Good morning, everyone, and welcome to the Caterpillar Fireside Chat here at CONEXPO 2026. We're welcome to have you join us today live from Las Vegas. My name is Alex Kapper, Vice President of Investor Relations. Just a few quick reminders before we get started. Today we will make forward-looking statements which are subject to risks and uncertainties. For a full list of risks, which may have a material impact on our actual results, please see our SEC filings, including the 10-K, which was filed just last month. We'll also refer to non-GAAP numbers. For any reconciliation to U.S. GAAP numbers, you can see our appendix of our latest earnings presentation.
Lastly, we've done our safety briefing here in the room, so we just encourage anyone joining remotely to be aware of your surroundings and your local safety protocols. With that, I'll hand it over to our host, Steve Volkmann.
Thank you, Alex, and good morning, everybody. My welcome as well, to this Fireside Chat. I'm Steve Volkmann with Jefferies, and very pleased to be hosting this event. Obviously joining me here today are Joe Creed, Chairman and CEO, and Rod Shurman, who is the Group President of Construction Industries, I think for 32 days now.
32, 33.
33. All right. Looking forward to, I think your first Fireside Chat in that role. Why don't we go ahead and kick it off? Maybe I'll start with you, Joe. You've introduced a new strategy, and I think Rod will be a big part of its implementation as you move toward this 1.25 sales growth to users target. Can you talk a little bit about your history with Rod and what you expect from him as the new leader of CI?
Thanks, Steven. Thanks everybody for joining us at ConExpo. We're really excited to launch our strategy last year, head into CES, talk about the invisible layer of the tech stack and that the technology runs on physical infrastructure that all three of our segments are going to contribute to and are necessary to power and run today's technology-enabled world. This week straight into ConExpo to celebrate the construction customers and CI, our segment that builds that infrastructure. We have a lot of cool things here that we've talked about. Rod's a big part of all this. Before we do that, I want to make sure I thank Tony Fassino. Tony is retiring after 30 amazing years at Caterpillar. He's a great leader.
I've worked with Tony a really, really long time, and he's driven CI to record results and leaves it in a great position for Rod to take over. Rod and I have worked together for... When did we start working together? 2009? Yeah, probably 17 years ago. We've known each other a long time. We've worked together in multiple divisions in different capacities and he's going to be an amazing leader for CI. By all the people I've worked with, Rod, he's run factories, he's done engineering jobs, he's great at all of them, but one thing I would say is he is amazing with customers and has just this intellectual curiosity to understand, you know, how our customers use our equipment and then really buys into the mission statement, right? Solving our customers' toughest challenges.
Rod's the kind of guy who likes to talk not just to loyal Cat customers, but to people who actually don't buy Cat equipment to understand how we can get them to buy Cat equipment and what their challenges are so we can serve them. He's high energy. He's an expert. I'm excited to have him on the team.
Great. Let's turn to you then, Rod. What CONEXPO-CON/AGG or Caterpillar keynote highlights should investors be focused on?
As investors, as you hear this week, you know, a couple of things Joe said it. It's our commitment to customers to solve their toughest challenges. As you go through the show, you'd see if you're in Operator Stadium, you're in West Hall, or you go to South Hall. It's how we're focused on those challenges for customer safety, labor, productivity, mixed fleet challenges, you know, common challenges for every CI customer that has big fleets. Even from a side of being easy to do business with. You'll see what we have in the West Hall, which is the launch of Cat Compact, which is focusing on those new customers coming into the business.
How does your history with BCP signal an increased focus on smaller compact equipment? You have a lot in your booth in the West Hall; I noticed on compact.
We think it signifies a really important part of our strategy in CI. We think of commercial excellence and how important commercial excellence is. One of the pillars in our strategy we rolled out late last year is just taking that voice of listening to customers and what they wanted. It was really clear for us. We've been in the compact construction equipment industry for over 20 years. We still had customers that didn't know we made small equipment. Having a channel that was very simple and easy to reach for them was really critical. When you're over there in the Cat Compact booth, it's just a really simple omnichannel solution, connects digital with physical where they can really find what they need, so they can try, buy, lease, rent, get service, and get financing all in one spot.
It really kind of helps solve the challenges they gave us to go solve. The key thing about it, and Joe hit it was talking to people that bought Cat equipment, but it was also really listening to thousands of people that did not buy Cat equipment and what they wanted. From that perspective, that's kind of what that's all about. It's a, an important part of our strategy, and it's one of the areas of commercial excellence we're really focused on.
