CEOInterviews.AICaterpillar CFO Andrew Bonfield's Overview of Second-Quarter 2019 Results

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Rusty Dunn0:29

Hello everyone, I'm Rusty Dunn, and it is a pleasure to be joined by our chief financial officer, Andrew Bonfield.

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Andrew Bonfield0:35

Good to see you again. Mostly, the year is going fast. The second quarter is there on the books now, and we're talking numbers. Yeah, it's hard to believe we've got through another quarter already. Time passes so quickly. Well, why don't we get right into the numbers starting with sales and revenue. Sales and revenue up four hundred million dollars or three percent to fourteen point four billion dollars. In construction industries, we saw a favorable demand and favorable price, including the impact of higher data inventories. Then, actually within E&T, we actually saw lower revenues as we expected, mainly due to oil and gas sales where we know with the Permian takeaway issues that is having an impact on lower new equipment demand. In resource industries, we continue to see strong demand for original equipment, particularly for mining applications, as well as favorable price.

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Rusty Dunn1:25

All right, that was sales and revenues, so that leads us then to profit per share. Andrew, what are we talking about there?

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Andrew Bonfield1:30

Profit per share was up by one penny to two dollars eighty-three from two dollars eighty-two last time. We saw the benefit of favorable price realization which more than offset higher manufacturing costs. We also saw favorability from lower short-term incentive compensation which, though, was offset by unfavorable product mix both in construction industries and energy and transportation. And something we always touch on is cash deployment. Where do we sit when it comes to cash deployment? Again, very strong cash flow, operating cash flow of about two billion dollars for the quarter. We ended up the quarter with a cash balance of seven point four billion dollars, and we returned another 1.9 billion dollars to shareholders through a mixture of share buybacks, one point four billion dollars, and about five hundred million dollars of dividends. And don't forget, we've actually increased the quarterly dividend from this quarter onwards by twenty percent, which shows our commitment to actually returning cash to shareholders.

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Rusty Dunn2:22

And we hope employees have an opportunity to read the full financial release, but we always like to hear what your key takeaways are for a particular quarter, in this case, the second quarter.

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Andrew Bonfield2:29

Yeah, it's going to be a challenging year. We've got it off to a good start. We've got a lot of work to do. We know that there's a lot, particularly in the second half, particularly given where we are in our planning cycle, oil and gas in particular. So the team's got a lot to do. Good start to the year. Gotta keep focus and executing the strategy.

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Rusty Dunn2:49

And as always, we love to go beyond the numbers as well when we have you here. At this time, you were down at BCP Clayton, North Carolina. In fact, I think it was a quarter ago that you were on one of our biggest machines. This time, you got on one the smallest machine.

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Andrew Bonfield3:00

Yeah, we went from the rather large to the rather small. Actually, one of the machines I barely fitted into, so it was actually quite interesting. A great experience again as well. Once we're talking about it, let's watch.

Welcome to the Edward J. Rep Customer and Training Center here on the grounds of the building construction products facility in Clayton, North Carolina. Today we're talking about equipment technology and customer experience. I'm here with my best friend who is the customer and training center manager for North America, Mike. What happens here?

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Mike3:40

The key thing for us is we bring customers in and we show them product, but it's very easy to show the product. What we need to do is give customers solutions. What I love about this area is we have 12 plus acres dedicated to our customers, and we have at least a minimum of 79 pieces of equipment out here. So we can get them on any of the BCP equipment out here, let them try it out and go through the paces.

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Andrew Bonfield4:04

So Mike, what is the benefit for customers for coming out to? What do they get in particular from coming to this facility?

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Mike4:11

So our facility is a little different, and it's a great opportunity for customers to come here to the customer training center, and they get to get into the iron. They get to meet with the product specialist, and then we actually have a factory located right on site across the street here where they can go in and they can see the quality put into our small wheel loaders. And then right across the street we have our Clayton Machine Development Center where our engineers are located, and they can see where they design the equipment and how we test it and put the machines through the paces. So they can really fully immerse themselves in the CAT experience.

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Andrew Bonfield4:38

Yes, sir, they get to see the dirt iron customer experience here in Clayton.

I'm here with Dante Thomas, marketing manager for attachments, and Jessica Tebow, whose customers Events Coordinator here at the center. Don't take what's Jessica doing?

