3. Caterpillar’s founders : Benjamin Holt and Daniel Best
Pioneers in the Agriculture industry.
In 1925, Holt Manufacturing Company and Best Tractor Company merged to form The
Caterpillar Tractor Co. Until the 1940s, farm tractors were Caterpillar’s primary
product.
Caterpillar equipment was originally gray.
In 1931, the company switched to “Highway Yellow” - currently in use is trademarked
“Caterpillar yellow”.
In 1986, The Caterpillar Tractor Co. changed its name to Caterpillar Inc.
In 2002, Caterpillar sold its farm-equipment business to AGCO.
Location : Peoria, Illinois, United States
4. Caterpillar is the recognized leader everywhere it does business
Our Products, services and solutions help the customer succeed
Our distribution system is the competitive advantage
Our supply chain is world class
Integrity
The Power of Honesty
Excellence
The Power of Quality
Teamwork
The Power of Working Together
Commitment
The Power of Responsibility
7. Fear of global competition
Shift towards protectionism and isolationism
Mischaracterizations of trade & globalization
Energy & sustainability
8. CAT products have evolved significantly over the past 90 years, and sustainability has been a big part of these
changes. Some of the key areas of focus for product design are safety, fuel consumption and emissions, material
selection and efficiency, product configuration for shipping, and extending end-of-life.
10. Some of the key areas of focus for product
design are safety, fuel consumption and
emissions, material selection and efficiency,
product configuration for shipping, and
extending end-of-life.
CAT views their suppliers as an essential link
within their value chain and an essential part
of our commitment to sustainability.
CAT looks for suppliers who demonstrate
strong values and commit to the ethical
principles outlined in our Supplier Code of
Conduct.
11. CAT Logistics was established to leverage the strength in service parts
logistics & market these services to external companies wanting to
improve their services parts or finished product supply chain performance.
Supply Chain: Flow of material, information, and finances as they move in a process from the origin point to the end consumer.
Logistics: Involves all the planning, execution, & control required to successfully deliver the product to the end consumer
Goal: is to Optimize this flow to achieve Low Cost & High Customer Service
Over 300 suppliers provide parts for domestic operations & export
Over 1000 international suppliers to support local growth
Dedicated supplier development resources
12. CAT branded products and services are distributed through a worldwide
network of Cat® dealers.
Other brands in our portfolio are distributed through their respective channels
that optimize customer value in accordance with their brand value
propositions.
Sustainability has always been a focal point of how we design shipping
networks, optimize transportation modes and configure products for optimal
shipping.
CAT have established high performance standards for environment, health
and safety that extend beyond compliance with laws and regulations.
They develop manufacturing processes to minimize safety risks.
They also work to minimize the environmental impact, with a focus on energy
conservation, greenhouse gas emissions reductions, water conservation and
waste reduction.
13. SUSTAINABLE USE - For more than 90 years Caterpillar has been working to enable
better business and sustainability for customers by creating innovative new products and continuously
improving our existing products. We also recognize that the sustainable performance of our
products is strongly influenced by how they are used on customer’s sites. Our technology and solutions business
model is designed to meet that need by going “beyond the iron” to increase sustainable utilization of Caterpillar products.
CUSTOMER SAFETY - Caterpillar agrees, and we’re committed to helping make sure everyone who works in, on
or around Cat® equipment comes home safe every day. To promote the safety and health of everyone in, on or around
our products, Caterpillar launched SAFETY.CAT.COM™, one of the most comprehensive safety sites for the industries
Caterpillar serves. The website builds on Caterpillar's commitment to providing its customers with the safest and most
reliable products and services available, and reinforces safety messages found in the company's Operation and
Maintenance Manuals (OMM)
JOB SITE EFFICIENCY - Caterpillar recognizes that our customers need to realize the full value of their assets. CAT
solutions business model is designed to meet that need by going “beyond the iron” to increase asset utilization and
job site efficiency. Designed and delivered by the Caterpillar Job Site Solutions (JSS) team in partnership with Cat®
dealers, these solutions help customers find new and innovative ways to improve their operations and be more
competitive in the marketplace.
