Photographer: Luke Sharrett/Bloomberg

Caterpillar Dangles Profit Surge to Investors Wary of Letdowns

  • CEO says $55b sales scenario is achievable but not a target
  • He declines to give 2018 forecasts with focus on performance

Caterpillar Inc. boss Jim Umpleby is throwing some tantalizing numbers at investors that show accelerating sales and profit growth. He just doesn’t want to be bound to them.

On Tuesday, Umpleby delivered his first investor-day presentation since replacing Doug Oberhelman as chief executive officer. The headline numbers were $55 billion in sales -- 28 percent above the company’s 2017 projection -- and a widening of operating margins by as much as 5 percentage points.

But after a series of setbacks and forecast reductions under his predecessor as Caterpillar struggled to recover from the biggest commodities rout in a generation, Umpleby is quick to point out that the new numbers are hypothetical rather than hard and fast goals.

“It’s not really a revenue target,” he said in an interview in Tucson, Arizona, where the investor day is being held. “It’s an achievable sales level by segment -- what is reasonable for us in terms of market expansion.”

Sales of $55 billion would take the company back to 2013-2014, before it bore the full brunt of the commodities downturn. A more return-orientated model will mean that when it does get back to those levels, the operating margin will widen to 14 percent to 17 percent from about 12 percent, Caterpillar said.

The shares extended gains as executives spoke on Tuesday, ending the day with a 1.7 percent gain. The stock is up 30 percent this year as investors put their faith in Umpleby.

The presentation’s implied earnings matches or exceeds market expectations going into the meeting and should be enough to keep shares elevated, RBC Capital analysts including Seth Weber said in a note to clients Wednesday.

“No doubt, progress has been good, particularly construction, as early adopters of operating and execution model,” they said. “However, lack of time-frame on framework keeps valuation discussion relevant, in our view.”

Caterpillar said construction industries are growing about 15 percent this year and mining investment is expected to increase steadily after producers slashed budgets to survive the downturn. In energy, while offshore spending is expected to continue to decline, exploration and production expenditure will probably rise 20 percent in 2016-2018, the company said.

Tight-lipped

The company is positioned for profitable growth and is expanding services with an emphasis on aftermarket, it said. Umpleby said all segments are continually evaluating acquisitions.

While the CEO has been “pleasantly surprised” by the strength of construction in China this year, he was reluctant to make any predictions on how long that would last. He also declined to offer an opinion on where different industries are in terms of their business cycles, or whether proposed U.S. tax changes would get through Congress.

“What we’re really focused on in this strategy is improving operational performance,” he said. “We’re not yet making any sort of prediction as to what we see for next year.”

— With assistance by Steven Frank

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE