Good morning, ladies and gentlemen, and welcome to the Caterpillar 3Q 2018 Earnings 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. Ma’am, the floor is yours.

Thank you, Kate. Good morning. And welcome everyone to our third quarter earnings call. On the call today, I am pleased to have our CEO, Jim Umpleby; and our CFO, Andrew Bonfield, and our Vice President of finance services Joe Creed. Remember, this call is copyrighted by Caterpillar, Inc., and any use, recording or transmission of any portion of the call without the expressed 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 Investors section of our caterpillar.com website. This morning we will be discussing forward-looking information that involves risks, uncertainties, and assumptions that could cause our actual results to be different than the information discussed. Details on the factors that either individually or in the aggregate could make actual results differ materially from our projections can be found in our filings with the SEC and our forward-looking statements included in today's financial release. In addition a reconciliation of non-GAAP measures can be found in the appendix of this morning's presentation and in our release which is posted at caterpillar.com/earnings. With that I'll turn it over to Jim.

Thank you Amy and good morning. First I'd like to introduce Andrew Bonfield our new Chief Financial Officer. Andrew joined Caterpillar on September 1. Andrew has more than three decades of global financial experience. Most recently he was grouped CFO and board member of National Grid PLC, a British multinational electricity and gas utility company. Prior to National Grid Andrew was Chief Financial Officer at Cadbury PLC and also served as executive Vice President and Chief Financial officer at Bristol-Myers Squibb. We are delighted to have Andrew on board. He's a welcome addition to our company and our executive office. Andrew will walk you through our financial results and after I provide a brief overview of our third quarter performance as well as our outlook. We had an outstanding quarter thanks to both higher sales and excellent operational performance. Many of our mid end markets continue to be strong. Sales and revenue were $13.5 billion and 18% increase over the third quarter of last year. We also earned profit per share of $2.88 which is the highest third quarter profit per share in Caterpillar's 93-year history. This is the third consecutive quarter our company has delivered record profit per share. Adjusted profit per share was $2.86 up 47% from the third quarter of 2017. Third quarter operating profit was about $2.1 billion, 41% more than the third quarter of 2017. Adjusted operating margin for the quarter was 16.6% that's 260 basis points higher than the third quarter of 2017 and consistent with the first half of this year despite input cost headwinds. These profit levels and margins are due to the excellent work of our global team and demonstrate that our strategy for long-term profitable growth and our discipline on structural costs are delivering measurable performance improvements. We finished the…

Thank you Jim and good morning every one. First, I just wanted to say how excited I am to join Caterpillar. In particular it's great to be here today to share such an impressive set of results with you. Let's start by turning to slide three, and I will discuss the third quarter financial results in a bit more detail. Sales and revenues were $13.5 billion, up 18% from last year with continued growth across all three of our primary segments. While many of our end markets continue to improve, North American economic strength and oil price stability drove higher levels of construction activity as well as higher demand for well servicing and gas compression equipment. In addition, resource industries machine sales were up significantly. Third quarter profit per share of $2.88 and adjusted profit per share of $2.86 are up 63% and 47% from year ago on higher sales, improved operational performance, and disciplined resource allocation. As Jim noted this was a record third quarter profit per share performance and these results demonstrate that our strategy is working. If you move to slide four, I will walk through what drove the 41% increase in operating profit. As you can see in the chart higher sales volume contributed $793 million, more operating profit compared to last year. Price realization was $155 million or about 1% higher than the third quarter of last year. Manufacturing costs increased by $205 million due to higher material and freight costs. In all, material costs were off about 2% on highest fuel prices and the impacts of tariffs. Freight costs continues to be elevated due to a variety of factors including higher rates, less efficient loads, an expedited freight costs as we ramp up production to meet increased demand. Even though the mid-year price increase…

Thank you Andrew. Kate it is now time to began the Q&A portion of the call. Participants should limit their questions to one plus a follow up.