Jessica's operating our remote control system which allows remote control operation of our skid steer loaders and compact track loader and multi-terrain loaders. So what is the main custom advantage of having this controlling and remotely?

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Dante Thomas5:13

One of the main advantages is the ability to operate the machine from outside the cab up to 1,000 feet. When you think about applications related to safety, line of sight or having the operator separated from the environment, those are all benefits where a customer might want to look at a remote solution.

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Andrew Bonfield5:29

And does it have the full functionality we group it to the remote control that it would do if you actually in the cab itself?

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Dante Thomas5:35

Absolutely, so the remote control box that Jessica's waist gives you all the same functionality inside the cab as outside the cab as well.

All right, Andrew, we're gonna give you a go at this. You ready?

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Andrew Bonfield5:45

Yeah, awesome.

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Dante Thomas5:48

All right, so with your right hand, that is pretty much gonna be your lift arm, so it's gonna lift up when you pull up towards you, yeah, and it'll go back down and you push down. And then to control your forks, if you curl in towards yourself, it's gonna curl up. There you go, yeah. Throw back out, it's gonna curl back out towards you, yeah. And then to control your hydraulics, if you touch the top button, see the forks will come in and come out. There you go, very nice. All right, then your left hand is gonna be your directional. So if you push forward, it's gonna move the machine forward.

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Andrew Bonfield6:29

First, I'm driving the skid steer remote control, huh? Fantastic, it's great, very easy. Start driving a big remote-control car, yeah, I could get used to this. It's a lot of fun. I love driving this thing.

I'm here with Jason Becker who's a marketing manager for mini excavators. Jason, can you tell me about?

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Jason Becker6:54

Well, there's so many things to talk about, and about where do I start? First off, these machines right here that you see are the next-gen mini excavators, and this whole entire room that we're sitting in right now is dedicated to the smaller customer that really needs a machine to do a lot of work in a very, very compact size. And that's the typical CAT customer? Is it? Well, for years and years, you know, Caterpillar's we built on big equipment, right, and we still very much care about that equipment, but now we care about machines and you can get customers all the way down into smaller sizes. So your previous videos you've seen the biggest machines in the world on mining sites, and now all the way down to a machine that can go right through a doorway on electric power. What do you think? Fantastic. And customers must really love this machine. What you see here is a typical engine bay of a small machine, yeah, it's kind of tight, a lot of things in there, but all the maintenance and service items are right there, yeah. We wanted to make it better for the customers. They asked us make it better for the customer, so we're gonna show you how they did that. Okay, this is an industry-first tilt-out cab. This machine has a cab that will lift up. You can see all the major components are underneath, so you can get full access to the full engine without having to try and mess around with a very tight space. Open the doors up in the back and you open this tilted cab up, and you can see from the front to the back of this machine, you can see everything.

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Andrew Bonfield8:11

Okay, sounds good. How do you think that you do open this cabin? Wouldn't ever try. All right, let's do it. Okay.

And there it is.

All right, okay, that was four minutes and 26 seconds, four minutes 20 seconds, that's pretty good.

Thank you for your time. Okay, very good. Thanks.

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Rusty Dunn8:57

Well, after watching that, Andrew, I have to ask, did you enjoy being in the cab doing the actual operating behind the controls or you like the remote control?

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Andrew Bonfield9:05

I think the remote control is really brilliant because I think the thing about it was it's so responsive and so immediate that actually it is a really great piece of technology. Again, you know, one of the great things for me is to get to see some of the value of some of the investments we are making for our customers and actually being able to actually operate that piece of equipment remotely, but actually see it respond so quickly is just phenomenal. Always great to spend some time with the people who are meet the people behind the machines and responsible for that. Excellent to work down there, yeah, it's really great.

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Rusty Dunn9:34

And your BCP has done a great job, and it's a great facility down there.

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Andrew Bonfield9:40

Absolutely.

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Rusty Dunn9:40

Andrew, great to see you again. We look forward to the next quarter.

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Andrew Bonfield9:44

Thank you very much, Rusty, and thanks to all of you for spending a few minutes with us. We appreciate it. As always, be safe in everything you do. Go out, have a great day. We'll see you next time.