Executive Chairman of the Board, Caterpillar Inc.
Caterpillar CEO Jim Umpleby sits down one-on-one with Jim Cramer
Jim Umpleby, Caterpillar CEO, joins "Mad Money" host Jim Cramer to discuss China, infrastructure spending and company outlook. Sign up and learn more about the CNBC Investing Club with Jim Cramer https://cnb.cx/3Ei22n4
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About D. Umpleby
Jim Umpleby, Executive Chairman of the Board at Caterpillar, has been discussing the company's financial performance and market outlook in recent earnings calls and media appearances. In early 2024, he reported record financial performance for 2023, with all-time record sales and revenues up 13% and adjusted profit per share up 53%. Umpleby attributed the results to the company's global team and noted that supply chain constraints have eased, improving equipment availability. He stated that dealer inventory is in an appropriate range and that the company is not concerned about it. Umpleby also said that China, which typically represents 5 to 10% of total sales, is expected to remain weak, and that the company is investing in sustainability initiatives, including making traditional equipment more efficient and increasing manufacturing capacity for large engines. Umpleby has also addressed the company's strategy and long-term outlook. He stated that Caterpillar introduced a strategy in 2017 focused on operational excellence, expanded offerings, and services, which he said has led to higher operating margins and free cash flow. He noted that the company is investing in digital capabilities and new products, and that the energy transition is expanding Caterpillar's total addressable market, particularly in mining for minerals required for electric vehicles. Umpleby has expressed support for infrastructure legislation and said that the benefits of such bills will play out over time. He has also emphasized the company's commitment to sustainability, diversity and inclusion, stating that a diverse global team helps the company innovate and meet customer needs.
Transcript (12 segments)
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Host0:16
Today's the single busiest day of earnings season. Yeah, the day when Wall Street's most likely to get it wrong, I think. For example, the way the market got Caterpillar wrong. This morning, Caterpillar had a blowout quarter, posting a monster revenue beat, a tremendous $1.11 earnings beat. That's off a $3.80 basis. You might expect the stock to... The stock reversed, at one point down 5.6% before erasing most but not all of those losses. What is the problem here? Managements with a little vague about the outlook for the future. Probably didn't help we got a slow first quarter GDP print this morning, and we keep hearing about new fears about the commercial real... Peak business, and Jim, be very careful we're going into a slowdown when Cat typically does underperform. Jim Umpleby is the chairman and CEO of Caterpillar. We welcome you back to Mad Money. Jim, it's great to see you again. Jim, I've got to tell you when I saw the quarter I knew things were good and I was thrilled. I could not believe how quickly people felt that's the last good quarter. We saw it happen in 2018. People tell me it's just the same thing all over again. I say it's a different Cat. It's more of a secular growth Cat than we've ever seen in my lifetime. Am I just way out of bounds?
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Jim Umpleby1:46
Well, thank you, Jim. And I want to start by thanking our global Caterpillar team for an outstanding quarter as you mentioned. But outstanding quarter. And one of the things we did tell our investors today during our earnings call is based on our first quarter results and the healthy demand that we see in most of our end markets, we feel even more optimistic that 2022 will be even a better year than we anticipated on the top and bottom line. Business is good.
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Host2:31
I want to make sure that you did not, contrary to a lot of research I read, say look, our profit margins are peaking and inventories are not in the shape we'd like, so therefore you've got to understand with weakness in China we don't know how cloudy this future's going to be.
J
Jim Umpleby2:52
Well, I'll make a couple of comments to try to clarify some things. Primary segments. We got that out there today. And in the past, we've talked about the fact that China represents between 5% and 10% of our total sales. We told investors today that this year we expect it to be less than that range. Even with China slow, again, we feel very good about the year that we're having. We had an outstanding first quarter. And you know, we can talk about construction, which is certainly important. In the first quarter, the construction industry's sales were up 10%. But we didn't get any questions about the fact that resource industries, one of our other segments, was up 21% and energy and transportation was up 24% in the quarter. And if you like, I can talk about the demand in those end markets as well.
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Host3:54
First of all, UX I want to... Because of the way our federal government has staged infrastructure spend, it's going to be many, many years before that money's spent. I don't want to be a dreamer, Jim. Do you feel that the Cat you created is not the old Cat?
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Jim Umpleby4:27
I'm very proud of our global team. We are operating the company at a higher level. We're producing higher adjusted operating margins and also higher free cash flow. One of the things we told our investors today is we had in fact released target ranges for both adjusted profit margins and free cash flow, and we told our investors we would be in the top half of those ranges for both. We have demonstrated the ability to produce much more consistent free cash flows over time. Our range this year... More than 20% of our top line due to a pandemic-induced downturn, we still produced $3 billion of free cash flow. So I do believe our team is operating the business in a different way. Much leaner, much more focused. And it's showing up in our results.
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Host5:27
I'm old enough to remember the '84-86 period where I could not believe how much money you could lose. I know what cyclical is and secular. You gave a little bit of information about a trickle of the federal money coming in. But from the context that I have, which is all the GCs and the big engineering construction companies, they have not seen anywhere near what they thought they'd see because it's still tied up in the states. Are you seeing what I'm seeing, which is that in 2024 it will benefit already from the states for things that are easy?
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Jim Umpleby6:10
Things like road construction, putting more asphalt on roads. Those are the things already starting to happen. But because of permitting and a whole variety of issues that we're aware of, we believe the benefits of the infrastructure bills will play out over time. Solar and better plants and chip plants have started to be built. Others are still on the books. Again, we do believe that will play out over a period of time. But you know, construction activity isn't just strong in the U.S. The Middle East, for example, is also quite strong.
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Host6:39
The last thing I want to just touch on is dealer inventory. There was a lot of confusion on the call about where dealer inventories were. I thought they were not too hot, not too cold, which is what I want. There are a lot of people who feel the dealers have way too much inventory and therefore... Had a bit more inventory with some products. They believe they've had enough.
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Jim Umpleby7:10
What we've said is we expect dealer inventory to end this year about flat with the end of 2022. We expect dealer sales to customers to be up. Our sales to be up. So we're quite comfortable where we stand. There are always puts and takes with dealer inventory, and of course they're independent businesses. They make their own decisions there. But again, that's not a major concern for us.
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Host7:35
Good. Because to me, if the stock was at 300 I could see profit taking. But the stock is so far down. It was amazing to me the action today. I think it was wrong. I want to thank Jim Umpleby, chairman and CEO of Caterpillar, for coming on the show and telling it like it is. Because that's what we need. Thank you, Jim.
J
Jim Umpleby7:53
Thank you, Jim. Take care.