Good morning, ladies and gentlemen, and welcome to the Caterpillar 2Q 2017 Results Conference Call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Amy Campbell, Director of Investor Relations. Ma'am, the floor is yours.

Thank you very much, Kate. Good morning and welcome, everyone, to our second quarter earnings call. I'm Amy Campbell, Caterpillar's Director of Investor Relations, and on the call today I'm pleased to have our CEO, Jim Umpleby; our Group President and CFO, Brad Halverson; and our Vice President of Finance Services, Joe Creed. Remember this call is copyrighted by Caterpillar and any use, recording or transmission of any portion of the call without the express written consent of Caterpillar is strictly prohibited. If you'd like a copy of today's call transcript, we'll be posting it in the Investor section of our caterpillar.com website. It will be in the section labeled Results Webcast. This morning we will be discussing forward-looking information that involves risks, uncertainties and assumptions that could cause our actual results to differ materially from the forward-looking information. The discussion of some of the factors that either individually or in the aggregate can make actual results differ materially from our projection can be found in our cautionary statements under Item 1A Risk Factors of our Form 10-K filed with the SEC in February of 2017. And it's also in our forward-looking statement language included in today's financial release. In addition, there's a reconciliation of non-GAAP measures that can also be found in this morning's release, and it's posted at caterpillar.com/earnings. We're going to start the call this morning with a few words from Jim, and then Brad will walk us through second quarter results and our revised outlook, and then we will return it back to Kate to begin the Q&A portion of the call. Jim?

Thank you, Amy. I'd like to start by congratulating our team on another impressive quarter. Our operational performance was excellent. As demand increased, we did a good job managing cost and improved profit margins. A number of our markets remain challenged, but there were improvements in a few of our key markets this quarter. Construction in China and gas compression in North America were highlights. Mining and oil related activities have come off recent lows and we're seeing improving demand for construction in most regions. Based on our solid year-to-date performance and current order and activity, we're raising the midpoint of our 2017 sales and revenue by $3.5 billion to $43 billion, which would represent an increase of 12% over 2016. We're also raising our 2017 outlook for adjusted profit per share from $3.75 to $5. We remain committed to our lean manufacturing journey to improve efficiencies and reduce lead times, and we continue to execute our restructuring plans to achieve a more competitive cost structure. We remain vigilant about product quality and will continue to invest in R&D to improve current and future products and solutions. In the second half of this year, we'll make targeted investments to improve competitiveness and drive long-term profitable growth. We'll continue investing to expand our digital capabilities and accelerate important product development programs. We're moving forward to ensure we're helping our customers harness the power of data and technology to be as productive and efficient as possible. Caterpillar already has the largest connected industrial fleet in the world. We have more than half a million assets connected today and intend to significantly increase our connected assets by year-end. I want to emphasize these are targeted investments in key initiatives, and we'll maintain a strong focus on controlling our structural costs moving forward. Before I turn it over to Brad to discuss the details of the quarter and the outlook, a quick update on our strategic planning committee. We've completed our review of the business, and I look forward to sharing our strategy at Investor Day on September 12 at our demonstration facility in Tinaja Hills, Arizona. With that, I'll turn it over to Brad to walk through the quarter.

Thanks, Jim. As Jim stated, the second quarter continued what has been a great start to 2017. Before I walk through the announcements for the quarter and the revised outlook, let's turn to slide four, and I will walk quickly through the headline numbers. Sales and revenues of $11.3 billion were up about 10% from the second quarter of last year. While many of our end markets are far off previous peaks, we are starting to see several markets recover, and demand for China construction and North America gas compressions remain strong. Sales were higher in all three primary product segments, led by Construction Industries, followed by Resource Industries, and then Energy and Transportation. Profit per share was up $0.42 from $0.93 to $1.35. We continued to execute on our restructuring plan which includes the closure and consolidation of more than 30 facilities. These actions are important to achieving the flexible cost structure required to remain profitable through the cycles. At the same time, we are thoughtfully preserving the capacity needed to meet future growth needs. As a result of restructuring actions, we incurred $169 million in restructuring costs in the quarter, $30 million more than in the second quarter of 2016. In the quarter, we also recognized a pre-tax gain of $85 million on the sale of our investment in IronPlanet. Adjusted profit per share was up $0.40 from $1.09 in the second quarter of 2016 to $1.49. Higher sales, including a favorable mix, were the primary drivers of the profit improvement. Improved price on lower variable manufacturing costs were about offset by higher period cost due to an increase to the short-term incentive compensation accrual that resulted from the upward revision to the outlook. Now let's turn to slide five. Second quarter operating profit was $1.251 billion as…

