Caterpillar CFO Andrew Bonfield's Overview of Fourth-Quarter and Full-Year 2018 Results

Happy New Year to you, Rusty! It's great to be here again.

Yes, Rusty, it was a great year for Caterpillar. We achieved record adjusted profit per share of $11.22, an all-time high, and fantastic performance across the whole of the company. A great year by Cat employees serving our Cat customers around the world and actually delivering fantastic returns to our shareholders.

So sales and revenues for the fourth quarter were up 11%, with increases across all of our three primary segments. Construction Industries saw good strong sales in North America, particularly oil and gas and non-residential building construction. Resource Industries — we saw very strong sales in mining and heavy construction equipment, and actually a very strong performance particularly in original equipment sales for the quarter. And then in E&T, we saw a very strong performance in us on oil and gas and also power generation, particularly for data centers and other large projects. So for the fourth quarter, profit per share was up 39 cents on an adjusted profit per share basis, that's up about 18%. Primarily driven by the higher sales and revenues we talked about of 11%, favorable price was offset by higher end material and freight costs, and a little bit lower profit from Cat Financial because of some write-offs relating to some loans that that business had. So a great quarterly look.

Yes, across the whole of the business for the full year, we actually saw sales and revenues up 20% to about 54 billion dollars, again with all increases across all regions and all three primary segments. Construction Industries similarly was impacted by North America. Resource Industries — again very good sales of original equipment particularly in mining and heavy construction. And then in E&T, all applications performed well, particularly us on oil and gas and power generation. We achieved adjusted profit per share of $11.22, a record in the company's history. That was driven by the high sales volume which was up 20%, which drove obviously the 63% increase in profit per share. We also saw lower restructuring costs, some targeted investments in our business for the long term, particularly in SG&A and R&D, and then also a little bit lower profits from our Cat Financial business as a result of the loan write-offs.

Yes, well over the year we actually generated significant cash flows. Cash flow has been very, very strong. We ended the year with an enterprise cash balance of some 7.9 billion dollars effectively, and net debt virtually zero at the end of the year. And at the same time we managed to return 5.8 billion dollars to shareholders through a mixture of share buybacks — 3.8 billion dollars of share buyback in the year, 1.8 billion in the fourth quarter alone — and 2 billion dollars of dividends. And we're very pleased to be seen now as part of the dividend aristocrats index, which means that we've grown a dividend for 25 years across that period of time. We also made discretionary contributions to our pension plans of a billion dollars in the third quarter.

So for the year we've actually given guidance range of $11.75 to $12.75. That will be another record for Cat above this year's level. So we expect still strong profit performance next year. As we look out into 2019, obviously we've seen — as we moved through the very strong performance, with revenues up over 20% for the full year — next year there are some macroeconomic uncertainties. For example, you've seen oil price volatility. And so as we look out, we do expect some improved performance across some markets, particularly in areas like Resource Industries for example, but we do expect less growth in the top line than we've seen this year. Overall though, we also expect lots of headwinds from the profit and loss account — lower incentive compensation payments, obviously increased material costs with tariffs impacting us next year, but some favorable price realization — and then some other puts and takes which net-net mean that we do expect a very good profit performance again next year.

Well the key takeaways are thanking everybody for another great year. This has been a fantastic year as I said at the beginning for Caterpillar and the Caterpillar family. People need to stay focused — we've got a lot to do to deliver our commitments this year, and obviously there's a lot of things that can happen in the external environment which can impact on us. So be prepared, stay ready, keep on that focus, and continue to deliver the very strong operating and cash performance that we generated this year.

Yes, I did! Fantastic tour and a lot of technology in action which we saw, and we'll show you some of those highlights. Really, really interesting.

Morning, Jeff.

That sounds great.

This sort of — how many units do you have of this? I mean, stock keeping units do you have?

That's five times as big — it's the biggest one I've ever seen before.

I'm thankful because of your comment. Thank you, sir! That's great to see technology in action. We've got some more to show you. Let's go to the next set-up.

Great. So where we're standing in front of one of our Totes automated storage and retrieval systems — the cranes that you see behind you are some of the newest additions that we put into this facility within the last three to five years. These cranes will pick a tote with the product that's being ordered, deliver that directly to a goods-to-person station where our operators are scanning that exact part that our customer's ordering and ensuring we're getting the right part, great quality, great product out the door. Part of the technology is about making sure that you actually improve reliability of picking, making sure you've got the right product thanks to the right customer at the right time.

Okay, Jeff and Eric, thank you very much for hosting me today. It's been a really interesting visit, the opportunity to see technology working in action, actually helping us become more efficient, meeting our customers' needs, and actually helping our employees by taking away some of the risks that would have been there. Thank you very much.

Thank you very much!

It was, it was a great day. And as I said during the tape, the number of parts that they're working with in that facility is phenomenal, and the complexity that that creates. So yes, it was really, really interesting for me to see how we are delivering for our customers.

That sounds great.

Thank you again, Rusty. That does it for our fourth quarter and full year 2018 financial results. Glad you could join us today. Go out, be safe, we'll see you next time.