Sales at Caterpillar Inc. are expected to rise 10%-25% this year on inventory restocking and a stronger global rebound than was initially expected, James W. Owens, the companys chairman and chief executive, said on Tuesday.
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| Caterpillar expects sales to rise on a better-than-expected global rebound. (Associated Press) |
Yet Mr. Owens, who will be retiring as CEO in June, cautioned the outlook remains uncertain and assigned a 25% chance to a Great Recession-type of event in which Caterpillars sales, which were $32.4 billion in 2009, increase to just $35 billion by 2012.
The companys current base case scenario is for sales to reach $55 to $60 billion by 2012, said Mr. Owens, speaking before a lunchtime crowd at a conference held by the National Association for Business Economics in Arlington, Va. We have to be really nimble, he said.
Asked about price pressures, Mr. Owens said he expects them to be minimal. In 2009, the companys total material costs declined on a world-wide basis, and he said he expects that to happen again this year.
Were not seeing a lot of risk of inflation, said Mr. Owens, an economist by training who has served as Caterpillars chief executive since 2004.
Avoiding deflation, a situation in which prices and wages enter a downward spiral, is critically important, said Mr. Owens. Modern industrial economies dont know how to deal with deflation I think the Fed gets that.
The biggest force driving the companys sales increase this year is the inventory cycle, he said. Caterpillar reduced nearly $3 billion in dealer inventory last year, and the absence of a similar decline this year means a big pop in sales. Mr. Owens had high praise for the Federal Reserves actions during the credit crisis under Chairman Ben Bernanke. I dont think I could be more complimentary of what the Federal Reserve has done, in particular seeing us through this horrific recession, he said. The decisions may not have been perfect but I think they have served us extraordinarily well in preventing an outright depression.
He said he wished more of the roughly $800 billion stimulus package had been directed at infrastructure investment, which the U.S. sorely needs, but said he supported the stimulus package overall and such criticisms were largely just picking at the margins.
He also underscored the need for keeping corporate taxes low so the U.S. can retain multinational firms, and going forward with free-trade agreements that promote exports and create U.S. jobs.
Caterpillar, the worlds largest manufacturer of construction and mining equipment known for its signature yellow machinery, also has been diversifying from a manufacturing to service-oriented company.
Its service businesses accounted for nearly 50% of the companys sales in 2009, Mr. Owens said, thanks to divisions in financial services, renting and leasing, refurbishing of used or broken equipment, and recent acquisitions such as Progress Rail, which provides world-wide maintenance of railroads.