Caterpillar looks on track with Vision 2020 strategy
The big machinery maker shows impressive progress with its strategic goals and looks on track to achieve its targets.
- Superior results -- The company has committed itself to be a great long-term investment for shareholders with total shareholder return in the top 25% of the S&P 500. For this, the company will need to deliver compound annual earnings per share growth of 15% to 20% over the business cycle. The company also intends to increase its operational cash flow and the operating profit after capital charge much above the industry standards.
- Great team -- The company has decided to create a team that represents the best in terms of manpower. Caterpillar will look to create an environment that fosters inclusion and safety as its primary values. The company will also make substantial investments to ensure the safety of its employees.
- Quality leader -- The company expects to be a global leader in all the businesses it operates in. The global leadership is defined as a set of three parameters -- superior quality of the product, highest PINS (percent of industry sales) and the superior growth of its aftermarket parts.
Progress on strategic goals
The company has been doing extremely well on growing its bottom line. It has increased its profit by 83% since 2010 and looks set to continue on this growth trajectory. Caterpillar has also made considerable progress on the quality leadership front. According to our estimates, it has increased its share of the global machinery market from under 34% to over 35%, while it has increased the share of its engines and turbines market from 12.4% to almost 13%. It continues to maintain its standard of high quality products and has steadily been growing its aftermarket parts services. So, in total, we can say that the company is making very impressive progress on its strategic goals and looks on track to achieve its targets.
- Executed the business model by accelerating aftermarket parts and services growth
- Excel at product development by focusing on improving quality, reducing emissions, growth markets and next generation products
- Simplify and attack the cost structure
- Achieve profit and cash pull through
- Win in China and achieve leadership positions in India, the Commonwealth of Independent States (CIS) and Southeast Asian nations (ASEAN)
- Achieve profitable global machine leadership position in excavation, earth-moving and building construction products (BCP) industries
- Expand leadership position in mining and quarry and aggregates through new products and solutions
- Aggressively grow power systems for rail, power conversion, growth markets and alternative fuel
Progress on operational goals
The company has made progress on some of its operational goals, although it is not yet large enough to make a considerable difference. In some of the priority areas, it has also fared poorly and has actually gone back compared to its earlier position.
The company has faltered in China where it has lost some market share to a host of local competitors. Similarly, the company has yet to establish itself as the market leader in India, CIS and ASEAN regions. Among particular industries, the company has fared poorly in the lucrative excavator industry in which it has lost considerable market share. In China, its market share came down from 10% to 7% in the last year. However, it has made progress on simplifying its cost structure and improving the quality of its products.
In terms of profit and cash pull through, Caterpillar has done extremely well. It has grown both its profits and free cash flow and is also poised for future growth in both areas. Thus, we can say that it has been a mixed result when it comes to Caterpillar's implementation of its near-term operational goals.
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Despite its size, the IPO will create just two new members of the 10-figure club from its executive ranks. A few others could net hundreds of millions.
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