TECHNOLOGY SOLUTIONS - To meet the future with confidence, we continually consider how and where Cat®
products will be working over the long term. Increasingly, that means identifying and developing technologies that
our customers will need to be successful. Caterpillar’s Enterprise Technology Strategy, conceived in 2011 and
introduced in 2012, defines the key technologies and areas of research and development investment necessary to
meet customer needs and sustain Caterpillar’s competitive advantage well into the future.
14. At Caterpillar, innovating for the products’ end-of-life starts with durable
products, many designed to be rebuilt multiple times.
Through our REMAN and rebuild programs, components and machines are
overhauled, rather than completely replaced.
Reuse of parts reduces waste and minimizes the need for the raw materials
necessary to produce new parts. It also preserves the energy that was used
to during manufacture.
Caterpillar also works with customers and dealers to encourage recycling or
the proper disposal of end-of-life materials.
Ensuring maximum productivity and increasing reliability and equipment
uptime.
Providing the customer with a higher resale value
Providing the lowest total owning and operating life cycle costs
15. Low to
Moderate
Low to
Moderate Low
Low to
Moderate
Moderate
Differentiation Strategy
Michael Porter uses
Caterpillar as an example
for this strategy
Vast Dealer Network -
3,500 Dealers Worldwide in
more than 180 Countries
Spare-Parts Availability
Brand Identity-
Quality/Durable Products
Competitors : Joy
mining, CNH Global,
Deere & Co. Komatsu
Ltd;
16. Operational Efficiency
Wide Product Base
Extensive Distributorship
Research and Design
Legal Proceedings
Critical debt to Equity Ratio
High Labor cost – Manufactured
only in US
Emerging Markets
Inorganic Growth
Facility Expansion
Environmental Regulations
Currency Rates
24. Rental Store network offers the largest construction equipment rental fleet in the world.
25. Making diesel engines since 1931. Cat became the world’s largest diesel engine manufacturer
after acquiring Perkins in 1997. It has also been making natural-gas engines and generator sets
since 1941
Caterpillar’s dealership network is big, strong and as old as the company. Some of its dealers have
been with Caterpillar since 1925.
Dealership network’s net worth: $23.4 billion. Dealer employee count:161,700 Caterpillar
employee count: 111,247
According to License! Global, Caterpillar ranked 26th among the top 150 global licensors in 2014,
beating the likes of World Wrestling Entertainment.
World class supply chain management. Operates at a loss in high tax countries, and with high
profits in low tax countries.
Stock prick: CAT (NYSE US$ 113.60 – 0.32 (-0.28%)
26. Caterpillar total return extremely under performed the DOW average for my 53 month test
period by 36.19%.
Caterpillar's price is up on the hope that President Trump's increase of infrastructure spending
will flow to heavy machinery, but the present PE of 30 is very high.
Caterpillar Has increased its dividend for 10 of the last 10 years with a present yield of 2.9%
which is above average.
SUSTAINABLE USE
For more than 90 years Caterpillar has been working to enable better business and sustainability for customers by creating innovative new products and continuously improving our existing products. We also recognize that the sustainable performance of our products is strongly influenced by how they are used on customer’s sites. Our technology and solutions business model is designed to meet that need by going “beyond the iron” to increase sustainable utilization of Caterpillar products. As customers increasingly demand greater energy efficiency, we are further motivated to help them reduce their energy use and, corresponding greenhouse gas (GHG) emissions. We collaborate with customers to deliver customized solutions that help optimize energy use and provide training for customer operators on how to use our equipment safely and more efficiently. We also work with our dealers to provide services and support solutions necessary to satisfy customer sustainability needs and develop and implement sustainable solutions for after-sales support, and fast and efficient parts fulfillment.
CUSTOMER SAFETY
No matter what industry you work in or what equipment you use, your first priority is the safety of your employees. Keeping your people safe is more important than anything else. Caterpillar agrees, and we’re committed to helping make sure everyone who works in, on or around Cat® equipment comes home safe every day.