Ladies and gentlemen the floor is now open for questions. [Operator Instructions] Our first question today is coming from Joe O’Dea. Please announce your affiliation. Then pose your question. Joe O’Dea: Hi good morning. It's Vertical Research. First question Jim your comments across end markets were pretty constructive and encouraging and I think we see kind of a disconnect in where we are seeing a stock reaction to what seems like kind of an outlook right now that would continue to support further growth moving forward. I guess one question just on backlog and seeing that nudge down a little bit sequentially, any commentary across segments and whether or not some of this is lead time related, some of this is just general macro uncertainty but seeing a slight softening there versus what sounds like otherwise pretty strong end market conditions.

Good Morning Joe. Maybe it makes sense just to spend a few minutes expanding upon how we're doing in each of the markets. We talked about construction industries and that we continue to see very strong demand in Asia-Pacific particularly in China but also in North America in the EAME. Again in energy and transportation very strong activity in onshore gas compression while servicing industry is also strong. We don't see, we haven't experienced a slowdown much has been written about the Permian but we have not experienced a slowdown in our business. It's still been quite strong and people have talked a lot about the fact that there are take away capacity issues and of course whenever pipelines are built that's a good thing for our CI business as well. So again we feel bullish about that business. Heavy construction and resource industry is continues to be strong. In rail, we've seen an increase in locomotive rebuilds and modernization. We've also seen higher service and part sales. Rail traffic in North America is certainly increased and we've seen a year-over-year reduction the number of ideal locomotives and rail cars. So we expect new locomotive orders continue to improve. We've seen some business from outside the U.S. as well. We have talked about the fact that that Latin America is a bit slow to recover in construction industries and offshore oil and gas production has been slow, but again we feel good about the state of our business. We feel that the business continues to be strong in most of our end markets and we're not frankly concerned about dealer inventories, backlog and I like Andrew coming on that.

Yes. So I mean obviously we did see the backlog go down by about $400 million in the quarter but remind you that for the year-to-date it is still up nearly $2 billion since the third quarter of last year. At the same time obviously we were building inventory into dealers. We still are at the bottom end of normal ranges. So even though the dealer inventory has gone up over $2 billion since the beginning of the year so that's all indicative of dealers having confidence and obviously the 800 million stock build -- inventory build in the quarter was a lot less than the drop in order backlog. So that does mean that strong demand -- overall dealers are still feeling positive about end consumption. Joe O’Dea: Thank you. Appreciate those details and then just a follow-up related to price cost and general outlook for price cost moving forward whether or not price cost should actually shift more favorably moving forward, looking at pricing announcements next year into dealers material costs stabilizing and whether we see any kind of improvement on some of the constraints with supply chain and materials and whether all that translates to a little bit more favorable price cost situation moving into the end of the year and then into next year?

On pricing we are starting to see the impact of the mid-year price increase and we expect price realization to more than offset material cost and freight expense for the full year. We recently communicated to our dealers a 1% to 4% price increase that will be effective in January of ‘19. We are working our way through supplying constraints and again we feel good about the environment for pricing just as I mentioned moving forward. Joe O’Dea: Got it. Thanks very much.

Thank you Joe.

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

Hey good morning guys Bank of America. Jim, how do we think about the retail numbers that came out on last night? I mean you were up 21% in September but your comp I think goes from being up 13% in September to up 34% by the end of the year in December. So as you exit 2018 are we looking at low to mid single retail -- low to mid single digit retail sales growth is that what's implied at the mid-20 of your guide.

No, I'm not going to make a comment and give you a forecast for retail stats, but I've talked about the end state of our markets and the fact that we feel good about those. Based on everything we see today we expect our business to continue to improve in 2019.

Okay. What's the feedback you're getting from the minors on some of the elevated uncertainty in China I mean are there any RFPs out there they've been put on the back burner until things settle down with the trade situation and what are you seeing on large mining equipment demand from non-China emerging markets as well? Thanks.