Thanks, Brad. And Kate, I think we're ready to move on to the Q&A portion of the call.

Thank you. Ladies and gentlemen, the floor is now open for questions. And our first question today is coming from Ross Gilardi. Please announce your affiliation, then pose your question.

Hey, good morning. Bank of America. Morning, guys.

Morning, Ross.

Hey Amy, on page six of the press release, it shows that Cat just increased its global flexible workforce for 3500 workers in the second quarter, and I think you're up about 35% year-on-year and quarter-on-quarter. And you haven't had a seasonal working cap workforce build like that since 2010. So first of all, where did you hire more people by business and geography? And then second, if you are ramping flexible employment, why are you still implying the 20% decline in second half earnings versus first half? I recognize all the puts and takes you just provided, but the workforce changes would perhaps suggest otherwise.

Yes, so it's a great question. I think it's certainly a great change in where we've been over the last several years, is bringing back workforce. To your first question, where has it been, Ross, it's really been around the globe. Certainly China, sales are up. Brad mentioned industry up over 100% this year versus last. So that's been a significant growth in workforce. Lafayette, this is for the higher demand for the 3500 and 3600 engine. And beyond that, we're hiring in other factories around the globe, here in East Peoria. We're bringing people back to work in Pontiac. It's been pretty broad-based. As far as the second half versus the first half, I think if you look at the comps for sales in the second half of the year versus the first half, they're actually up just about $1 billion so we are implying higher production. Production is higher in the second half than it was in the first half. So we can talk through some of the puts and takes on profitability, but we do expect production to be up in the second half of the year.

Thank you.

Do you have a follow-up?

Thank you.

Yeah. I also just wanted to ask on your capital spending, I think Cat's spending like 50% of depreciation right now, and as we just discussed, you're starting to hire people. When are you going to start reinvesting in the business again? And are there any areas of Caterpillar right now that are just structurally tight?

Yeah, I think if you're talking about fixed assets, bricks and mortar and machines, we continue our restructuring plan. We think at the end of those plans we'll have the capacity we need to meet our future growth needs. So we don't foresee that we have fixed capacity challenges. Really what we're seeing right now is we bring production back, we're coming back from pretty low levels. Jim talked about where we're investing in the business in the second half of the year, is through some targeted investments in key initiatives to advance our market of competitiveness, in digital to advance some product programs that we have. So that's where we see the second half investments back in the business scene.

Thank you.

And that is driving some of the second half versus first half profitability.

Thank you. Our next question today is coming from David Raso. Please announce your affiliation, then pose your question.

Hi. Evercore ISI. I mean, this year I would say the most interesting thing has been the Construction Industry margins. I just wanted to get your perspective on how should we think about those margins going forward? Everybody has been sort of thinking about what normalized earnings could be for Cat mid cycle, and I'd say probably the biggest surprise this year has been those margins. Can you help us a bit with – you made the comment on mix. Is it geographic? Is it product? Just given the high level of margins we've seen so far this year.

