Caterpillar, Inc.

Good morning, ladies and gentlemen, and welcome to the Caterpillar 4Q 2018 Analyst Conference Call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Amy Campbell. Ma'am, the floor is yours.

Thank you, Kate. Good morning, and welcome, everyone, to our fourth quarter earnings call. On the call today, I'm pleased to have our chairman, and CEO, Jim Umpleby, our CFO, Andrew Bonfield, and Vice President of Finance Services, Joe Creed. Remember, this call is copyrighted by Caterpillar, and any use of any portion of the call without the expressed written consent of Caterpillar is strictly prohibited. If you'd like a copy of today's call transcript, we will be posting it in the investor section of our Caterpillar.com website. This morning we will be discussing forward-looking information that involves risks, uncertainties, and assumptions that could cause our actual results to be different than the information discussed. Details on the factors that either individually or in the aggregate could make actual results differ materially from our projections can be found in our filings with the SEC and in our forward-looking statements included in today's financial release. A reconciliation of non-GAAP measures can be found in the appendix of this morning's presentation and in our release, which is posted at caterpillar.com slash earnings. And with that, I'll turn the floor over to Jim.

Thank you, Amy, and good morning. I'd like to begin today by thanking our global team for delivering an outstanding year in 2018. It was the best profit per share performance in our company's history. which allowed us to return $5.8 billion of capital to shareholders. In 2018, we remained focused on making our customers more successful and executing our enterprise strategy, which centers around achieving long-term profitable growth through operational excellence and investing in services and expanded offerings. Revenue for the year was up 20% to $54.7 billion, as favorable economic conditions drove growth across many of our end markets. We delivered record adjusted profit per share of $11.22 and strong operating cash flow of $6.3 billion, which allowed us to repurchase $3.8 billion of company stock, raise the dividend by 10%, and make a discretionary pension contribution of $1 billion. 2018 marked the 25th consecutive year we paid higher dividends to our shareholders, earning us recognition as a member of the Elite Aristocrats Dividend Fund. Our fourth quarter adjusted operating margin was 13.8%. This was lower than our expectations and was impacted primarily by write-offs at CAT Financial and higher than expected material and freight costs. However, our full year 2018 adjusted operating margin was 15.9%, 340 basis points higher than 2017, and solidly in line with our investor day target range. We're continuing to execute our enterprise strategy with the operating and execution model guiding our investments to those areas with the best opportunity for future profitable growth. I've talked frequently about two components of the strategy, expanded offerings and services. Let me walk you through a few successes from last year in both of those areas. On our October call, I talked about our expanded offerings of next generation articulated trucks and mini excavators. We've continued to roll out next gen machines, including the 120 motor grader that offers up to 15% greater fuel efficiency and saves customers up to 15% in maintenance costs with new filtration technology. In December, we announced the next generation 36-ton class excavators. These machines increase operating efficiency, lower fuel and maintenance costs, and improve operator comfort. We also launched our next generation D6 dozer, offering customers the world's first high-drive electric drive dozer with 35% better fuel efficiency and increased agility compared to the previous electric drive models. We are expanding our engine offerings as well, including the CG series of generator sets, increasing power output, offering higher reliability and improving return on investment for our customers as they operate on natural gas and biogas, making them more economical. Thanks to the combination of Caterpillar technology and a customer's initiative, the world's first cruise ship powered by liquefied natural gas set sail in 2018. This is another great example of an expanded offering. We offered our customer an integrated solution utilizing our MAK dual fuel engines to fully operate this cruise ship using LNG. Now, a few examples of services. including technology solutions that support our dealers and customers at the initial point of sale and in the aftermarket. As of November, CAT mining trucks using our MindStar Command for Hauling autonomous technology reached a milestone of moving 1 billion tons of material. We deployed our first six commercial autonomous trucks in 2013, and the fleet now has grown to more than 150. Six different mining companies are operating Command for Hauling, hauling on sites in Australia and North and South America. We are working with customers who operate mixed fleets and have successfully deployed our autonomous technology to retrofit competitor haul trucks. We're leveraging our success with autonomy and are collaborating with a customer to pilot remote control operator stations for landfill operations, which could transform, even revolutionize, many aspects of the landfill industry. We've also introduced an equipment management app that allows our customers to monitor fleet data, request parts and service, and connect with their dealer via mobile devices. These are a few of the many examples of our global team helping our customers be more successful working with Caterpillar than with any of our competitors. Now for the outlook. Following a record year in 2018, we expect further growth in profit per share in 2019 to a range of $11.75 to $12.75. Our outlook assumes a modest sales increase based on the fundamentals of our diverse end markets as well as macroeconomic and geopolitical environment. We will continue to focus on operational excellence, including cost discipline, while investing in expanded offerings and services to drive long-term profitable growth. In construction industries, we believe a healthy U.S. economy, continued pipeline construction, and state and local funding for infrastructure development will be favorable in 2019. Latin America is expected to continue its recovery, but demand will remain at relatively low levels. In the Europe, Africa, and Middle East region, demand remains steady, but political and economic uncertainties exist. In Asia Pacific, we expect construction growth in countries outside of China. Within China, the industry is very dynamic, and there are a variety of forecasts. We will continue to monitor the situation But as of now, we are forecasting the overall China market to be roughly flat in 2019 following two years of significant growth. China represents about 10% to 15% of our total construction industry sales and about 5% to 10% of total Caterpillar sales and revenues. For resource industries, we believe commodity prices will remain supportive for investment, and mining companies will increase their CapEx budgets in 2019. Demand for heavy construction and quarry and aggregate equipment should also remain strong. In energy and transportation, we expect the recent volatility in oil prices and takeaway constraints in the Permian to negatively impact demand for well servicing equipment in the first part of the year. Gas compression should remain strong. Demand for power generation equipment should continue positive momentum that started in 2018. For industrial engines, The strong U.S. economy remains a positive for demand, but we expect some headwinds in IAMI. Finally, in transportation, we expect our rail business to improve in 2019. In summary, 2018 was an excellent year for Caterpillar and one that demonstrates the power of our strategy. We achieved record profit per share, returned significant capital to shareholders, and continued investment in expanded offerings and services to drive long-term profitable growth. Once again, I'd like to thank our global team. Now that 2018 is in the record books, we are focused on delivering another great year. We continue to feel good about our business and have increased our profit outlook for 2019. With that, I'll turn it over to Andrew.