Again as I mentioned earlier resource industries business continues to improve. Truck levels are now at the lowest level they've been since 2012. There are still more trucks to bring back online but it's contributing to strong after market demand and we're seeing strong parts demand to support increases in machine utilization. So we certainly feel good about the trajectory of our mining business. Commodities such as copper and gold have been strong. RI's experience growth across all regions. So again we do feel good about RI. Market fundamentals seem to be improving and are quite solid.

Thank you.

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

Great. Thanks. Good morning at the UBS. I know on China you said you expect the normal seasonal pattern for the rest of 2018 but really curious how you're thinking about China in 2019. It seems like we're heading back in infrastructure stimulus mode there. So do you see any evidence of that having a positive impact on sales or quoting yet and does what they have announced so far in this regard sound being full enough to support ongoing growth in the construction equipment business there for you.

Just a few general comments about China. Certainly it's an important market for us. It averages 5% to 10% of total company sales and revenues and for CI it's about 10% to 15%. There's a lot of different scenarios of course forecasting what's going to happen in China. Based on everything that we see we believe that the China market will continue to be healthy. Excavator demand is up significantly this year after it more than doubled last year and again we feel good about China for next year.

Okay and in terms of the resource business how should we think about the margin trajectory there going forward as the original equipment sales continue to pick up and you didn't really call out the margin mix on the margin result this quarter, which came in a little bit lower than our expectation. So has that mix shifts even noticeably started yet and if it does can that be offset by any more advantageous price versus cost?

Yes, I'd urge caution both in particularly in RI and E&T and looking at quarter-to-quarter margins both of those businesses tend to be very lumpy. So we expect quarter-to- quarter variations, in margins up and down and so what we really suggest you look at is our year to your improvement which is what we're really focused on doing. We talked about our targets for margin expectations at Investor Day and we are towards the top end of those or above those. So again we feel good about that as well.

But have you seen that impact started yet on the mix shift between O&E and aftermarket or is that still mostly ahead of us?

I would say that in terms of the new equipment we expect that to improve moving forward. So we're certainly seeing activity for new equipment but we expect that to continue to improve. If we step back and think about where we've been from an historical perspective we are still below averages and it's not much as comparing to the peak but we have a long way to go to improve on O&E for mining.

Okay so the margin mix might change but you're going to still see bigger dollars ahead it sounds like?

Yes and one of the things also that keep in mind is for next year we have a -- we're going to have a stiff tailwind that's going to have a positive impact in all of our segments as we reset step for next year. That's also out there as well. It's another tailwind to keep in mind.

Perfect. Thank you.

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

Hi good morning and Andrew welcome to the fun world of industrials. I guess two questions one Andrew for you specifically. Can you just talk about sort of what your top priorities are as CFO of Caterpillar and while Cats answered some questions on sort of share repurchase how you guys are thinking about being more opportunistic on share repurchase given where your stock price is today and perhaps the markets view of what's going on in the macro versus yours and your ability to earn a higher trough EPS and then my second question Amy I'll try you guys sound fairly constructive as we think about ‘19 in terms of volume without specifically stating a number but are there any material positives or negatives we should think about whether it's stock comp, repo or structuring benefits dealer inventories as we think about ‘19 versus ‘18? Thank you.

Yes. So thanks Jamie, and yes it's great to be here and yes it is always exciting to see such a good set of results be put out in front of you guys today. Priorities, I think you shouldn't be surprised obviously the things about making sure that we execute the O&E model particularly well as we move forward. Resource allocation in particular obviously needs to be something we keep a focus on to make sure we drive that profitable growth that we're trying to target and achieve. So working with Jim and the other members of the executive office to do that. Obviously again you mentioned about capital allocation that is something which again obviously is I know a lot of investor have a lot of focus on obviously we have the $10 billion buyback approved by the board. That will obviously be a key focus as we move forward. Obviously we need to think through how we manage the balance sheet through the cycle and that's something which I will work on and look to as we move forward but obviously as we said and we indicated again we will be opportunistic and go above the $750 million if obviously at times where we think. The share prices below in terms of value which is what it is at the moment.

