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Farming and Construction Machinery

Farming and Construction Machinery. Bill Dailey Kevin Lenart Thomas Maguire John Rojo. Agenda. Company overviews World GDP vs. industry growth Revenues – historical and forward Industry drivers Company valuations Conclusion. Company Overviews. Industry vs. World GDP.

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Farming and Construction Machinery

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  1. Farming and Construction Machinery Bill Dailey Kevin Lenart Thomas Maguire John Rojo

  2. Agenda • Company overviews • World GDP vs. industry growth • Revenues – historical and forward • Industry drivers • Company valuations • Conclusion

  3. Company Overviews

  4. Industry vs. World GDP • Removed Joy – multiple acquisitions

  5. Industry Revenue Drivers • Dealer inventory patterns • Mining capital expenditures • Nonresidential fixed investment • Emerging market growth • Farmer cash receipts

  6. CAT - Historical • Significant revenue growth over last 10 years • Recession • Mining demand below expectations last year

  7. CAT - Forward • Dealer inventory • Mining production increased in 2013, will likely increase again in 2014 but sales slow • Strong finish to 2013 for construction continues in Q1 2014 • 2014 total revenue expected to be stagnant around $56 billion

  8. KMTUY - Historical • Erratic sales growth that is dependent on construction demand • 89% of sales in construction and mining` • A global decline in mining demand has hurt sales

  9. KMTUY - Forward • Sales growth is reliant on Asia, the Middle East, and Africa • Chinese housing bubble • New competitors within developing countries • Deferred capital expenditures

  10. DE - Historical • Expansion into Brazil and China • Currently around 63% U.S. and Canada • Price premium due to brand recognition • Independent dealer network

  11. DE - Forward • Farmer’s available cash dictates their capital expenditures

  12. DE - Forward • Section 179 depreciation • $500,000 deduction limit • $2,000,000 capital purchase limit • 2014 – Section 179 limit reduced to $25,000

  13. JOY - Historical • Volatile sales growth • Bankruptcy in 2001 • Harnischfeger Ind. • Acquisition activity

  14. JOY - Forward • Revenues driven by mining companies CapEx • Driving growth through existing mines • Recent trend towards industry consolidation

  15. Value Captured

  16. Per Share Valuations

  17. Overall Industry Conclusion • Recovery from 2008-2009 decrease in sales • Outlook affected by additional capital expenditures throughout industry • Growth opportunities lie in emerging markets • Industry as a whole appears overpriced, Deere represents good value

  18. Questions?

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