Caterpillar Inc. (CAT) Earnings Call Transcript & Summary

I'm here at my next [indiscernible] in Las Vegas and what better way to start the day than having a discussion on all things mining and strategy with Caterpillar's, Chief Operating Officer, Joe Creed.

Good morning.

And Head of Resource Industries, Denise Johnson. So we are going to spend the next 45 minutes doing a Q&A. But before I start, I think Ryan has very important things to talk about.

Thanks, Tami. Really appreciate it, and thanks for hosting us today. So during today's meeting, we'll be making some forward-looking statements, which are subject to risks and uncertainties. We'll also make assumptions that could cause our actual results to be different from the information we're sharing with you today. Please refer to our recent SEC filings and the forward-looking statements reminder in our releases for details on factors that individually or, in aggregate, could cause our actual results to vary materially from our forecast. A detailed discussion of the many factors we believe may have a material effect on our business on an ongoing basis is contained in our SEC filings. In today's meeting, we'll also refer to non-GAAP numbers. For a reconciliation of any non-GAAP numbers to the appropriate U.S. GAAP numbers, please see the appendix of our earnings call slides. Additionally, please note that Caterpillar policy does not allow for these meetings to be recorded with smartphones or other devices unless specific approvals have been sought and granted prior to the beginning of this meeting. And lastly, we'll be posting a transcript that will be available on our website as soon as we can. And with that, I'll turn it back to Tami.

Perfect. So Joe and Denise, let's start with margins. So Caterpillar has seen a very impressive profit margin for the last 10 years, and we've heard management talk a lot about operating profit after [ capital ] charges as [indiscernible] across the business. So can you help us with how you think about this metric and overall the margin profile as you enter into a more business environment post the COVID-led supply crunch and demand surge?

Yes. I guess, I'll start, and Denise, you can talk about RI as well. This really goes back to what we call the operating execution model. And that's how we effectively run the company, and it's a discipline that we put in when we launched our strategy in 2017. Denise was in the executive office and I ran our strategy group back at that time. So when Jim became CEO, we were part of that team that created that strategy. But I think if you -- if we take a step back to say, well, what's different about Cat now over the last 10 years or so, maybe even go before that, from 2012 to 2016 when we sort of had probably the only time in my career where all of our industries sort of hit a bit of a downturn and we went on a pretty heavy restructuring effort to take out some structural costs, both in our manufacturing footprint. We had a lot of new factories, so we kind of decommissioned our older ones and maintained most of our capacity and also really focused on streamlining our back office and taking our structural cost down. With the O&E model, one of the things is to have a flexible -- competitive and flexible cost structure. So we really implemented the discipline to not let those costs come back in in 2017 when our industry started to turn around. So I think that's, I would say, is #1 reason, which has really helped maintain our margin profile and our OPACC generation and cash generation. The O&E model also then looks at each one of our businesses. And across every division that we have, we really take a granular level of look at each business. And if there's an underperforming product line or business, we've really challenged the leaders to turn those businesses around and we've been able to do that. And in most cases, that's what happens. In some cases, the O&E model for us is also about resource allocation. It's putting our effort, both time and talent as well as investment dollars, in the areas where we feel like we have the best opportunity to grow OPACC in the future. And in some cases, we've actually decided to exit certain products or certain businesses. And that's happened in E&T when I was running E&T. CI has had a few as well, and Denise can take you through the RI journey. But I think if you couple all that over the last 10 years, the restructuring, the discipline after that to not bring those costs back in and then really, the O&E model and the discipline on how we allocate resources and look at our businesses is really -- and demonstrate the performance that we've seen in the last couple of years especially. And I'll let Denise talk about RI because if you look at what Denise has done in her business in the last 8 years or so, it's really impressive.

