Caterpillar 1Q16 Earnings Call Notes

Douglas R. Oberhelman – Chairman & Chief Executive Officer

Chinese government policy centers around shift from investment economy to consumer economy

“First of all, around China, I was over there about three weeks ago, as I usually do in March, to attend a state-sponsored forum of CEOs from Europe and United States. And there was a lot of sharing about government policy, where they’re going with the five-year plan, where they’re going with the 10-year plan for that matter as well, and a lot of discussion around the transition from an investment economy to a consumer economy, and I think that’s part of what we’re all feeling. They also announced about the same time, or a little bit before that actually, a little bit of a stimulus, which was minor. And frankly, we’re feeling that.”

Seeing an uptick in construction in China for the first time in three years

“This is the first post-Chinese New Year in probably three that we have seen a continued industry uplift for the industries that we serve around construction. It’s not a hockey stick. It’s not a boom. It’s not a 2010. But it is the first time we’ve seen that happen, and we have lifted our schedules as a result of that this year. ”

Any market that’s away from oil is doing well in the US

“In the U.S., any – just about any market that’s away from oil is doing pretty good. Southeastern U.S., Southwest U.S., we’re feeling the benefit now more of housing. In fact, construction and paving segments were up about 7%, and that’s positive. When you get around the oil pads, there’s an oversupply of everything and that’s kind of shadowing the numbers. I think once that balances out, we’ll be back to – or be able to show a fairly anemic, but stable growth.”

400k connected assets

“Today, we’ve got 400,000 connected assets and growing. By this summer, every one of our machines will come off the line being able to be connected and provide some kind of feedback in operational productivity to the owner, to the dealer and to us, where improvements down the road the idea being to get to a point where we can show the customer on his iPhone everything going on with his machine, his fleet, its health, its run rate, its productivity and so on. ”

I would be very cautious on China. We don’t know how sustainable the uptick is but there is an uptick

“I would share the caution in China. I am pretty sure that it’s more than just the tier change, the Tier 3 institution implementation on April 1. Our folks over there were pretty emphatic that that’s going to hold and that this is beyond pre-buy. But I am very cautious about how far that goes, and I would share that as well. We’re going to have to watch this month by month and see where it goes. There’s no question though that the government is concerned about growth. And too slow of a growth and a change in growth will be much more negative than some stimulus now, and I think that’s what they’re trying to balance. So I’m not going to declare a bottom in China, I don’t know. But certainly, this is, as I said earlier, the first post-Chinese New Year where we’ve had sustained shipments now 60 days going on 90 days past the New Year in several years. So I am watching that, and I am cautious, but that’s a better statistic than we’ve had.”

Europe is more positive

“going over to Europe, we met with hundreds of customers and all of our major dealers over there. And it was hard to find any more pessimism than that’s been there for several years. They all recognize it’s been a seven-year slog. They all recognize there’s not a boom coming, but at the same time, the stories were much more positive.”