New Caterpillar CEO Faces Tough Decisions as Company Digs Out
19 Oktober 2016 - 10:15PM
Dow Jones News
By Bob Tita and Andrew Tangel
Among Jim Umpleby's first big jobs as Caterpillar Inc.'s chief
executive will be cleaning up the fallout from his predecessor's
expansion plans.
Doug Oberhelman, who is leaving the top job at the end of this
year after bold overseas expansion plans ran afoul of the global
commodity bust, has set out to cut 10,000 jobs and $1.5 billion in
annual expenses, as well as close up to 20 plants through 2018.
Mr. Umpleby's first months as chief executive next year could
bring more tough decisions. The company has said additional plant
closings and more layoffs are likely. The 58-year-old Caterpillar
veteran is also facing tough negotiations ahead of a March 1
deadline to renew contracts for the equipment maker's thousands of
United Auto Workers members.
Those cutbacks and negotiations will presage a broader reckoning
over how aggressively to chase the next boom in construction and
mining or narrow to the equipment-making giant's focus on smaller,
higher-profit business lines.
Caterpillar's sales of bulldozers, excavators, giant mining
shovels and huge dump trucks have slowed for four consecutive
years. Many analysts expect them to fall again in 2017. Caterpillar
faces a fortified set of competitors in China and Japan ratcheting
up product offerings in case the market rebounds.
For the past three years, Mr. Umpleby presided over
Caterpillar's engines business: a low-profile division that is also
Caterpillar's most profitable. Engines have accounted for up to
two-thirds of the company's annual operating profit in recent years
and 40% of equipment sales.
Identifying similar pockets of strength in Caterpillar's
cyclical markets is likely to define Mr. Umpleby's tenure,
particularly if markets for Caterpillar's earth-moving and mining
equipment remain soft.
"They could identify opportunities that are not immediately
obvious now, " said Joe O'Dea, an analyst for Vertical Research
Partners.
Despite his 35 years at Caterpillar, Mr. Umpleby's time in San
Diego and overseas mean he isn't well known to many at the
company's Peoria, Ill., headquarters. His promotion was a surprise
to some.
Caterpillar has declined to make Mr. Umpleby available for
comment. A Caterpillar spokeswoman declined to say whether he would
speak with analysts next week after the company releases its
third-quarter earnings.
The spokeswoman said Mr. Umpleby would review the company's
strategy with Caterpillar's leadership team. "You should expect to
hear more about the strategy in early 2017," the Caterpillar
spokeswoman said in an email, noting Messrs. Oberhelman and Umpleby
will remain in their current positions through the end of the year.
"We're all focused on finishing the year strong."
Colleagues described Mr. Umpleby, who grew up the son of a steel
mill foreman in Highland, Ind., as a methodical manager and careful
listener. Don Ings, a former Caterpillar executive who has known
Mr. Umpleby for more than 30 years, said the company's fortunes may
turn positive during his tenure.
"Doug was dealt a deck of cards," Mr. Ings said of Mr.
Oberhelman. "Jim's going to be lucky enough that his deck of cards
is going to include the upcycle [for machinery] and Caterpillar is
very, very-well positioned to achieve greatness during that
cycle."
Mr. Umpleby's Caterpillar career started in 1981 when it
acquired Solar Turbines, a subsidiary prized for its high margins.
He later served as the San Diego-based division's president. The
oil-price decline has damped Solar's sales recently, but the
division hasn't slipped as much as others.
"Those gas turbines continue to operate on offshore facilities,
oil and gas pipelines," Mr. Umpleby told investors at a conference
in August. "We're pleased with where we are at this point in the
year."
Mr. Umpleby will have to answer to Dave Calhoun, who will
replace Mr. Oberhelman as chairman of the board at the end of
March. It is the first time Caterpillar will have a separate
chairman and chief executive in 26 years.
Mr. Calhoun, an executive at Blackstone Group LP, was once seen
as a potential successor to Jack Welch as chief executive General
Electric Co., where he spent much of his career. In 2006, Mr.
Calhoun became CEO and later chairman of the television-ratings
company Nielsen Holdings.
Nielsen's stock is up 16% this year, outpacing the S&P 500,
which is up about 5%.
"If I had to pick a chairman of any company that needed turning
around, I'd pick Dave," said Jim Kilts, Nielsen's chairman when Mr.
Calhoun was CEO.
Write to Bob Tita at robert.tita@wsj.com and Andrew Tangel at
Andrew.Tangel@wsj.com
(END) Dow Jones Newswires
October 19, 2016 16:00 ET (20:00 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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