Yeah, so for Construction Industries, and I think your point is a good one. They had impressive margins. Brad pointed that out, both in the first and the second quarter, up 600 basis points from a year ago. In the second half of the year, we do expect some headwinds to profitability. North America continues to be very competitive from a pricing perspective. We expect that to put pressure on Construction Industries' price realization in the second half. We still expect them to be favorable, slightly, but not as favorable as we've seen in the first half of the year. Say through the first half of 2017, we've clawed back the price that we lost in 2016, and we do expect some price pressures in the back half of the year, especially in North America. Across all three of the primary product segments, we do expect material cost headwinds. We delivered about $50 million of material cost improvement in the first quarter. It was about flat this quarter. We expect that to reverse to about a $50 million headwind in the back half of the year. That's across all three segments. And Construction Industries also, and the other two primary segments, have some key initiatives they're planning on spending in the second half year. That all said, though, David, we would expect the segment margins for Construction Industries for the full year to be about 200 basis points than they were last year.

But if – I mean, last year they were only 10.5%. You're running at 16%, 17% year to date. I mean, are you really implying margins that low? You're basically implying single digit margins in the back half of the year for CI?

Well, your numbers are a little different than ours. We add back the inner segment sales. But yeah, there is a pretty significant margin erosion that's implied in the outlook in the back half of the year for price, for higher material cost, and then to reflect these investments that we expect to make in the business.

Yeah, okay. I hear you. I'm just trying to understand structurally if we try to look out to 2018 and 2019. I appreciate the detail in the answer, but just trying to think about obviously setting up a little bit to September analyst meeting. When you think of the profitability of this segment now versus last cycle, for example, again, how much should we take to heart this first half run rate margin to some degree, even with the second half being lower? I'm just trying to get perspective how you're thinking about the segment moving forward.

Yeah, so and as you said, we'll certainly be discussing more on all three of the segments' margins as we get to the Analyst Day in September. Construction Industries was an early adopter of our operating execution model focused on OPEC profit generation. A 200 basis point improvement from last year is certainly something to be proud of. And they have – they continue to restructure. We've got Gosselies and Aurora that still we don't expect to see those improvements until 2019. Maybe we'll see some of that flow through in 2018. So I think we certainly see growth from here for Construction Industries' margin.

All right. I appreciate it. Thank you.

Thank you. Our next question today is coming from Jamie Cook. Please announce your affiliation then pose your question. Jamie L. Cook - Credit Suisse Securities (USA) LLC: Hi. Good morning. Credit Suisse. I guess two questions. One on the resource side. The margins were a little lighter than I thought but then you mentioned you had $50 million of one-time warranty expense so it was actually more comparable to the first quarter. So given your increase in resource sales, how are we thinking about profitability and sort of the restructuring actions layering into 2017 and 2018? And then my second question, how much of your forecast in fiscal year 2017 is being hindered by your inability to ramp production? I mean, one of the things that dealers talk about is lead times extending. So if you could just sort of comment on that as well. Thanks.

Sure, yep. Thanks, Jamie. So RI profitability. I think if you step back, we do expect sales to be slightly higher in the second half, as Brad mentioned. Part sales will come down a little bit, but that'll be more than offset by shipping out of the backlog for new equipment orders. That said, and I think if you neutralize for that higher warranty expense, we expect first half and second half profitability to be pretty similar on slightly higher sales in the second half. And that's driven by the steel cost pressures that we expect to see as we talked about in the last quarter. Resource Industries has a slightly less favorable geographic mix of product sales in the second half, and then also the investments that they're making to advance market competitiveness in digital and product programs. Jamie L. Cook - Credit Suisse Securities (USA) LLC: Sorry, Amy. To be clear, the profit dollar similar, that's including the warranty expense in the second quarter? When you said second half versus first half, because that's a big difference.

Yeah. Plus or minus. Not giving exact numbers, we see the first half and the second half profitability to be pretty similar. Jamie L. Cook - Credit Suisse Securities (USA) LLC: Okay. And then sorry just lead times, capacity constraints, how much of your forecast is being hurt by that?