To promote the safety and health of everyone in, on or around our products, Caterpillar launched SAFETY.CAT.COM™, one of the most comprehensive safety sites for the industries Caterpillar serves. The website builds on Caterpillar's commitment to providing its customers with the safest and most reliable products and services available, and reinforces safety messages found in the company's Operation and Maintenance Manuals (OMM). The site also features virtual walk around inspections and operating tips that are available on demand. Utilized by customers worldwide, visitors to the site have referenced the usefulness of information as a training tool for employees and the visible example of Caterpillar's commitment to safety.
JOB SITE EFFICIENCY
Caterpillar recognizes that our customers need to realize the full value of their assets. Our solutions business model is designed to meet that need by going “beyond the iron” to increase asset utilization and job site efficiency. Designed and delivered by the Caterpillar Job Site Solutions (JSS) team in partnership with Cat® dealers, these solutions help customers find new and innovative ways to improve their operations and be more competitive in the marketplace. JSS leverages Caterpillar’s financial, technological, application and management expertise to tailor solutions based on the customer’s own needs, typically in the areas of safety, sustainability, equipment, productivity and financials. As a result, every solution is different, scalable and can range from a short-term consulting engagement to a multiyear fleet management and maintenance solution.
LEARN MORE
TECHNOLOGY SOLUTIONS
To meet the future with confidence, we continually consider how and where Cat® products will be working over the long term. Increasingly, that means identifying and developing technologies that our customers will need to be successful. Caterpillar’s Enterprise Technology Strategy, conceived in 2011 and introduced in 2012, defines the key technologies and areas of research and development investment necessary to meet customer needs and sustain Caterpillar’s competitive advantage well into the future.
As the world becomes ever more connected, and our technologies more sophisticated, we are able to create solutions to help the world operate in ways that would not have been conceivable even 15 years ago. Caterpillar uses ground-breaking technology to provide customer solutions in new and different ways. Read about six of them.
Dow Jones Industrial Average, a stock market index that tracks the daily price of shares of stock
Total Return And Yearly Dividend
The Good Business Portfolio Guidelines are just a screen to start with and not absolute rules. When I look at a company, the total return is a key parameter to see if it fits the objective of the Good Business Portfolio. Caterpillar total return strongly under performs the Dow baseline in my 53 month test compared to the Dow average. I chose the 53 month test period (starting January 1, 2013 and ending to date) because it includes the great year of 2013, and other years that had fair and bad performance. The very poor total return of 25.65% makes Caterpillar a poor investment for the total return investor looking back but does provide a income as the dividend increases. Caterpillar Has a steady increasing dividend but the poor total return mitigates most of this income. CAT presently has a yield of 2.9% which is above average for the income investor but at a cost in capital appreciation.
DOW's 53 month total return baseline is 61.84%
When I scanned the 5 year chart Caterpillar has a poor showing almost no gain over the 5 years. Compare this to Johnson & Johnson (JNJ) and Home Depot (HD) , both over 8% of the Good Business Portfolio, these are the kind of companies that you want in a portfolio
Last Quarter's Earnings
For the last quarter on April 25, 2017 Caterpillar reported earnings of $1.28 that beat expected by $0.66 and was higher compared to last year at $0.67. Total revenue was higher at $9.82 Billion more than a year ago by 3.8% year over year and beat expected by $550 Million. This was a good report with bottom line and top line increasing and with earnings more than last year. The next earnings report will be out in July 2017 and is expected to be $1.13 compared to last year at $1.09 with the growth continuing. They guided earnings for year 2017 higher at $3.75 up from $2.90 excluding restructuring charges.
Over all Caterpillar is a poor business with CAGR projected growth low but could grow strongly if the need for more industrial construction equipment products grows with the projected infrastructure growth. Also the business is tied to closely with the commodity prices and I am not anyone who can project where they will go.
The economy is showing moderate economic (about 1.7%) growth right now and the FED has raised rates in March 2017 with future rate increases dependent on the United States economy. The FED projects for 1-2 more increases in 2017. I feel when it does raise rates it will be less, maybe just one more, they don't want to trigger a slowdown in the economy.
From the April 25, 2017 earnings call D. James Umpleby (Chief Executive Officer) said
"I'll spend a few minutes talking about my perspective since becoming Caterpillar's CEO on January 1. It's a privilege to lead this iconic company and this strong leadership team, and I'm confident we are well-positioned for the future.
