Global Construction Is Likely To Continue Building Upon Its Recovery in 2011


This past year brought significant improvements for construction equipment manufacturers. In 2009, global demand declined significantly, especially in developed markets, and manufacturers under-produced to lower inventory levels. This resulted in dramatic declines in sales and profitability, causing credit measures to deteriorate rapidly for rated issuers. In 2010, global demand picked up and good emerging market growth has helped meaningfully improve issuers' credit measures.

For 2011, we believe the continuation of a global economic recovery will continue to benefit construction sales, which should encourage considerable year-over-year growth, says Standard &Poor's Ratings Services in a report, "Global Construction Is Likely To Continue Building Upon Its Recovery in 2011," published Jan. 6, 2011, on RatingsDirect.

"We expect this to support issuers' credit quality, which has largely stabilized after being largely negative in 2009," said Standard &Poor's credit analyst Dan Picciotto. "While the economic situation has gotten better, risks continue to persist: growth may continue to be slow in developed economies, favorable performance in emerging market economies may weaken or turn around, and economic risks related to European currency concerns will likely remain."

The six leading construction equipment makers we rate represent a large chunk of the global industry, particularly in developed economies that typically demand higher-end products. We maintain public ratings on the following companies: Caterpillar Inc., Komatsu Ltd., Deere &Co., Volvo AB, CNH Global N.V., and Terex Corp. Their business risk profiles vary from strong to fair, largely reflecting differences in diversification, operating efficiency, and market position.

The rated global construction equipment manufacturers have weathered a very difficult downturn arising from the rapid global economic slowdown that began in late 2008. While conditions appear to be improving, the prospects for a solid long-term recovery remain unclear. "In this down cycle, these manufacturers have appeared to us to have been fairly rational in pricing; their cost and inventory reduction was aggressive, which helped, in most cases, bolster cash flow and operating margins," Mr. Picciotto continued. "The sustainability of the recovery and maintaining financial risk profiles consistent with our expectations for the rating will be key factors in maintaining stable credit quality through 2011."

The report is available to RatingsDirect subscribers on the Global Credit Portal at and RatingsDirect subscribers at If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to Ratings information can also be found on Standard &Poor's public Web site by using the Ratings search box located in the left column at

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