Monday, October 22, 2012

The Comeback of Caterpillar, 1995-2001

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The Comeback of Caterpillar, 1995-2001

Background Information

This case deals with Caterpillar, Inc. who has been building the world's road and rail network for more than 75 years; and in partnership with Caterpillar dealers, is driving positive and sustainable change on every continent. A Fortune 100 company, Caterpillar is the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines. The company is a technology leader in construction, transportation, mining, forestry, energy, logistics, electronics, financing and electric power generation.

After a three consecutive years of tremendous loss, Caterpillar managed to come back as a high-tech globally competitive, growth company. Throughout the tenure of two very successful CEOs, George Schaefer and Donald Fites, and over a period of about 15 years, the company reinvented itself. George Schaefer introduced cost-cutting measures and employee involvement programs, outsourced machined, parts, and components, and began modernizing Caterpillar’s plants. On the other hand, Donald Fites diversified the company’s product line and reorganized the company structurally. He also completed Caterpillar’s modernization program, revitalized its dealership network, and altered the company’s approach to labor relations.

Key Issues

George Schefer and Donald Fites faced and overcame many obstacles during their eras. Schefer had to face 1) a global recession, 2) a costly strike, and 3) an unfavorable change in exchange rates. Fites faced costly labor strikes as well, but also had to overcome 1) a slump in the company’s earnings as well as 2) lower industry-wide demands in both the domestic and international markets.

Donald Fites retired in February of 1999, leaving newly elected CEO, Glen Barton, to face many challenges.

· Barton could not count on Caterpillar’s continual prosperity due to the downturn of the U.S. construction industry.

· During Barton’s first year (2000), the company’s sales declined by 6 percent and earnings by 7 percent. Also, Caterpillar’s share price traded close to its 5 week low in March of 2000.

· Caterpillar needed a strategy implemented that would allow it to withstand the forecasted grind of our economy and the construction industry as a whole. Barton needed to decide whether the strategies of the previous CEOs needed to be refined, reversed, or totally restructured.

Current Strategies

Named to the Dow Jones Sustainability World Index in September of  2000, Caterpillar is recognized for successful integration of long-term economic, environmental and social aspects into business strategies that benefit all stakeholders. Caterpillars commitment to social responsibility ensures our ability to meet today's needs without sacrificing the ability to meet the needs of future generations.

Caterpillar is committed to generating attractive returns for our shareholders. Strategic growth initiatives involving our machine, engine and service businesses are expected to drive these returns over the next several years.


Caterpillar’s products and components are manufactured in 50 U.S. facilities and in 65 other locations around the globe. By 1965, Caterpillar had established foreign manufacturing ubsidiaries. Caterpillars global dealer network provides a key competitive edge allowing customers to deal with people they know and trust. Almost all dealerships are independent and locally owned. Many have relationships with their customers that span at least two generations. Cat dealers serve equipment, service and financing needs for customers. Rental services are offered through more than 1,00 outlets worldwide.

In the first half of 2000, Caterpillar posted sales and revenues of $.70 billion and profit of $80 million or 81 cents per share. More than half of all sales were to customers outside of the United States, maintaining Caterpillars position as a global supplier and leading U.S. exporter.

Financial Analysis

Caterpillar is financially strong and able to fund product programs for future customer needs, provide financing for dealers and customers, and reward its shareholders. They continue to generate significant net free cash flow enabling investments in strategic growth opportunities.

Caterpillar has increased cash dividends nine times, boosting the quarterly dividend to $.5 per share. Since June 15, they have repurchased approximately 6 million shares, or about 15 percent of their outstanding shares.

Financial Data 001

Sales and Revenues $0,450

Profit $805

Profit Per Share (diluted) $.

Employment 7,004

(Dollars in millions except per share data)

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