CAT Sells Off Bucyrus' Peru Biz - Analyst Blog


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Caterpillar Inc. ( CAT ) is selling the distribution and support business formerly operated by Bucyrus International in Peru to Ferreyros S.A.A. for $75 million.

Ferreyros, the largest distributor of capital goods and associated services in Peru, has been a Caterpillar dealer since 1942. It operates in more than 60 locations across the country through a network of branches and offices and constant on-site support.

The distribution business was included in Caterpillar's purchase of Bucyrus Inc., a South Milwaukee-based manufacturer of surface and underground mining equipment, in July 2011. The $8.8 billion buyout was the biggest deal ever in Caterpillar's history. It capitalized on the rising demand for coal and minerals triggered by growth in emerging nations.

Last week, Caterpillar announced the sale of the distribution and support unit, formerly operated by Bucyrus International Inc. in Western Australia, Australian Capital Territory and New South Wales to WesTrac Pty Limited of South Guildford, Western Australia, for $400 million.

Again, in January this year, Caterpillar sold the distribution and support unit formerly operated by Bucyrus. in South America, Western Canada and the United Kingdom, to Finning International Inc. of Vancouver, Canada, for $465 million. In last December, Caterpillar sold a part of the Bucyrus distribution business to the Industrial Division of Sime Darby Berhad for $360 million.  

Caterpillar is also in discussion with WesTrac regarding the former Bucyrus distribution and support businesses in the WesTrac dealership territories in North Eastern China. Caterpillar is systematically divesting the Bucyrus distribution businesses, preferably to its dealers having mining activities in their territories. Caterpillar, however, will operate the Bucyrus distribution business until the transitions have occurred in any given territory. 

The Caterpillar-Bucyrus combined portfolio broadens Caterpillar's mining equipment product line, resulting in the most expansive product offering in the mining equipment industry. Furthermore, Caterpillar can leverage Bucyrus' strong presence in the emerging markets, its successful aftermarket parts business and support services for its equipment.

The Bucyrus acquisition positions Caterpillar as the leading global mining original equipment manufacturer. The combined product portfolio dwarfs Joy Global Inc. ( JOY ), the only other manufacturer of surface and underground mining equipment in the US.

Caterpillar's backlog is at a record level, which holds promise for the year ahead. We believe Caterpillar's expansion plans of opening new facilities and furthering existing operations, particularly in the emerging markets, will boost its long-term potential. Add to it, the company's top line will continue to grow on the back of increasing demand for construction and mining equipment in the long term.

However, we have recently downgraded our recommendation on Caterpillar from Outperform to Neutral due to the recent loss of momentum in sales growth, margin headwinds, negative impact of the European debt crisis and a slowing Chinese economy. The quantitative Zacks #1 Rank (short-term Strong Buy rating) for the company indicates upward pressure on the shares over the near term.

Peoria, Illinois-based Caterpillar Inc. is the manufacturer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. The company is one of the few leading U.S. companies in an industry that competes globally from a principally domestic manufacturing base. Caterpillar operates two divisions - M&PS and Financial Products. Caterpillar competes with the likes of CNH Global NV ( CNH ), Komatsu Ltd. ( KMTUY ) and Volvo AB ( VOLVY ).

CATERPILLAR INC ( CAT ): Free Stock Analysis Report
CNH GLOBAL NV ( CNH ): Free Stock Analysis Report
JOY GLOBAL INC ( JOY ): Free Stock Analysis Report
VOLVO AB ADR B ( VOLVY ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: CAT , CNH , JOY , VOLVY

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