Yeah, I would say we don't see the forecast really being much impacted by capacity constraints, although as you mentioned, we have seen lead times go out. If you look at several of our products, the 3600 large mining trucks, demand for those products really shot up overnight. The large mining trucks now we expect for production to be triple what it was in 2016. Production for the 3600 has more than quadrupled from a year ago, and again, both of those products were at pretty low level so it does take time to get that demand back, especially through the supply chain and getting the workforce back to work. And we also have, as we're restructuring and seeing some really elevated level of demand in China for excavators and demand come back in North America for earth moving equipment with the restructuring of Gosselies. While we've put those products on managed distribution, we do believe that we're getting product to the dealers to get to customer sales. However, we have seen a month of sales for dealer inventory come down, and it's a little lower right now than we would like it to be. Jamie L. Cook - Credit Suisse Securities (USA) LLC: Okay. That's helpful. Thank you. I'll get back in queue.

Thank you. Our next question today is coming from Joel Tiss. Please announce your affiliation then pose your question.

Hi. Bank of Montreal. I just wondered if you could give us a little setup. I'm not asking for a forecast on China for 2018. Seems like everything's a little buoyant because of the election this year and I just wondered if you could frame how do you think about 2018 a little bit?

Well, I think it's early for us to be thinking about 2018, but maybe I'll give a little color to where we're at for China excavator sales. If you look at the chart that Brad had in his presentation for 10 ton and above excavators, this year we expect the industry to sell about 55,000 excavators, up from about 30,000 excavators last year, so pretty significant increase. We think – I think it is too early to forecast 2018. We do think that that is slightly above normal replacement demand for excavators, 10 ton and above excavators in China which we believe to be somewhere between 45,000 to 50,000. So we're probably this year just slightly above that normal replacement demand. Does that answer your question, Joel?

Yes.

Okay.

Thank you. Our next question today is coming from Nicole DeBlase. Please announce your affiliation then pose your question.

Yeah. It's Deutsche Bank. Good morning, guys.

Good morning, Nicole.

So you provided some detail around what you expect for resource and construction profitability. I know previously you had said kind of flattish margins for E&T. Is that still the case, or has that changed?

So for Energy and Transportation what we would expect for margins is for first half profitability and second half profitability to be pretty similar.

And when you say profitability, just to confirm, is that the absolute EBIT dollars or is that the margin percentage?

That would be the margin percent, the margin percent.

Okay. Perfect. That's helpful. Thanks. And secondly, going back to the China question. How would you characterize China inventories right now on the construction side? Is there still further restocking to come, or do you think that that process is pretty much complete?

No, we think that there's still dealer restocking to come. So if you look at dealer inventories in China, we probably typically target about 2.5 months of sales. China's target for dealer inventory months of sale is a little lower than the rest of the world. They have less variety in the configurations they sell. We are about, quite a bit lower than that at the end of the second quarter, even though we did take dealer inventory up some. So we do expect to continue to be rebuilding dealer inventory levels through the back half of the year. But as I mentioned, certainly in China, the strong selling season for end users is in the first half.

Understood. Thanks. I'll pass it on.

Thank you. Our next question today is coming from Ann Duignan. Please announce your affiliation then pose your question.

Hi. Good morning. JPMorgan.

Morning, Ann.

Morning. Can we talk a little bit more about these targeted investments and initiatives that are important to your future competitiveness? I mean, I thought that this was a pretty interesting portion of the press release and if you could give us some more examples of what exactly these investments are going to be, and what you mean by technology updates to your products.

So it's pretty broad-based and I'd say it's pretty difficult to boil it down to a few bullet points, but I'll give you some highlights. One of the significant areas of focus is a bold goal for our business to connect more assets. So we believe we have the largest connected industrial fleet in the world at 530,000 assets. And we have a bold goal to go out and connect 100,000 more by the end of the year. We don't know if we'll get there, but that's certainly where we're moving the teams towards. And that requires the expense of buying the boxes and the labor cost to connect those assets. And certainly, that will benefit both our customers and us as we bring back that data and learn ways and use the data and the power of data to develop solutions to lower the cost and improve the productivity for customers. So that's one area. Another would be expanding our e-distribution channel and the different solutions we have out there for customers. That's another area we're focused on. And then we're also spending money to advance some of our product programs, pull money into this year or push those product programs and make sure they have successful launches in the back half of the year.