I was at your keynote yesterday, and I think you told a story about accosting a customer at a gas station. I thought it was interesting. Maybe you want to mention it.
Oh, my esteemed colleague, Jamie, brought this up. We heard about as we worked through this started to get me to laugh quite a bit. It's funny. You know, I'm a small Cat machine owner myself. We own, you know, we own a Cat 265, and we owned a 259 prior to that. You know, it's just stopping right and talking to people all the time, that becomes quite the challenge for like if you have anybody with you in the vehicle, they're like, "You're just kind of a really strange person. You're talking to all these strangers." The amount of feedback you meet, and you just meet people that use machines to make a living, and you really understand from the lens of the customer back to Caterpillar what we can do to really help them solve challenges, right?
For small contractors, the challenges can be. You can look at them, they're different. If we take a large civil contract, they can have completely different challenges, but it's our commitment to be focused across the spectrum.
CI has historically had more of a dealer inventory sort of stock, B stock cycle. Is there any way to reduce that volatility?
Yep. For us, Dealers are independent businesses, they'll focus on what inventory they need for their customers. As we look through that, the opportunity we have as we continue to look at that is, you know, we're focused on growing services and rental. The rental's going to be some, you know, we'll see that kind of change going over to them. The opportunity we really have, again, this is the commercial excellence side of the strategy coming in, is taking that, see what the customers need and what we need and how we drive it. As we look at those problems for our customers, they could have a big job come up, and they need that flexibility to get into assets quick.
Having the right equipment out there for them is going to be critical to solving that problem and continue to grow in CI.
Yeah, I would say on that add on, we've done a lot of work on our S&OP process and working with our dealers. Our dealers are independent businesses. It varies by region of the world, by size of equipment, what application of equipment, and that our dealers are working on with customers in certain parts of the world. You know, we've done a lot to reduce that volatility, but we need to make sure we have the right inventory on the ground so that we continue to support our customers and not have them wait for equipment. We've done a lot of work on that. The data that we have helps us with all that.
Again, I think, you know, that was, I understand, an issue for us in the past, but I think we've done a lot to mitigate a lot of those impacts.
Okay, good. All right, you mentioned rental. What's your assessment of sort of the dealer rental business now, and does the dealer fleet size, composition, age need to change? What can Cat do to help dealers grow this business?
There's a lot in that question right there, we hit through this. One, it's, you know, rental for us is really focused on helping our customers solve challenges. The other part is you think about rental from that simple to do business with. For many customers, it's their first experience with Caterpillar when they come into rentals. You'd look through that, you'd see a relaunch, new catrentals.com, which is a really simple interface for customers to deal with. With the good dealers, it's not as much about fleet size, its age, its composition, it's how they're pulling assets in and moving those out. For a lot of customers, it's really solving cash flow challenges they can have on the job site. They might not need a machine long term, but maybe there's something they need short term.
It's just a great way for us to continue to grow our financial portfolio and get some more stability in the business between cycles.
All right, good. I'm going to change the topic a little bit. I mean, curious if you think Cat is a lean company? Which businesses stand out? Is there still significant upside? You know, what are the best metrics for us to be watching?
Coming in Construction Industries, maybe let Joe comment the rest of Caterpillar, for Construction Industries, for us, we are a lean business. We're focused on lean. I think it's important for me to understand lean isn't just a project, right? Lean is always taking place for us. As we go through and continue to work on lean in our business, Joe as we look at demand, supply planning, focus on that intersection of where things come through from the commercial side of the business to our operational side and getting that dealer input. Those are opportunities we continue to have in the lean space to focus on improving that. By doing that, it's a way for us to lower cost, become more efficient, and ultimately improve total cost of ownership for our customers as we continue to improve that.
A journey, not a destination.
Yeah, I agree.
It's an infinite type of a thing, not a finite thing.
If you're working on lean and you declare you're lean, I would contend you don't understand lean, right? Lean is this constant process of continuing to figure out how to be more and more efficient, and different parts of our businesses are definitely farther along than others, and some have their challenges, like large engines and turbines, where we're trying to expand capacity and keep up with demand. You know, it's probably not as lean as we'd like it to be. We still implement all the time and put all the philosophy and concepts in. We have a lot of room to continue to improve.
Great. let's maybe switch to some market trends. I think we need to make sure we make Alex an honest man about his forward-looking statements. let's get your thoughts here. Maybe, Rod, you can chime in too. 2025 was a massive year of backlog growth. You know, what trends are you seeing by segment? Is pricing more robust than the backlog? Any risk of cancellations?
