29.09.2004

Caterpillar experience “Unprecedented recovery”

Caterpillar chairman Bill Owens told analysts at a meeting held during MINExpo 2004, the mining convention held in Las Vegas, that the company was experiencing an unprecedented recovery in every market segment that it covers.

Owens said that the 40 percent surge in demand far exceeded the company's expectations, and that he thinks strong sales will continue through at least 2010. He said "sales have improved across all major product lines, including mining equipment, construction machinery and engines".

He also said that Caterpillar should achieve its target of $30 billion of revenue in 2005 a year earlier than expected. In fact he predicted that sales would only fall slightly short of that level this year with, revenues expected to come in around 29 percent above last years record levels of $22.8 billion. He anticipated that 2005 would see slightly slower growth “as the explosion of this year eases” but still expects a further 10 percent taking revenues up over $32 billion.

Profits for 2004 are likely to be some 80 to 85 percent higher than in 2003 possibly hitting the two billion dollar level for the first time. "Our goal is to continue growing the business with emphasis on improved profitability," Owens said. "Sales growth by itself isn't good enough. We want profitable growth that enables us to continually develop leading edge products, maintain world-class operations, pay highly competitive salaries and benefits to attract and retain the best people, and increase dividends for stockholders; everything to make this a great company." Said Owens.

He continued “While 2004 has been a success, it wasn't without problems”. He noted the company's costs were higher as it worked to keep up with heavy demand and because of higher material costs and shortages, which at times hampered the company as it ramped up production to meet the demand.

"If you have 98 percent of the production built but can't finish the other two percent because you don't have the material, that drives up costs," he said.

Looking to the future, Owens listed Caterpillar's five critical issues: people; best distribution system; emerging markets; quality; and order fulfillment. Regarding the latter, Owens is pushing to change the way Caterpillar accepts and fulfills customer orders, "moving from selling what we've built to building what we've sold." He said it will be a four or five year project, but one that will enable the company to build machines to customer's specifications, reduce inventory and be more cost efficient.

Part of the program would be differentiating between orders, enabling Caterpillar and its dealers to better prioritize, improve lead times and save costs. Orders for customers will get top priority, followed by orders to fill a dealer's rental fleet or to simply build inventory.

"We think we can create competitive advantages while being committed to taking inventories down and improving cash flow," he said.

Owens also told analysts that Caterpillar has established a new strategic planning committee whose brief is to determine in which direction the company should go by 2010 and beyond.

"Stay tuned," he said.