Questions about Cat from an investor's perspective

[Dirty Digger]

Re Deere vs. Cat: I suspect Deere's exposure to agriculture -- which is typically a low-margin or highly volatile business -- causes people to discount it a bit, even though it makes many of the same kinds of tractors Cat does (and people gotta eat).

With respect, I disagree.

The global agricultural equipment market suffers from less extremes in overall demand than construction equipment, the nature of the business results in slow increases during the good times and slow decreases in bad times. The demand for agricultural machinery is less volatile than construction machinery.

Deere and Cat do not make the same type of tractors. Cat makes bulldozers for use in construction and mining, which the traditionalists call track-type tractors. Deere makes agricultural tractors, which Cat do not.

Deere’s exposure to the dramatic fall in the global demand for construction equipment is less severe than the other major brands, as Deere is not a major player in the Global construction equipment market (for instance they do not sell their machinery in Europe).

As for what Cat could do better; top of the list is to have a full range of excavators; this has been a disaster for Cat, since they have nothing to compete with the other manufacturers (Komatsu, Hitachi, Terex, Liebherr etc) at the top end of the market.

 

[Site-K]

I’m a new member of HEF but would like to make a few comments… First when you say the average age… that leaves a lot of room for speculation. Many of the larger machines would tend to be older while a large number of the small, mini or compact machines would tend to be newer. What I’m saying is that by stating that the average age of equipment is 10 years old, this statement makes the market very appealing from a sales potential; or a good market for investments. If there is a sudden demand for work, like we all hope there will be, then a lot of the equipment will need to be replaced or rebuilt. Certainly a lot of the utility type machines will need replacement. The question then becomes, “ will financing be available.” At the recent World of Concrete Show in Las Vegas, many contractors were commenting on the fact that even if they wanted to buy financing wasn’t available. Cat and other manufacturers have been producing larger production-type machines designed for easier rebuild. At Cat’s last Mining Division meeting late last year, the company was highlighting this fact as one of the ways it is going “green.”

What makes Caterpillar number one? The dealer organization is what gives Cat its industry dominance. Other manufacturers have some really great dealers but only Cat has so many dealers that fall into that category. Cat dealers know their business and have learned how to respond to their customer needs. A number of years ago when Komatsu started taking sizeable bites of the equipment market share Cat stepped back evaluated and regrouped. As a result the once Taj Mahal-like Cat dealerships made a radical change as did the entire company. It went from being the “upper crust” to the down to earth. This was about the time they introduced the “Century Line” (under 100 horsepower) machines and started looking at rental. Cat’s dealer rental organization has given it an edge because it helps the Cat dealers stay in close touch with the customers and the dealers have learned how to listen to the customer.

If Cat really wanted to juice its stock the first thing it should do is… I have no comments on this. I’m certain that there are things they could do to add market appeal to their stocks but right now it’s going to be hard to beat the marketing value that’s added to their stock by the Stimulus Package and the press they got by the President’s visits. Owens setting the record straight about the rehiring promises is a plus for the company.

I have no way of knowing or guessing the percentage of contractors who pay cash for their equipment.

Site-K

 

[Dirty Digger]

...I’m certain that there are things they could do to add market appeal to their stocks but right now it’s going to be hard to beat the marketing value that’s added to their stock by the Stimulus Package and the press they got by the President’s visits....

The trouble is that Caterpillar is first in the firing line for the global backlash against the 'Buy Americian' provisions within the stimulus package.

...this is how our Grandparents generation turned a economic downturn into the great depresion of the 1930s.

 

[Northart]

Economic Policy ?

Hello Dirty Digger,

The present economic,energy,financial,etc, policies have brought on the recession we are in.

Throwing more money at the same policies ,programs, is not a cure.

Some other approach is necessary. The stimulus bill provides $25 a week and extended benefits for the unemployed. Not much relief for those.

We already provide $20 Billion in foreign aid to other countries, annually. :usa We have real problems at home that need attention, more so, than worrying about a global backlash at Caterpillar or other major corporations.

Anyway, so much for that.

 

[JJ Joseph]

The trouble is that Caterpillar is first in the firing line for the global backlash against the 'Buy Americian' provisions within the stimulus package.

Do the 'Buy Americian' provisions apply to Cat loaders made in Japan or China?

 

[surfer-joe]

I would think that Buy American would only apply to those items actually made in the states, not overseas. But I was thinking about this conundrum earlier this morning and what the significance might be for a global manufacturer like Cat.

How would you break out what "made in America" actually means. Is it something that has only American made parts, or would it include an item made here that has some foreign made parts, but the owning company is based in America? Then what about items that are assembled in America, from nearly all foreign sourced parts by a foreign manufacturer?