I will jump in Jamie, taking on the question you had for Amy so on ‘19 obviously it’s [truly] for us to provide a lot of specifics as I mentioned earlier we expect our business to continue to improve in ‘19 versus ‘18 is a lot of puts and takes and we take price realization along with the recent of step and continued cost discipline to offset cost headwinds and we have a healthy backlog, good order rates and we are taking orders for some products well in the 2019. We feel good about state of our business and frankly we expect both the top end and the bottom line to improve in 2019 versus 2018.

Okay. Thank you. I appreciate the color.

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

Yes. Good morning. JP Morgan. My question is around dealer inventories, I know you said you're at the low end of month of supplier based on historical metrics, but historical metrics may not be the right way to look at dealer inventories for Caterpillar because in prior cycles dealers double ordered and order just in case and then we will head the lane strategy, etc, etc. So Jim how do you reassure investors that this cycle is different that your dealers are not double ordering or ordering ahead of price increases or ordering because just in case?

Yes. We've worked very hard over the last couple of years on getting more lean internally and also have looked at our supply chain. Obviously our dealers are independent businesses, so they make their own decisions as to what they do but we do feel based on the strength of the markets that we don't have an issue in terms of dealer inventory. I'll let Andrew jump in here as well.

Yes. And just like give you a comment I mean I'm actually really impressed by the amount of data that the company actually does have on dealer inventory. You may want to go back to look at my background of Bristol-Myers and why I would be very focused on that because that was a wholesalers in that particular point in time, but I do think a) first of all the visibility is important. Actually in absolute dollar terms they look relatively low versus other parts on the cycle and is something that is very well monitored. So I think as best as it can be but as Jim said because obviously the dealers are independent but it does give us confidence that there isn't any excess inventory built. In fact actually what's happened in the last three months is as we've rent our production effectively we are now getting into a situation where dealers actually have enough inventory that they are able to sell through. So that's an important part of what we've been doing.

What CI still ends on managed distribution that you're probably know and much of the CI increase restocking in China for example is off of very low levels. So again we feel comfortable in what we see.

Good. That's helpful and then is there any color you could give us if we look at Europe and the Middle East how much of that region is Middle East and any changes that you're seeing due to political unrest in the Middle East that's currently going on? Is that anything we should be concerned about going into 2019?

At this stage, I mean the bit where we did see some impact in the Middle East area is really around Turkey and that was obviously they've had a fair amount of economic uncertainty. Elsewhere actually through the rest of Europe and most of the rest of the Middle East actually things were pretty much okay. So it's really, really been Turkey been the big driver of uncertainty around that region.

Okay I'll pass it on in the interest of time. Thank you.

Thank you.

Thank you our next question today is coming from Andrew Casey. Please announce your affiliation. Then pose your questions.

Thanks a lot. Wells Fargo Securities. If I could go back to Ann's last question there and Amy did you see any moderation in any of the EU countries and then separately can you explain why you think that the weakness and it sounds like it may just be Turkey why do you think that will be contained?

Well, firstly I mean obviously Turkey has been obviously going through a fair amount of economic uncertainty, obviously with U.S. sanctions as well being applied that has had some impact on the broader economy in Turkey. I think will sort I hopefully seeing that moderate now as we move forward and hopefully start seeing Turkey recover. Around the rest of Europe if you look around the rest I mean UK sales were sort of flattish in the quarter as will be expected with uncertainties there but generally actually the rest of EAME actually work was pretty good and Europe was actually pretty strong as well.

Okay. Thank you and then I just wanted to confirm something. So we've had several quarters where construction remains on managed distribution. Can you comment on whether the constraints you may be still encountering are part of Cat's internal suppliers or is it mainly external and really what I'm trying to get to is if there's any change in past comments about CapEx remaining beneath depreciation?

