Caterpillar 3Q16 Earnings Call Notes

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Caterpillar (CAT) Q3 2016 Results

Douglas R. Oberhelman – Caterpillar, Inc.

Splitting Chairman and CEO role around transition of CEO

“We did make a change in governance with a split Chair and CEO role. I think most of you know we’ve had a shareholder proposal on that for several years in a row and we have a couple of large shareholders that are fundamentally for that. They push that at transition times. And obviously, this was a time the board considered that because we’re in transition.”

Mike DeWalt

Lowered 2016 outlook

“Let’s look at the outlook. We did lower the 2016 outlook. Previously, we were thinking $40 billion to $40.5 billion for the year and $2.75 profit per share, $3.55 without restructuring costs. Now, we’ve lowered that. We think sales and revenues are going to be about $39 billion this year, and profit will be $2.35 a share, or $3.25 excluding restructuring costs.”

Decline in construction, particularly in NA

“Now, the decline for construction is particularly North America. And the weakness in North American construction is impacted both our Construction Industries segment and, to some degree, Resource Industries for large equipment. So I think that’s one of the bigger reasons for the decline in the outlook”

Commodity prices still not quite good enough to drive substantial sales increases next year

“we don’t think commodity prices are still quite good enough to drive substantial sales increases next year. We would like to see commodity prices rise more next year. And if that happens, that, we think, logically would be upside for the second half of next year; if that doesn’t happen, probably not upside then.”

Remain very cautious on the first half of next year

” On balance, we’re not seeing a significant difference, but we’ve said this in the release. I think we’re much more cautious about the first half of the year. And the flattish for the year relies on a bit of improvement in the second half of the year. So I think to your point on costs, I would suspect as we wrap this up, we will be planning and trying to set a cost structure for something that’s probably a little bit more conservative than where we’re thinking sales for the year could be. So there will remain a very big focus on cost and cost reduction.”

I don’t really want to answer your question about goodwill impairment so I’ve going to talk around it rather than give a direct answer

“Well, those are big questions, so I’ll try to talk around it rather than giving you a direct answer, because our credit rating is up to the rating agencies. But first off, if we knew what the result of the fourth quarter goodwill testing would be, we’d book it. We don’t. We go through a defined process every year. We’re going through that now. And we’re pretty straight up. If there’s an impairment, we’ll book it. If there’s not, we won’t.”

We don’t have a Bucyrus, there is no Bucyrus

“First, there is no Bucyrus. Bucyrus does not exist. And the goodwill is not in one measurement bucket. We measure goodwill. We do the work based on which of our business it’s in and that goodwill is spread across more than one business. And also remember that some of the intangibles in goodwill changed after we acquired Bucyrus and sold a portion of it to dealers…So we don’t have a Bucyrus. Everybody wants to think we do, but it’s been integrated in across a couple of different businesses within the company. And so the measurement is not just Bucyrus, because it doesn’t exist. It’s each of those businesses that we have. That’s how it’s done.”

Problem in NA construction is infrastructure spend hasn’t been robust and too much used equipment

If you look at construction in North America, housing seems to be motoring on and has been okay. The problem we find ourselves in, I think, is the larger projects, the infrastructure, the infrastructure spending is maybe not quite as robust as housing would be right now, and that’s a bigger sweet spot for us. We have this other dynamic going on and I’ll try to describe it like this. We have too much used equipment in the marketplace right now, and used equipment prices are fairly depressed.”

D. James Umpleby – Caterpillar, Inc.

New CEO

“Thanks, Doug, and hello again to everyone on the line. It’s an honor and privilege to be selected as the next CEO of Caterpillar. I’ve worked with Doug for many years. I have great respect for him and am proud to be part of his team that has kept Caterpillar strong throughout some of the most difficult market conditions that we faced. Like other incoming CEOs, I’ll pull together a team of leaders that will refresh our enterprise strategy in the coming months. Again, it’s an honor to have been chosen to lead this great company. Thank you.”