Caterpillar’s Doug Oberhelman will retire after a 41-year career with the largest maker of construction and mining equipment, leaving his replacement to finish the job of navigating a commodities slump.
The 63-year-old will be replaced as chief executive officer on Jan. 1 by company veteran Jim Umpleby, now a group president for energy and transportation, the Peoria, Illinois-based company said in a statement Monday.
Jim Umpleby, new CEO for Caterpillar starting in 2017
Since leading Caterpillar to record sales in 2012, Oberhelman has been steering through a slowdown in demand for engines, giant trucks and shovels. He reorganized mining and energy segments, shutting down dozens of factories and eliminating thousands of jobs. A years-long initiative to streamline the company’s supply and distribution network has yielded results as its gross margin has climbed annually since 2013, even as revenue slumped.
The new CEO will face a more formidable global competitor after Komatsu Ltd., the second-biggest mining and construction equipment maker, agreed to buy Joy Global Inc. for $2.89 billion in July. That deal gives the Tokyo-based manufacturer the largest independent maker of underground-mining equipment and the heft to better compete with Caterpillar beyond Komatsu’s dump-truck and excavator businesses.
Cat has been hurt by the decline in commodity prices as well as bets Oberhelman made on the mining sector when he paid $8.6 billion for South Milwaukee, Wis.-based Bucyrus International, Cat’s largest acquisition ever, and $700 million for Hong Kong-based ERA Mining Machinery and its unit known as Siwei in 2012. Cat had to take a $580 million write-down when a significant portion of the unit’s profit, revenue and inventory proved illusory.
The announcement comes a week before Caterpillar reports third-quarter earnings, when it often provides initial guidance for revenue growth for the upcoming year.
“If the only way to go is up, why wouldn’t Oberhelman stick around for a couple years more?” asked analyst Mig Dobre of Robert W. Baird. “I’m sure there’s a story behind the story here as to why Doug retired now as opposed to two years from now, when he turns 65.”
“The timing of the change in leadership suggests confirmation that the outlook for 2017 may be for a fifth consecutive year of revenue decline,” Duignan and Simonitsch wrote.
Stanley Elliott, an analyst at Stifel Nicolaus & Co., said the timing wasn’t very surprising and may be more about having the new CEO in place before an important trade show in Las Vegas in March, he said by telephone from Richmond, Virginia.
It will be interesting to see Umpleby’s vision develop, as his technical background makes him likely to “double- and triple-down” on the concept of tech-enabled machinery. Cat has invested in Chicago data analytics firm Uptake and launched an in-house analytics and innovation division. The company received nearly 7,300 patents worldwide while Oberhelman was in charge.
Oberhelman, whose 2015 reported pay was $17.9 million, will remain as chairman until March 31 when Dave Calhoun will assume the role, in a non-executive capacity. Calhoun is senior managing director and head of private equity portfolio operations of The Blackstone Group LP. Umpleby will also join the board.
The stock has rallied 29 percent this year along with a recovery in commodity-producer shares. The company is scheduled to report third-quarter earnings on Oct. 25.
by Danielle Bochove Bloomberg
