When the Caterpillar (Inc) Became a Butterfly…
The birth of what is arguably the most successful construction product company in the world occurred at a Thanksgiving Parade over 100 years ago. Benjamin Holt made the first successful tractor during this event, eventually leading to the business’ creation. Almost as interesting as their origin story, Caterpillar’s sales during the fiscal years of 2020 and 2021 look drastically different. What led to this huge difference in profit within the span of one year?
What is Caterpillar Inc?
In 1925, the Holt Manufacturing Company and the C.L. Best Tractor Company merged into a new corporation. It was not until 61 years later that this business was named as it is known today. Caterpillar Inc has technically been around for 96 years, many of which have been successful in terms of revenue. The world-leading manufacturing company strives to produce reliable equipment and engines for people to use across the globe. Caterpillar is present in over 128 countries and serves as the main provider of materials for North American railroads. It is evident that Caterpillar is an incredibly successful company, but even so, this powerful and affluent business suffered in the same way that thousands of small businesses did during the COVID-19 pandemic.
2020
Similar to most other companies, Caterpillar had a rough ride during 2020. As the pandemic struck, Caterpillar’s revenue was down 22% from the previous year. During the pandemic over 200,000 businesses closed; 2021 was a year of slow recovery for the majority of companies and institutions alike. The pandemic lowered user demand, especially for the equipment and services that Caterpillar was attempting to sell. However, Caterpillar made 2021 one of its golden years by stepping out of its cocoon and emerging as a butterfly, victorious from the year of struggle it saw during the pandemic.
Caterpillar’s Success
2021 was not trouble-free for most businesses, with thousands of them closing throughout the year and 75% of business owners saying that the pandemic was still negatively affecting their profit. Yet, with 51 billion dollars in sales, the repurchasing of 2.7 billion dollars of stock, and a 23% increase in revenue compared to 2020, it’s safe to say that 2021 turned out to be a good year for Caterpillar. So, what was the reason for their success?
Although Caterpillar’s executives and workers have most definitely been working hard during the past two years adjusting operating profit margins and ME&T free cash flows, the main reason for their newfound success is simply the changing market. The reason that companies were having such a difficult time during the pandemic wasn’t because everyone was sick, but because no one was willing to spend their time and money on materials during such a frightening and deadly time. Consumers were not flipping through magazines picking out trendy goods, but instead shopping for bare necessities and protective equipment. Consumer demand plays the largest role when looking at businesses’ failure or success because it directly affects how much money people are willing to spend on an item.
Consumer demand is tricky — it cannot be predetermined and it is ever-changing. The priorities of people in 2020 were very dissimilar to their priorities in 2021, even though the difference was only one year. This is reflected in the sales of Caterpillar during both years: during 2020, the pandemic was at its height and people were most afraid of and most focused on COVID-19. Then, when everything slowed down and it was less dangerous, people started to catch up on what they had missed in the past year, including buying the new materials and services that Caterpillar was selling. Success is heavily dependent on the circumstances of the situation, and Caterpillar cleverly capitalized on the decline of the pandemic.
Unfortunately, we can’t accurately tell when the next market crash is going to be or which businesses will flourish this year. Caterpillar’s rollercoaster of sales within the span of two years is an accurate assessment and representation of how consumer demand affects a company’s success.
