Tag Archives: Construction Equipment

Caterpillar at Morgan Stanley Notes

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Tom Pellette – President, Energy & Transportation

Oil usage is here to stay

“there is a lot of, you can go out on YouTube and see a lot of pundits talk about the end of the internal combustion engine or you hear countries that are announcing they’re not going to have any more internal combustion engines after a certain year. You also hear a lot about peak oil demand that as I detailed in my presentation yesterday, the world population is growing we still have 15% of the world population of 7.5 billion people that don’t have access to electricity and particularly in developing parts of the world there will be continued need for fossil fuels. In fact, the prediction is that the absolute usage even though the percentage will decrease, the absolute usage will continue to grow 2040 and beyond. So, we are very heavily focused on becoming more efficient cleaner engines but continuing to provide reciprocating engines to the industries that we serve and in fact oil and gas usage continues to advance as people want to improve their lives”

There’s an economic balance point for electric vehicles

“we talk about electric cars and still the adoption rate is very low and they are still more expensive than conventional cars. When people say, when they look at a country like Norway, they have a high adoption rate of electric cars, but then you look at it and it’s all subsidized. So eventually that economic balance point will be reached and then these technologies will be embraced a lot more quickly we’ll be ready.”

Amy Campbell

China construction has surprised with its strength

“So, China Construction has surprised us all year with its strength. We expected China to do better, we thought but it’s quite better than we thought it would. For many reasons, one being that the used equipment market there is not as robust and we think that’s driving some of the higher demand and more matured European and North America market you get lot more used equipment to leverage for the industry.”

Caterpillar 2Q17 Earnings Call Notes

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D. James Umpleby – Caterpillar, Inc.

Construction in China was a highlight

“A number of our markets remain challenged, but there were improvements in a few of our key markets this quarter. Construction in China and gas compression in North America were highlights. Mining and oil related activities have come off recent lows and we’re seeing improving demand for construction in most regions. ”

Amy A. Campbell – Caterpillar, Inc.

Expect inventory restocking in China

No, we think that there’s still dealer restocking to come. So if you look at dealer inventories in China, we probably typically target about 2.5 months of sales. China’s target for dealer inventory months of sale is a little lower than the rest of the world. They have less variety in the configurations they sell. We are about, quite a bit lower than that at the end of the second quarter, even though we did take dealer inventory up some. So we do expect to continue to be rebuilding dealer inventory levels through the back half of the year. But as I mentioned, certainly in China, the strong selling season for end users is in the first half.

Seeing healthy demand for mining equipment

” I think commodity prices right now are supportive. They need to stay supportive. If we were to see change materially, that could change the story. But where they are right now, we are seeing healthy demand for mining equipment”

Price pressure has been there

“I’d say the price pressure has been there, but we expect it to continue. And we expect, I’d say our competitors, as we continue to see the strong dollar work against us from a competitive standpoint to put additional price pressure in the back half of the year”

Infrastructure spend has really disappointed in the US

“I think if you go back to the chart on Construction Industries sales that’s in the presentation pack, I think what you’ll see is we have seen healthy growth and non-residential and residential spend, although we still think from a residential perspective we’re not keeping up with population growth in the U.S. But what has, I’d say, disappointed for the last several years has been a lack of growth in infrastructure investment, which is really, I think, the area that looks prime to need some more investment and some more growth.”

Caterpillar (CAT) Q1 2017

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D. James Umpleby – CEO

In sum

”….generally weak economic conditions and commodity price volatility have made the last few years challenging and have significantly impacted the industries we serve…Quarterly sales and revenues were up for the first time since 2015… Profit per share, excluding restructuring, is twice what it was a year ago. There are encouraging signs and promising quotation activity in many of the markets we serve…there is still a great deal of geopolitical and market uncertainty, along with economic volatility around the world that continues to present risks.”

 

Bradley M. Halverson – President and CFO

On China

“Strength in China has mainly been driven by a strong execution of public-private partnership projects, particularly related to infrastructure and strong housing investment. Credit growth has remained supportive and better than we previously expected. High replacement demand and a tight used machine inventory market have also helped. While March and April are traditionally the highest months for industry opportunity in China’s peak selling season, if policy remains supportive we expect strong market conditions in China to continue at least through mid-year.”