Ann, this is Brad Halverson. Maybe just another comment about how we use that language. We use that language because that's how we're operating internally. We have now been through four years of a downturn. It's been hard on us. We've taken significant restructuring activities and we like where our cost structure is at and where our balance sheet is at. And so using our operating and execution model, Jim is really driving continued focus on cost reduction across the support areas, and as we increase period cost, you'll see that there'll be very targeted in areas that offer the most long term value for the company consistent with kind of the pools of OPACC we see out there in the future. And this is a little example in the second half of this year where we're going to take an opportunity to do a little bit of that where we think there's a lot of value and keep the lid on the other costs that we have in the company.

Brad or Jim, do you think it has impacted your competitiveness, the fact that you have been so focused on restructuring and cost reductions and some of your competitors are well ahead of you in terms of IT initiatives? And I'll leave it there. Thank you.

Yeah, I'd say, Ann, actually I think not because this time I've been in a career here at Cat a long time. Typically, we have reductions in areas that are easy to find. So we reduce R&D or reduce other things. In this downturn, if you look at our cost reduction, it's been highly targeted to areas that are not kind of future value. They're areas of efficiency and consolidation and support cost. We have really increased spending in many of the growth areas. We've protected R&D by and large, and we've protected things like digital spending. So we've taken an entirely different approach in this downturn in terms of where we took cost out and what cost we protected. So I would say it's different than we would have historically done.

Okay. I appreciate the color. I'll get back in line. Thanks.

Thanks, Ann.

Thank you. Our next question today is coming from Jerry Revich. Please announce your affiliation then pose your question. Jerry Revich - Goldman Sachs & Co. LLC: Hi. Good morning. It's Goldman Sachs.

Morning, Jerry. Jerry Revich - Goldman Sachs & Co. LLC: Morning. I'm wondering if you could say more about the contribution of the operating and execution business model in construction industries so far, what's been the impact on OPEC or margins, however you can frame that for us. And how far are we in that journey for construction at this point?

Well, I mean, I think it's been extremely impactful to Construction Industries' margins. You can go back several years and look at where their segment margin percents were and see that they've come quite a ways on down sales. So sales in 2017 still probably – I don't have the numbers in front of me, but 10% to 15% off of peak levels of sales volumes and much higher levels of segment margin. They've driven higher OPACC, just raw dollar OPACC over that timeframe, and that said, as all of the segments have worked on their operating and execution and OPACC improvement initiatives, Construction Industries still has projects lined up and improvements they expect to make in their OPACC. Jerry Revich - Goldman Sachs & Co. LLC: And, Amy, on that last point, are we closer to the seventh inning? Or can you just frame that within construction specifically in terms of the number of projects in front of us?

Yeah. I think we'll give more color to that at the Analyst Day in September. But I think it's fair to say that they still have a pretty healthy sized list of profit improvements that they're focused on driving through their business. Jerry Revich - Goldman Sachs & Co. LLC: Okay. And, Amy, as you folks build out the connected fleet and perhaps we can get more precision on how much (47:27) inventories are required, how are you folks thinking about required dealer inventories in this cycle compared to the last cycle? You spoke about the development in China, but I'm wondering how are you thinking about what's the right level of inventories and months of supply globally now and how that might be different versus the last cycle.

Yeah, I think that we have probably always held around a target of 3.5 to 4 months of sales of dealer inventory. I think if we're honest, we probably typically struggle to get there, and we're – would end the year a little north of four. I think that's about where we ended 2016. I don't know that our target for months of sales of dealer inventory has changed that much, but as we have seen volume come back pretty quickly in a few of our end markets, we have seen that months of sales drop below our 3.5 target. Jerry Revich - Goldman Sachs & Co. LLC: Thank you.