Thank you, Joe. So for Resource Industries, 2012 was the peak of the super cycle, so there was a lot of mining companies that were buying a lot of equipment. And after that super cycle, certainly things fell pretty quickly. And so we had to quickly assess not only our cost structure but our product portfolio and where we thought the market was going for the future and look at our competitive position in all of the product lines that we had, both acquired and had traditionally held within the Caterpillar portfolio. And so we made some really difficult decisions to restructure our business. We closed and consolidated about 35 facilities. We took $1 billion of cost structure out of the segment. And at the same time, we pivoted to ensure that we were still investing in the technologies that we needed and we knew we were going to need for the future. So it was a massive transformation. And I'm really pleased to see our operating profit at much lower levels of revenue be at all-time highs. And so as we move forward, we're very cognizant of the fact that we need to continue to invest in the technologies and the infrastructure that's going to be required for the future for mining companies, but at the same time, do so in a very prudent way to ensure that we're cost competitive and that we can maintain our profitability over time. And through the cycles, RI happens to be an industry that's very cyclical. And so as a result of that, we need to make sure at the bottom of the cycle that we're still very profitable and certainly, we can grow with the segment as well at the top of the cycle.

Perfect. So let's talk about growth opportunities. Investors are very excited about Caterpillar's growth opportunities ahead. So Denise, probably I'll start with you. For mining, of course, how is Caterpillar's Resource Industries segment is positioning itself to capitalize on the rising demand of some of the critical minerals like aluminum or copper, cobalt, lithium, driven by AI and the increasing demand for power generation?

Yes, there is no doubt that as we look into the future, commodities are going to be needed at increasing levels, whether it be for everything from the energy transition but recognizing that especially copper but all of the minerals that you mentioned, in addition to some of the traditional commodities that we've been a part of helping miners mine, we're really going to need more of our equipment and support for those. And if you look at strip ratios are declining, ore grades are declining. So to get the same amount of commodity out of the ground, you need to move a lot more ore. And as a result of that, we recognize that miners want to be much more efficient now than ever before. And they're very cost conscious because the demand is requiring them to also invest for the future. And it's not just investing in equipment, it's investing in the infrastructure and also some of the fixed plant assets. So we are very focused on ensuring that we have the total lowest cost of ownership, that we have a very competitive product that's high utilization, very high performing, that runs 24 hours a day, 7 days a week and linking that in with services that we can provide to customers. So we've been very mindful of the fact that it's not about just selling a piece of equipment, it's about making sure that it's being maintained at the highest levels possible. So we're doing a lot in the data space around asset health as well as ensuring that the assets run. And then, of course, autonomy is a key enabler for the future as well as many miners are really struggling with manpower and then also the cost structure in very remote placements. So we're super excited that we're an industry leader in autonomy and continuing to leverage that not only for the largest mines in the world but scaling that down to smaller mines, quarry and aggregate space. And that's a big investment that we've made for the future that we're mindful of the fact will have an increased pull over time.

Perfect. So we'll go to autonomy in a bit, but Joe, beyond the RI segment, what other growth opportunities would you highlight for Cat?

Yes, I think that's where the diversity of our business and portfolio really shines, the fact that we've been able to have sort of record results and operate at the level we have and still have opportunities in all 3 segments ahead of us. For every part of the business you can point that's going well and we have a number of places that are going well, we still have other areas of business with tremendous opportunity. The first one I would highlight is services growth, and that really transcends all segments for us. It's kind of the key pivotal center of our strategy is to focus on services, and we've been able to do that, and that's great for us for a number of reasons. One, it's good for our customers. It's good for our dealers. And for us, services is generally much less cyclical, so it helps dampen the cyclicality of some of our new equipment business as we move forward. And then you look at, Denise touched on RI and the opportunities and you go to the rest of the business, even in CI, if you start there, North America has been strong. Brazil has been strong. We've had good business in the Middle East. And we think infrastructure spending in North America still has a couple of years to go here. But parts of the world have not been that strong. Europe has been a little bit weak. China has been really a small part of our portfolio the last couple of years. So there are regions of the world where we could still see some upside in construction. And then in E&T, which recently has been our largest revenue segment, really has some growth opportunities, particularly around our Turbine business. We're moving a lot of gas. Our backlog is up there. And then around data centers and our distributed power. We've announced the capacity program for our large engine business to support the oil and gas and data center customers. That business, it's a secular trend that we're a huge part of in the power group. And then I would say also distributed power. The electric grids around the world, even in particular, in North America as more renewables come online when we retire some of the traditional power generation and then more things get plugged into the grid. There's going to be opportunities for our distributed power group to really help fill the gap and stabilize the grid. And like our industrial business has been off of its peak. So there's room in E&T to continue to grow and it's very promising for us. So if you just think about the diversity of our portfolio, to be operating where we're at and still have those type of opportunities in front of us, and we're making the investments that we think we need to capitalize on them, so it's really exciting right now.