Andy there is no changes. So construction industries has plenty of bricks and mortar capacity to meet demand and the issue has been with suppliers and as I'm sure you know it isn't just Cat and our competitors but manufacturers in many different industries have struggled with just the general increase in economic activity and what that's driven in terms of demand. So, no it's not, it’s not internal and you shouldn't take anything away from a capital investment perspective based on that.

Okay. Thank you very much.

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

Evercore ISI. Good morning. Basically I'm just trying to figure out the confident comments that you seem to be having about 2019 that you've made, [indiscernible] why we still have a dollar EPS range in the fourth quarter, just trying to understand. You obviously seem fairly comfortable in your production schedules moving forward. If I heard you correctly it seems like the fourth quarter sequential versus third quarter you would expect some normal seasonal patterns in your sales, like it's maybe first if you can confirm that because the dollar range in the fourth quarter, I appreciate the comment nothing's changed since our prior view so we just figure we maintain it but it does at least raise the question your confidence in ‘19 to leave a dollar range for the fourth quarter is interesting. So I guess first can you confirm that you expect normal sequential sales patterns third to fourth?

So David let me be as clear as I can be obviously yes we do expect normal seasonal sales sequential patterns in the fourth quarter. If you look at our margin structure for the year, year-to-date it's 16.6%. In the third quarter it was 16.6%. We expect margins to be broadly similar as well so that very much is, very much in line with where we've been expecting. I think on the range I think changing the range would have sent some [miss sort of] message about something had changed since July. We were very clear in our thought process that we actually just wanted to be very clear to you all and say nothing's changed. Expectations of outlook have not changed and so we just wanted to reflect that through the guidance. Yes, it is a wide range, yes but we expect nothing really much has changed since where we were in July. So narrowing it may have created some noise either at the bottom end or at the top end. So we just thought it'd be better to leave it as is and explain it on the call today.

No, I appreciate that I'm just trying to think of a launching pad into ‘19 because if your sales are up their normal 6% to 7% sequentially third or fourth and the margins are the same that means the fourth quarter EPS is above the third quarter and your guidance implies it's not. So I'm just trying to understand is that comfortable because the numbers don't fully back it up and you're just saying it's still within the range it might get to the high end of the range but you decided to keep it as a wide range?

Yes, I mean if you do the math says you've done it then you would see the quarters being up. I think that our view is the range is wide, yes we don't expect to be at the bottom end of the range. So I think that's based on what we're expecting we expect the normal sales pattern and operating margins to be broadly in line with where they've been all year.

And lastly on the price increases announced to start 2019, the impact of those can you help us a little bit I mean if there seem to be [they're not price] protected shipments. So I'm trying to get a sense of the price cost as we start 2019. Can you help us a little bit with that on the timing of the cost versus the timing the price as we start ‘19 for a run rate?

Yes. I mean I think we are obviously we did get quite a long lead time partly so that we can actually put it into effect. We expect a significant proportion. A majority of that portion to stick obviously into 2019 but obviously when we're doing as sort of initial guidance for next year we're taking to account that not all of that will be fully realized in the 2019 time frame. So will give you a bit more an updating a bit more color then and also don't forget we will have the full-year benefit of the mid-year price increase in 2019 as well.

Double stack to start the year? Okay. All right. Thank you very much. Appreciate it.

Thank you. Our next question today is coming from Jerry Revich. Please announce your affiliation and then pose your question.

Good morning everyone. It's Goldman Sachs. Can you talk about the M&A pipeline and the relative attractiveness of M&A versus buyback to you folks at this point you mentioned stocks below the intrinsic value but how does that stack up versus your M&A options and as you folks look at the balance sheet today the cleanest has been in over 30 years, what do you think is the right level of leverage for this business longer term?

Yes. This is Jim. I will start it off and let Andrew jump in at the end if you would like but you mentioned M&A and buybacks well the other thing we can also do is invest in organic growth which we are very much doing. So all of our businesses continuously evaluate M&A opportunities. We're continuing to do that. We're not excluding anything. We are not saying that there's a definitive plan for a big M&A either. We are very focused on organic growth particularly in areas of services in digital. We're increasing our capability there and now I will let Andrew take the buyback question.