Our backlog's obviously grown, you know, tremendously year-over-year and even sequentially, you know, as we ended the year. Orders have been really strong. We're happy. The good news is it was across all three segments. You know, I think people had a lot of attention around the power and energy business, data centers. Fourth quarter, we had a record quarter in oil and gas. We're seeing good order trends in oil and gas. CI had a really good quarter when it comes to orders in the fourth quarter, one of the best, one of the best ever, and then RI even the best in a few years. You know, I think it's healthy across the board. You know, risk of cancellation, I don't think so.
We talk to customers all the time, right? Is it never going to happen? I mean, you can never say never. We had a large customer in the middle of last year in power and energy come to us and say, "Hey, you know, one of our big projects is kind of getting stopped and moved around, and can you work with us?" We work with customers all the time to move slots, and we have plenty of demand right now to sort of make sure we can cover everybody. The good news is we're taking orders farther out, and we're working with customers to plan.
You know, one of the things we mentioned in the fourth quarter is I think it dropped about, you know, the percentage of backlog in the next 12 months is lower. We're starting to see line of sight to demand farther out. That's a good thing because we're working with customers to make sure, we get product to them, especially when we're constrained in large engines, when they need it and not ahead of time, so that allows us to serve more customers. You know, I think we have healthy businesses, all three of them are in great shape, which is good to see. You can comment on CI, what you're seeing from an order and a backlog standpoint.
Yeah, I think for CI, you know, we can send, you know, our backlog is good. For us, as we think through tailwinds we still have coming from infrastructure, we think through all that's going on with the energy transition, you know, data center buildouts for us, you know, for that. We are that invisible layer of the tech stack, and just we continue to demand continues to be strong for us there. We're close to the customers, as Joe said, you know, that's a, you know, I keep saying it, that's a really important part of our strategy and that commercial absence pillar is when we're close with customers. It lets us be much more dynamic and understand what's going on, so we don't kind of have these really late responses to what's changing, but we're not seeing anything like that right now.
Okay.
You didn't comment on the pricing part of that question.
Oh, pricing in the backlog?
Say it again.
I mean, when we have, you know, most orders we take at current pricing, right? Most of our businesses are at normal lead time, normal availability, it's not an issue. Power and energy obviously is getting extended, you know, on Solar Turbines, we take progress payments, you know, those are specially priced, how that business works. In the large engine business, you know, for our large customers, we have frame agreements. In those frame agreements there are generally agreed to escalators and things as we go into the future. I'm confident in the pricing we have in the backlog and feel good about where we're at.
Maybe, let's just recap sort of your growth outlook for the three key segments for 2026. Specifically, I guess, maybe more for you, Joe, but are mining customers finally ready to refresh their fleet?
You know, mining's been, I would say, steady over the last few years, and that's a good thing for us. You know, for us, if you think about mining, when it was in its super cycle, it was kind of boom or bust. You'd ramp the factory way up, volume would fall off and customers would slow down, then we'd have to sort of restructure. We'd have a lot of inventory. This allows us to plan. You know, mining customers have pushed off some rebuilds, and that's put a little headwind to us in 2025 anyway on services. I don't think that business is lost. It's a timing issue. From a mining standpoint, you know, we saw strong orders in the fourth quarter. I just don't think it's going to be the boom and bust that we saw in the past.
It's been pretty steady. That's a good thing for us. The world needs more minerals, right? I mean, I think I've learned over the last 10 years not to call the timing of when people are going to refleet. We want to stay close to our customers. Actually, extending the life of their equipment's a good thing for them and it's good for us. It's a good services business. It keeps them loyal. That way when it is time to buy or refleet, they're going to come to us. We're working with them all on new technology. We're excited to get Dynamic Energy Transfer out there. I think that's going to be a game changer for our mining customers. We feel good about where it's at.
If you just look at mining as a long cycle business, if you look to the next 5 to 10 years, just the amount of minerals that are needed to support what's going on and the growth in the world, mining's going to have a good run.
Do you have data on sort of fleet ages and, you know-
I mean, we track fleet age all the time. We track utilization. We track all those stats, right? I mean, I think that obviously given the volumes that are out there and volumes we've been seeing, the fleet continues to age. It's being utilized, continues to run, and we continue to support our customers with good services.
Okay. Do you think we can have a big AI boom without a natural gas cycle?