That's great to hear. So I wanted to dig deeper on a top of mind topic, which is data centers and demand for commodities. Does growth in data center demand present opportunities for the RI segment -- Denise, the question is maybe for you? Can demand for copper expand your total addressable market?

Absolutely. I mean, copper is really, I think, the forefront of the growth opportunity for Resource Industries. And if you look at how much copper is needed for data centers and moving forward, especially as you go into AI, 4x as much copper is leveraged in a data center that's processing with AI than a traditional data center. So we recognize that. In addition to all of the electrification that's taking place not only in the auto industry, but even in the mining industry itself, where greenhouse gas reduction is something that's being driven as an initiative by many governments as well as a lot of goals around the world and investors are creating pressure there as well. So the recognition that more commodities need to be mined, specifically copper, but also lithium and aluminum and many others. And as a result of that, that creates a huge market opportunity for us. And not only in RI, but as we look at the -- I think the thing that's unique about Caterpillar is that we're very vertically integrated and that we have multiple segments that can serve the same customers. So in Energy & Transportation, we leverage a lot of standby power gen sets, microgrids already for mining companies. But when you look at the power of electrification in the future and what that will do for mine sites, it really unlocks the opportunity for the Energy & Transportation segment of RI in addition to the mining equipment and services segment to really combine our ecosystem. And you'll see that out on the floor today as you do your walk around on the real power of growth potential for us as a company, as an enterprise.

Perfect. So let's talk about technology and innovation. I think technology seems to be an underappreciated asset for Cat or advantage for Cat. Denise, we've seen Cat as a leading innovator in autonomous and electric solutions for mining and quarry customers. Talk to us about Cat's latest and greatest innovations in that space. What's the payback period? What's the customer uptake? Any insights you can share?

Yes, it's interesting because if you look at the product portfolio for Caterpillar, many of the companies that were most interested in moving towards fully non-greenhouse gas-emitting equipment were in the mining sector. The largest of our trucks, some that are demonstrated here today, are the ones that mining companies were pulling for us to completely take electric. And there's still a keen interest in that. I think as mining companies have recognized that the problem to solve is not getting new equipment into the site, it's getting the entire site operating in a new ecosystem. So bringing renewables to the site is a big challenge and then standing up that site with renewable energy and then being able to distribute the power, the power requirements for a mine site that's fully electrified are much higher than what they are today. And so as we've gone along on the journey, we've signed up a number of mining companies that want to be a part of our development process. So we have what we call our Early Learner Program where a number of major miners, we have 7 companies that we're partnering with. And we're placing some of the, what we would call pre-pilot units, very early development product into the mine sites. And we're already actually installing those today at Cripple Creek and Victor for Newmont. They're getting one of the first units. We have a number of units going to be BHP in Australia. And they're standing those up and we're doing development together. So I think we're going to learn together and grow together, but it really allows us to create that whole ecosystem. The one thing I wanted to mention, though, that I think is a real game-changer for us is not everyone is ready to go full battery electric in their mine sites today. And so when you think about new innovation and what we can do, we've really developed a new strategy where we can take a diesel electric truck and couple that with a lot of the infrastructure that will be required for the future to take current emissions down by up to 60%. So that's called dynamic energy transfer and it's demonstrated out here today. We think that will be a real game-changer for the industry as you look at how that technology will be deployed and allow mining companies to step in towards electrification but not fully go to zero emissions. And we see a big pull in interest from mining companies around that theme. So we're excited. I think it creates a big growth opportunity for us in the future, and I think we're well positioned.

I think investors are excited, too. So going back to you, Joe. Given your recent experience as Group President of the Energy & Transportation segment, can you explain how the E&T segment differentiates Caterpillar and promotes an integrated approach to the mine site of the future?