Yes. Jerry on the sort of what's the right level of leverage on some [weeks], so I think if you would excuse me to start betting that out for a little bit longer because actually it's one of the things I want to work through and work through how do we think about this through the cycle which is what we do have to do. We do want to maintain the mid-year rating through the cycle. So we have to think through that how that capital allocation works. Obviously at the moment we do have more cash than we inherently need so therefore we are as we've seen accelerating the buyback program and that is obviously the key at the moment.

Okay. Thank you and you, folks give us color on new dealer inventories of new equipment. Can you just talk about what you're seeing on the use equipment side I guess we're seeing used inventories inching up in North America construction equipment. Are you seeing that as well? Can you just talk about your comfort level on the use side?

Yes Jerry I think if you look at used equipment the inventories are quite tight and we're seeing increases and used equipment prices continue.

Any color by region Amy?

I don't have any specific color by region. It's certainly the case in North America where I have most of that data.

Okay. Thank you.

Thank you. Our next question today is coming from Stephen Volkmann. Please announce your affiliation and then pose your question.

Hi, good morning. It's Jefferies. Thanks for taking my question. Just a couple quick follow-ups. Just back to the resource if we actually do sell more equipment next year than parts can you still have up margin?

Yes. I'm not sure we said we'd sell more equipment than part. I think what we said is that term on mining the resource industries correct.

Yes. Thank you. That's the question.

Yes. So both are improving. So our parts sales are increasing as our opportunities for our new equipment as well. So I'm not going to make a -- we're leveraging obviously leveraging period cost where we're seeing higher volume and that's a good thing. So I'm not going to make any comment on margins new versus parts.

Okay. Fair enough. Thank you and then just a couple quick ones on tariffs I know you've been managing that quite well so far. What happens when and if it looks like more than if sorry when the tariffs go to 25% on the section 301. What type of impact would that have and then are you either doing or seeing from your customers any kind of pre-buy activity around that whole issue?

So we previously stated that our – we would in the last six months of the year we have cost headwinds of $100 million to $200 million we're going to be at the lower end of that range we believe. We haven't seen a big pre-buy but of course we're in a situation where we've had some constraints and so we've been on managed distribution. So we don't expect a major impact as quite frankly we were already hit with the earlier tariffs so we don't think a later change will have an impact on us. It was already baked in for us.

And are you buying any parts ahead of changes in pricing?

Well, again we're in a situation where as we talked earlier there's a supply constraint challenge not only for Caterpillar, our competitors but for many other manufacturers as well. So I don't think anyone has honestly has the luxury of making a lot of big pre-buys. So no.

Understood. Thank you.

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

Thanks. It's Melius Research. And thank you for the prior answer, if I could just get a little bit more specific on it, I mean obviously tariffs are remaining big uncertainty for the market and estimates. Is it what you just said is that meant to suggest that if there is 25% on the additional $200 billion of goods tariffs that that would be at or smaller than the impact you've had this year? We just sort can't see all the different things you and your suppliers buy. So obviously you've got a lot more information on quantifying that than we do.

Yes. The impact would be quite minor in the bigger scheme of things for Cat's results.

Okay. Perfect. Are you doing any materials for the production mitigation where you produce more in Brazil or elsewhere to offset that or is it just straight minor on a gross basis like the stuff that's tariffs isn't as large in the second round for you?

Yes, we're not making a lot of production shifts. I mean our teams obviously continuously monitor the situation and it can with politics to get together the situation can change dramatically day to day. So we – we have not made production shift decisions based on this.

Great. Thank you.

But just expand upon that we have a global footprint, so we have the luxury of unlike some other companies, we manufacture products in Asia, in the Americas, in EAME so that does help us mitigate this somewhat because we do have a global manufacturing base.

Perfect. Thank you.

