One on One with Caterpillar Chairman and CEO James Owens
Friday, February 15, 2008
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SUSIE GHARIB: The leaders of the nation's biggest companies gathered in Fort Lauderdale this week at the annual meeting of the Business Council. Topping the agenda, the outlook for the economy and how to keep America competitive. Those issues are important for Caterpillar. Sixty percent of the heavy equipment maker's sales come from outside North America. Today I sat down with Cat's Chairman and CEO James Owens and asked him how a slowing world economy would impact the company's business.
JAMES OWENS, CHAIRMAN & CEO, CATERPILLAR: The growth will slow down, but it is going to slow down to about still north of 3 percent in the global economy which we think keeps commodity prices relatively high. And we go into the year 2008 with an order board for large mining equipment, large turbines and large engines that are essentially sold out for the year. So if the U.S. economy was to slide into deep recession, which we certainly do not expect, then the global economy would be more impacted and certainly that would be out in the '09 '010 time frame.
GHARIB: You're forecasting that Caterpillar's earnings will go between 5 to 15 percent in 2008. To what extent would a weak U.S. or global economy prevent Caterpillar from reaching those goals?
OWENS: Our expectation of 5 to 10 percent growth in sales and 5 to 15 percent in earnings is also with the assumption that we will have real growth in the United States of about 1 percent. That could be either a very shallow recession or just a period of very sluggish growth. So that is factored into our forecast and we think we'll be able to deliver that, even with the weak U.S. economy.
GHARIB: At some point the U.S. economy is going to turn around and the U.S. dollar probably will get stronger. When that happens, what impact will that have on Caterpillar sales and earnings.
OWENS: Our sales have certainly been top line sales have been favorably impacted by the weak dollar in terms of the dollar sales level. But our earnings have not been significantly impacted because we are largely neutralized. We manufacture in different countries around the world. So I think the strengthening dollar for us means that our top line sales growth won't grow quite as fast, but our profitability will be about the same.
GHARIB: As you know, Fed Chairman Bernanke yesterday said that policy makers are prepared to cut rates more if necessary to boost economic growth. Do these rate cuts encourage Caterpillar to spend more and invest more?
OWENS: Absolutely. I'm really influenced because the lower interest rates improve the outlook for residential investment for housing-related investment and non-residential investment in the coming year. And that outlook for the coming year affects my willingness to invest capital to provide additional product. So it has a positive influence on us, even though we have good credit availability.
GHARIB: As you know, there is a lot of concern these days from the presidential candidates about the United States losing its competitive edge in the world economy and considerable debate about the pros and cons of free trade. What's the consensus view of CEOs on the best ways to make American companies more competitive around the world?
OWENS: People don't realize at Caterpillar we export a lot of machines to China, to Russia, to the Middle East. And it is usually beneficial for our economy and employment in this country. So we can win. We're not the only company that is exporting. Many are. And I think we need to do a better job and that's what we talked about, of working with policy makers to give us policies to help us be competitive in the world market.
GHARIB: As you look at the state of the economy, the financial market and the business environment, what worries you? What keeps you up at night?
OWENS: The biggest threat, I would see, would be if this populous wave of anti-globalization, anti-big business, was to turn into highly restrictive policies that would impede the ability of American companies to compete in the world market. The public sometimes forgets that we're only 5 percent of the world's population. For me, about 70 percent of the new machines and engines that we built around the world were sold somewhere other than in the United States. If we don't compete and win in those markets, we will not be a leading company on the world stage 20 years from now. And I think it's important for America to have companies that are leading in the world market and that helps our citizens.
GHARIB: Mr. Owens, thank you so much for your time. It's nice seeing you.
OWENS: Susie, you're welcome. Thank you.