I think Denise said it well. The vertical integration and the fact that we've been in the distributed power business almost as long as we've been in the machine business is critical. As you look at sites of the future -- and I think one of the amazing things the team has done, both E&T and then Denise and her team, and she mentioned is we've developed the technologies to meet our customers where they're at on their sustainability goals, right? So it's not always just get to the fully electrified mine site. I don't know that any of us know the pace at what that -- in which that's going to go. It's going to vary by customer and region in the world, but we have developed tools like Dynamic Energy Transfer that allow customers to stair-step their way into this. And DET with diesel electric drive not only has helped -- more sustainably help our customers but it also speeds up their production. There are other benefits in here as well and can extend the life of some of their trucks and engines. So having a distributed power group, as Denise mentioned, getting equipment to the mine site is one thing. Now customers, and I would say quarries, and this will be this way as CI and construction moves through this journey as well in the energy transition, getting site power, getting the right power, distributing to the right place, knowing when to charge equipment if it's battery electric or when to -- how you get the site set up is going to be critical. And having that experience inside one company where we can bring a whole solution to help our customers solve problems versus just being a transactional equipment supplier, I think it's a huge advantage to us. And then we have the dealer network on the ground with us as well. So our team there, side by side with our dealers, I think it provides a huge competitive advantage for us.

I think that's a perfect transition to my next question, which is on competition. If I'm a customer, why should I choose Caterpillar? What differentiates you from the others?

You can go ahead with mining first.

Yes. I would start from the perspective of Resource Industries and mining. We provide an end-to-end solution that no one else can provide. And starting with the deep integration of our components. Many of our competitors buy their engines from another provider. They buy a lot of their electric drivetrain from others and then they integrate it. We develop all of that technology ourselves and knit it together with the controls and software to make it perform at a higher level because we have the deep integration and domain expertise to be able to do that. I think likewise the support on the ground with our dealers is second to none. They understand the local compliance issues. They understand the local people. They have relationships built. And so that whole ability to be able to recruit individuals and then be able to serve and support customers is critical. And in remote places throughout the world, that's sometimes difficult. I mean one of the biggest challenges a lot of our customers talk to us about is the fact that they need support on the ground 24/7. And so to be able to provide that both technically from a Caterpillar perspective but on the ground with the dealer is really important. So I think that really sets us apart. And then certainly, our ability to provide that service support also is really important.

Yes, I think that's well said. Having the breadth and diversity, I keep coming back to this, of our 3 segments, we can leverage technology, as Denise mentioned. Inverter technology that's in our mining equipment is super durable and helps in power generation in oil and gas. We use the mining transmission to be the best transmission in oil and gas. So leveraging that scale and technology that we develop and really bringing the full investment and innovation of the entire Caterpillar, no matter where the technology sits, to our customers in each of the industries we serve, along with the dealer network, I think really just continues to set us apart. And we talked about this earlier, the way the discipline of running the company with an OPACC focus and an O&E model, all the cash generation, the good results of really allowing us to invest in all these technologies that we can bring to bear for our customers. And when you do the show floor, if anyone is here, I encourage you to get out there and see Dynamic Energy Transfer and all the Cat Command, autonomy, all of the great technology that we're able to bring to our customers, I think, is a huge advantage for us.

So autonomy, let's talk about that. Denise, what drives customers to adopt autonomy in general? And how about specifically with Cat solutions? What are the drivers of adoption?

So I would say it's 2 things that drive the adoption. One is productivity. And as we have implemented autonomy, initially, it was a focus around safety, but productivity is really second to none for the bottom line of a miner who implements autonomy. But safety is another really important thing. I mean there haven't been any safety incidents with an autonomous site since we've implemented. That's because we have layers of safety built into our autonomy solution, which really has provided the ability to make that happen. As mine sites have converted to it, initially, it was retrofitting existing equipment, and we saw that trend take place in the beginning, in the early days of autonomy. There were a lot of new mining trucks out there in the field right after the super cycle. So as the pull came initially, it was a retrofit. And now we're seeing much more of an adoption of new product moving into -- wanting to desire autonomy. It's more than trucks, though. I mean we have autonomous drills, we have autonomous dozers. We have autonomous underground solutions. And so we're recognizing the need to be more holistic with it. And that -- we have a big pull on those products in addition to even semi-remote autonomous solutions. So we talk a lot about fully autonomous trucks, but really, it is an ecosystem of solutions which customers are wanting and really what's driving it is safety and productivity.

Joe, would you want to add something about some of the semi-autonomous solutions outside of the RI segment?

