Current CEO Doug Oberhelman will step down from his role as CEO and head of the board and will be succeeded by Caterpillar President of Energy and Transportation Jim Umpleby.
Umpleby is taking the helm at a challenging time. Umpleby will face some “tough decisions”, the Wall Street Journal reported, as he spends his first few months presiding over a downsizing. After taking big losses in the commodities bust, Caterpillar has been eyeing big cost-cutting measures. In the past year, the company has laid off 14,000 workers and ended track drill production. It is now aiming to lay off an additional 10,000 workers, cut $1.5 billion in annual expenses, and close up to 20 plants through 2018.
Under Oberhelman’s leadership, the company spent almost $10 billion on plants and equipment between 2010 and 2013. In China alone, Caterpillar doubled its number of plants and facilities between 2011 and 2014. Yet 2012 proved to be a peak year for the company as commodity prices started to fall. China’s growth receded, oil prices fell and demand for such equipment declined.
Caterpillar is now in its fourth straight year of falling sales, representing the longest decline in its history. While the company’s stock is up nearly 30% for the year, it’s trading well below its 2012 peak. “Everybody was surprised by the size of the downturn and the length of it…I firmly believe we couldn’t have forecast that at the time,” said Oberhelman at a mining trade show in Las Vegas in September.
Umpleby has overseen the company’s engine business since 2013. While it has generally been a low profile part of the company’s operations, it also has been one of the most profitable, generating up to 40% of its equipment sales and up to two-thirds of Caterpillar’s annual profit. Joe O’Dea, an analyst for Vertical Research Partners, told the Journal that the management in the engine business “could identify opportunities that are not immediately obvious now.”
Longbow Research analyst Eli Lustgarten told CNBC the decision to go with Umpleby makes sense. While Longbow is currently neutral on the stock, they still think Caterpillar is a great company, but also think the next five years will likely be very volatile. “It’s not a great surprise that the guy who runs that business and made it so profitable gets a chance to run the rest of the company,” said Lustgarten.
Umpleby has been with Caterpillar for 35 years and started his tenure with Solar Turbines Incorporated, a wholly owned subsidiary, in 1980. Umpleby was elected in 2010 as Caterpillar vice president and president of Solar Turbines before becoming a Caterpillar group president and member of Caterpillar’s Executive Office in 2013.
Umpleby will be the first CEO since 1980 who isn’t also a chairman. Oberhelman will oversee the company and the board until March 31, at which point Umpleby will take over as CEO and current board member Dave Calhoun will become the board’s non-executive chairman.