“The Caterpillar team extended our legacy of more than 90 years by introducing innovative products and services, executing our strategy to deliver long-term profitable growth and shareholder value, and – ultimately – making our customers more successful.”
Jim Umpleby
Chairman & CEO

Dear Fellow Shareholders

Caterpillar’s outstanding performance in 2018 can be summed up by one number: 104,000. That’s the size of our dedicated global team who spent the year innovating and providing solutions that help our customers build a better world. In the process, our team is also building a better Caterpillar.

They extended Caterpillar’s legacy of more than 90 years by introducing innovative products and services, executing our strategy to deliver long-term profitable growth and shareholder value, and – ultimately – making our customers more successful. Their efforts executing our strategy and serving our customers drove 2018’s record levels of profitability, increased sales and delivered strong operational performance.

The team achieved a number of key financial milestones in 2018: record profit per share of $10.26, a 63 percent increase in adjusted profit per share to the highest levels in our company’s history, a 20 percent increase in sales and revenues and an 86 percent improvement in our operating profit. Both the overall enterprise and our three primary business segments achieved or exceeded the operating margin targets we announced during Investor Day in 2017.

This performance allowed us to return $5.8 billion of capital to shareholders by repurchasing $3.8 billion in shares of stock and raising the dividend by 10 percent. 2018 marked the 25th consecutive year of higher dividends to shareholders – earning Caterpillar a spot on the elite Dividend Aristocrats list. In addition, we generated Machinery, Engine & Transportation operating cash flow of $6.3 billion, due in part to our disciplined use of the Operating & Execution (O&E) Model – a strategic framework that allocates resources to the areas of the business that have the best potential for profitable growth.

Executing Our Enterprise Strategy

The core components of our enterprise strategy remain the same: expanded offerings, services and operational excellence. In 2018, this strategy took firm hold, providing momentum for our team to deliver significant results in each of these areas.

Delivering a Superior Customer Experience

Our services strategy is to deliver a superior customer experience focused on value-added offerings – transforming traditional product support. And we’re well on our way. An increase in the number of products sold with customer value agreements is expected to strengthen our presence in the aftermarket. We continue to invest in digital and technology solutions, from connected fleets and autonomous machines, to e-commerce options and equipment management mobile apps – and nearly everything in between. Connected fleets are the industry’s future and have strong implications for our customers, allowing them to make informed decisions that improve productivity and boost profits.

When it comes to automation technology for mining, six different mining companies now use Cat® MineStar™ Command for hauling at seven sites in Australia, North America and South America. By the end of 2018, trucks using MineStar had autonomously moved more than 1 billion tonnes of material.

Developing Differentiated Products

Expanded offerings means developing the right differentiated product solutions to meet the needs of our global customer base, ensuring their success and long-term loyalty. We introduced the 20-ton class of Next Generation excavators, with features that increase operating efficiency, reduce fuel use and lower maintenance costs, helping our customers achieve their productivity and cost targets. We also launched our Next Generation D6 dozer, which has 35 percent better fuel efficiency and increased agility compared to prior models. Our team is continuing to develop exciting new offerings, which promise to further drive customer loyalty and profitable growth.

Investing in Operational Excellence

Finally, we are investing in operational excellence – particularly focusing on safety, quality and Lean manufacturing. We’ll never relent on our commitment to safety, because we want every person to go home safely every day. That’s why we focus on preventing injuries before they occur. In 2018, we continued to reduce lost time injuries with a 6 percent improvement over 2017 and a 95 percent improvement since our 2003 baseline.

Lean delivers strong bottom-line results and drives profitability through the ups and downs of business cycles. We continue to refine Lean in our manufacturing operations and are also applying Lean end-to-end through product development, order to delivery and transactional work. We have a continuous improvement mindset, built on the foundation of 6 Sigma, to stay customer focused, stop defects, improve processes and eliminate waste.

A Better World is a Sustainable One

For Caterpillar, focusing on sustainability is an important part of building a better world. Sustainability is part of who we are and what we do every single day. You can learn more about our efforts in the 2018 Sustainability Report. Our team’s work resulted in Caterpillar being named to the 2018 Dow Jones Sustainability Indices for the 19th time, which is a testament to our deep commitment to sustainability. We are also proud to have been named to Fortune’s World’s Most Admired Companies for 2018.

“These external accolades combined with our 2018 performance are proof of the power of Caterpillar’s strategy. Quite simply – it’s working.”

These external accolades combined with our 2018 performance are proof of the power of Caterpillar’s strategy. Quite simply – it’s working. For us, it’s also a reminder that anything worth doing is worth doing right. At Caterpillar, we want to win – but we only want to win in the right way – by remaining dedicated to our customers and living Our Values in Action.

In summary, 2018 was an excellent year for Caterpillar that demonstrates the power – and the potential – of our strategy. We achieved record profit per share, returned significant capital to shareholders and continued investment in expanded offerings and services to drive long-term profitable growth. None of this would be possible without our team – the people who put our strategy into action daily. We are excited about the tremendous opportunities that lie before us.

Thank you for sharing this journey with us.

Jim Umpleby
Chairman & CEO