Caterpillar Will Ride Asian Demand To Another Record Year

by Trefis Team
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Construction and mining equipment manufacturer Caterpillar (NYSE:CAT) has finished a record year, posting the highest revenue and profits in its history for a calendar year. It completed 2011 with $60.1 billion in revenues and $4.9 billion in profit, an increase of 83% and 41%, respectively, from the prior year. Despite the sluggish markets in the U.S. and Europe, the company is adding capacity and expanding rapidly to meet the increasing demand from Japan and other emerging economies. Its outlook for 2012 is buoyant and it’s expecting to beat its 2011 figures. If the current macroeconomic situation continues to prevail, we anticipate Caterpillar will be able to comfortably meet its target.

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Demand from Japan on Earthquake Rehabilitation

Japan is in the mode of rebuilding its infrastructure after the devastating earthquake in March 2011. Tokyo-based construction equipment major, Komatsu, has claimed that the sales of all construction machinery makers in this region has gone up by 32% in the fourth quarter of last year.

Caterpillar is successfully riding this boom by bagging a large number of orders from the earthquake hit area of Tohuku. It has also acquired a 100% stake in a privately-owned company, Caterpillar Tohuku, which provides sales, rental service and aftermarket support for Caterpillar machines in six Japanese districts of Aomori, Iwate, Miyagi, Akita, Yamagata and Fukushima. An effort by Caterpillar to differentiate its dealer network will help it drive sales. We expect the company to do better than last year in Japan.

Demand from China and Other Emerging Economies

China has continued to show strong, albeit slowing, economic growth creating huge demand for coal, copper and iron. Caterpillar is cashing in on this booming industry by providing the mining companies with high quality durable mining equipment.

It has also made investments in China in the the past year by opening a  research facility in Wuxi, and constructing an equipment testing ground and a production facility for wheel loaders in the country. Although there are certain doubts on the slowing of China’s growth and the raising of interest rates by the central bank, we think that Caterpillar’s sales will continue to grow fast in this region in the coming year.

Huge Backlog

Caterpillar has a record backlog pending this year. It was sitting on orders worth $29.8 billion at the end of 2011, an increase of 57% from the previous year. Most of this backlog has long lead times, which provides good revenue visibility for the company. This should boost investor confidence in Caterpillar and its ability to meet its targets for 2012.

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