I'm glad you asked. We had a record quarter in oil and gas in the fourth quarter, and I think that's one of the underappreciated, you know, pieces of the power and energy portfolio is our oil and gas business. We play in the entire value chain when it comes to natural gas, from helping in extraction, and then we move gas, and then we help burn gas turn into power on the back end. We have a very good line of sight to natural gas, and gas compression's been really strong. You can look at forecasts for LNG exports out of the U.S. You can look at a lot of forecasts on, you know, IEA on what part of natural gas growth's going to be over the next 15 years, and it continues to grow.
I think it's going to be a key part of the energy solution. Personally, if you know, haven't been in the oil and gas business, you were in the oil and gas business with me, so you know how this works. There are traditional ways we kind of forecast gas usage. When you really think about data centers and the amount of power plants, whether it's our equipment or someone else's, there's going to be a lot of natural gas-fired plants and power to satisfy this demand, which means we're going to move a lot of natural gas in the next five plus year s. I think it's probably more than people really realize when you really add up all the power demand that's going to be out there. I'm very bullish on the natural gas and gas compression part of our business. I think it's going to be healthy.
Great. Okay. Maybe let's switch to your services focus. Obviously, you're looking for $30 billion in services revenues in 2030. I think you did something like $24 billion in 2025. What are the key drivers to achieve this?
I think you see a lot of those today. I mean, it's different by segment. You know, as I mentioned, in 2025, we got a little pause on some of the mining rebuilds. I think those will pick up, and that's good services growth for us. The more mining utilization we have, the more services are going to grow in RI. When you look at CI, we're showing off a lot of tools. Services Commitment 2.0, so increasing our services commitment. Rod can explain a little bit about that if we want to. You know, extending VisionLink, you know, to full fleet capability, so more customers use VisionLink, which get into our ecosystem, make it easy to do business with us in CI. I just think we have a lot of room to grow. We continue to connect assets, use our tools.
Launching the Cat AI Assistant's going to give us, get us even closer to the customer. CI is an area, and Rod can comment in on, where we have a lot of opportunity to grow services. In power and energy, you know, the more we see a shift to prime power gas, you know, Jason talked about this at our investor day. It's significantly more aftermarket to a, to a generator that's running for prime power because it's running constantly. Similar to our oil and gas business, when we're in a gas compression application.
It's going to be running 24/7, so those require service, they require overhaul cycles. As you start to see that business grow and the field population grow, you know, as we head to the back part of this decade, it's going to lead to great services opportunities for us. You can talk about CI because it is one of the largest opportunities we have.
Yeah. You know, for CI, for us, it would. Like as Joe noted, it's one of the largest opportunities. When we think of the number of connected assets we have today that are out there and what we're doing with our new services commitment focus. You know, for here, for us now as we launch this year, North America and other countries around the world following it, that services commitment to a customer with the Caterpillar Customer Value Agreement is 24-hour parts, 48-hour return to work. In writing to the customer, the customer gets credits if we don't deliver on that. For us, that's a big change.
We're putting in writing or a guarantee what we're going to do for that customer to give them the support they need to support that machine through its life cycle and its next life cycle and next life cycle. In addition, and Joe hit on this, how we bring all that data together to make things really simple for a customer. You know, as a customer myself, it could have been cumbersome a couple of years ago to go find the right part for your machine, for example, which can really impact our services business. Today with how the data comes through in VisionLink with Cat AI Assistant, I could simply ask Cat AI Assistant, "Cat AI Assistant, how do I change the oil on a CT660 " It'll give me the instructions; it'll link me to the parts I need.
We're really making it simple for the customers to get what they need to service their machine and keep it running with genuine Cat parts. Would be some simplest examples of how we're solving that. We can take the same thing out to big fleets around the world, and that mixed fleet challenge we're solving for them brings all that data together, really helps them grow that, which brings them closer to us and helps us serve them better and drop their cost of ownership in the long term.
Okay. When we get to the $30 billion, how much of that roughly would be sort of parts versus service-based?
I mean, we don't really split it. Like when you think about the Caterpillar branded business, right, we use a dealer network for service, so most of that's going to be, you know, aftermarket parts. When you go to the other parts of our business where we have direct model like Solar Turbines or rail business, it's a heavy services model as well. We've seen terrific growth in those businesses, both of them. In particular Solar, as we're adding capacity for turbines, all those are, you know, prime applications that come with great services opportunity. That services aspect of Solar's business is going to continue to grow. It's also a big part of how we get to $30 billion and beyond.
Okay. I guess where I'm going with this is that, at the show here, you actually have quite a bit of interesting sort of AI assistance.
Mm-hmm
... you know, both for operators and for upkeep and things like that. Is there an opportunity to have a significant amount of sort of subscription base?