Thank you. Our next question today is coming from Joseph O'Dea. Please announce your affiliation then pose your question.

Hi, good morning. It's Vertical Research.

Morning, Joe.

First question is just on rebuild and overhaul activity in both mining and upstream oil and gas. Just to understand of what your visibility is on current levels of demand and then what a stepdown potentially looks like. And so just to kind of get an appreciation for how significant a stepdown you could see in aftermarket in mining in the back half of the year, and then do you see that at more kind of a sustainable level? Same thing for oil and gas. Do you see a big uptick in activity there? How long that persists? And then what kind of a headwind you face when that maybe comes down a little bit?

Yeah. I'll handle each one of those separately, Joe. So for mining, we do see part sales come down in the second half of the year. I wouldn't say that it's that significant. And I don't have a forecast for 2018 to give you of where we think part sales will be over time. We do expect some decline in part sales second half and first half, but it's not a double-digit number, but it is coming down. For oil and gas or really where we're seeing, as we talked about, the aftermarket parts demand is primarily in well servicing, and it has primarily been, as Brad talked about, in the Permian Basin and in other shale formations in that region, other parts of Texas, New Mexico, Oklahoma, where the cost of oil production is still encouraging investment. We haven't seen demand to date come down in those regions. We haven't seen a lot of increase in demand in other shale formations outside of that area. So without providing an outlook for 2018 or kind of guiding where I think we could go from here, certainly the oil price drives that. A significant stepdown would probably put some pressure on where we're seeing some strength today. But if we would start to see oil prices get back up over $50 and start to see some of the pipeline build-out that we need to help transportation, a few of the other shale formations, we could start to see those pick up. So I think it's really too early to call kind of where we go much out past the end of 2017.

I appreciate it. And then on resources specifically and the OE order side of things, I think you've commented on needing to see stabilization in commodity prices to encourage continued spend or growth in spend on replacement. We have seen some stabilization in some key commodities at levels that are well above where they were a year ago. So I guess just in terms of, are current commodity prices supportive enough and how long do you think we need to see a pattern of stabilization before that encourages a little bit more spend?

Yeah. So I do think – what I would say is if you look at the order rate in the second quarter, Brad mentioned that it was more than double from second quarter of last year. So I think without having the buying decisions of all of the miners in front of me, it's probably fair to conclude that at current commodity prices it's driving demand for investment. I think what's probably more important, and we've stressed this throughout the entire downside of mining, is that mine production continues to really increase or in some commodities stay about flat. So it's really an issue of making sure they have healthy operating equipment in the mines and when do they need to start to invest capital to keep their equipment running and functioning. So I think commodity prices right now are supportive. They need to stay supportive. If we were to see change materially, that could change the story. But where they are right now, we are seeing healthy demand for mining equipment

Okay. Thanks very much.

But I will stress, but off of very low levels.

Sure.

So last year, very low levels, but it's still at pretty low levels historically.

Thank you. Our next question today is coming from Seth Weber. Please announce your affiliation then pose your question.

Hey. Good morning. It's RBC. Just kind of following up on that last question, Amy, and your answer, I mean, given the kind of improving environment in Resource Industries, the commodities environment, et cetera, what do you think you need to see to get positive pricing in Resource Industries here going forward? Pricing was still negative. Is there something that's happening that's just causing pricing to continue to be tough?

Yeah. Well, I think it's exactly my last comment, which is industry volumes still are at extremely low levels. So manufacturers have a lot of capacity and are trying to fill up their factories and earn and win every deal to do that. These are certainly very attractive both from the original sale and the after-market parts stream deals to win. So I think we really won't start to see price appreciation in Resource Industries until we start to see constraints in capacity amongst us and our competitors.