Personally, I think the worship at the alter of a global economy has been carried too far, in America’s case certainly. I’ve always said that we either drag the rest of the world up to our standard of living, or we will have to reduce our standard down to theirs. This last appears to be the way we are headed. I can’t really speak for others, but I do not like being lowered as I’ve seen first hand just how low that can be.

I would not mind seeing high tariffs placed on imported goods, and on items that are produced here by foreign manufacturers. Something that equalizes the playing field you might say. So much of what we buy from overseas is not really necessary to get by on. Most things can still be found made here, or should there be a vacuum, it would be quickly filled by some enterprising American business. This may lead to some charges of protectionism by other countries and what some would call retaliation by those countries. But I think America can stand it better than they can, and we already see so much of this happening in foreign markets, particularly in the Orient, Africa, and Europe.

Not saying that we cut ourselves off completely from the rest of the world, mind, but we really need to start taking better care of ourselves, and that means we can not let all manufacturing go off-shore and ourselves become mostly a service, consumer, or government supported society.

 

[Dirty Digger]

Caterpillar would suffer if the 'made in America' rules were imposed. Fair enough, they may get some short-term gains from an increase in demand from American customers for products that they make in the USA, but this will be balanced against them loosing out to competitors who make certain classes of product in the USA (which Caterpillar manufacture overseas). However, the main downside would be a weakening of overseas markets for Cat's American-made products.

Officials in the administration and in Congress believed that raising trade barriers would force Americans to buy more goods made at home, which would solve the nagging unemployment problem. But they ignored an important principle of international commerce: Trade is ultimately a two-way street; if foreigners cannot sell their goods here, then they cannot earn the dollars they need to buy here. Or, to put it another way, government cannot shut off imports without simultaneously shutting off exports.(referring to 1930 Smoot-Hawley Tariffs, from www/fee.org)

I also have been pondering the consequences of the 'made in America' ruling. Terex couldn't supply any trucks or scrapers to such projects, I can't think who would supply mini excavators; there must be many more anomalies that this ruling would create. Come to think of it, finding a 20-tonne excavator might be a bit of a problem. Help me out guys, apart from Hitachi/Deere, who else makes a 20-tonne tracked excavator in the USA?

 

[farm_boy]

Deere and Cat do not make the same type of tractors. Cat makes bulldozers for use in construction and mining, which the traditionalists call track-type tractors. Deere makes agricultural tractors, which Cat do not.

I too respectfully disagree. Although Deere is not currently a world leader in construction equipment, they are a clear #2 in North America. In 2008 the construction and forestry division of Deere had $4.8 billion in net sales, of which nearly 90% came from sales in the US and Canada. Still, not nearly what Cat is world wide but nothing to sneeze at either. If you ask anyone in Peoria who their main competitor is in NA they will say Deere. As for Deere not making bulldozers you should check out Deere's website to educate yourself on Deere's line of construction equipment.

Come to think of it, finding a 20-tonne excavator might be a bit of a problem. Help me out guys, apart from Hitachi/Deere, who else makes a 20-tonne tracked excavator in the USA?

There are a few

Komatsu
Cat...I think but not sure
Kobelco
New Holland
Volvo
Sany...coming soon

 

[KSSS]

Prior to the current collapes of the economy, many had become used to running new iron and keeping a newer fleet, a habit easy to get into coming off of a decade of mostly solid growth. That practice has caused many, some extreme discomfort right now. I would have agreed with the idea that many will be anxious to upgrade their fleet after this slow down. However, those who still have a place to sit when this music stops, are not likely to repeat the mistakes of the past, at least not until the pain of the current problems fade from memory which wont be anytime too soon. You will see much greater care in the aquisition of equipment I think. The fact that money will cost more and be harder to get will also have an impact.

CAT's marketshare will continue to take a beating along with its share value. The competition has gotten much better in the last couple decades and CAT has not. Equipment owners are more willing to explore nonCAT options which is why you see more mixed fleets then ever before. Having Cat equipment used to be a status symbol in the industry. The culture that formed that belief is disappearing. No one OEM has exclusive rights to making the very best equipment across its entire product line and CAT is no exception. Other OEMs, largely from following CAT's lead, have made major improvements in service and organization. This has made other OEM's a viable option for many contractors. I also believe that CAT dealerships took advantage of the relationships they created with contractors. This has pushed many owners, to diversify their fleet. The reasons to stay all CAT have largely melted down to emotional and sentimental reasons. That does not pay the bills.

