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Products: Caterpillar Inc. (CAT)

Construction Industries(Construction Industries)
Energy and Transportation(Energy and Transportation)
Resource Industries(Resource Industries)
Financial Products(Financial Products)

Construction Industries

What is being offered

The Construction Industries segment is primarily responsible for providing customers with machinery used in infrastructure and building construction applications.

Competitors

The competitive environment for construction machinery mainly comprises of some global competitors and many regional and specialized local competitors. Examples of global competitors include Komatsu Ltd., Volvo Construction Equipment (part of the Volvo Group AB), CNH Global N.V., Deere & Co., Hitachi Construction Machinery Co., J.C. Bamford Ltd., Doosan Infracore Co., Ltd. and Hyundai. Regional and local competitors include Caterpillar's competitors in China which include LiuGong Machinery Co., Ltd., Longking Group, Sany Heavy Industry Co., Ltd, XiaGong Machinery Co. Ltd., and XCMG Group. Each of these companies has varying product lines that compete with Caterpillar products and each has a varying degree of regional focus.

Who is buying

The majority of customers buying products in this segment are working in the heavy construction, general construction, and mining space.

What buyers care about

While customers in developing economies often regard purchase price as the most important factor in making their investment decisions, customers in developed economies are more concerned about productivity and other performance criteria that contribute to lower lifetime owning and operating costs of a machine.

Strengths/Weaknesses

Consumer demand has gradually shifted from developed countries to developing countries in this domain. Hence, a strong presence in emerging economies such as, India, China and Brazil will help Caterpillar increase its revenues.

Caterpillar has embarked on a series of capital expenditure programs in an effort to increase its capacity. This extra capacity which comes online should help the company clear its record backlog and meet the increased demand from customers.

Caterpillar Construction Industries Revenue

Following the global financial crisis of 2008-09, Caterpillar's construction industry revenues started to improve gradually. the figure increased till 2014 when it stood at $20.2 billion. However, Caterpillar Construction Industries Revenue started declining after 2014 due to the economic slowdown of the Chinese economy and some political and economic concerns in Europe. The figure stood at $19.2 billion in 2017 and increased to $23.1 billion in 2018 mainly due to the Wirtgen acquisition, higher shipment volumes and lower warranty claims as well as improved construction activities in China and the North America. The segment revenues declined 2.6% to $22.5 billion in 2019, partly due to the impact of trade tensions.

Chart: Caterpillar Construction Industries Revenue

Energy and Transportation

What is being offered

The Energy & Transportation segment primarily provides customers with reciprocating engines, turbines and related parts.

The Energy & Transportation portfolio includes: reciprocating engine powered generator sets, integrated systems used in the electric power generation industry, reciprocating engines and integrated systems and solutions for the marine and petroleum industries, reciprocating engines supplied to the industrial industry, Caterpillar machinery turbines and turbine-related services, diesel-electric locomotives and components, as well as other rail-related products and services.

Competitors

The competitors of Energy & Transportation division of Caterpillar include, global companies such as, Cummins Inc., Tognum AG, GE Energy Infrastructure, Siemens Energy, Wartsila Corp., John Deere Power Systems, MAN Diesel & Turbo SE, Mitsubishi Heavy Industries Ltd., Volvo Penta (part of Volvo Group AB), and Kawasaki Heavy Industries, as well as several regional players.

Who is buying

The Energy & Transportation segment primarily serves customers using reciprocating engines, turbines and related parts across industries serving electric power, industrial, petroleum, marine applications as well as rail-related businesses.

What buyers care about

Customer service, quality, product efficiency, product performance and price.

Strengths / Weaknesses

A large player in rail-related services: The acquisition of EMD in August 2010 has made Caterpillar one of the two largest players in rail-related products including locomotives and services in North America.

Well-positioned in sustainable power alternatives market: Caterpillar acquired MWM Holding GmbH (MWM), a leading supplier of natural gas and alternative-fuel engines in October 2011 to meet the increased customer demand for sustainable power alternatives.

Caterpillar is investing significantly in the developing world to increase its production in line with regional demand. For example, in 2011 Caterpillar announced investments in engine facilities in Brazil, China and India. Increasing presence in these fast growing market shall help drive growth in revenues for the Energy & Transportation division.

Caterpillar Energy and Transportation Revenues

Caterpillar Energy & Transportation Revenues denotes the revenues generated from the sales of Caterpillar's energy and transportation equipment and services. This includes the sales of reciprocating engines, turbines, rail-related products, and services.

Caterpillar Energy & Transportation Revenues increased from about $20.8 billion in 2011 to $22.7 billion in 2014 due to oil price increase during that period. However, after 2014, the figure started declining due to the downturn in the oil industry. The figure hovered around $15 billion over 2016-17 before jumping to $18.5 billion in 2019.

Chart: Caterpillar Energy and Transportation Revenues

Resource Industries

What is being offered ?

The Resource Industries segment provides customers with machinery primarily used in mine and quarry applications, and forestry, paving and tunneling applications as well.

