Caterpillar Company Analysis

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  • Topic: Caterpillar Inc., Komatsu Limited, Stock
  • Pages : 12 (4198 words )
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  • Published : April 3, 2013
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Caterpillar Inc.
Caterpillar Incorporated is the world’s largest producer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. Caterpillar's headquarters are located in Peoria, Illinois, United States. The company operates in three principal lines of business: machinery, engines, and financial products. The machinery segment includes the design, manufacture, marketing, and selling of all kinds of machinery such as; tractors, forestry and mining machinery, off-highway trucks, and paving products. The machinery segment also includes logistics services for other companies. The second business segment that Caterpillar operates in is engines. This includes the design, manufacture, marketing, and selling of engines for Caterpillar machinery. This segment also includes the remanufacturing of Caterpillar engines and remanufacturing services for other companies. The third business segment is Financial Products. This segment contains two major subsidiaries called CAT Financial Services, which sells financial products, and CAT Insurance Holdings, which provides insurance on Caterpillar’s machines and engines (CAT 10K, 2011). Competitive Environment

Caterpillar faces different types of competition from various companies in each of their three major lines of business. The competitive environment for machinery is crowded with companies vying for the same customers and contracts as Caterpillar. Thus, it is vital that Caterpillar works tirelessly to ensure optimal product performance, customer service, quality, and price. Caterpillar’s major competitors in the market for machinery sales are Komatsu Limited, Volvo Construction Equipment, Deere and Co. and Doosan Infracore. Each company competes with Caterpillar in different product lines. Volvo competes mainly in construction equipment, while Deere and Co. compete mostly in agricultural equipment. These companies also compete more aggressively in certain regions. Doosan operates out of South Korea while Komatsu operates out of Japan, so it is much more difficult for Caterpillar to compete in the Asia Pacific region (CAT 10K, 2011).

Caterpillar’s environment for the marketing and sale of engines is extremely competitive. Their largest competitor is Cummins Incorporated. Some other major competitors for engines include; Tognum AG, General Electric Energy Infrastructure, and the Wartsila Corporation. Caterpillar also operates in a highly competitive financial products environment. Not only does Caterpillar have to compete with a multitude of banks, insurance firms, and financing firms, but many of their competitors in the machinery and engines segments also own subsidiaries that offer insurance and financing options. These subsidiaries often offer below-market interest rates in an effort to bring in more customers for their respective company. This practice, along with sheer number of competitors, keeps the market for financial services incredibly competitive (CAT 10K, 2011).

Financial Health
Caterpillar is the number one ranked company in their industry and the number fifty-five best company on the Fortune 500 (CNN, 2011). In 2011, Caterpillar recorded net income of $4.93 billion, a 41% increase from 2010. Caterpillar’s net income compares favorably to that of their largest global competitor, Komatsu Limited ($2.18 billion). It is important to note that Caterpillar is a much larger corporation than Komatsu, employing approximately three times as many workers. Despite this, Komatsu competes quite well for a smaller company. Their gross margin, the relationship between revenue and costs of goods sold, was 27.39% in 2011, which was slightly better than Caterpillar’s gross margin of 26.16%. Also, when examining operating margin, Komatsu comes out on top again (13.24% vs. 11.91%). Operating margin measures the level of operating income relative to the firm’s sales. Although Komatsu edged out Caterpillar in operating margin in 2011, Cat’s...
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