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Douglas Oberhelman, CEO, Caterpillar

Fri, 07/23/2010 - 12:16pm
Carol MassarAssociated Press

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<Show: BLOOMBERG TV>

<Date: July 22, 2010>

<Time: 15:39:00>

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<Type: SHOW>

<Head: Douglas Oberhelman, CEO, Caterpillar>

<Sect: News, Domestic>

<Byline: Carol Massar>

<Guest: Douglas Oberhelman>

<High: Douglas Oberhelman, CEO Of Caterpillar, Talks About Company Earnings On Bloomberg TV>

<Spec: earnings>

(This is not a legal transcript. Bloomberg LP cannot guarantee its accuracy.)DOUGLAS OBERHELMAN, CEO OF CATERPILLAR, TALKS ABOUT COMPANY EARNINGS ON BLOOMBERG TV

JULY 22, 2010

SPEAKERS:

DOUGLAS OBERHELMAN, CEO, CATERPILLAR

CAROL MASSAR, HOST STREET SMART , BLOOMBERG NEWS

15:31

CAROL MASSAR, HOST STREET SMART , BLOOMBERG NEWS: Well Caterpillar Incorporated, the world's largest maker of construction equipment, raised its full year earnings forecast and posted second quarter profits that topped analysts' estimates today as demand rose in developing countries.

Joining us right now from Peoria, Illinois is Doug Oberhelman. He's Chief Executive Officer and Vice-Chairman of Caterpillar. Doug, great to have you on with Matt and myself.

It's interesting, we have a lot of folks - economists, strategists - who are reining in their forecasts for growth and so on, and for the markets. They're concerned about the macro picture. How would you describe the macro, the global picture right now?

DOUGLAS OBERHELMAN, CEO, CATERPILLAR: Well I'd say we're concerned about it also, on a macro basis, long term. But short term is what we're dealing with right now. We're seeing certainly a mixed story around the world, but for the most part, positive.

I just returned last night from Europe. And even there, as depressing as the news can be from time to time, our dealers and customers that I met with feel a little better. The stories this year are certainly a lot better than a year ago.

And I think what you have to remember, Carol, is that a year ago, our industry and the world for that matter, economic growth was so bad, unprecedented in most of our lives, that we're coming off a very low base.

So all in all, we're feeling pretty good here. But it's a mixed story around the world, certainly.

MATT MILLER, HOST STREET SMART , BLOOMBERG NEWS: I wonder, you had machinery sales jump 43 percent here in the U.S. in the quarter I think, up 62 percent in Asia, and doubling in Latin America. So you're obviously doing a lot better in emerging markets than you are doing here. Does that tell the story like you think it is in the macro perspective about the U.S.?

OBERHELMAN: I think that's exactly the story right now. We're seeing virtually every strong growth developing economy, whether it's Brazil as you mentioned, or China, even India growing pretty nicely. But even in the U.S. and Western Europe, we've seen ourselves respond.

But again, I come back to the point, a year ago was really anemic growth. We were virtually delivering nothing to our dealers and customers a year ago at this point in time. Now we are.

So the percentages could be pretty big. But having said that, we're still doing pretty well in this part of the year.

MASSAR: You're right, Doug. It's great to have some perspective, because the percentages kind of throw you off there. Let me ask you, though, where do you see the most growth coming from when you look around the globe?

OBERHELMAN: Well without question it's Asia, primarily China, South Asia, India. Australia is doing very, very well thanks to the mining industry there, which has responded primarily to demand for ore and coal into China.

So that leads the way. But not far behind would be Brazil, a couple other countries in South America that have strengthened their balance sheet over the last decade or so and are now investing that into infrastructure and doing the types of things that we do. And we're pretty optimistic about the long term for those countries right now.

MASSAR: What impact, if any, Doug, have you seen in terms of Chinese growth? Because you know that the numbers have been coming down a little bit. It's still dramatic growth in China, but the government has been taking steps to really kind of control the growth. Is it - are you seeing an impact as a result of that?

OBERHELMAN: We have not seen much of an impact. We've seen a little slowdown in order uptake, but nothing very measurable.

Remember - and we've watched China a long time at Caterpillar. The Chinese have done this many times. Where growth gets too hot, they'll break it. Growth gets too slow, they'll feed it. And they've done a pretty good job with that over time.

And right now they're trying to rein in that housing boom that they've had. And I think for the most part are doing a pretty good job.

In the past, they've tended to hit it just about right. We'll see how they do this time. But it needs to slow. It couldn't continue at the rates we saw in the first half of the year. And I think they understood that.

And I have confidence they will deal with that like they have for an awfully long time.

MILLER: Doug, let me ask you - you guys let some people go in the downturn, and now you're obviously expanding. You have orders rising, you're boosting your forecasts. You're making acquisitions. How many people do you think you're going to hire in this expansion period for Caterpillar?