Yes. I mean it's RI as well and CI, and you'll get to see some of that out on the show floor. We have fully autonomous, but we have Cat Command. We can do line of sight remote control. You can be halfway around the world controlling machine, controlling more than one machine at one time. I mean we're making all these investments. And then there's technology on the machines as well, like grade control and all kinds of assist features. If you think about -- one of the things you'll hear is a common theme in the show this week, and you'll hear it through all of our segments is, yes, we want to have the best equipment in the world, we also want to help our customers with solutions that solve their toughest challenges. If you think about the challenge to get operators, either operators who don't want to go to remote sites or maybe landfills or operators that aren't as skilled and making them skilled. And one of the things I've been able to do over the last year in this role was spending time with our teams is to get in the cab with some of our machines. And suffice to say, I'm not a super skilled operator, so the teams will have me operate sort of manually, and then they'll turn all the technology on and the difference and how fast I can pick things up and complete activities like grades and keep it on grade with all the technology, really, really is impressive. And when you think about how that gets put to work for our customers as they're trying to attract people and drive efficiency, drive safety, it's more than just having the best machine that's putting this technology on there as well to make them much more efficient and help them solve their biggest challenges.

Perfect. So let's talk about connected assets. We've heard management talk about 1.5 million of connected assets and access to massive amounts of data. So Denise, the question to you. The data that you have right now, does it give you any insights on the optimal age or utilization of mining trucks and equipment versus where the fleet is today? And is a great replacement on the [ come ] based on the data?

Yes. For RI, we have over 100,000 of those 1 million assets connected today. And I would say, absolutely, a lot of the data that we're pulling off is leveraged for productivity and health reasons. And so as you start to look at aging fleets, we're continuing to monitor those to make sure there's no major component that needs to be replaced. We are continuing to see mining companies and even heavy construction companies stretch the life of their machines even longer and rebuild multiple times. So we have rebuild cycles that come up for major components, and we're seeing those -- the length of time double from the past. So that's a good thing for us as I think we're uniquely positioned to help customers extend the life of their units. At the same time, there's a certain point when assets do need to be replaced. And if you think about new technology that comes on to machines and just the electrical infrastructure and the amount of data that you're looking to pull off, if you have an asset that's 15 years old, that's a pretty massive electrical architecture upgrade that needs to be made. And at some point, it makes sense to move to a new unit. So we are rebuilding as we speak and we're also building more large mining trucks than we ever have before. So we're really able to do both, and we do see replacement cycles starting to come on and over time, having to increase though as a result of some of the trends that we're seeing from a data perspective.

Got it. Just to build on that, what would customers need to see to begin meaningful product replacement from here on?

Yes. I think it very much depends upon the mine site, the length of the mine and how long it will be in existence, what the regulation is in their area, and how they're thinking of the energy transition and what they want to do from that perspective. So I think it's not one single thing that's really going to be a springboard for replacement. I think it's really about how much -- over time, as assets age, availability tends to plateau. And so as you're really looking for the most efficient productive units in the fleets, generally, that's when you replenish. And as they get older and you really are looking to have much more connectivity and data and with autonomy and some of the other trends with electrification, that's going to be the tipping point, I think, for when you're going to see more mining companies move over to replacement. But a lot of it will depend on their investment profile and how much they're investing in other things as they are very prudent and careful with the investments they're making at each mine site.

Got it. That's super helpful. So let's talk about services. How does a customer's capital discipline benefit the services business of Caterpillar?

Well, it's a huge benefit from an RI perspective as we look at the ability to be able to capture the rebuild cycles as they come up. So that's everything from drivetrain replacements to hydraulic pump refurbs. A lot of time, the engine will put in a remaned engine at a life cycle where that engine needs to be refurbed. So the services amount is substantial as you start to look at the life cycle over 10 to 20 years for the life cycle of a piece of equipment in RI. In addition to that, though, I think what we're finding is customers are looking for more skin in the game by Caterpillar. So really extending component life, right? It's not just after 12,000 hours, I'm replacing a component. Can it last longer? So leveraging the data, the connectivity, the condition monitoring, and can we extend it instead of going to 12,000 hours, I'm extending that to 15,000 or 20,000. While that doesn't sell another piece of component, it does make that mining company more efficient. And we're willing and recognize that we need to play a part in helping the cost structure of the services for the customer be affordable and competitive. And so those are the kinds of things we're doing, but we see the services area as a key component of the value prop that we provide that others don't within the industry.

