CAT Caterpillar Inc

Equipment maker's next boss must tackle unfinished downsizing as global rivals rise

By Bob Tita and Andrew Tangel 

Among Jim Umpleby's first tasks 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 big money investments ran afoul of the global commodities bust, has embarked on a cost cuts aiming to pare 10,000 jobs, $1.5 billion in annual expenses, and up to 20 plants through 2018.

Mr. Umpleby will preside in his first months as CEO over a downsizing expected to last through next year. The 58-year-old Caterpillar veteran also faces contract negotiations ahead of a March 1 deadline with the equipment maker's United Auto Workers union.

Those cutbacks and negotiations will set the stage for decisions on how aggressively Caterpillar will chase the next boom in construction and mining, or whether it will narrow the equipment giant's focus to less-risky projects and higher-profit business lines.

Caterpillar's sales of bulldozers, excavators, mining shovels and huge dump trucks have declined for four consecutive years. Many analysts expect them to fall again in 2017. Caterpillar faces a tougher set of competitors in China and Japan that are ratcheting up product lines and quality in expectation of a market rebound.

Since 2013, Mr. Umpleby presided over Caterpillar's engines business: a low-profile division that recently has been 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 its equipment sales.

Identifying pockets of strength in Caterpillar's cyclical markets likely will define Mr. Umpleby's tenure, particularly if demand for Caterpillar's earth-moving and mining equipment remains soft.

In its engine business, "they could identify opportunities that are not immediately obvious now," said Joe O'Dea, an analyst for Vertical Research Partners LLC.

Despite 35 years at Caterpillar, Mr. Umpleby isn't well known at the company's Peoria, Ill., headquarters because he spent most of his time in San Diego and overseas. His ascent was a surprise to some.

Mr. Umpleby wasn't available for comment. A Caterpillar spokeswoman declined to say whether he would speak with analysts next week after the company releases its third-quarter results.

The spokeswoman said Mr. Umpleby will be reviewing the company's strategy with Caterpillar's leadership team in coming weeks. "You should expect to hear more about the strategy in early 2017," she 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, 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 up 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 joined Caterpillar in 1981 through its acquisition of Solar Turbines, a subsidiary prized for its high margins. He later served as the San Diego-based business unit's president. The oil-price decline has damped Solar's sales recently, but the division hasn't slipped as much as other units.

"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 report to Dave Calhoun, an executive at private-equity firm Blackstone Group LP who will replace Mr. Oberhelman as board chairman at the end of March. It is the first time Caterpillar will have a separate chairman and CEO in 26 years.

"If I had to pick a chairman of any company that needed turning around, I'd pick Dave," said Jim Kilts, former Nielsen Holdings chairman when Mr. Calhoun was its CEO.

Write to Bob Tita at robert.tita@wsj.com and Andrew Tangel at Andrew.Tangel@wsj.com

(END) Dow Jones Newswires

October 20, 2016 02:48 ET (06:48 GMT)

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