Caterpillar Inc. (CAT): The Cat That Turned Into a Kitty
Caterpillar Inc. (NYSE:CAT) continues to develop new partnerships and advance with an acquisitions strategy. A recent partnership with Southwestern Energy Company (NYSE:SWN), granted the yellow giant more presence in the oil and gas industry, and provided new sources of revenue. Management for the energy company said “we wanted to partner with a company that could commit to providing around-the-clock support and resources”. This is a positive sign for the construction equipment giant, as its most important market, the US, continues to improve.
More good news is related to the recent acquisition of Johan Walter Berg AB. Caterpillar Inc. (NYSE:CAT) now offers a complete propulsion systems suite to the commercial marine market. This acquisition is not centered on the US, and looks to increment and integrate world operations. “The goal is to be able to provide Caterpillar Inc. (NYSE:CAT) Marine customers around the world with integrated propulsion systems”, management expressed. In other words, the yellow cat is diversifying its power systems segment in the world market.
Caterpillar Inc. (NYSE:CAT)’s new partnership is a reflection of the importance of the US market for revenues. More than half of the company’s sales are generated in the US. On the other hand, the acquisition is a bet in the international market where sales continue to lag. Leaving aside differences, the two decisions do have a common ground: the power systems segment. My point is that management is not looking for growth opportunities in its core construction segment. Meanwhile, the company's stock price has dropped $6 since the beginning of the year, and has been in a downtrend since February 2012.
So, have these efforts really improved company’s performance? Not really. The issue here is not that Caterpillar Inc. (NYSE:CAT)’s management is taking the wrong decisions (diversifying through acquisitions and partnerships to drive growth). The obstacle lies in the international market. I mean, international competition is higher than ever for the construction segment, and the US´s recovery has not been able to offset lagging sales in Europe and Asia.
In the end, Caterpillar Inc. (NYSE:CAT) has driven away from its lagging core segment in the international market. Attention has been driven towards other segments, and especially the power systems segment. The strategy, however, has not been able to improve the overall performance or turn around the stock’s downtrend.
Disclosure: Jodor Jalit has no position in any stocks mentioned