CAT Prowls the Emerging Markets
by Tony D’Altorio, Investment U Research
Friday, July 2, 2010
The term “conservative” attached to any investment play rarely sounds inspiring. So it’s good to know that – contrary to popular opinion – Caterpillar (NYSE: CAT) is very progressive.
The manufacturing company has stayed several steps ahead of its competitors in one key area: emerging markets. While other companies tried to play up their western assets, Caterpillar was busy digging elsewhere.
That effort paid off too, as evidenced at the company’s recent shareholder meeting in Chicago. There, outgoing CEO Jim Owens showed a chart of international sales over the last seven years.
Back then, the business relied on emerging markets for a third of its revenue in 2003. Today, they account for two-thirds.
No wonder CAT has a bullish view of 2010, with sales expectations of $38 billion to $42 billion.
Most of that, they believe, will come from the emerging world. In fact, the company expects non-U.S. markets to produce at least $25-$28 billion of that. And that’s pretty darn close to the $32 billion it managed last year.
Not surprisingly, the vast sum of that bulk should come from outside the traditional investing world.
Caterpillar Expands into Emerging Markets
Caterpillar is the world’s biggest maker of construction, mining and earthmoving equipment. Yet last year, even it had to shed 19,000 full-time positions and 18,000 contract-worker jobs.
Recently, it did signal a big production increase in emerging markets though. So these days, CAT has plans to hire 9,000 workers.
Unfortunately for the U.S., two-thirds of that labor force will come from outside markets. As the company stated: “We are seeing faster recovering in Asia/Pacific and Latin America. So prospects for employment increases in 2010 are best for facilities in those regions.”
CAT already has one facility in Piracicaba, Brazil, where it makes an array of goods. That includes backhoe and small-wheel loaders for the Latin American market.
Meanwhile, the company wants to build another plant within the next year to take over that production. Once completed, the original facility can then increase production for other machines.
CAT also has plans to quadruple its excavator production in China within four years. It has already broken ground for a facility to build large models in Xuzhou. That should compliment its existing plant that focuses on the smaller and mid-size variety.
And it wants to buy out Xuzhou Construction Machinery Group’s 16% stake in its Chinese joint venture, Caterpillar Xuzhou Limited. If and when that deal wraps up, Caterpillar will own the entire company.
Caterpillar has every reason to want just that too. It expects China to continue investing heavily across the country in a wide range of infrastructure improvements.
From a Caterpillar Into a Butterfly
As of yesterday, Doug Oberhelman replaced Jim Owens as Caterpillar’s CEO. And the new top dog wants to push into the emerging markets harder than ever.
He says he wants to see the company’s leadership reflect the international diversity of its market. Hence the reason he’s moving Rich Lavin, his group president in charge of emerging markets, to Hong Kong.
That marks a first for Caterpillar, as none of its senior staff have ever been based outside the U.S. or Europe before. Fortunately, Lavin doesn’t seem to object.
“It is critical,” he says, “for Caterpillar and its dealer network to continue investing in China to increase manufacturing operations, research and development, marketing and customer support for success in this growing market.”
That kind of attitude proves the company has a lot more chutzpa than it gets credit for. And that’s a good thing, considering that it needs emerging markets to keep it moving forward.
Mr. Lavin summed it up with this insight: “For Caterpillar to maintain its industry leadership, it is critical that we continue to invest in emerging markets to support our customers.”
Caterpillar obviously knows where it’s at. Now the question becomes: Do you?
Good investing,
Tony Daltorio
Related Investment U Articles:
- Using Caterpillar to Gauge Global Demand
- Komatsu: Japan’s Version of Caterpillar
- Caterpillar Emerges As a Global Mining Industry Giant
- Are These Two Emerging Markets Getting Too Close?
- How Manitowoc Has Emerged from the Recession’s Rubble Stronger Than Ever
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