OBERHELMAN: Well in the second quarter we brought back about -hired about 4,000 people - almost 4,000 people, about a third of those in the United States, two thirds outside the U.S., scattered around the world. We're still forecasting a need for about 9,000 total. So another 4,000, 5,000 or 6,000 yet this year.

If demand continues as it does and we ramp our facilities up, we'll continue to add. We are watching costs very, very closely, because of all the things and uncertainty around us. But we are adding staff back as we need them.

MILLER: Alright, we're going to take a quick break here. Doug, stay with us. We take a short break on Bloomberg, come back in two minutes, talk more about Caterpillar and the global economy.

15:35

(BREAK)

15:38

MILLER: Alright we are back with Doug Oberhelman, CEO of Caterpillar, which is the world's largest maker of construction equipment, and getting bigger, Doug. Not only did you beat expectations, but you raised your forecasts. And you have been making acquisitions.

Let me ask you - you have still a lot of cash left in your war chest - I think over $3.5 billion. Are you planning to continue down that acquisitive road there?

OBERHELMAN: Well we do have a strong balance sheet. We've never emerged from a recession in the condition we are now with the strength we have.

As you mentioned, we have cash in our balance sheet. We've made, I think, a wonderful acquisition with Electro-Motive Diesel, the locomotive maker. And we are looking for growth.

This is a good time to grow, whether it's organically - and we announced a major mining shovel investment which we'll develop ourselves - or we talked about quadrupling our hydraulic excavator production in China.

Valuations are good right now in the world. And I'm not going to comment on any specific or other additive things we could bolt on. But we're certainly looking to grow our company, and have the balance sheet to do so.

MILLER: But what kind of companies - I'm not looking for names if you're not going to give me any - ticker symbols maybe. But what kind of companies? Where do you see the growth in your business?

OBERHELMAN: Well we - I'm not going to comment on any of that, of course. But we've typically grown, and will in the future, grow around the things we do best.

I'd point to remanufacturing, which is a great recycling and sustainable business into the future. And really that's what led us into the rail business a couple of years ago with the acquisition of Progress Rail.

That could be a candidate. We're certainly - have added some things there as we go. But we just look at it as a way to - at this point in time - to use the strength of our balance sheet and look for opportunities around the world really.

MILLER: Are you using the strength of your balance sheet to raise cash? Because obviously interest rates here are pretty low.

OBERHELMAN: Well we had great cash flow generation in the second quarter, Matt. I'm proud of that. And with our internal plans and efficiencies, I expect a lot more of that to come, which will allow us to grow and reinvest in the business, which we really like to do.

MILLER: But what about selling debt?

OBERHELMAN: And there's so many opportunities around the world. Pardon me?

MILLER: What about selling more debt, Doug? Building up the war chest there when we're looking at historic lows in interest rates.

OBERHELMAN: Well debt markets right now are attractive if you're issuing bonds. But our balance sheet is strong. We've got a lot of cash. And we'll go after that first. And we ought to generate enough to propel our growth for some time here.

MASSAR: Doug, I'm just going to push a little bit further, because we do make such a point of saying how healthy corporate balance sheets have become, yours included. And that companies have so much cash on hand. Safe to say, though, in the next six months, that we could see and likely see another deal from you guys?

OBERHELMAN: No, I'm not going to comment. We're certainly looking to grow. That's one of our alternatives. Shareholders don't typically like companies that sit on a lot of cash. So we'll put that to work in one way or another.

But we've got so many opportunities around the world in our space, close to our space. That's where we'll direct that investment as we go forward.

MILLER: Let me ask you, Doug, then about money from a different perspective. You sell big gear, obviously, big equipment. Are your clients finding it easy to get credit to buy that?

OBERHELMAN: Well that's a great question right now. It's a split market. Our big mining customers, our big contractors around the world do have a little better access to credit. If there's one thing that we haven't seen loosen up, it's credit availability for mid to small contractors.

Their local banks, the regional banks, virtually all their credit sources have been a lot tighter than we've seen in the past at this stage of the recovery. And it's a little concerning, frankly.

MASSAR: Doug, ten seconds here for you. What's your biggest worry? What keeps you up at night? And I've got to ask you to be very quick.

OBERHELMAN: Well everybody asks that. My biggest worry is just to make sure we execute, keep our eye on the ball, what we're doing within our own business. We have limitless opportunities around the world to grow.

I'm not so worried about that, it's how we perform and execute internally. That's what I worry about.

MASSAR: Alright, got it.

MILLER: Execution. Execution. You hear a lot of executives talking about that. It's very important.

OBERHELMAN: It's all about execution.

MASSAR: Doug, thank you so much, we appreciate it. Douglas Oberhelman, the CEO of Caterpillar. We're taking a break, everybody. We're back in a moment.

15:42

END OF TRANSCRIPT

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