By Bob Tita and Andrew Tangel
Caterpillar Inc. Chairman and Chief Executive Doug Oberhelman
will retire earlier than expected, leaving company veteran Jim
Umpleby to battle a historic sales slump after ill-timed bets on
China and mining equipment.
The Peoria, Ill. based maker of hulking yellow excavators and
bulldozers will also split its chief executive and chairman roles
for the first time in a quarter-century, pleasing investors and
analysts who called for a stronger check on the chief executive's
power.
"This is a good start," said Lawrence De Maria, an analyst at
William Blair.
Mr. Umpleby will become chief executive Jan. 1. Mr. Oberhelman
will remain chairman until the end of March, when will be succeeded
by Dave Calhoun, a longtime executive at Nielsen Holdings, General
Electric Co., and Blackstone Group LP.
Mr. Umpleby will take over as the world's largest mining and
construction equipment maker struggles to recover from the global
commodity bust. Falling prices for mined commodities and oil and
slower economic growth in China plunged the world-wide equipment
market into a deep slump beginning in 2012. After record numbers
that year, Caterpillar sales have fallen every year since.
"He's going to see some of the darker days first -- no
question," said Matt Arnold, an analyst for Edward Jones.
The prolonged downturn has been rough on Caterpillar's rivals as
well. Mining-equipment maker Joy Global Inc. of Milwaukee expects
revenue of about $2.4 billion for its current fiscal year, less
than half of 2012 levels.
Joy shareholders will vote Wednesday whether to sell the company
to Japan's Komatsu Ltd., which has forecast a drop in demand of up
to 10% for its construction equipment and a 20% decrease for mining
equipment in the current fiscal year. Komatsu has said it doesn't
expect the mining market to improve until the end of the
decade.
After becoming chief executive in July 2010, Mr. Oberhelman
plowed billions of dollars into additional factories in the U.S.
and abroad to build more machinery and engines for a booming
equipment market, particularly in China, Brazil and other
developing countries.
Mr. Oberhelman believed expanding in China, where the company
had struggled to make equipment in the past, was critical to
capitalizing on that market's surging demand.
He also broke with his predecessors' aversion to big
acquisitions by purchasing railroad locomotive builder
Electro-Motive Diesel Inc., Germany engine maker MWM Holding GmbH
and mining equipment maker Bucyrus International in his first
months on the job.
The $8.8 billion acquisition of Milwaukee-based Bucyrus is the
largest deal in the company's history and provided Caterpillar with
a complete line of mining equipment, including giant shovels for
open-pit mines and underground mining equipment.
The deals catapulted Caterpillar's sales and profit to record
levels by 2012. Demand for machinery and engines has been
unraveling ever since. Caterpillar is expected to log its fourth
straight year of lower sales in 2016, the longest in its 91-year
history.
"Doug was a decisive guy and a risk taker and it turned out the
environment wasn't congenial to the risks he took," said James
Koch, an economics professor and former president of Old Dominion
University in Virginia.
To preserve profits, Mr. Oberhelman aggressively cut expenses.
Caterpillar's workforce has shrunk by 20% since 2012. As many as 20
plants could be closed or consolidated by 2018. Some of the
underground mining equipment lines acquired from Bucyrus are up for
sale again.
Thanks to the cost-cutting, Caterpillar has continued to earn
annual profits. This year, Caterpillar's shares are up 28%, and
other big-ticket equipment makers are also on a tear after cutting
costs and production. But Caterpillar's shares are still down 25%
from their 2012 peak, and closed 0.4% lower on Monday at $87.29 a
share.
Mr. Oberhelman shook up top management ranks to drive better
performance in tough markets. He appointed former General Motors
Co. executive Denise Johnson to run the mining group, the first
woman to be a group president at Caterpillar.
"Oberhelman corrected the issues left from past managements,"
said Robert Wertheimer, an analyst for Barclays. "Cat now has a
much-improved operating system."
But much remains for Mr. Umpleby to do. Some analysts say the
timing of Mr. Oberhelman's departure signals that Caterpillar's
sales woes will continue into 2017.
Caterpillar's CEOs typically retire by age by age 65. At 63, Mr.
Oberhelman was expected to begin telegraphing his departure soon.
In selecting Mr. Umpleby, 58, the Caterpillar board followed its
habit of picking Caterpillar lifers with varied experience.
Mr. Umpleby, a 35-year Caterpillar veteran, has been group
president of the engine business since 2013. He was previously ran
Caterpillar's Solar Turbines subsidiary, a highly profitable unit
that other CEOs managed on their way to the top job.
Colleagues of Mr. Umpleby described him as a thoughtful leader
and consensus builder. Former Caterpillar board member Eugene Fife
said Mr. Umpleby was seen as a rising management star as early as
2012, when Mr. Fife retired as the company's lead outside director.
"He had an excellent reputation," Mr. Fife said of Mr. Umpleby.
Mr. Umpleby could lead the company for six years or so before
retiring, like Mr. Oberhelman and his predecessors. It is unclear
whether the board will maintain separate chief executive and
chairman roles after Mr. Umpleby.
Many investors hope they do.
"You grade your own papers," said John Chevedden of California,
who said he owns 200 of the company's shares. "Why should you be
responsible to yourself?"
Mr. Chevedden's resolution urging Caterpillar to name an
independent director as chairman won 42.8% of the votes cast at
this year's annual meeting, according to a regulatory filing.
But Caterpillar's board rejected the resolution, saying "unified
leadership and direction" was critical to wrangling the company's
sprawling business.
Mr. Calhoun's appointment as an outside chairman suggests
Caterpillar directors now want someone to keep close tabs on the
chief executive, one succession-planning expert suggested.
"They want faster change," and expect Mr. Calhoun will be "very
super aggressive" about overseeing Mr. Umpleby, predicted Jeffrey
Cohn, managing director of global CEO succession planning for
recruiters DHR International.
--Joann S. Lublin contributed to this article.
Write to Bob Tita at robert.tita@wsj.com and Andrew Tangel at
Andrew.Tangel@wsj.com
(END) Dow Jones Newswires
October 18, 2016 02:48 ET (06:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Caterpillar (NYSE:CAT)
Historical Stock Chart
Von Sep 2024 bis Okt 2024
Caterpillar (NYSE:CAT)
Historical Stock Chart
Von Okt 2023 bis Okt 2024