Caterpillar 2Q16 Earnings Call Notes

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Douglas R. Oberhelman – Chairman & Chief Executive Officer

Don’t think it was a surprise that Joy was acquired

I’ll take that one. It’s Doug Oberhelman here. I don’t think it was any surprise that Joy was acquired with what’s happened to them and the mining industry in general and all the mining customers, particularly coal customers, that are out there around the world. Obviously, we’ve known Komatsu for decades. We’ve known Joy intimately as well the last decade or so since they emerged from bankruptcy and we entered mining in a bigger way. So neither one of these are new players. Certainly it’s a consolidation that makes sense in the mining world.

Michael Lynn DeWalt – Vice President-Finance Services Division

Taken down sales guidance as everything we’re seeing around the world is not giving us more confidence

“Talk a little bit about the outlook for the year. When we were sitting here a quarter ago, we were expecting sales in a range of $40 billion to $42 billion, so $41 billion as a midpoint. We’ve taken that down, from midpoint to midpoint, about $0.75 billion. And the gist of that is just everything that we’re seeing in the economy today around the world. Additional risk; everything from the results of the Brexit vote and the short-term uncertainty that that causes, the trouble we’ve seen in Turkey, all the negative rhetoric around the U.S. elections. Oil prices have come off a little over the last couple of months. It’s not any one thing, I would say. And we said this in the outlook. You know, we have sluggish economic growth throughout the world in general, but not enough to drive growth in our end markets. And the news we’ve seen over the last few months is definitely not giving us more confidence.”

There is some improvement in mining

“I would say there’s some improvement in mining on the horizon around aftermarket. We are seeing a little more activity on dealer rebuilds and we would hope that that would translate into higher sales for us. I think one of the things that might distinguish us a little bit from competitors is that we sell through dealers. So a lot of these projects might hit them quicker than they hit us. We’re still expecting a decline in dealer inventory this year and particularly in the second half of the year. So if we were just selling to end user demand, sales would be a bit better than they are right now.”

dealer inventories are not excessive but will likely come down in the second half

“If our delivery – let’s say things ticked up, orders ticked up, the markets heated up, and let’s say we had trouble keeping up, that would concern dealers and they would order even more. They would want to hold even more. But just the opposite is happening right now. We have excellent delivery performance. They can get pretty much what they need when their customers need it. And so that’s causing them to hold, or want to hold less. And the more – the better we do with lean, the more that’ll probably be the case. So I’m trying to stress the point I don’t think dealer inventories are excessive. I mean, there’s a reasonable range but I think they will come down over the second half of the year.”