Caterpillar Earnings Call Insights: Power Systems and Decremental Margins
Rob Wertheimer – Vertical Research Partners: It’s Vertical Research Partners. Let’s see let me just start with Power Systems since you did highlight that division. I mean you had one of the strongest margins you have ever had and wanted to just check in on whether you’re seeing – well actually just whether that was a mix related? I know Power Gen,, backup Power Gen has been off or whether it’s structurally improved the margin in that division and then whether you are seeing any change in electric power at all?
Michael DeWalt – Corporate Controller: Yes. If you look actually Rob, at the dealer statistics that we put out yesterday morning you can see that’s a little bit better than it was a year ago. I think a lot of that has to do with – it was kind of even turned down a year ago. So I think a little bit on electric power in particular the comps will probably just continue to get a little easier. I think for Power Systems overall they had a pretty darn good quarter. Sales volume was down a little bit, but some of the pieces were up. I think more of their profit improvement had to do with that little price realization and they’ve done a pretty good job on cutting costs. As opposed to Construction and Resource Industries they didn’t have near the decline in inventory that those other two segments did. So the absorption impact was relative to the Company in total, a lot smaller to them.
Rob Wertheimer – Vertical Research Partners: Can I ask you a different question. I am not sure if this is one you are willing to or able to answer, but is it possible to look through the turmoil that’s gone on in resources over the past six months and think about what your margin would be in a more stable environment at these volume levels?
Michael DeWalt – Corporate Controller: Well, you are right. I’m not going to throw out a number, but I think in my opinion, we had one positive item, the Siwei settlement that would in our numbers that you’d have to take out. That would actually make it a little bit lower. But then we are in the middle of pretty heavy inventory decreases and that in total, the amount that they are really underselling real demand and absorption impact probably more than offset that. In terms, we are moving from let’s just say higher volumes over the last year to lower volumes this year. Cutting costs has been a process and that’s going to continue into the second quarter. So, if for example, volume, end user demand kind of hung in at this level, our sales would probably go up a little bit because we would stop cutting inventory. We wouldn’t have the Siwei adjustment in there, but costs would likely be lower as we are partly through kind of cost-cutting activities that we’ve been doing. So, I guess my thought is that it would probably be a little higher than it is now, but I don’t know that I would want to throw out a number.
Ann Duignan – JP Morgan Securities: JPMorgan. I’ll start out with the decremental margin question. Doug, you’ve been pretty vocal about driving for 25% pull through. Can you talk about the decrementals this quarter whether they were disappointing or not to you and are we going to get back to 25% by year-end?
Bradley M. Halverson – Group President and CFO: This is Brad Halverson and it’s a good question and it’s a good question. If you look at the second quarter, I think there’s a couple of things. If you look to the right, you have to consider in terms of results. One is close to 70% of our drop in sales of our mining which is negative for mix. But even putting that to aside, if you just look at the peer cost absorbed kind of impact, you get to decremental margins slightly under 30%, and we’ve talked about 25% to 30% kind of a decremental margin in terms of our target. So, for the quarter you would get slightly into 30%. If you look full year at our outlook, even with all the headwinds, you’ll get to a decremental pull through of 24%. And this is something that we spend a lot of time on internally. We have targets that we have committed to, and if you look across our segments, Resource, Construction, our Financial Products, each of them as we talk about before have made a commitment as to what they’ll make at certain volume levels, which ties to our external commitment, and they are executing on that. So, when we get to the end of the year, we’ll be at $6.50, right around 24% which is with the mining headwind, I think a good number.
Ann Duignan – JP Morgan Securities: My follow-up would be on pricing. You also mentioned in the press release some negative pricing. I think it was in Resources in Australia. Can you talk about the pricing overall and where you are seeing the most pressure obviously probably in mining? But why would be giving up pricing at this point in the cycle.
Michael DeWalt – Corporate Controller: This is Mike. Just a couple of comments. You know I think when we talk price realization here, it’s versus the second quarter a year ago, and again I don’t want to harp too much on this, but we had an absolutely fabulous quarter a year ago. Price realization in the second quarter of last year kind of everything came up heads and we had just about $500 million reported for last year which was pretty close to a third of the whole year. So I think to start the discussion off, it was – in total and in particular for price a pretty tough comparison. We did have slightly negative price realization, well less than 1%, for Resource Industries and for our Construction Industries. For Construction Industries it was mostly in Latin America and we have a few big deals going on down there that had a little tighter pricing. I think for mining in general, it’s a tough market out there right now. I mean volume is down quite a bit and I think by and large we are pretty close to holding on again with a slight reduction in quarter compared with a really big quarter a year ago. I don’t think there is, any big fundamental shifts. You didn’t ask this question but I’m going to answer it anyway. As a part of this updated outlook before we were kind of talking about 1% up this year, we are not far off of that. I think we are looking at just a little under 1% for the full year for the total Company this year. So it was a little tighter I think in the second quarter but pricing didn’t overall go down. It was helped a little bit by better numbers out of Power Systems.
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