Caterpillar Dangles Profit Surge to Investors Wary of Letdowns

(Bloomberg) -- 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 in January. The headline numbers were $55 billion in sales, which is 28 percent higher than the company’s official 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 the company 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.”

The $55 billion number would get back to 2013-2014 levels, before the company bore the full brunt of the commodities downturn. Efficiency efforts will mean that when Caterpillar does get back to those levels, its operating margin will widen 2 percentage points to 5 percentage points from about 12 percent historically.

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 guiding the $71 billion company back to those 2013-2014 numbers.

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 business, 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 from Steven Frank

To contact the reporter on this story: Joe Deaux in New York at jdeaux@bloomberg.net.

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net, Joe Richter