Caterpillar Inc. (CAT) announced that it has acquired an industrial facility, with further plans for expansion, located in Campo Largo, Paraná State. The company will also enhance capacity at its existing Piracicaba facility. Both these endeavors are in tune with Caterpillar’s strategy to expand in Brazil and meet the increasing demand in the Latin American markets and will cost the company $180 million over the next two years.
The upgraded Campo Largo facility will cover 50,000 square meters and generate around 1,000 jobs. The facility is expected to commission in 2011 and manufacture backhoe loaders and small wheel loaders, which are currently produced at Piracicaba and are part of the machine line-up for Caterpillar's Building Construction Products (BCP) Division.
Earlier in June, the company had divulged its plans to build a new production facility in Brazil for backhoe loaders and small-wheel loaders, and was searching site options for the same. The company now states that Campo Largo scored over other Brazilian cities given its site characteristics and the possibility of increasing capacity faster. Moreover, the facility’s geographic location will enable, Caterpillar could improve its supply chain efficiency and align its operations with the Caterpillar Production System (“CPS”) principles with more flexibility.
As of 2009 end, the company had four manufacturing facilities in Brazil –– Curitiba, Diadema, Hortolandia and Piracicabas. Caterpillar’s existing manufacturing operation in Piracicaba produces wheel loaders, motor graders, backhoe loaders, track-type tractors, excavators, compactors, underground mining loaders, generator sets and a variety of components. Once the Campo Largo manufacturing facility begins production, it will allow Caterpillar to increase capacity for the other machines produced in Piracicaba.
Caterpillar’s expanded operations in Brazil will help meet a robust customer demand driven by a strong economic recovery across the region last year. Additionally, Caterpillar’s existing operations in Brazil have consistently led development and implementation initiatives of the CPS, earning a reputation for quality and manufacturing excellence within the organization.
Caterpillar is eying emerging markets with the intension of meeting its long-term goals. The emerging markets are showing an improvement as is evident from Caterpillar’s performance in these regions. Particularly, Latin America contributed 12% of revenues in both 2009 and first quarter fiscal 2010, which increased to 15% in the second quarter revenues.
In the first quarter of fiscal 2010, revenues in the Latin American region remained flat year - over - year while in the second quarter it surged 83%. Moreover, the Latin American markets recorded a 32% increase in Caterpillar’s July results. This shows a marked improvement from the 2% decline in May, which trended positive in June with a growth of 18%.
For 2010, Caterpillar forecasts 4.5% growth in Latin America and the Asia-Pacific economy to grow more than 8.5%, including a 10.5% growth in China. Citing strength in the Asia-Pacific and Latin American markets, improving construction spending and end-user demand for machinery, strong mining related order activity and margin expansion, Caterpillar raised its earnings outlook to a range of $3.15 to $3.85 per share from the prior guidance range of $2.50 to $3.25.
We appreciate the company’s expansion plans in the emerging markets as robust growth in these regions and continued improvement in the mining and energy markets will strengthen its volumes and sales. The company will be a prime beneficiary of increased domestic and international infrastructure spending.
Further, Caterpillar is well positioned to expand margins through its CPS initiatives, ultimate pricing power, market leadership and exposure to the global infrastructure boom as end markets rebound. We thereby maintain our long-term Outperform rating on Caterpillar supported by Zacks Rank #1 (Strong Buy).
Peoria, Illinois-based Caterpillar Inc. is the manufacturer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. The company is one of the few leading U.S. companies in an industry that competes globally from a principally domestic manufacturing base. The company operates three divisions –– Machines, Engines and Financial Products.
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