How Caterpillar And Deere’s Construction Businesses Compare

Caterpillar (NYSE: CAT) and Deere (NYSE: DE) are often compared with one another in their respective construction equipment businesses, despite several differences. While Deere’s focus in primarily the agricultural equipment industry, Caterpillar has a very diverse business, with the construction equipment segment contributing nearly 40% of its overall revenues. Deere’s construction business focuses on the North American market, whereas Caterpillar has a reasonably large international presence. Over the years, Caterpillar’s technological advancements in construction equipment, its huge network of dealers and distributors have led to strong growth in its construction business. Additionally, the growth in the Chinese economy helped Caterpillar grow its international presence substantially. On the other hand, if Deere can improve its international presence through its agriculture business, its market share may increase substantially in the coming years.

Caterpillar’s Construction Business Is 3x As Big As Deere’s

Caterpillar generates close to $16 billion annually from construction equipment sales, nearly three times as much as Deere’s construction equipment sales. Since its inception, Deere has been primarily focused on agriculture equipment, while its construction equipment business started to grow in the 2000s when it partnered with Hitachi and Bell equipment. CAT, on the other hand, has been the market leader in construction equipment and has a presence in more than 200 countries. Although Deere’s agriculture equipment business is spread out internationally, its construction equipment business mostly operates in North America. Caterpillar has a distribution advantage over Deere in the construction business as it operates through a network of more than 220 dealers. Caterpillar’s international presence – particularly in emerging economies such as China and India – has helped it grow its construction business in the last 10 years. Deere’s growth has been more limited comparatively, as the North American construction industry has grew at a slower pace than China’s. Additionally, Caterpillar’s construction equipment portfolio is generally broader than Deere’s. Accordingly, CAT has become a bigger brand in international markets compared to Deere, which will likely continue in the coming years.

Caterpillar Is Twice As Reliant On Construction Business As Deere

Deere’s construction equipment market share has consistently been in the low to mid single digits (around 3-4%) whereas Caterpillar’s share has remained around 12-13%.

Deere is a market leader in agricultural equipment, and has very wide geographic presence globally, but its construction business is largely operated in the North American market. We estimate that Deere’s construction business accounts for just 6% of its value, versus 26% for Caterpillar. About 30% of Deere’s construction equipment operating profits come from outside of its North American operations, whereas the same figure for CAT is about 55%. However, as Deere already has an international presence through its agriculture equipment operations and is rapidly expanding in countries such as China and India, it could potentially leverage this to increase its market share in the coming years.

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