That's what people coming back to Caterpillar. You asked that question earlier. And I would bring that back also to another point on the 1.5 million connected assets and all the data. Denise said it well. But that data, we can turn that into opportunities to help our customers in this space, right? All of the condition monitoring, that data also helps our engineers, to Denise's point, how do our -- when we design a piece of equipment, we have a certain life that we expect in the field. But how is it really performing in the field and how can we continue to extend those lives? So the data helps engineering team. We have amazing apps like VisionLink and Cat Central to help our customers use that data and then help them, notify them ahead of time for what we call Prioritized Service Events. So hey, we will -- we think within the next so many hours or your next service interval or a certain amount of time based on all the data and how we see your machine performing, this service event and get you in contact with our dealer. We have a great e-commerce solution for customers to try to be easy to buy parts online and do business with. So this whole services mindset is really helping our customers be more efficient. And the longer we can extend the life of a piece of Cat equipment, it's good services for us. It's great for our customers and our dealers. And that's what's going to keep them coming back to us in the future.

Perfect. So another key topic amongst investors is Caterpillar's free cash flow generation, which has seen remarkable improvement over the last 10 years. And so I think it was about $10 billion last year. And so remind us how you have accomplished this growth and how to think about that from here on.

Yes, I think how we started this discussion today with really the journey we've been on, the strategy we have in place around the operating and execution model and how each of the businesses is really focused on driving efficiency but still making the investments. You're right. Last year, we were around $10 billion, a little over, I think. We've generated, I believe, around $45 billion since 2017. And it's been $5 billion to $10 billion every year with the exception of COVID year of 2020, and we were still at $3 billion. And that's something that we're very proud of in our business. And I think maybe it's a little bit underappreciated because people look at the top line and how sometimes it can move around. But our cash generation has been really solid. And that sets us apart, that discipline in the O&E model that we have because it allows us to continue to make the investments and all these things we talked about today. What you'll see on the show floor, the e-commerce, the digital solutions in addition to the newest products that we need to bring to market for our customers. So it's a real advantage for us and just a real -- I'm proud of the team and what we've been able to do the last 7 years or so, and we plan to continue to do into the future.

Great. So I wanted to ask you about capacity. So this is a question for you, Joe. Are you well positioned to support the growth ambitions across all the segments of Caterpillar over the coming decade or do you need to invest in additional capacity?

Yes, that depends on which business and we have a pretty rigorous S&OP process for sort of the short-term operating and then also looking out to what we think our opportunities are. When you look at the growth we have in certain areas, we will make investments where we need to, and we've announced the one in the large engine business, and that's a tremendous opportunity for us with the secular change, with the data centers and the demand that we see and the backlog that we have, putting that in. And each business sort of goes through, that's one example of the process. For the most part, we're in pretty good shape right now, but we always keep an eye on it. And that's a great challenge to have in front of us is having to add capacity because we have a good business.

Perfect. So another trending topic within the investment community is the topic of pricing. And so Joe, this is a question for you. We hear Cat talk about pricing every quarter. And how does mix and product feature improvement play into the pricing decision of products? And can this be a driver of price growth in the coming years?

Yes, we've been -- certainly, the inflationary period we've been in is a little bit different than normal. There are a lot of things that go into decisions to make pricing and every industry sort of has to take an assessment and we allow them to do that on their particular dynamics of what's going on in their markets. But being a premium player and having all the technology that we have clearly allows us to continue to be the premium player in the market. Input costs but we mentioned mix as well, there are certain regions of the world that generally have a better pricing profile. So as that moves around, we could see a little bit of mix impact. But we feel like we're in a good position right now and we look at that constantly, even more dynamically than we ever have and continue to try to make sure we're in the right place at each business, depending on the competitive situation that we're in.

Perfect. So I wanted to pivot to infrastructure spending. Can either of you talk about the pace of spending you're seeing from mega projects driven by stimulus as part of the IIJA, IRA or CHIPS Act?

