Caterpillar CFO Andrew Bonfield's Overview of Fourth-Quarter and Full-Year 2019 Results

Rusty, good to see you again too. The company has come around this quickly again—the way we're actually now doing results and also obviously giving our look for 2020. It goes more quickly every time.

The sales and revenues were down $1.2 billion or 8 percent in the quarter. We did expect lower revenues—we guided to about mid-single-digit revenues being down for the fourth quarter, driven mostly by changes in the amount of inventory the dealers are holding. So they've reduced their inventory levels by $700 million in the fourth quarter of this year versus a $200 million increase last year. We also saw some lower retail sales, or sales to users, which are end-user sales.

Good set of numbers in the circumstances. We expected a lower quarter this year, but actually what they did mean is when we look at the profit per share, we had much stronger performance with profit per share up 19 cents or 11% in the quarter. A couple of factors there: one, operating profit was better—that was only a 2% decline in operating profit versus an 8% decline in sales, so we saw improvement in margins driven by particularly good cost control in the quarter, also strong performance by our financial products segment, and we also saw lower manufacturing costs in the quarter which offset some negative price. Also, when we get down to profit per share, we saw favorability caused by a lower tax rate. We expected the year tax rate to be around 26%; it ended up at 25%.

Yes, sales and revenues were down 2% or $900 million in the year. Most of that actually is due to changes in dealer inventory buying patterns. Last year we saw about a $2.3 billion increase in dealer inventories; this year was about $800 million, so that's about a $1.5 billion change. When we move through to profit per share, for GAAP profit per share including mark-to-market, it was down about 5% year on year. If we move to adjusted profit per share, which excludes those mark-to-market losses, profit per share was down by 1% for the year—$11.06—which represents good performance in quite difficult conditions through the year. We saw obviously some lower sales, really only due to that dealer inventory movement I talked about. We saw good price realization throughout the whole year, weakened in the fourth quarter, that offset higher manufacturing costs. And we saw lower SG&A and R&D expense and also higher profits from our financial products division.

Yes, and there's always a good story. Again, very strong cash flow in the fourth quarter, very strong operating cash flow—over $2 billion of operating cash flow generated. We ended the year with $8.3 billion of cash on hand. We've returned over $6.2 billion to shareholders and we also made a very significant pension contribution—$1.5 billion in the third quarter.

2020—I mean obviously at the moment there's a huge amount of economic uncertainty out there with geopolitical events playing out as we speak. So therefore we are expecting to see a down year in terms of sales and revenues. We expect our end-user sales to be down between 4 and 9 percent as we move through the year. We do expect dealers to further reduce their inventories as we move through the year—that would be between $1 and $1.5 billion as we move through 2020. Obviously the most important thing then is for us to focus on the rest of our cost structure. We expect to see lower manufacturing costs as we move into 2020 and that will help offset some of the volume decreases, but we'll keep tight control on other areas of our cost base. We expect our range of profit per share next year to be between $8.50 and $10—profit per share. It's a very wide range reflecting the uncertainty. The key thing is the company's ready to react either way. And the most important thing as we look through 2020 again is we expect another strong year of cash performance, which will help us to continue doing what we've been doing—returning cash to shareholders and investing in the business for the long term to drive long-term profitable growth.

Yeah, it's been a tough year obviously, but the team's done a great job in the circumstances and we're going to have to continue to do that. So that's going to be the key thing for us. But a very good year in 2019 and a little bit tougher year as we move into 2020, but one we've really got to go and execute well.

Yes we did, yes we did, and it was a really interesting day and we're going to show you some really interesting highlights.

Chris, can you just tell me some of the history of the New York Stock Exchange—the building we're in, where we are, and why it's so important for the capital markets?

Did he explain the importance of the jacket and the colors? Because obviously when you go down on the floor of the exchange you see people wearing different colors. It really is a tradition now, right?

Yes, very different from when I first went to the Stock Exchange nearly 20 years ago, which was very different then and still with a lot more people on the floor. But really the thing that was really interesting for me from my perspective is the chance to go behind the scenes a little bit more at the Stock Exchange—something which is a very unique opportunity and one which, obviously given that Caterpillar's been listed on the NYSE for so many years, they gave us a lot of access which was really, really appreciated.

Thank you again, Rusty.