Caterpillar Updates Vision 2020 - Analyst Blog

(

) made public its updated second phase of Vision 2020, setting forth its plans through 2015, which will focus on key customer-critical areas of quality, production capability and cost. Caterpillar also reaffirmed its 2012 goal of achieving earnings per share of $8 to $10.

Initiated in 2005, Vision 2020 describes in detail what the company aspires to be over a period of 15 years ending 2020. It depicts the company’s expectations in the areas of market leadership, products and services, distribution system, supply chain, business model, people, sustainable development and financial performance.

The current set of goals is for the year 2015, the second of three five-year plans focused on delivering Caterpillar’s Vision 2020. Caterpillar’s goals are focused on delivering total shareholder returns over the business cycle to reach the top 25% quartile of the S&P 500. To attain this, the company believes it has to deliver compound annual earnings per share growth of 15%–20% over the business cycle.

The Vision 2020 strategy was spearheaded by Chairman and Chief Executive Officer Jim Owens in 2005. Jim Owens will be retiring as chief executive officer effective July 1, 2010. For the past five months, a team led by Vice Chairman and Chief Executive Officer–Elect Doug Oberhelman has been engaged in updating the company’s Vision 2020 strategy.

The updated Vision 2020 sets the stage for the next phase of the company's leadership and growth strategies in the global industries it serves. The company plans to pursue this goal with an aggressive stance and yet maintain focus on customers, people and shareholders.

Caterpillar has set itself goals until 2015 that are focused on delivering superior earnings per share growth, operating profit after capital charges and cash flow. Caterpillar also expects to boost its share of industry sales and aftermarket parts growth.

The previous Vision 2020 strategy was unveiled on October 31, 2005. The first in a series of five-year strategic plans, the 2010 goals were grouped under the “3Ps" of people, performance and profitable growth. The people goals included a highly engaged workforce and set standards for employee safety. The performance goals were related to quality and market leadership, and product and service parts availability. Profitable growth goals included targets of $50 billion sales and earnings per share growth of 15%–20% for 2010.

Caterpillar’s 2010 target set in 2005 had been on the premise of strong worldwide economic growth. However, owing to the recession, the 2010 guidance has been revised in between. Caterpillar’s current 2010 revenue guidance is in the range of $38 to $42 billion. Caterpillar’s 2010 EPS guidance is estimated to be in the range of $2.50 to $3.25.

It is noteworthy that the company has delivered on its promises and has delivered better than expectations. Caterpillar’s sales of $32.4 billion in 2009 were within its guidance range of $32 billion–$33 billion. Its EPS of $2.18 in 2009 outperformed the company’s expectation of $1.85 to $2.05 per share. In the recently reported first quarter of fiscal 2010, Caterpillar’s EPS of 50 cents per share outperformed the Zacks Consensus Estimate of 39 cents, keeping up with the outperforming trend seen in the last three quarters.

The shares of Caterpillar were up 78 cents, or 1.4% to $55.83 on June 8, 2010. The company will put further light on Vision 2020 at its analyst meeting in New York on August 19, 2010. We believe the market has not yet priced in the company's objectives. We thus await further details of Caterpillar’s plans, which we believe will propel the shares upward.