Deere & Company (DE) cautions that due to the earthquake and tsunami in Japan last week and its terrible aftermath, the delivery of excavators sold under the Deere and Hitachi brand names and Hitachi-branded mining equipment might be delayed.
Deere is trying to gauge the impact on its Japanese supply base. Though some suppliers are recovering from the disruption, the company is finding it difficult to estimate the full effects on the supply chain given the present scenario in Japan. The company adds that it is a little premature to estimate the impact on its overall business.
Deere and Hitachi Construction Machinery Co, a subsidiary of Hitachi Ltd. (HIT), have a joint venture for the manufacture of hydraulic excavators and track log loaders in the U.S. and Canada. Deere distributes Hitachi brands of construction and mining equipment in North, Central and South America.
The company also has supply agreements with Hitachi under which a range of construction, earthmoving, material handling and forestry products manufactured by Deere in the U.S., Finland and New Zealand are distributed by Hitachi in certain Asian markets.
On the other hand, Deere’s competitor, Caterpillar Inc (CAT), announced that its Tokyo, Akashi and Sagami facilities have remained unscathed from the earthquake and do not fall within the mandatory evacuation zone declared by the Japanese government. Both the Sagami and Akashi facilities have continued their operations.
However, the current situation in Japan has affected production somewhat, which has been erratic over the last week.
Caterpillar added that though the disruption to the supply chain in Japan has not affected production at other Caterpillar facilities around the globe, but warns that those facilities may now and again be impacted by the situation in Japan.
Caterpillar is trying to assess the full scope and possible impact on its supply chain. As a safeguard, the company is also developing alternative sources for components produced by Japanese-based suppliers in case they fail to provide components to Caterpillar’s operations both within and outside Japan.
The Caterpillar Foundation has announced a $1 million grant to the American Red Cross to aid disaster relief efforts in Japan. The Foundation will match up to $0.5 million in Caterpillar employee, retiree and dealer employee contributions to the Red Cross.
Caterpillar Japan Limited has pledged an additional $1 million to support disaster relief efforts, primarily of in-kind equipment. Caterpillar Japan Limited is offering the use of machinery and generator sets to governmental agencies in Japan to assist in the recovery efforts.
The disaster will cause the occasional hiccup in both Deere’s and Caterpillar’s Japanese operations. However given their size and global operations, we do not expect it be material. We however await more developments on the estimates from both the companies. We currently have a Zacks #2 Rank (short-term Buy recommendation) on Deere and a Zacks #3 Rank (short-term Hold recommendation) on Caterpillar.
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