Caterpillar, Inc.

Welcome to the First Quarter 2026 Caterpillar Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Alex Capper. Thank you. Please go ahead.

Thank you, Audra. Good morning, everyone, and welcome to Caterpillar's First Quarter of 2026 Earnings Call. I'm Alex Capper, Vice President of Investor Relations. Joining me today are Joe Creed, Chairman and CEO, Andrew Bonfield, Chief Financial Officer Kyle Epley, Senior Vice President of the Global Finance Services Division and incoming CFO, and Rob Rangel, Senior Director of IR. During our call, we'll be discussing the first quarter earnings release we issued earlier today. You can find our slides, the news release, and a webcast recap at investors.caterpillar.com under Events and Presentation. The content of this call is protected by U.S. and international copyright law. Any rebroadcast, retransmission, reproduction, or distribution is Of all or part of this content without Caterpillar's prior written permission is prohibited. Moving to slide two, during our call today we'll make forward-looking statements which are subject to risks and uncertainties. We'll also make assumptions that could cause our actual results to be different than the information we're sharing with you on this call. Please refer to our recent SEC filings and the forward-looking statements reminder in the news release for details on factors that individually or in aggregate could cause our actual results to vary materially from our forecast. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis is contained in our SEC filings. On today's call, we'll also refer to non-GAAP numbers. For reconciliation of any non-GAAP numbers to the appropriate U.S. GAAP numbers, please see the appendix of the earnings call slides. For today's agenda, Joe will begin by sharing his perspectives about our results and highlighting initiatives across our segments. Then he'll discuss our full year outlook and insights about our end markets followed by a strategy update. Andrew will provide a detailed overview of results, and Kyle will share key assumptions looking forward. We'll conclude by taking your questions. Now let's advance to slide three and turn the call over to Joe Crete.

All right, well, thanks, Alex, and good morning, everybody. Thanks for joining us. Our team delivered a strong start to the year, driven by resilient end markets and disciplined execution in a dynamic operating environment. Sales and revenues were $17.4 billion, up 22%, and we delivered adjusted profit per share of $5.54, an increase of 30% versus last year. Backlog grew to a record level of $63 billion, an increase of $28 billion, or 79% compared to the first quarter last year. All three primary segments contributed to both the year-over-year and sequential backlog growth. Also, Total first quarter orders were an all-time record, providing a solid foundation for continued positive momentum. Our strong balance sheet and MP&E free cash flow allowed us to deploy $5.7 billion to shareholders through share repurchases and dividends in the quarter. Solid sales and revenues growth combined with robust order activity demonstrate the strength of our business and our focus on solving our customers' toughest challenges. Now I'll discuss first quarter results in more detail. Sales and revenues were $17.4 billion, an increase of 22% versus the previous year and in line with our expectations. Adjusted operating profit margin was 18%. First quarter adjusted operating profit margin and adjusted profit per share of $5.54 were better than we anticipated, mainly due to favorable manufacturing costs, including lower than anticipated tariff costs. Costs related to tariffs introduced since the beginning of 2025 were approximately $600 million in the quarter. This was favorable to the estimate we provided in January, primarily due to an adjustment to the computation of tariffs in 2025. Andrew will provide a little more detail in a moment. Now I'll review first quarter retail statistics. Sales to users grew in all three of our primary segments. In power and energy, sales to users grew a robust 32% with growth across all applications. Power generation grew 48% driven by strong demand for large gensets and turbines used in data center applications with an increasing mix towards prime power. Sales to users in oil and gas increased 16% and were driven by reciprocating engines, turbines, and turbine-related services sold in the gas compression applications. Industrial growth was driven by engines sold into multiple applications. Construction industry's total sales to users grew for the fifth consecutive quarter, up 7%. Increases in North America were slightly better than we anticipated, mostly due to non-residential construction. Rental fleet loading increased, and our dealers' rental revenue continued to grow in the quarter. Sales to users declined slightly in the 80s and were below our expectations due to timing in key projects in Europe. Middle East was slightly lower, but was partially offset by better than expected activity in Africa. Asia Pacific was about flat, and below our expectations due to timing of customer deliveries, while growth in Latin America was slightly better than anticipated. For