Financing will always play a major role in equipment purchases.

Flame suit on.:cool2

 

[Northart]

Products ?

Hello KSSS,

I thought Caterpillar was already responding to the marketplace demands. The product count from 40 ? after WW2 to lately 700 ? Hope I got that # 's right !

Geez the Caterpillar Performance Handbook ( Condensed Catalog ) has gotten from 1/4" thick catalog ,31 pages to a 2" thick Catalog of 1000 Pages ?:usa

What is so good about the competition ??? LOL

 

[Dirty Digger]

I too respectfully disagree. Although Deere is not currently a world leader in construction equipment, they are a clear #2 in North America. In 2008 the construction and forestry division of Deere had $4.8 billion in net sales, of which nearly 90% came from sales in the US and Canada. Still, not nearly what Cat is world wide but nothing to sneeze at either. If you ask anyone in Peoria who their main competitor is in NA they will say Deere. As for Deere not making bulldozers you should check out Deere's website to educate yourself on Deere's line of construction equipment.

I think that you have proven my point on Deere, they may be very strong in their home construction market, but a minor player in the global construction equipment market.

As regards Deere's Dozer range, I didn't say that they didn't produce dozers, but now that you have raised this point, how many models are actually a Deere design and built in-house, and how many are Liebherr's painted a different colour?


(when talking about 20-tonne excavators)

There are a few

Komatsu
Cat...I think but not sure
Kobelco
New Holland
Volvo
Sany...coming soon

I'm not sure if Cat 20-tonners are built in the USA.

However, the point I was trying to get to was that the 'buy American' provisions will have Asian businesses celebrating. Komatsu, Hitachi, Kobelco and Samsung will all be happy that their American factories and distribution networks have this bonus, while the American management of traditionally American companies (Cat, Case, Link-Belt and Terex) will be sulking as they can not supply a 20-tonne excavator under these provisions.

 

[farm_boy]

As regards Deere's Dozer range, I didn't say that they didn't produce dozers, but now that you have raised this point, how many models are actually a Deere design and built in-house, and how many are Liebherr's painted a different colour?

450 - 850 are Deere designed and built. 950 and 1050 are Liebherr. It also goes the other way with the Liebherr 714. This is an exported Deere 700 painted Liebherr trade dress.

My point is that that Deere produces more than just ag tractors. I agree with your point in that this allows Deere to weather the construction storm a little better than Cat. It also allows the overal financial performance of Deere to look better as the ag market goes up and down with the construction market. Typically these two market segments are out of phase with one another...providing a nice balance in machine shipments for the total company.

 

[Dirty Digger]

My point is that that Deere produces more than just ag tractors. I agree with your point in that this allows Deere to weather the construction storm a little better than Cat. It also allows the overal financial performance of Deere to look better as the ag market goes up and down with the construction market. Typically these two market segments are out of phase with one another...providing a nice balance in machine shipments for the total company.

I 100% agree with you, it is the out-of-phase cycles of agricultural and construction equipment demand that is a big plus point for Deere and the old Case (pre-CNH) business.

But, to go back to the posters original question, Caterpillar is in a different boat, but they have done well to diversify. As an example, their logistics deal with Land Rover ticked all the right boxes and I think their move into tunnel boring machines will pay huge dividends in the future. Fair enough TBMs are still construction equipment, but it gets Cat locked into long-term strategic projects, not work that is subject to short-term local economic fluctuations.

I think that one of the big points in Cat's favor is their leadership in hybrid-drive (diesel/electric) technologies. Komatsu probably heads the Japanese competitors, with a 20-tonne hybrid excavator about to hit their home market. Volvo heads the European assault on new technologies, with a hybrid wheeled loader at prototype testing stage.

Caterpillar was the first to have a working hybrid-drive machine in a reasonably public area (their dozer, just before last years Conexpo show). Their recent announcement on hybrid mining trucks takes them another step towards the drive system of the future.

 

[leverpuller]

ILOVE CAT MY COBANY ONS ALL CAT BUT TO YOU REALLY KNOW WHAT CAT MEANS CAN'T AFORD THAT BUT WE ARE STILL BUYING CAT AND I love them but now days they are the same but my heart is always with cat

 

[sophia chen]

Can not agree point 2 any more!
I don't know CAT sell status in other place but in China, it did as this, first negotiation is depend on the relationship between dealer and end-user, then an acceptable price will be successful ending. Not only CAT, but also Komatsu,Terex,etc. It seems a trend for off-highway truck selling. Then high maintain cost need to pay for high price spare parts.The truck makers are more trading company than manufacturer to end-user