I mean, I think right now it's early, right, in how we deploy technology and how, whether it's AI, whether it's autonomy or task autonomy, I think we'll be flexible on, you know, what sort of commercial models we want to have. That's one of the advantages we have versus a startup or somebody who's just a tech company who wants to do it, right? For big customers, it's going to be part of a total package deal. You know, right now in the $30 billion that we've laid out, you know, we continue, we talked about in RI growing autonomous fleet. I mean, that's obviously part of it, the lion's share of it's going to be around traditional services business for us or services opportunity for each of our segments because each one of those has opportunity to grow.
Okay. Well, I probably would not endear myself to my community if I didn't ask you about power and energy.
Yeah.
Let's spend a few minutes there. You've communicated plans to more than double your gas turbine business and double your large engine capacity to meet power demand. Can you talk about the ramp timing and sort of key execution risks there?
Yeah. We started on the large engine and generator set side of the capacity investment a couple of years ago. We've made great progress. We were actually a little bit ahead of schedule last year, which I'm pleased with. Jason and his team are doing a really good job, and we'll continue to get more units out almost every quarter. It's not, you know, it's not just one big step up. We will see, I think, a step change as we exit this year and head into next year on large engines. When it comes to doubling or more than doubling our turbine capacity, you know, we just announced that last year. We obviously have been started on that, but that one's going to be a little longer, so it'll probably come more 2028, 2029 timeframe.
You know, those are longer cycle, longer orders. We generally have good line of sight to that. We were already working on some of those things with the introduction of the Titan 350 and some of the new programs that we had in Solar. We've got a good start on it. You know, we are on time or ahead of schedule so far, and I'm happy with the way it's going.
It sounds like maybe a step up in recips in 2027 and then a step up in turbine.
Yeah, that's the goal. It's not, you know, it's not flat with a step. We want to continue to get more units out every quarter as we go, so.
Okay. What are sort of the key gating factors here? Is it labor, suppliers, casting, or-
I don't think there's one key gating factor that we have right now. You know, as we look at each of these projects, we're working to make sure we have the capability inside our four walls. We definitely are doing the labor planning for us. Machine tools probably that get ordered, you know. Those have to get here and get installed, then when you start to install new machine tools, one of the longest things we have to do is validate components, right? We have a Cat brand promise that it's going to be high quality coming out of the gate, we have to get ours and validate, you know, these machine tools that they're up to our quality standards before we launch products out to customers.
All that's in the works. Obviously, we're working with the supply base to make sure that we have the right component supply. That's a big part of this investment as well. You know, when we think about capacity, it's not just it's going to help us with the data centers and the explosive demand that we're seeing. Again, we use on the large engine side and in the turbine, we use them in oil and gas. When it comes to large engines in our marine business and in our Cat machine business. There's a diversified, you know, set of applications and volume demand for this. You know, it's being driven largely by the data centers, a lot of this is also in our component supply, internal component capability, as well as in the supply base.
When you think about services growth, which we talked about, and a lot of overall, coming on for large engines and gas compression and prime power and Solar, a lot of this is also going to help us with our services growth and make sure that as we put more and more units in the field, that we have the components to make sure we can keep up on the services side.
You almost anticipated my next question, but I'll ask it anyway. I think a lot of times people don't realize that the large recips and the turbines are somewhat fungible...
Yes
... in terms of what you use them for. You mentioned earlier a fair amount of optimism around the nat gas.
Mm-hmm
... cycle. Just talk about, you know, can you basically use the same equipment across nat gas and power gen?
Yeah, I mean, that's one of the reasons why it's a huge advantage for us to have just the breadth of the businesses that we do, and we do this development with sort of a core engine in mind. Rod used to work in large engines with me in the engineering group, also ran some of those factories. We try to have a really core set of iron when it comes to the engine, and then we have application engineering and application iron to sort of tweak it to an oil and gas application. Even an oil and gas, a compression application for a 3500 versus a fracking application is going to be a little different. You go to electric power, the same thing. Mining's a little different.
When it comes to the core iron and the core capability in the factory, which is where both of this capacity is going in for, you know, that's an advantage for us. Supplies multiple applications as well as the aftermarket.
Right. Obviously, a lot of very strong demand across this type of equipment. What's your approach to sort of pricing this stuff?
I mean, we have pricing varies by each one of our businesses, and it varies by region of the world, right? We take a lot of things into account when it comes to pricing, mostly the competitiveness, and we price for value, right? We try to be the premium provider of value to our customers, and that allows us to drive a price premium in the industry because it's good for them when they look at their Total Owning and Operating Cost. That's why all the tools that you see here when it comes to CI especially where I would say, you know, it's really competitive and we talked about it last year. We introduced some merchandising programs that were very successful and got us some good momentum, it's way more than just the merchandising program.
