Caterpillar Inc., probably better known as “CAT” throughout the world, headquartered in Peoria, Illinois, is a world leader in the manufacture of construction and mining equipment to include diesel and natural gas engines. It also has a financial services branch, Caterpillar Financial Services, earning approximately 7% of Caterpillar’s revenue by providing financing to many of Caterpillar’s customers who purchase its construction and mining equipment (Caterpillar, Inc., 2012).
Caterpillar, today, is an extremely profitable and successful corporation indicative of the results it reported in its most recent quarterly report. Its 2012 earnings per share of $2.54, a quarterly ...view middle of the document...
590 billion paying shareholders $1.98 earnings per share (John, 2012). Japan’s Komatsu, LTD. is Caterpillar’s biggest foreign competitor earned nearly $6 billion this quarter paying its shareholders approximately $.50 per share (Komatsu, 2012).
Caterpillar, Inc. is a solid, blue chip corporation having a very bright economic and financial future for 5 key reasons: analysis of its key financial statistics reveals a financially strong and stable corporation poised for growth; it is in a position to take advantage of projected U.S. economic growth; it has an exchange rate strategy in place to protect itself financially against currency fluctuations; its merger strategy past and present is aligned with its corporate strategy; and, Caterpillar has strategically positioned itself globally to maintain a competitive advantage over its competitors and take advantage of emerging markets. However, there is one glaring negative amongst all of Caterpillar’s positives: Caterpillar fails to address an exit strategy for risky markets especially China.
U.S. Economic Outlook and Caterpillar
The U.S. economy, now and in the future, appears to hold a lot of promise in terms of Caterpillar’s continued success. The Federal Reserve is doing everything in its power with monetary policy to stimulate the economy and Caterpillar should reap the benefits of its efforts. U.S. inflation and unemployment are two key factors the Federal Reserve uses to monitor the health of the economy to determine Federal Reserve economic policy, primarily the setting of interest rates having a direct effect on Caterpillar’s cost of money and capital expenditures.
Caterpillar, barring any unforeseen domestic or global economic calamities, can expect current and future interest rates to remain low. U.S. Government Consumer Price Index (CPI) figures released 16 September showed a .6% increase in the August CPI and for the last 12 months leading up to August, an unadjusted CPI of 1.7% (U.S., 2012). “Trust in Bernanke” is the phrase of the day regarding inflation. He feels even with the Fed’s zero interest rate policies inflation will remain in check for the time being (Walker, 2012).
However, Caterpillar should be on guard for inflation due to increases in the cost energy. Though energy forecasts are encouraging, the forecasts do not take into account world political events. The energy index, after declining for 4 consecutive months, increased at 5.6% during the month of August, raising a red flag although overall for the last 12 months the index is at -.6% (U.S., 2012). Even with the August increase, Caterpillar can expect energy prices to remain stable and perhaps decrease in the short term. November crude oil prices on the futures market, New York Mercantile Exchange, have already declined $3.75 to $88.14 a barrel. U.S. oil production is at a 15 year high meaning there will continue to be ample supplies of crude in the future (Washington Post, 2012).