I'll start and say certainly from a heavy construction perspective, we are seeing those investments be made. I think some of the starts for those, though, have started slower than maybe we anticipated and will extend out still yet a couple of years. So while we expected a big dramatic increase, it has come a little slower than we initially expected. But we are seeing a steady -- a lot of projects out there. There's a lot of infrastructure being put in, and we see that investment continuing for the future. And certainly, that benefits both the heavy construction side of RI but also all of CI as well with a lot of the investments that's taking place in the United States.

Yes, I agree. I mean, that's what we're hearing. We still have -- there's been a lot of stimulus put out there, particularly in the U.S. And I think we continue to see generally healthy demand. We'll see what happens with the rate cut as we move forward. But there's still a decent amount of projects and infrastructure work that needs to happen here in North America. So I anticipate that business will be there for us, and we'll continue to work with our customers at the pace that they need us to work with.

Any thoughts on M&A? Any areas where Caterpillar could do acquisitions to round out the portfolio, either in RI or overall within the Cat portfolio?

Denise can talk about RI. We're always looking at opportunities out there, particularly around the technology space. If you look at the types of transactions that we've done over the last 5 to 7 years, mostly have been small bolt-on type of technologies, and that's where we can really get the best bang for our investment. If you think about the scale that we have in all the industries, if you have a piece of technology that we can bring in that helps us across our product lines or helps us with our dealers or helps us make our customers more efficient, those are the types of things that generally seem to have the best fit for us. We don't have anything to announce today, but we're always looking at what we need. It's just sort of part of the overall investment thesis, right? It's not, do we have an intentional focus on M&A? It's really what do we need to help our customers and what's missing in our portfolio or what's the next level of technology? And then what can we develop ourselves and then keep an eye on what's out there that maybe we can tuck in to help accelerate.

From an RI perspective, it is a lot around technology and recognizing that speed to market is also key. And sometimes you can acquire something that you could develop internally, but it would take you a much longer time frame to be able to do. So most of what we're looking at in RI is in adjacent spaces around our mining technology. We're talking a lot today to customers around precision mining, and that's leveraging data much broader within the ecosystem of mining to be -- to allow more efficiency in the whole mining end-to-end product cycle if you think about it from a value chain perspective. And so things like that are things that we're exploring and we think really excited because it also expands our total addressable market beyond where we are today. And so yes, that's really the area we're exploring most heavily.

Amazing. So we are near the end of our discussion. So one question for you, Denise. As the RI segment president, it's been quite a journey for you. And can you talk about how the segment has really transformed over the past decade and how you're prepared to support your customers today and going forward?

Yes, absolutely. So I spoke previously about the financial transformation or the operational transformation that we made and really focusing in on what part of our portfolio we're best positioned to win and win in a very competitive way. I think in addition to that, we have doubled down on a lot of the investment that we know our customers are going to need for the future. And those are not pinpoint solutions that are based on iron. They are site solutions that can transform and really help our customers be more productive and safer and certainly help us then also partner with them in a much closer way. So I'm really proud of what the team has accomplished. And I think we're well positioned moving forward to be the choice of our customers as we move forward.

Great. Joe, anything you would leave us with?

Yes. Maybe just to wrap up and we talked about a lot of this today. First, I'm super proud of and honored to be part of this team. We have an amazing team of people, amazing leadership team, an amazing team of 110,000 employees around the globe to support our customers, and over 150 dealers that partner with us every day to try to make our customers more successful. We started this discussion. We're running as a different company than we were 10 years ago. The discipline and the strategy that we have is working [indiscernible] in our earnings, particularly in our cash flow generation that we talked about. And then most importantly, to leave everyone with, the diversity of our business is a strength. We talked about today how there are a lot of areas of our businesses that's performing really well right now. And for almost every area you can name, there are areas that have tremendous growth opportunity or areas that maybe aren't performing at their peak and have a lot of room to grow. So we've been able to perform. I'm proud of the performance we've been able to demonstrate the last few years, but I also am excited about the opportunities ahead of us. So we really appreciate you joining us today. And hopefully, you'll enjoy the show floor here. The teams, we've got an amazing show put together for everybody.

Perfect. That marks the end of today's session. Thank you so much for joining. Thank you, Joe and Denise, for spending time with us, and I'll pass it on to Ryan for closing remarks. Okay. Thanks, everyone.