You know, I think VisionLink full fleet, Cat Assist, all the things that we're doing here, working with our dealers, with Services commitments. You know, that's going to help us provide value to our customers, and that's the key really driving factor of our pricing. Of course, we take inflation and all the other things that are going on in each part of the world, the competitive situation, but we're in a different spot in each one of our businesses.
Okay, good. Going back to your analyst day, I was actually struck when you said this. You talked about how Solar Turbines are a good opportunity for bridge power as we get sort of to some future state where the grid is bigger and more available. It sort of begs the question, and I get this a lot, you know, what happens in whatever, 2030, 2035, pick a year, when the grid sort of catches up and I don't need that bridge solution anymore?
Yeah, I mean, I get this question, as you can imagine, a little bit as well. The demands here now and these are great assets, they're very efficient. Our turbine lineup, especially the 250 and 350 are very efficient because they're newly developed, our newest developed products in the lineup. We continue to work with customers, the closer we get to them, we know all these data center customers well on how we can continue to drive efficiency through, you know, using the heat to help with cooling and just we'll drive more and more efficiency. I think, you know, 10 years from now, I don't know what happens 10 years from now, I think this bridge might be a long bridge. I'm not sure.
We're probably going to continue to add on to this bridge because if you think about the build-out that needs to happen, if it's really grid connects, it's more than just building a new power plant. You gotta build a new power plant, you need to have transmission to move the power and get it there, you got everything connected. You know, I think there are going to be more and more. We have to upgrade the grid here in North America and around the world. I mean, I think that's a necessity. The timing of that, I'm not sure. I'll put my former finance hat on in CFO days, right? Our asset will be in place, it'll be running, we're going to make them super efficient. You know, I think you have to do the math equation.
If you're the owner of the site, are you going to do the grid connect? What do you need? What kind of, you know, business outcome or business case do you have? The more and more what you see is as well, you know, you hear this and read about it all the time that data centers are going to have to pay their way. We don't want electricity rates to go on to, on to the consumers and onto households when it comes to electricity. You're a data center owner and a site owner, if you're going to pay your way, and you already have to do that, I think it helps us, right? You want to control your own destiny versus kind of pay and have a utility. Some of that's going to happen, I'm sure, and they'll work it out in the rates.
You can control your own destiny with your own power plant behind-the-meter, and that really, we have the widest range of solutions if you're going to do that because we have turbines and recips all the way from 30 MW down to the small size. You know, it's an evolving industry and evolving trend. I think that's why it's hard to say what's going to happen 10 years from now. I know right now, for the next five plus years, the demands strong. If it does happen down the road, keep in mind we have a big overhaul fleet in Solar, right? We have a huge Reman business where we can take cores back in, and it helps our Reman be more profitable as we remanufacture the components and put them back out for offerings in the aftermarket.
We have a lot of opportunities and flexibility to deal with that when it happens or if it happens, but I think that's a long way away.
Okay. Fair enough. Just wanted to switch a little bit to just talking about sort of the broader portfolio at Cat. You've de-emphasized some underperforming operations, I guess, in my words. Things like underground mining, changed just your approach in China a little bit. I'm curious if there are other areas where you might be considering some refocus.
Yeah, I mean, under Jim, when we launched the strategy in 2017, I was a big part of that with him and with my colleagues in the executive office to implement that strategy. We put a lot of discipline in the business through the Operating & Execution Model. That's the lens with which we look at all of our businesses. It's how we do our resource allocation. It's what's driven the structural change in our margin profile, in our cash flow performance, you know. We focus on growing OPACC dollars, we give those other metrics so people can see the impact that it has. We did look at some of the product lines and decide that our resources are better used elsewhere. That's what's really changed the performance of our business.
We'll continue to use that discipline as we move forward. We have, you know, a regular cadence of reviews every year in how we look at our businesses strategically. We'll continue to do that. You know, Rod can comment on China. I'm not sure we. We have a huge presence and set of factories, employees, dealers in China. I would say China demand has been down in 10 ton or above excavators, which where, you know, we tend to participate. It's not that I don't think we've drastically changed our approach there. I think we're not as dependent on that because we have grown our businesses everywhere. You know, China, like other parts of CI, not every region of CI is really going strong.
