Caterpillar Inc. (NYSE:CAT) Q2 2023 Earnings Call Transcript

Robert Wertheimer: Since the answer is so well, you look at your margins, it looks like your crushing operations. And you look at inventory and it’s like, well, okay, I understand you’ve got some pockets where delivery is holded up, any view on the totality of how Cat’s managing production flow, factory flow, et cetera? You look at safety, you look at other indicators, you do. I mean what’s your assessment? Is this the best you’ve done? Is there — are there other problem spots? Just an overall look at how Cat is managing, et cetera? And I’ll stop there. Thank you.

James Umpleby: Thanks, Rob. And certainly, I’m very proud of the team and the strong performance that we’re producing. We — as you know, we put out a new strategy in 2017, and we asked people to have faith in our ability to produce higher operating profit margins and higher and more consistent free cash flow, and I’m really pleased that the team has been able to achieve that. We always have areas that we can do better. I mean, I talked about the fact that we’re not as lean as I would like us to be in our manufacturing operations. We’re doing a good job growing services, but I always want to grow it faster. So there’s always things we can do a better job. But again, just I’m very proud of the team and the fact that we have been able to meet the targets that we set out to our investors a few years ago.

Robert Wertheimer: Thank you.

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

Tami Zakaria: Hi, good morning. Thank you so much. So going back to backlog, it went up by $300 million sequentially. What exactly drove that? Was it purely driven by pricing? Or did you see a net increase in order volumes in the quarter as well?

Andrew Bonfield: Yes. So there are a couple of factors. Obviously, price does have some impact overall. And that was probably the major impact on the increase for the quarter. Obviously, volumes fluctuate by quarter by quarter and depend on availability. But overall, we’re pleased that the backlog is holding at healthy levels.

James Umpleby: And maybe just one additional comment there. Honestly, some customers are waiting longer for products than I would like. And so backlog is a function, of course, of demand, but it’s also a function of our ability to ship. So as in fact, supply chain conditions ease and we’re able to ship more quickly, customers shouldn’t have to wait as long for certain products, which should bring our backlog down. So again, a declining backlog wouldn’t be a bad thing if, in fact, it’s the result of our ability to shorten lead times and improve availability.

Tami Zakaria: Got it. If I can ask a quick follow-up, for the back half, is it fair to assume price realization down to let’s say, mid- to high single-digit growth and do you have any incremental pricing planned for later this year?

Andrew Bonfield: Yes. So obviously, we’ve seen very strong price as you’ve seen through the year. Obviously, we expect that to reduce as we go through the second half. If you take a function of lapping price increases, I think you’d get closer to a — is a single-digit number. Obviously, we don’t estimate that by quarter. But yes, the price range will come down as we move through the remainder of the year. Can I just remind everybody please? Can we just ask one question so that we can get through everybody on the queue just out of courtesy for your other analysts out there, please?

Operator: Thank you. And we will move to our next question from Nicole DeBlase with Deutsche Bank. Your line is open.

Nicole DeBlase: Yes, thanks. Good morning guys.

James Umpleby: Good morning, Nicole.