Okay.

Thank you. Our next question today is coming from Sameer Rathod, please announce your affiliation and then pose your question.

Macquarie Research. Thank you for taking my question. Just one quick question on labor cost. It seems like there's growing political pressure for $15 per hour and we've seen some response to that already. Can you quantify how much of an impact if any it would be a cost in terms of Cat, if Cat paid at least $15 an hour to its manufacturing staff? Thank you.

Yes. For the most part it's not going to have an impact on us and we are above $15 in the vast majority of places are only in the U.S. so I don't see an impact on us.

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

Hi, Bank of Montreal and so just two quick ones. You guys are running now near the top end of your investor day margins and I just wondered if there's more kind of like leaning toward raising those targets or are we kind of passing the maximum point of the internal efficiencies and you're more comfortable just leaving them in place?

So as we as we talked about we're focused on growing our business as well, so while our teams are continuously focused on making our operations more efficient, we're also investing for growth. So it's – there's always a balance there between those margins and growth but we're pleased that we are ahead of where we said we would be from a time perspective and our team has a laser focus on those margins but again there's a balance between investing for growth. We just don't want to continue to bring out higher margins every year at the expense of growth. However, right if we can both grow and have higher margins then that's fine as well. So again it's a balance.

Okay.

Volumes, sorry so one comment I mean if certainly if volumes go up, obviously that gives us an opportunity to have higher margins because we're leveraging that overhead across the higher volume. So that opportunity certainly exists.

And then Andrew there there's always been kind of this historic inside a Cat a push and pull between growing market share and having more pins in the map and profitability and I just wondered based on your experience and history and all that if you what would be your initial input into that debate?

Yes. I think let me just say the history is littered and of companies who have either gone for market share the expensive margins and/or then gone for margins at the expense of market share, ultimately at the end of the day we want to do both and it's all about trying to do profitable growth. I think that is really one of the reasons why I joined, I love the term profitable growth and the fact that it does mean that you actually have to do focus not just on growth and profits but actually sustainable long term profitable growth. So ultimately at the end of the day you want to do both is the simple answer.

Okay, I appreciate you guys squeezing me in thank you.

And Kate we have time for one more question.

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

Good morning everyone from Deutsche Bank. So I just want to go back to the $800 million increase in dealer inventory. Can you give a little bit more detail by [segments] region where the entries came from and then where do you expect that to exit 2018?

Yes. I mean I'm not going to break down 800 million for you by region but as we said one of the biggest areas where it was in China and as a result of the selling season second quarter there was a very strong pull in in China. Overall across all the segments we are comfortable that we still remain at the low end of the range and then obviously as with the production ramp ups we are starting to get to a situation where dealers have adequate inventory on hand. So again I think rather than get into the sort of then having to give you an update exactly where the inventory is, the inventory is across all the segments. It was build across all segments in the quarter but generally we are comfortable with where we've ended.

That's helpful and then just switching over to the price you mentioned a 1% to 4% increase, I mean 2019, how does it break down across your various segments and then also the thing that jumped out at me was a 4% price increase in resource industries and I was just curious whether it's more like a mix issue or are you actually getting price on apples to apples basis and if so it has a market tight enough so that that's sustainable?

Yes. So at this again the price realization in RI is a lot due to mix and versus a prior year with regards to the 1% to 4% we're not going to break it down by segments but basically it depends geographically and it depends on business segment as to what the price increases were put through.

Great. Thank you very much.

Kate, that's going to be our last question. Jim do you have a couple of wrap-up comments.

We just thanks everyone for your time this morning. I just wanted to end by saying I'm very, very proud of the Caterpillar global team for a record profit per share for the third consecutive quarter and we continue to deliver record quarterly profits even while many of our end markets are still in their early stages of recovery. We'll continue a relentless execution of our strategy, supporting our customer success, very focused on profitable growth and total shareholder return. Look forward to speaking to all next quarter. Thank you.

Thank you Jim.

Thank you ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.