You know, North America's going strong, the Middle East strong. China and other parts of Asia has been relatively weak the last few years. You know, I don't think we've changed our approach that much. You know, we'll be there if that business picks up for our customers. We use the ONE model through the whole business, and that's how we run it.
Okay. Rod, I wanted to give you a chance to tackle that China a little bit.
For us in CI, like Joe said, we've got a manufacturing footprint over there, several employees over there. We continue to see China as an opportunity for us. We're going to continue to focus on that and focus on it to grow there profitably. You know, as we see those, you know, customer segments come back, where can we really participate and bring the value that we bring as Caterpillar? How can we work on that? That's our commitment as we go through it. You know, we've got a, we've got a global footprint, and we continue to serve customers around the world as we best can to continually grow profitably. That's a part of the you know, world we're going to continue to be in.
Yeah, I just don't view China as different than the Middle East or Australia or I mean, South America. We want to compete everywhere and support our customers everywhere, and I think we can add value to our customers everywhere and continue to grow. So.
Okay. What about the rail business? Is that still sort of a central Cat business?
Yeah. I mean, our rail business, our services in rail have been growing very consistently. You know, the North American locomotive market has been down for a really long time, being down to almost zero. I mean, there's occasionally a deal here or there. We've done the right sizing to that business and John Newman, President of our rail business, has done an amazing job, you know, with adjusting that business to lower demand. We have great product development going on, and be there for our customers when that buying opportunity happens. Until then, we continue to help with rebuilds and continue to grow services in rail. I think it's a good part of our portfolio right now. Moving it to RI really makes a lot of sense because we have common customers.
A lot of mining customers around the globe will buy locomotives internationally. Great services opportunity. We share a common footprint with our assets inside Caterpillar. It's allowed us to kind of get some efficiencies between the two businesses.
Maybe I'll flip the question the other way. Obviously, you do return most of your free cash flow to investors, but are there any sort of dream assets out there where if you had the opportunity, you'd take advantage?
I don't know if there's a dream asset, right? We continually look at what do we need, right? What are the capabilities that each one of our segments needs to grow, right, and to take care of our customers and solve our customers' toughest challenges? We generally look lately for things like RPM. We're really excited about closing on RPM. You know, it's a digital platform that can come in and enhance, plug into the rest of our MineStar and other autonomy and other things we do in RI and provide a better holistic solution to our mining customers. It's going to make them much more efficient and allow us to serve them in a lot better way. We look for assets that we can bring in and scale across the businesses that make sense.
We have a part of the O&E Model, right? What does it take to continue to grow in the industry? What do we see in industry trends? We look at our portfolio. Are there any gaps in technology or things that we need? You know, I don't think of it as a looking for dream assets out there that are right now. If the right opportunity comes along, it's one of the great things about being a disciplined company. You know, we generate a lot of cash. We have a lot of debt capacity. The balance sheets in great shape. You know, we'll do the right thing at the right time to grow our business.
Okay. Two predecessors ago from you, I sat in Peoria and was told that the future of mining is underground. That you're going to have to figure that out at some point. Does that still resonate with you?
You know, I don't know what that conversation was with Doug. I'd have to ask him. That was a long time ago.
It was a long time.
I'll see him soon, I can ask him. Yeah, we stay close to our mining customers, right? I think there's a ton of opportunity with the portfolio that we have. What we, where we do participate in underground is where I think we can add value to our customers. We, you know, we're not going to kind of say, "Oh, it's one certain subsegment of RI or mining or construction," you know, we want to support our customers where we can add the most value, and that way it's a win-win for both of us and our dealers.
Good. I sort of saved this one for last, but it's the one I get first. Probably you do too. Tariffs, obviously there's been a lot of noise around tariffs, and we're trying to figure out what the Supreme Court ruling might mean. Just any update regarding your view of tariff impact?
Yeah, I mean, it's still, and we've said this all-last year, right? It continues to be a volatile situation. You know, obviously, the Supreme Court ruling came out. We have teams working very hard to try to digest it and understand their announcements coming out and, you know, what's going to happen next. We'll continue to monitor that. We don't have an update for anyone right now. We'll hopefully have more when we release our first quarter earnings here in a few weeks. For now, we don't really have an update on it. It continues to be fluid. You know, the good news is, if you look at our order trends in all three segments, kind of how we started when we talked about this, right?
We had great order momentum in all three of our segments, great backlog in all of our segments, and tremendous momentum in the business. That's, you know, what we're doing right now is, of course, we're looking at all the tariff situation, you know. We have tremendous momentum in all three segments, and that's what we want to make sure we keep going.