The Resource Industries product portfolio includes the following machines and related parts: Electric rope shovels, Large mining trucks, Wheel dozers, Drag lines, Large electric drive mining trucks, Compactors hydraulic shovels, Tunnel boring equipment, Select work tools drills, Large wheel loaders, Forestry products, High wall miners, Off-highway trucks, Paving products, Underground mining equipment, Articulated trucks, Machinery components, Large track-type tractors, Wheel tractor scrapers and Electronics and control systems.

Competitors

The competitive environment for Resource Industries consists of a few larger global competitors that compete in several of the markets that Caterpillar serves in and a substantial number of smaller companies that compete in a more limited range of products and/or applications or in regional markets.

The global competitors of Caterpillar in Resource Industries segment include Komatsu Ltd., Joy Global Inc., Hitachi Construction Machinery Co., Ltd., Volvo Construction Equipment (part of the Volvo Group AB), Atlas Copco, Wirtgen and Deere & Co.

Who is buying

This segment primarily serves customers using machinery in mining, quarry, forestry, paving and tunneling applications.

What buyers care about ?

The resource equipment industry is highly competitive. The principal factors that determine consumer preferences in this segment include product performance, customer service, quality, product efficiency and price.

Strengths / Weaknesses

Caterpillar's acquisition of Bucyrus will significantly improve its offering in the mining equipment market. The company can now claim to offer the broadest product portfolio in this segment.

Caterpillar continues to focus on R&D, establishing new facilities and expanding existing facilities to ensure the company has competitive advantages which will drive long term growth.

Caterpillar™s focus on increasing presence in China will help it capitalize on the rapidly growing Chinese mining industry through sales of its mining machinery.

Caterpillar Resource Industries Revenues

Caterpillar Resource Industries Revenues denotes the revenues generated from the sales of Caterpillar's mining equipment and services. This includes the sales of Electric rope shovels, Large mining trucks, Wheel dozers, Drag lines, Large electric drive mining trucks, Compactors hydraulic shovels, Tunnel boring equipment.

Caterpillar Resource Industries Revenues increased from $16.2 billion in 2011 to $21.6 billion in 2012 but started declining after that due to the decline in commodity prices. The figures stood at $5.73 billion in 2016 owing to suppressed purchase activity from Caterpillar dealers in an attempt to lower their inventories in-line with the weak global demand for mining equipment and machinery. This figures improved to $7.5 billion in 2017 before jumping to $9.8 billion in 2019, as a result of higher end-user demand for aftermarket parts and equipment and the favorable impact of changes in dealer inventories coupled with positive commodity price trends in the recent past.

Chart: Caterpillar Resource Industries Revenues

Financial Products

What is being offered

Financial Products division primarily represents the business of Caterpillar Financial Services Corporation (Cat Financial), and also Caterpillar Insurance Holdings Inc. (Cat Insurance).

Cat Financial provides financing options such as loans and leases to customers for Caterpillar products.

Cat Insurance provides insurance to customers to support purchase of Caterpillar products.

The Financial Products division's sole aim is to increase the opportunity for sale of Caterpillar products.

Competitors

The competitors of Financial Products division consist of commercial banks, finance and leasing companies including which include -

  1. Wells Fargo Equipment Finance Inc
  2. General Electric Capital Corporation
  3. Various local banks and finance companies

Who is buying

Customers of Caterpillar's Financial Products division include mining companies such as Rio Tinto, construction firms, corporations involved in power generation, oil drilling and certain industrial applications, and governments.

What buyers care about

Buyers in developed world are primarily concerned about:

  1. Efficiency
  2. Maintenance costs over the life of the product
  3. Conformity with emission standards

Buyers in the developing world are primarily concerned with the price of the product.

Strengths/Weaknesses

Cat Financial™s financial results are largely dependent upon:

  1. The ability of Caterpillar dealers to sell equipment
  2. Availability of funds from its financing sources
  3. General economic conditions such as market interest rates
  4. Cost of funds relative to its competitors.

Caterpillar™s marketing programs that subsidize products help drive growth for loans and equipment leases.

Caterpillar offers one of the widest portfolio of products for mining applications.

Financial Products Total Assets

This represents the total assets of the Financial Products division of Caterpillar, comprising primarily of receivables related to loans outstanding and leased equipment.

Financial Products Total Assets stood at nearly $32 billion for 2009, declining significantly from 2008 levels due to the financial crises. The decline continued into 2010. However, the assets started recovering in 2011 considering the improvement in the global economy as well as Caterpillar's equipment business' growth. This continued until 2015 when the assets declined slightly to $35.7 billion. This can be attributed to weak demand for Caterpillar's construction and mining equipment. This figure further declined slightly to just under $35 billion in 2017 before improving to $36 billion in 2019.

Chart: Financial Products Total Assets

Interest Rate on Loans

Interest Rate on Loans represents revenues earned by Financial Products division as a percentage of its divisional assets.

Interest Rate on Loans stood at 8.93% for 2009, declining from the previous years due to the financial crises. It stayed around the same levels over the next couple of years but declined to 7.7% in 2012 before recovering to 8.24% by 2013. However, it then declined to reach 8.0% in 2018, before increasing marginally to 8.5% in 2019.

Chart: Interest Rate on Loans