Okay. And if I could just ask a follow up. In response to an earlier question I heard some mention about supply chain. Can you talk about whether you're seeing any kind of pockets of pressure on the supply chain or how you're feeling about the supply chain here in this increasing demand environment? Thank you

Yeah. So, as I mentioned, we are for a few products bringing production up quickly off of very low levels. It's difficult to get both – get the factories back to work and get the workforce in and trained. And so that is taking a little time. On top of that, we've had higher demand for aftermarket parts which also puts demand into the supply chain. I think we just think it takes time. We hope to be worked through most of those issues by the end of the year, and it is largely workforce and supply chain that's driving – that's, I'd say, setting the pace for how quickly we can bring production up.

And that's mostly on construction on the supply chain bottleneck?

I would say that we have, depending on the product, we have supply chain issues we're working across the product line.

Okay. Thanks. I appreciate the answers. Thanks, everybody.

Thank you. Our next question today is coming from Andrew Casey. Please announce your affiliation then pose your question

Wells Fargo Securities. Good morning. Question on the Construction Industry 200 basis point margin increase for the year. Back to David's question that it really does imply a pretty sharp drop-off in the second half. And it's still a little bit confusing to me based on the commentary you gave about inner segment sale impacting that. Because if I look at the first half, you had $54 million or thereabouts in inner segment sales, and that's kind of small in the scope of the $9 billion first half sales reported.

Yep.

Is there an acceleration in the second half inner segment, or is – how should we look at that?

No, it's not – I think from David's question, if I look at the margins that I referenced, he said single digits. I'm not quite to single digit numbers, so I was just clarifying his math. I think we were both probably in about the same place. I think the question stands though, we do see softer segment margin percent in the back half of the year for Construction Industries. Sales are down a little bit. That drives some of it, which is not unusual from a historical perspective for Construction Industries' sales to be down in the back half of the year. They do expect some price pressure, especially in North America. They expect some material cost pressures for steel and then some higher period cost spend to support these investments.

This is Joe Creed. I think we're focused on expanding margins in the segments and we have to be careful not to look at quarter-to-quarter margins in each of the segments because they can fluctuate from time to time inside the quarter. But on an annual basis, we're committed to the improvement.

Yeah, and so a 200 basis point improvement for the year certainly I think is something to denote impressive.

Okay. All right. Thank you very much.

Yep.

Thank you. Our next question today is coming from Steven Fisher. Please announce your affiliation then pose your question.

Thanks. It's UBS. Just to continue that discussion there, you mentioned a number of times the competitive price pressure you expect in the second half in construction, and you just clarified it's North America. Just curious, why will the competitive price pressure be more intense in the second half relative to the first half? Why wasn't that price pressure there in the first half?

I'd say the price pressure has been there, but we expect it to continue. And we expect, I'd say our competitors, as we continue to see the strong dollar work against us from a competitive standpoint to put additional price pressure in the back half of the year, Steve.

Okay. And this may be a longer question than the last minute of the call, but what do you think is the most likely path to noticeably higher construction equipment sales in North America? I mean, in the past you've talked about 3% GDP growth driving fleet expansion. Is it really just needing stimulus at this point to get the infrastructure piece going? Or is it waiting for a replacement cycle? Or is it an expansion of the rental channel? What's going to get that North America to kind of break out?

Yeah, I mean, I think it's a question that will be discussed at the Analyst Day in September. But I think if you go back to the chart on Construction Industries sales that's in the presentation pack, I think what you'll see is we have seen healthy growth and non-residential and residential spend, although we still think from a residential perspective we're not keeping up with population growth in the U.S. But what has, I'd say, disappointed for the last several years has been a lack of growth in infrastructure investment, which is really, I think, the area that looks prime to need some more investment and some more growth.

Okay. Thank you.

All right. Thanks, Steve.

And with that, I think that was our last question. Kate?

Thank you. Ladies and gentlemen, this does conclude today's conference call. You may disconnect your phone lines, and have a wonderful day. Will there be any closing remarks?

No, I don't think we have any closing remarks, Kate.