Caterpillar: 6 Surprising Way CAT Makes Money

Caterpillar Inc. (CAT) is a multinational company with over 500 manufacturing and servicing locations in approximately 180 countries worldwide.  The publicly-traded company manufactures and sells a range of industrial products, including industrial machines, engines, and small-scale industrial tools. Caterpillar also manufactures and sells a full line of branded Caterpillar gifts and apparel. Founded in 1925 through the merger of Holt Manufacturing Company and C. L. Best Tractor Co., the company has grown substantially in size and revenue, with over 100,000 employees around the globe.

You may have figured that most of CAT's revenue is generated from producing and selling large industrial work vehicles and machinery, but we have found additional and perhaps surprising ways that the company makes money.

Key Takeaways

  • Caterpillar is a Dow 30 component, specializing in industrial machines and work vehicles.
  • The company also makes money through its branded licensing of its logo and distinctive yellow color, and by renting equipment in addition to sales.
  • Here we consider six surprising facts about Caterpillar's business operations.

Industrial Smartphone Manufacturer

Although Caterpillar is known as a leading manufacturer of large-scale machinery, the company also has a hand in producing durable smartphone development and has released a number of smartphones for the industrial market. Caterpillar released the Cat S60 phone in February 2016, which allows users to detect heat patterns using a unique thermal imaging feature. Similar to Caterpillar's other smartphone models, the Cat S60 was known for its rugged durability. Advertised as "water-resistant,"  the Cat S60 could operate in underwater depths of up to 16 feet for approximately one hour. This phone has now been replaced by the S61 which also offers air quality monitoring.

Branded Company

While Caterpillar generates the majority of its revenue from machinery sales, the company also makes money from its trademark and licensing agreements. Caterpillar machines are easily recognizable from the company's branded yellow, but that shade of yellow has not been with the company from day one. Caterpillar's machine color originated in 1931 after years of gray machinery design. The distinctive yellow color of Caterpillar machines is now trademarked by the company, along with its logo design too. Additionally, the licensing of its branded products and apparel are also key revenue drivers for the business. The company's products are sold in retail stores worldwide and in 2018 the company was ranked 28 out of 150 by License Global for its global licensor status.

Distribution Network

Caterpillar's machinery is sold through a broad network of dealers, and its roots run deep. Many Caterpillar dealers have been working with the company since 1925. Yancey Brothers is one of the company’s longest-standing dealership relationships. With 168 dealers serving 193 countries, the company's dealership network has more employees than Caterpillar itself.

Midwestern Operations

While Caterpillar services a global network, the company's business operations have been located in Illinois since its founding in 1925 (and even before, when Holt produced the first Caterpillar tractor.) The first manufacturing plant affiliated with Caterpillar's business operations opened in Peoria, Illinois, where most of the company's business operations are still located. While most of Caterpillar's machines are manufactured in the Midwest, some of the company's other leading manufacturing plants are located in Russia, China, and Brazil.

Caterpillar moved its headquarters closer to Chicago to Deerfield, Illinois, just a few miles north of the city. Deerfield is also home to major company headquarters like Walgreens and Underwriters Laboratories (UL). 

Caterpillar Subsidiaries

Caterpillar generates a significant amount of revenue through subsidiary businesses. Its leading subsidiaries include Caterpillar Financial Services, FG Wilson, Perkins Engines, Progress Rail Services Corporation, and Solar Turbines. In February 2015, the federal government conducted an ongoing investigation of Caterpillar's subsidiaries to ensure that it was appropriately using and disseminating funds within its U.S. and international business accounts. As of January 2018, no criminal charges had been filed against the company or any of its employees. 

Machines for Sale and Rent

Caterpillar produces large-scale industrial machinery for a wide range of industries including energy, transportation, and construction. Leading machinery manufactured by the firm includes tractors, on-highway trucks, off-highway trucks, pavers, loaders, combines, bulldozers, shovels, and excavators. The company also specializes in energy drilling and commodity mining machines.

While Caterpillar generates most of its revenue from selling newly-manufactured machinery to businesses, the firm also rents and sells used machinery. Rental machinery is convenient for construction projects that don't require long-term assets. Companies can also significantly reduce costs by buying used machinery. Used machinery is insured by Caterpillar, and companies can customize their used machinery purchases.

Article Sources

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