Caterpillar Inc. (CAT) on a Hot Tin Roof

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Much like Maggie in Tennessee Williams’ classic stage play, Caterpillar Inc. (NYSE:CAT) has been trying to keep its footing on a foundation that’s become increasingly precarious. As the company heads into earnings season, investors are accordingly more skeptical of its ability to remain upright than at any other time in its history.

Caterpillar Inc. (NYSE:CAT)

Before second-quarter results are announced July 24, a SWOT analysis — examining the company’s strengths, weaknesses, opportunities and threats — helps paint a clearer picture of how CAT performed during the first half of 2013 and where it might be headed going forward.


Dominance in the marketplace

It’s difficult to remember a time when Caterpillar Inc. (NYSE:CAT) wasn’t the global leader in overall heavy equipment sales and a top player in most critical categories. From bulldozers to excavators to mining trucks, CAT literally covers construction and mining industry needs from top to bottom. Komatsu is its main competitor in the excavation space, while Joy Global Inc. (NYSE:JOY) plays a similar role in mining. But neither equals CAT’s appeal worldwide, built by delivering top-notch products and unequaled service over the years.

Forward-looking technology

Among other things, Caterpillar Inc. (NYSE:CAT) has been particularly aggressive in the nascent move toward liquid natural gas-powered heavy equipment. Last fall it displayed three upcoming LNG off-highway mining trucks and announced full-scale development of other new gas products ranging from giant haul trucks to railroad locomotive engines. It is also developing engine retrofit kits for the conversion of existing diesel-powered oil rigs.


Troubles in Europe

Ongoing economic problems in the Eurozone have increasingly weighed on Caterpillar Inc. (NYSE:CAT)’s overall performance. During the first half of 2013 sales in Europe, Africa and the Middle East fell behind comparable periods last year, with a low point being March’s 8% year-over-year decline. While the rate slowed to 2% in May, hopes remain dim for a real construction turnaround or renewed commodities demand. This continues to hurt the two largest segments of CAT’s business. Joy Global Inc. (NYSE:JOY) has also been hit hard because the commodity issues impact mining activity worldwide, but Komatsu hasn’t suffered as much because it has less exposure to the region.

Dealers cutting inventory

For several quarters, Caterpillar Inc. (NYSE:CAT) dealers worldwide have responded to softening conditions by cutting orders below end user demand in an attempt to reduce inventory. While expected to continue, the company said this practice has in fact accelerated — with inventories decreasing by about $700 million in the first quarter of 2013 alone. (By comparison, inventories increased by $875 million in the first quarter of 2012.) More than one-third of CAT’s $2.8 billion year over year first quarter machinery sales decline was attributed to this de-stocking.


Latin American strength

Geographically, this region is topping everything for Caterpillar Inc. (NYSE:CAT) right now. Aided in part by construction activity in Brazil ahead of the 2014 World Cup and 2016 Summer Olympics, sales have actually picked up here this year after a strong 2012 and were up 22% in May after increases of 28% in April and 12% in March.

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