As you know, generally weak economic conditions and commodity price volatility have made the last few years challenging and have significantly impacted the industries we serve. We've responded to these challenges with a thoughtful approach to restructuring and strategies to improve our market competitiveness.
Our product quality has improved. We're continuing to invest in R&D and expanded our digital offerings to help our customers be more efficient and productive. We've made progress implementing lean manufacturing and have strengthened our dealer network, which provides us with an unrivaled competitive advantage. We are focused on controlling costs and maintaining the cost flexibility necessary to invest in products and services to drive future growth and shareholder value."
This shows the feelings of the top management to continued growth of Caterpillar business and to deliver good value to its customer and share holders.
CAT has raised its guidance for the year but will still have a very high PE even if they meet this goal.
Takeaways and Recent Portfolio Changes
Caterpillar is not an investment choice for the total return and dividend growth investor with its well below average total return and high PE of 30. The company revenues and earnings are correlated strongly to the commodities prices , which have been under pressure for a few years. The Good Business Portfolio will definitely not consider CAT as an investment for the Good Business Portfolio considering these three factors. I keep the portfolio at 25 companies or less since I can't keep track of more than that and 25 gives good diversification. CAT has a speculative potential going forward but is not a stable business that the portfolio invests in like JNJ and HD.
Started a position (position number 25, portfolio now full) in American Tower (AMT) a specialty REIT at 0.4% of the portfolio. Their earnings just came out and were great, beating expected by $0.13 and with revenue increasing 21.3% year over year.
Added to position of Texas Instruments now at 4.3% of the portfolio a full position. S&P recently raised TXN target price to $84 from $77.
Increased position of Omega Healthcare Investors (OHI) to 6.2% of the portfolio. I wanted a little more income.
Trimmed Boeing (BA) from 10% of the portfolio to 9.6%. Great Company but you have to be diversified.
Trimmed Harley Davidson (HOG) to 2.0% of the portfolio. Growth looks likely to be negative again this year. S&P raised HOG target to $60 but sales look slow for a while.
Wrote some HOG June 16 strike 54.0 calls on a portion of the holding.
Added to position of Digital Reality Trust (DLR) now at 1.3% of the portfolio. I feel the computer industry facilities business has nowhere to go but up and DLR pays an above average 4% dividend. I wrote an article on Digital Reality Trust this year if you are interested. This is another specialty REIT in a growing sector.
The Good Business Portfolio generally trims a position when it gets above 8% of the portfolio. The four top positions in the Good Business Portfolio are, Johnson and Johnson (JNJ) is 8.2% of the portfolio, Altria Group (MO) is 7.9% of the portfolio, Home Depot (HD) is 8.5% of portfolio and Boeing is 9.7% of the portfolio, therefore BA, JNJ and home Depot are now in trim position with Altria getting close.
Boeing is going to be pressed to 10% of the portfolio because of it being cash positive on 787 deferred plane costs at $316 Million in the first quarter, a increase from the fourth quarter. The first quarter earnings were good with Boeing beating the estimate by $0.07 at $2.01. S&P Capital IQ also raised its one year target to $210.
JNJ will be pressed to 9% of the portfolio because it's so defensive in this post BREXIT world. Earnings in the last quarter beat on the top and bottom line but Mr. Market did not like growth going forward. JNJ is not a trading stock but a hold forever, it is now a strong buy as the healthcare sector is under pressure.
For the total Good Business Portfolio please see my article on The Good Business Portfolio: 2017 First Quarter Earnings and Performance Review for the complete portfolio list and performance. Become a real time follower and you will get each quarter's performance after the earnings season is over.
I have written individual articles on JNJ, EOS, GE, IR, MO, BA, PEP, Omega Health Investors (OHI), Texas Instrument (TXN), Digital Investors Trust (DLR) and Home Depot (HD) that are in The Good Business Portfolio and other companies being evaluated by the portfolio. If you have an interest please look for them in my list of previous articles.
Of course this is not a recommendation to buy or sell and you should always do your own research and talk to your financial advisor before any purchase or sale. This is how I manage my IRA retirement account and the opinions on the companies are my own.