You have had a fairly big hit to margins in the short run around all these tariffs, so I'm curious about your sort of strategic approach. Is it more important for you to regain that lost margin over time or to gain sort of pins in the US market?
You know, I think we can do both, and that's how you run a healthy business, right? You want to grow business. We also want to have healthy margins. I think, one, it's a testament to the discipline that we put in our business that we've been able to absorb that level of expense in that short amount of time and still be sort of in our margin ranges. If you think about it, you know, our goal is to grow OPACC dollars, but we want to operate towards the middle of the margin range, right? We're going to work our way back there over time, but it takes a little bit of time when things continue to move around. I think we can do both. I think we can operate solidly in the margin range and continue to grow our business at the same time.
Maybe for Rod, in the same vein here. you know, there's this perception, I think, that there's been a lot of price push-through over the past few years, and that contractors or customers are a little bit sick of price increases, to use the vernacular. you did see some negative pricing, you know, with some of your sales push last year. What's the outlook for you? Does pricing sort of stabilize? Is there an opportunity to push a little bit more through, or is it an industry where it's just the competition doesn't allow it?
Yes. As we look through, I mean, last year we talked about some, Joe mentioned earlier, we did some merchandising, really focusing on customers and some of the things they need to do, we need to do for them. We'll continue to, you know, have initiatives like that that come out that are focused on segments of the business where we're seeing some demand, and we're really trying to work and show what we can do and drive the value that's out of the product. We're going to continue to, you know, work with our customers and help them understand the value that's there, along with the dealers. When we can demonstrate that value to the customer, then we'll see the price come through. We'll continue to stay focused on that.
We largely follow where the industry is going to be at, and we're in that position, and we continue to just work on demonstrating solutions for us that drive that value prop that customers have always known through Caterpillar.
You know, we'll do what drives value for our customers. You know, we'll lap those merchandising programs this year and expect a, you know, more positive pricing environment as we go throughout 2026. You know, I think it's, we continue to look at the situation. Right now, we have healthy margins, right? You look at the operating margins of our segments are sort of best in the industry, and that's a testament to the way we've been running the business, and we continue to grow and have good margins in the ranges. I think it's great. That's the right sweet spot we want to be at.
Do you think there's been any market share shifts in this whole process?
I think we've outperformed the industry in CI last year, and I think we continue to do well with our large data center customers. You know, our goal is to continue to just gain more customers. What we're seeing with Cat Compact, the whole intent of, you know, that commercial excellence and Cat Compact getting close to the customers to speak to smaller subsegment of the construction, you know, industry that really doesn't consider us as much as we'd like them to. You know, through those types of opportunities, I think we can continue to grow the amount of customers that, you know, want to use Cat machines and Cat equipment.
All right. Good. Well, I guess I can attest to the fact that you're a lean company because I'm out of questions. If there's any final comment you'd like to add?
I think here for everybody who's here, when you're out, take a chance to see everything we've brought 'cause it's completely focused from what our customers have asked us for: solving safety, productivity, labor challenges, mixed fleet solutions that are out there. We've brought everything we have in that space to show. You can see some of that from our keynote we did yesterday. If you're out in Operator Stadium, go through the demonstration area, walk through the technology booth, take a chance to go over to the West Hall and see all we can do to solve that. You know, just remember, Cat Compact's out there. When these first customers come, we're building the reputation and the brand that comes with Caterpillar, with that loyalty and that first touch.
We're doing the same thing with rentals and all the other solutions and technology that are out there to really solve our customers' toughest challenges, and that's what we're committed to do. This is our big show in North America, and we've brought everything out there to show our customers what we can do for them today and in the future.
Yeah. Couldn't have said it better, right? We are focused on the mission statement, solving our customers' toughest challenges. When we do that, everything you see here lines up, whether that's through commercial excellence and being easier to do business with, or whether that's through all the technology that we have to make them better and more efficient. It's really exciting to see the strategy come to life. We have amazing opportunities in all three of our segments. For me to come here at CONEXPO to feel the energy, I think you and I, Steve, were talking before, the energy here, in particular in our multiple booths, I think has been incredible, and it's fun to see our customers, our dealers, and most of all, the incredible people at Caterpillar who make this happen every single day. We have an amazing team.
I'm proud to be part of it. We have a very bright future, and I think we're going to have a great year in 2026.
Great. Well, Joe, Rod, thank you on behalf of the investment community. We appreciate.
Thank you.
coming and spending time with us.
Thank you.
It's been fun.
Thank you. Thanks everybody.
Thank you.