(CAT) Caterpillar Increasing Texan Plant

Caterpillar Inc. (CAT), in its drive to become the global leader in the excavator industry, will further expand its under construction, state-of-the-art, 850,000-square-foot manufacturing facility in Victoria, Texas by an additional 200,000 square feet at an added cost of $70 million.

The facility will more than treble its existing capacity of hydraulic excavators and will include the addition of selected fabrication manufacturing for excavator production.

Caterpillar had earlier announced plans to build this 850,000 square foot operation for $130 million in August last year. Construction began on the facility in September 2010 and is expected to commission in mid-2012.

Caterpillar had chosen Texas over Illinois for the facility given the former’s proximity to the company’s suppliers, ports and a business friendly environment given lower taxes and lesser unions. The facility would also double the number of Caterpillar employees in the U.S. engaged in the production of excavators.

Presently, in the U.S, Caterpillar produces two excavator models at a facility in Aurora, Illinois. Across the globe, the company produces excavators in seven countries — Belgium, Brazil, China, France, Indonesia, Japan and Russia. The Texan facility will manufacture seven excavator models. In addition, the facility will produce selected fabrications for the excavators that will be assembled in this new facility.

This expansion is part of the company’s plans to renew its domestic manufacturing focus so that its Japan excavator production can cater solely to the growing demands for excavators in Asia. In June 2010, the company had announced plans to quadruple its excavator capacity at its manufacturing facility in Xuzhou, China in response to the burgeoning demand in the Chinese market.

Recent activities from the company amply prove Caterpillar’s vigorous expansion spree. This news comes on the back of Caterpillar’s announcement to open a new manufacturing facility in Thailand to produce medium track-type tractors, which are used globally by Caterpillar’s customers for various construction applications.

The demand for Caterpillar’s heavy equipment is on the rise given improving economic conditions, particularly in the developing economies. Caterpillar is ramping up production to meet the surge in demand. Needless to say, Caterpillar’s strong brand name, pricing power and global dealer network place are an advantage given the growing need for infrastructure development worldwide.

We expect Caterpillar to maintain its revenue growth trajectory aided by growth in emerging markets as well as construction and mining activity in the developing countries.

Increased domestic and international infrastructure spending, improved economic conditions and benefits from the yet-to-be closed acquisitions will support revenues over the next several years. The shares of Caterpillar presently retain a Zacks #1 Rank (short-term Strong Buy rating).

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 three divisions – Machines, Engines and Financial Products. Caterpillar competes with the likes of CNH Global NV (CNH), Komatsu Ltd. (KMTUY) and Volvo AB (VOLVY).

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