Strong order demand in North America

“North America dealer inventory increased, but by less than a year ago. And end user demand was lower. Both contributed to the sales decline in North America. However, order activity in North America has been very strong, which has contributed to the increase in the backlog. The Middle East and Brazil remain weak..”

Increases oil and gas rigs means more demand for equipment

“The number of oil and gas rigs in service continues to increase and has more than doubled the lows that were reached last May. This has resulted in an increase in aftermarket parts demand to support the overhaul and rebuild of well servicing fleets. We are also seeing a significant increase in demand for our large reciprocating engines used for midstream gas compression applications. Demand for drilling and production application remains very low.”

Positive business sentiments…

“There are several positive sentiments. World business confidence is at a two-year high and world growth is accelerating. There are also positive indicators for North America construction demand. Many states have passed infrastructure bills. Pipeline projects that were previously stuck in permitting are now moving ahead and residential and nonresidential demand in certain parts of the U.S. remains robust. We believe business optimism, which may be contributing to elevated quoting and ordering activity in North America, is partially a reflection of the benefits of pro-business policy in regards to infrastructure and tax reform. However, we don’t expect to see any meaningful impact from these changes until 2018.”

…offset by some risks

“…there are other risks to the outlook that we believe are prudent to take into account. Outside of Asia-Pacific, retail stats for construction industries remain negative. Demand for overhauls and rebuilds in mining and oil and gas could diminish as those units go back to work. Brazil remains weak. The Middle East continues to struggle as a result of lower oil prices. Competitively, the pricing environment remains very challenging. The potential for oversupply of oil could drive volatility in the price of that commodity. And geopolitical uncertainty across the globe is elevated….there’s still a lot of uncertainty in the world. And there’s still the potential for volatility both in commodity prices and oil prices.”

 More positive outlook

“The backlog is up $2.7 billion on strong order activity in all segments. China construction equipment industry is robust with industry sales up sharply versus last year. Gas compression demand for reciprocating engines is very strong. And miners’ balance sheets are improving, and they are expecting increases to CapEx…We do believe that there may have been some restocking of dealer shelves in the first quarter. And certainly if you look at the hours of utilization of the mining equipment versus where it was at its depth, kind of middle of last year, mining equipment is being used quite a bit more extensively. And I think that you can conclude from that that it’s driving consumables of filters and fluids and other things like that as well.”

Caterpillar 1Q16 Earnings Call Notes

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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.”

Caterpillar at JP Morgan Conference

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Mike DeWalt –VP Finance Services

China change is logical

“From an economic standpoint, I think it’s our view what’s happening there is logical. They can’t drive an economy that big that fast on just fixed asset investment. I mean, the conversion to a bit more of a consumer-led economy overall have happened. It will have, as it’s been the last couple of years for our business, it will have fits and starts and a different impact overall.”

Demand has come down a lot over the last few years in China

“That said, it’s been pretty tough on our business. I mean demand has come down a lot over the last few years, particularly for construction and mining equipment. It seems to be stabilizing now. Our kind of view of China for this year is certainly not as much change as we’ve had over the last few years of a more stable environment, and we are out there looking for kind of short-term changes.”

February was a decent month but January was not so it’s still wait and see

“I know, month of February was a decent month for excavator sales but we’re trying not to get overly excited about that. You always have to consider the timing of the Chinese New Year. January was not a very good month. So I think it’s still wait-and-see.”

Inventory is in a normal range but sales forecast is lower so it needs to come down again

“I think our inventory in general at dealers and our finished inventory, you would say is kind of right in the overall normal range. But our sales forecast this year is down $5 billion from last year, and I think as a result of that, dealer inventory will need to step down a little bit to keep that ratio of inventory to sales in line. So, yes, I think this will be another year where we’ll under-sell end market demand a little bit.”

Currency is bad for our sales but neutral to profit

“currency, a frequently misunderstood subject with us, I can’t tell you how many times I hear the financial press, every time the dollar strengthens, it’s going to be a big disaster for us. And it impacts sales negatively but it’s usually, because of how we’ve diversified the cost base, it’s usually fairly neutral to profit. ”