Name of the Company: Caterpillar Inc.
Business Sector: Engineering and Capital Goods, Construction Equipment
Operating Geography: North America, USA, Global
About the Company: Caterpillar, Inc was formed in 1925 by the merger of Holt Manufacturing Company and C.L.Best tractor company. Since, then the company has targeted its equipments towards end markets like road and highway construction, mining and quarrying, infrastructure projects, power generation and Oil & Gas. The company’s product line includes construction equipments, mining equipments etc. The company is headquartered in Peoria, Illinois, USA and has a workforce of 105,700 employees worldwide.
Revenue: US $47.01 Billion – FY ending March 2016
SWOT & PESTLE Analysis
|1. Strong dealer distribution network|
2. Reputation for high quality and safety
3. Significant investment in R&D
4. Performance of CAT financial division
|1. Decreasing revenue and profits
2. Inventory turnover issues
3. High dependency on heavy equipment, low diversification
4. Cost cutting through layoffs
2. High potential in Digital Strategy
|1. Difficult economic conditions
2. Implications of change in leadership
3. Poor industry outlook
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1) Strong dealer distribution network: Caterpillar, Inc. has a strong dealer network of 175 dealers with over 160000 in over 180 countries providing strong technical expertise and quality service. This allows Caterpillar’s customers to have a low operating and owning costs through global coverage by sales and service network. The company implements a strategy named “Across the table” to improve accountability and governance of CAT dealers.
2) Reputation for high quality and safety: Caterpillar, over 90 years, has built a strong reputation for high standards in product quality and safety. In 2015, the company achieved a 17% reduction in Recorded Injury Frequency (RIF). Besides, the company employs a LEAN approach from top to bottom in the organization, achieving a 95% reduction in internal defects per unit.
3) Significant investment in R&D: The company has made significant capital expenditure in modernization, with most of the machinery and equipment being up-to-date. Caterpillar, Inc. plans to invest US $ 2.16 billion in new products and technologies.
4) Performance of CAT financial division: CAT financial has continued to perform strongly despite downturn in several markets. Past dues decreased to 2.78% from 3.08% Year-on-year from 2015. Though write-offs increased by US $ 12 million Y-o-Y from 2015, it was only slightly above Q1 average over the years.
1) Decreasing revenue and profits: In the first quarter of 2016, sales declined by 26% Year-on-year when compared to Q1 2015. The impact was more for new equipment purchase than aftermarket parts. Price realization and currency fluctuations were also responsible for the decline. Sales declined 26% in North America, 24% in EAME, 23% in APAC and 43% in Latin America.
2) Inventory turnover issues: Caterpillar Inc. has seen a fall in top line by US $19 billion, close to 30% from 2012. But the company’s inventory has declined US $ 2.5 billion in 2015 alone.
3) High dependency on heavy equipment, low diversification: Caterpillar, Inc makes about 73.3% or close to US $34.05 billion dollars in revenue through its energy and transportation and construction industry markets. The company has not diversified much since its inception and a very small chunk of its revenue comes from resource industries, CAT financial and others.
4) Cost cutting through layoffs: Caterpillar is having to take involuntary cost reduction measures in order to align with reducing demand, with a reduction in workforce by 5000 in 2015 and further 10000 layoffs expected by 2018. The company has reduced its workforce by 17% since 2012. In addition, there is planned closure and consolidation for 20 facilities around the globe by 2018.
1) Diversification: The company can leverage immense potential of the transportation industry as population growth continues to drive railways, marine and other transport. There is also scope for the company to diversify into related areas like electrical engines, robotics, and semiconductors.
2) High potential in Digital Strategy: The company has made significant investment in digital strategy. The company has more than 350000 CAT machines and close to 50000 engines, turbines and locomotives, and aims to reduce the operating costs through digital technology by predicting failures through analytics. There is also focus on increasing efficiency and reducing fuel consumption through data analytics.
1) Difficult economic conditions: In 2015, Caterpillar, Inc. faced economic challenges such as weaker economic growth in developing markets, depressed commodity prices and overall poor industry growth. There was also a reduction in infrastructure investment globally.
2) Implications of change in leadership: There is an impending change in leadership with the current CEO Mr. Doug Oberhelman set to step down in early 2017. Though the company stock is performing strongly, the energy and mining industries are in a cyclical downturn. The new CEO, Mr.Jim Umpleby, will face challenges in rolling out the planned strategy.
3) Poor industry outlook: Competitive pressure created since the beginning of 2015 because of excess capacity, weaker economic conditions and currency fluctuations. The pressure in the construction industry is expected to continue for 2016 as well, as price realization was more negative in the second half of 2015.Caterpillar, Inc. SWOT analysis has been conducted by Aditi Chaturvedi and reviewed by senior analysts from Barakaat Consulting.
1. Caterpillar,Inc. Year in Review: http://www.caterpillar.com/en/investors/year-in-review.html
2. Caterpillar, Inc. Annual Report: http://s7d2.scene7.com/is/content/Caterpillar/C10876416
3. Caterpillar Inc. 1Q 2016 Earnings Release: http://www.caterpillar.com/content/dam/caterpillarDotCom/releases/1Q16%20Caterpillar%20Inc.%20Results.pdf
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