resource industries, first quarter sales to users increased 6%, which was below our expectations. primarily due to timing of customer deliveries. Mining sales to users were higher year-over-year with growth across most product lines. Heavy construction and quarry and aggregates were about flat. Rail remained at relatively low levels. Turning to slide four, I'll cover a few highlights since our last earnings call from each of the segments starting with power and energy. Yesterday, we announced another exciting opportunity to provide ProPower up to 2.1 gigawatts of large gas generator sets for prime power generation in support of data center, oil and gas, and industrial applications. The orders will enter the backlog on a rolling basis. We expect to deliver generator sets over the next five years and anticipate long-term services growth opportunities in the future. This represents the sixth agreement with at least one gigawatt of Caterpillar equipment for prime power applications. Moving on to construction industries, last month at ConExpo, we launched Cat Compact, a streamlined customer experience designed for small contractors and growing businesses that value simplicity and speed. It brings everything together in one destination, enabling customers to buy, rent, and service compact equipment with ease. We believe this will expand our relevance in the compact equipment industry and make it easier for small customers to do business with us and our dealers. contributing to our 2030 target for CI of 1.25 times sales to users growth. And finally, resource industries completed the acquisition of RPM Global in February, bringing a leader in mining software technology into our portfolio. As we highlighted to our investor day, RPM Global's capabilities complement our existing technology, strengthening our ability to deliver integrated solutions that help customers improve safety and productivity across their operations. We see this as a long-term investment in technology-enabled growth that will help solve our mining customers' toughest challenges. Now on slide five, I'll provide an update on our outlook. While there is increased uncertainty due to geopolitical events and elevated energy prices, our end markets have been resilient. We are closely monitoring the environment, and we are not forecasting material impact to our 2026 outlook at this time. We now anticipate low double-digit growth for full-year 2026 sales and revenues. The increased outlook is driven by resilient end markets and solid execution by our team. Notably, we're tracking ahead of our large engine capacity expansion plans for the year. Order rates are very strong across a wide range of products, driving backlog growth in all three primary segments. We also expect growth in services revenues for the full year. As a result, we anticipate stronger growth across all three primary segments compared to the outlook we gave during our last earnings call. With the improved sales and revenues outlook, full-year adjusted operating profit margin will be higher than we expected in January. As a reminder, our operating profit margin target range is progressive with sales and revenues. Adjusted operating profit margin is estimated to remain near the bottom of the target range corresponding to the now higher top-line expectation. Our full-year margin expectation reflects the strategic investments we're making to execute our growth strategy, as well as the ongoing impact of tariffs. The situation around tariffs remains fluid while we continue to execute our mitigation plans. Kyle will discuss our revised estimate for tariffs in more detail. I remain confident that we'll manage the impact of tariffs over time as we aim to operate around the midpoint of our adjusted operating profit margin target rate. We're also increasing our MP&E free cash flow expectations to be higher than 2025, reflecting our improved outlook and strong top-line growth. To further support our outlook, I'll discuss our key end markets, starting with power and energy. The 2026 outlook remains positive. Robust backlog growth was driven by continuing momentum in both power generation and oil and gas. We anticipate growth in power generation for both reciprocating engines and turbines driven by increasing energy demand to support data center build-out related to cloud computing and generative AI. We continue to see demand for prime power trend higher as data center customers look for alternative power solutions to keep pace with their growth. Oil and gas is expected to see moderate growth for the year. Reciprocating engine sales are expected to increase, driven by strong demand in gas compression applications. Solar turbines oil and gas backlog remains healthy, with continued solid order and inquiry activity. As a result, we anticipate another year of strong turbine sales. Services revenues in oil and gas are also expected to increase for the year. Demand for products and industrial applications is projected to grow modestly in 2026. For construction industries, we continue to expect full-year sales to users growth supported by strong order rates. Overall, the outlook for North America remains positive as sales to users are anticipated to grow