Whether digging, loading, paving, or moving, Caterpillar does it all. The company is the world's #1 manufacturer of construction and mining equipment, which includes excavators, loaders, and tractors, as well as forestry, paving, and tunneling machinery. It also manufactures diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives. Subsidiary Caterpillar Financial Services offers a slew of financing, leasing, insurance, and warranty products and services for dealers and customers. Among Caterpillar's other services are remanufacturing through Caterpillar Remanufacturing Services and rail-related upgrade, repair, and maintenance services through Progress Rail Services.
Caterpillar is organized into six operating segments that fall under two main product categories. Machinery, Energy, and Transportation accounts for 94% of its net sales and consists of Resource Industries, Construction Industries, Energy and Transportation, and All Other. The All Other segment's operations consist of remanufacturing services, primarily the refurbishment and restoration of used machinery and technologies for automotive and industrial OEMs, as well as for the defense industry.
Financial Products accounts for the remaining 6% of revenues and consists of subsidiaries Caterpillar Financial Services Corporation (Cat Financial), Caterpillar Insurance Holdings Inc. (Cat Insurance), and their respective subsidiaries.
Caterpillar's construction, mining, and power equipment manufacturing operations are conducted in facilities scattered across the US. It also operates a technical center in Mossville, Illinois. Additionally, the company has marketing and operating locations in the US, Switzerland, Japan, China, Singapore, and Brazil. Parts distribution centers are located in the US, Mexico, Belgium, Russia, China, Singapore, Australia, South Africa, United Arab Emirates, and Brazil.
Caterpillar sells its products and services in North America, Asia/Pacific, Europe, Africa & Middle East (EAME), and Latin America. Sales from each of these segments is fairly well dispersed, with two-thirds of revenue coming from non-North American markets.
Sales and Marketing
Caterpillar machinery is distributed primarily through a worldwide network of dealers, many of which provide sales, rental, service, and aftermarket support. Most are independently owned and operated, though Caterpillar owns and operates its own dealerships in Japan. Within its global dealer network, about 50 are located in the US and an additional 130 are located outside of the US. This network serves more than 180 countries. Caterpillar engines are sold through the dealer network and to other manufacturers for use in their products.
Caterpillar serves several different customer segments, including those using machinery in mine and quarry applications (Resource Industries); those using machinery in building construction and infrastructure applications (Construction Industries); those using reciprocating engines and turbines in industries serving electric power, industrial, marine, and petroleum applications, as well as those needing the provision of rail services (Energy and Transportation); and retail and dealer customers needing financing, leasing, and insurance for their equipment (Financial Products). At the front end of a purchase, Caterpillar provides financing to its customers; at the back end, it offers support for the purchase and lease of its equipment.
Caterpillar saw its revenues fall 15% from $55.2 billion in 2014 to $47 billion in 2015. Net income fell 43% from $3.7 billion in 2014 to $2.1 billion in 2015 as its cash flow from operations also dropped during that time period.
This was fueled by decreases from within its Energy and Transportation and Construction Industries segments, which were driven by lower sales volumes and the unfavorable impact of currency. Caterpillar in 2015 also experienced weak economic growth in developing countries such as China and Brazil. Lower oil prices also had a substantial negative impact on its Energy and Transportation operations that supports oil drilling and well servicing.
As part of its Vision 2020 strategy, Caterpillar sets forth multiple goals that it is striving to achieve over the course of the next few years. It seeks to accelerate aftermarket parts and services growth; excel at product development; simplify cost structure; achieve profits; expand its leadership in the mining, quarry, and aggregates markets; grow its Power Systems segment within the rail, power conversion, and alternative fuel markets; and become a leader in China, while growing its position in India, Russia, and other parts of Asia that are developing their infrastructure.
Through the end of 2015, it reduced about 4% of its manufacturing square footage. It plans further closures and consolidations affecting about 20 facilities around the world that will impact more than 10% of its manufacturing square footage by the end of 2018.
Mergers and Acquisitions
In line with its goal of expanding its role as an equipment and services provider, Caterpillar in late 2015 acquired RDS Manufacturing, an Oklahoma-based manufacturer of highly engineered turbomachinery parts, primarily for the turbine engine and aerospace markets. The acquisition of RDS is expected to help grow its turbine business and deepen its manufacturing expertise. The purchase price was approximately $85 million.
A few months earlier, Caterpillar picked up Rail Product Solutions (RPS) from Amsted Rail Company for $165 million. RPS is a leading North American provider of mission critical track fastening products and integrated fastening systems, and the deal expanded Caterpillar's portfolio of track-related products.