heavy equipment

Caterpillar is absolutely crushing it

May 12, 2011: 5:00 AM ET

Thanks to prudent planning, the industrial equipment giant came blazing out of theĀ  downturn. Now, with its sales and stock soaring, Cat is expanding aggressively to stay on top.

By Geoff Colvin, senior-editor-at-large

Caterpillar CEO Doug Oberhelman stands before a 777F mining truck, which carries a payload of 100 tons. Cat, already the world's top maker of monster machines, is trying to establish itself as the dominant player in developing markets.

FORTUNE -- Caterpillar had a terrible problem in South America, and that's where the company sent Doug Oberhelman. It was the early 1980s, in the depths of the Latin American debt crisis, when the region got economically clobbered. "We sold 1,200 machines a year in Argentina in the late '70s," recalls Oberhelman, 58, who took over as CEO of Caterpillar last July. "In 1981, '82, and '83, while I was there, we sold four total." It was a miserable experience -- his duties included putting PROPERTY OF CATERPILLAR decals on repossessed construction equipment -- but its value has lately become evident. "It was a fabulous underpinning for business because it was how to survive in a depression," he says. "I'd forgotten a lot of those stories -- until the last couple of years."

For anyone wanting to solve the apparent puzzle of Caterpillar's recent run of success, Oberhelman's experience managing in a devastated market is an important clue. The puzzle is worth solving for those trying to win in today's global markets. The solution turns out to be valuable to managers in any kind of business.

The puzzle begins with this question: Why was Caterpillar the best-performing stock last year among the 30 companies in the Dow Jones industrial average? After all, the modern information-based economy favors a Dow component like Microsoft (MSFT), which is burdened by few physical assets and makes a product – software -- that consists of pure thought. Or pillmakers like Merck (MRK) and Pfizer (PFE), which pack massive intellectual capital into tiny, high-priced packages. Yet outperforming them all, with its shares up 64% in 2010, was a company that requires huge sums of financial capital to manufacture multi-ton dirt-moving machines, many of them produced by unionized American workers in the Rustbelt. "Who would've thought, out of all those names?" marvels Oberhelman. Caterpillar is on such a tear that last year it even outran Wall Street darling Apple (AAPL) (not a Dow component), which was up a mere 53%. More

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