versus last year. Construction spending remains at healthy levels supported by the IIJA with the remaining funds to be spent over the next few years. Also, investment in critical infrastructure programs and data centers is contributing to overall construction spending levels. Dealer rental fleet loading and rental revenue are both projected to increase compared to 2025. In IAMI, Europe is expected to remain stable, supported by non-residential construction, and construction activity in Africa is projected to remain strong. While softening in the Middle East is anticipated, as of now, we expect the impact on IAMI sales to users to be limited. In Asia Pacific, outside of China, softer economic conditions are expected. In China, we anticipate moderate conditions with four-year growth in the above 10-ton excavator industry off low levels of activity. Growth in Latin America is expected to continue. We're seeing continued positive momentum in resource industries with strong backlog growth. Robust order rates across most products drove the highest quarter for order intake since 2012. For 2026, sales to users are expected to increase, primarily driven by rising demand for copper and gold and positive dynamics in heavy construction and quarry and aggregates. Most key commodities remain above investment thresholds. Customer product utilization is high and the age of the fleet remains elevated. While some commodity prices have increased recently, customers remain focused on the long term. We continue to expect rebuild activity to increase slightly, compared to last year. Rail services and locomotive deliveries are both anticipated to grow for the year. Now let's turn to slide six for an update on our strategy. Over the past year, and even since our investor day last November, our largest customers in the broader data center industry have significantly increased their expectations for capital spending. That has translated to accelerated order rates for us. In fact, Since we first announced our initial capacity expansion plans in January of 2024, our large reciprocating engine backlog has grown by more than three and a half times. Customers are committing to longer-term orders, with some orders well into 2028. In addition to order growth for backup power, we're also seeing higher demand for prime power applications, which will lead to long-term service opportunities and higher demand for aftermarket components. As we've discussed, our large reciprocating engine capacity also serves a wide range of applications in addition to power generation, including oil and gas and mining, which are all expected to benefit from long-term secular growth trends. As a result of these trends, I'm excited to announce that we are increasing our large reciprocating engine capacity from two times 2024 levels to nearly three times 2024 levels. Over the last two years, we've maintained a disciplined strategy of scaling capacity in direct alignment with our growing backlog and long-term order visibility. By working closely with our customers to forecast their future requirements, we ensure that our capacity expansions are additive to our OPAC growth. Today's announcement reflects a continuation of this disciplined and measured approach. The additional investment will begin as soon as possible, but primarily occur from 2027 through 2029. As a result, MP&E capital expenditures are expected to average between 4% and 5% of MP&E sales through 2030. Based on our record backlog and customer forecasts, we estimate a positive cash payback on the entire reciprocating engine investment, including what was previously announced by the end of this decade. As a result of the additional capacity, we're increasing our 2030 growth targets. We now expect the compound annual growth rate for total enterprise sales and revenues to be between 6% and 9% from 2024 to 2030. The target for power generation sales has increased to more than three times sales by 2030 from a 2024 baseline. We continue to see attractive growth opportunities across all our segments, due to our role in providing the invisible layer of the tech stack, the critical minerals, the reliable power, and physical infrastructure that the modern world depends on. We believe we are well positioned to deliver long-term profitable growth. And finally, earlier this month, we announced that Kyle Epley will succeed Andrew Bonfield as CFO effective tomorrow. It's been a great privilege to work with Andrew. His leadership's been instrumental to Caterpillar's success and he's brought exceptional financial expertise, a relentless focus on disciplined decision-making, and a deep commitment to our customers and shareholders. He's made our global finance organization a strategic advantage, and his impact will endure long after his retirement. I've worked closely with Kyle for over 20 years and have great confidence in his ability to build on Andrew's legacy. He's an outstanding leader with deep institutional knowledge and a proven track record of partnering with the business to deliver results. Kyle was also deeply involved in developing our refresh strategy and will help drive achievement of our 2030 growth ambitions. With that, I'll turn it over to Andrew and Kyle.