody just asked a question about retail stats and whether pricing is included in retail stats. Just to be clear, retail stats are dollar neutralized, price neutralized. Pricing is not in the retail stats. That is a pure volume number on a comparable basis.

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

Operator, we have time for one more question.

[Operator]

Your final question today comes from the line of Jerry Revich with Goldman Sachs. Your line is now open.

[Jerry Revich, Senior investment leader and Head of US Machinery, Infrastructure and Sustainable Tech franchise at Goldman Sachs]

Yes. Hi, good morning, everyone.

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

Morning, Jerry.

[Andrew Bonfield, CFO at Caterpillar Inc.]

Morning, Jerry.

[Jerry Revich, Senior investment leader and Head of US Machinery, Infrastructure and Sustainable Tech franchise at Goldman Sachs]

Yep. Jim, you've spoken about a steady recovery in Resources. I wonder if you just update us on, you know, where lead times stand for, you know, large mining trucks today. You know, the revenue level in the business is, you know, 50-60% below prior cycle highs. I'm wondering if it's fair to think about backlogs at comparable levels versus the last cycle as well. Thanks.

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

As we say, as I mentioned earlier, certainly, mining is playing out the way we expected in terms of increased orders. Our lead times are not extended anywhere near as much as they were during the prior peak a number of years ago. We're working with our customers and are working very hard to meet their lead time requirements, and I think we're quite close to that.

[Operator]

That concludes today.

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

Thank you again. Go ahead. Go ahead, Emma. Sorry.

[Operator]

That concludes today's Q&A. I turn the call back over to Jim.

[Jim Umpleby, Chairman and CEO at Caterpillar Inc.]

Great. Thank you. Thank you, Jim, Andrew, and everyone who joined us today. A replay of our call will be available online later this morning. We'll also post a transcript on our investor relations website as soon as it is available. You'll also find a Q1 results video with our CFO and an SEC filing with our sales to users data. Click on investors.caterpillar.com and then click on Financials to view those materials. If you have any questions, please reach out to Rob or me. You can reach Rob at rengel_rob@cat.com and me at Fiedler_Ryan_S@cat.com. The investor relations general phone number is 309-675-4549. We hope you enjoy the rest of your day. Now let's turn it back to Emma to conclude our call.

[Operator]

Thank you for attending today's conference call. You may now disconnect.

Participants

Executives

• Ryan Fiedler, VP of Investor Relations
• Jim Umpleby, Chairman and CEO
• Andrew Bonfield, CFO

Analysts

• Rob Wertheimer, Director of Research at Melius Research
• Jamie Cook, Managing Director and Sector Head of U.S. Capital Goods Research at Credit Suisse
• Mircea Dobre, Senior Research Analyst at Robert W. Baird
• Stephen Volkmann, Managing Director and Equity Analyst at Jefferies
• David Raso, Senior Managing Director, Partner and Head of Industrials and Machinery Research at Evercore ISI
• Tami Zakaria, Executive Director and Equity Research Analyst at J.P. Morgan
• Chad Dillard, Senior Analyst at Bernstein
• Nicole DeBlase, Managing Director and Senior Equity Research Analyst at Deutsche Bank
• Ross Gilardi, Managing Director at Bank of America Merrill Lynch
• Analyst at Morgan Stanley
• Courtenay Yakavonis, Analyst at Morgan Stanley
• Seth Weber, Equity Research Analyst of Industrials/Machinery at Wells Fargo
• Steven Fisher, Managing Director and Equity Research Analyst at UBS
• Timothy Thein, Managing Director and Equity Research Analyst at Citi
• Analyst at TD Cowen
• John Joyner, VP and Senior Equity Analyst of Machinery and Multi-Industrials at BMO Capital Markets
• Jerry Revich, Senior investment leader and Head of US Machinery, Infrastructure and Sustainable Tech franchise at Goldman Sachs