Caterpillar Earnings Call Nuggets: Production Cuts, Customer Concerns
Eli Lustgarten – Longbow Securities: Longbow Securities. Can we get a little more into the production cuts and the timing of it? At MINExpo, you told us you were basically taking $2 billion out of the fourth quarter; looks like you took a little bit of third and now you gave us a little bit distribution. Can you give us some quantification of how much production are you taking at this share and how much will go into next year? If we can get a sense of how the size of magnitude of what’s going on?
Mike DeWalt – Director, IR: Yeah, when we were at MINExpo, we weren’t done with the forecast. At that time it was pretty clear that it was going to come down. Our order rates for both Mining and Construction were lower. For Mining, it’s been evident that customers wanted to lower CapEx next year and we were seeing that in our orders and it was becoming pretty clear despite decent sales to end users that dealers were reducing orders to cut inventory in the third and fourth quarter. At MINExpo, the sum of all of that looked around 2 billion, it ended up being more like 3 billion and that’s the change that we have in the outlook. So, directionally we were pretty – I mean, we knew which direction it was going to go. We can see what was happening. We have another month under our belt. It is going to be this year and there will probably be some reduction in the first quarter as well.
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Eli Lustgarten – Longbow Securities: The 3 billion is what is scheduled for this year and somewhere on top of that or the 3 billion was spillover?
Mike DeWalt – Director, IR: Well, I wouldn’t view that 3 billion is entirely inventory reduction, I think the 3 billion is a combination of inventory reduction and demand is not as high as we thought. Just in general if you look at sales to end users still positive versus a year ago and along those lines I would mention that the September number was a little weaker than you might have expected and that’s because we had an extra weekend in September. We will have more workdays in October. So, workdays were about 10% less in September. But the point is even though sales to end-users are up versus a year ago, well in positive territory our expectation is that it was actually going to be a bit better than it is turning out in the fourth quarter. So, the decline in the outlook is both inventory and increases in demand or little less than we thought.
Eli Lustgarten – Longbow Securities: And a follow up. Can you talk about mining being down next year, can you give us some sort of quantification whether that’s double-digit or single digit with some magnitude of how we should think about the impact on the mining sector?
Mike DeWalt – Director, IR: Yeah, I’ll tell you what, we don’t do the guidance by segment, but if you were to look broadly, generally what mining companies are saying about CapEx. I think the numbers that I have seen are sort of 5% to 10%, and – I mean that give you some order of magnitude anyway in terms of what they’re thinking.
Vance Edelson – Morgan Stanley: Morgan Stanley. A follow-up on that last question; with the mining customers delaying some projects and reducing orders, could you give us a feel for just how widespread this has already become? In other words, do you have some customers that are taking the early steps, perhaps they’re acting quite concerned while others are still taking more of a wait-and-see approach, or have the vast majority started to delay already?
Mike DeWalt – Director, IR: Vance, it’s actually been going on since late in the second quarter. It hasn’t really changed too awful much here in the last month or two; it’s a pattern that’s continued. I think basically what’s happened is mining companies actually have quite a bit in the order book already. We have, particularly for the long lead time mining products like large mining trucks; we have pretty good order cover for next year. And I think they’re just taking a wait-and-see attitude to see what happens here with China and the U.S. elections and to get some direction on next year before they start ordering again.
Vance Edelson – Morgan Stanley: And then in the past you’ve referred to a potential inflection point in China. Any update on when you might see that happening? Does the first quarter of 2013 now seem too early given the back-end-weighted overall expectations that you have for next year?
Mike DeWalt – Director, IR: Well, actually China has continued to be pretty weak. In fact, I would say that’s one of the reasons why our finished inventory hasn’t come down maybe a little bit faster. We were thinking we would start seeing at least a little bit of a pick-up here in the fourth quarter. Within the economy, they’re going to accelerate some infrastructure spend, they’ve taken monetary policy easing. The sentiment on the ground from the dealers is a bit better, but in terms of translating it into sales, I’d say it hasn’t happened yet, so the selling season is sort of mid-February on, so probably not going to see much till then.
Douglas R. Oberhelman – Chairman and CEO: Mike, let me add in here; it’s Doug Oberhelman. I want to just add on, trying a little bit. Mike is exactly right. We don’t see anything concrete differently today than we had really the last few months. However, we were just there two weeks ago; all of us with our Board of Directors for our October meeting. We met with all of our distributors in China and most of them in Asia. And I will say for the first time that I’ve talked to them in a while, they – as Mike said, the attitude is better and their outlook is better without concrete orders in hand; however. We heard, I would say, story after story of positive anecdotes from their customers inside China, but none of them yet are on the order books. The presidential transition or the leadership transition happens the first half of November. Unanimously they all believe that’s a watershed event, we all know that. They also look for substantial change – whatever that means – by Chinese New Year, which typically is a selling season over there anyway. But these are anecdotes at this point but I would note that it is the first positive anecdotes we’ve had across the board inside China in sometime. So, we are all somewhat encouraged without any concrete things to put in our pocket book as yet.
Vance Edelson – Morgan Stanley: And from the Chinese officials themselves are you hearing anything either directly or indirectly in terms of what they might focus on to the extent they try to spur growth. Do you think infrastructure, for example, or anything else that you could benefit from is behind on that list?
Douglas R. Oberhelman – Chairman and CEO: Well, we’ve had the easing expected to open almost all year. We are seeing increased levels of building permitting this year over last year. We’ve also seen in the last six weeks or so have major infrastructure effort announced. I suspect all of that is aimed after Presidential – leadership transition and most of that’s aimed towards spring of next year which is kind of a confluence of when is it around Chinese New Year, but if it happens it is going to happen then if it doesn’t we are in for another kind of slow year in 2013. But right now the cards in the hand are looking better than they have for a while. But I would emphasize nothing concrete from (water’s edge) yet.
Edward J. Rapp – Group President and CFO: The only thing I’d add to that in terms of the government officials is I think is quite clear from the discussions as they are trying to moderate the stimulus maybe more effectively than they did back in the ’08-’09 timeframe where they felt things really got overheated and we look at that as a positive. So, there will be a point in time when we look back on 2012 and I think we will be pleased with the fact that China slowed and put this thing under more control. I think it is going to be better for our business, better for our business model over the long haul.
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