Caterpillar Inc. (CAT) signed an agreement with the global manufacturer of light and compact equipment, Wacker Neuson SE.
Under the terms of the contract, German company Wacker Neuson will manufacture Caterpillar mini hydraulic excavators (under three tons) at its plant in Linz, Austria. This 20-year agreement aims at design, manufacture, sale and support of Caterpillar mini hydraulic excavators from mid-2011 onward.
Within the three ton weight specification, Caterpillar offers three types of models and the new specifications will add approximately seven machines, operating weight of which will start from 0.8 ton. The machines will be distributed through Caterpillar’s global dealer network, except in Japan. Full-year 2012 production volume is expected to double with the production of the newly specified excavators.
We believe Caterpillar, as a market leader in construction and mining equipment, will see favorable impacts from the growing need to enhance infrastructure in both developing and developed nations. Given the global need for basic infrastructure, Caterpillar is confident of its ability to capitalize on the economic recovery and expects to achieve earnings of $8–$10 per share on sales of nearly $60 billion by 2012.
We also believe that the alliance will not only create joint economies of scale in the manufacturing process but will also unveil the company’s strong focus on developing and supporting world class products.
We believe Caterpillar is well positioned to take advantage of its strong brand name, pricing power, the surging need for infrastructure and its global dealer network. However, in the near term, the company’s profitability could be adversely impacted by a later-than-expected economic recovery in the developed nations, an unfavorable product mix and a higher pension expense.
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