Caterpillar-Ritchie Bros. Alliance: A Step In Digital Strategy

Caterpillar Inc. (NYSE:CAT) has finally entered into its previously announced five-year strategic alliance with leading equipment distributor, Ritchie Bros. Auctioneers Incorporated (NYSE:RBA) . This alliance will ensure that more used-equipment buyers will have access to Caterpillar’s leading products, digital offerings and customer support through the Cat dealer network. This is a step in Caterpillar’s digital strategy of focusing on connecting more products in its customers’ fleets and will also help improve their productivity, increase safety as well as drive sustainability.

The alliance had been announced in August last year but was subject to Ritchie Bros.’ acquisition of IronPlanet, a leading online marketplace for heavy equipment and other durable assets. The acquisition was duly completed by Ritchie Bros. in May 2017. This move accelerates Ritchie Bros.' strategy of becoming a one-stop, multichannel company enabling customers to buy, sell or list equipment according to the place or time of their choice – both onsite and online.

Per the Caterpillar-Ritchie Bros alliance, the latter will become Caterpillar's preferred global partner for live onsite and online auctions for used Caterpillar equipment and also complement Caterpillar's existing dealer channels. The alliance will strengthen Ritchie Bros.’ association with Caterpillar's global independent dealers by providing them with better and continued access to a global auction marketplace for their used equipment. Caterpillar’s dealers will have access to proprietary auction platforms, software and other value-added services. This will aid improve the exchange of information and services between customers, dealers and suppliers. This alliance will also provide Caterpillar's used-equipment buyers access to its leading products, digital offerings and world-class customer support through the Cat dealer network. Moreover, the deal will allow independent dealers and their respective customers to continue with an accelerated delivery of Caterpillar's Internet of Things (IoT) connectivity offerings, to improve their fleet utilization.

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Caterpillar boasts of the largest connected industrial fleet in the world and this strategic alliance with Ritchie Bros. is a step forward in its digital strategy. Caterpillar has identified digital technology as the key investment opportunity that can create a long-term competitive advantage. Through digital technology, global equipment manufacturers can install devices on their machines that will help transmit a constant stream of information on operating conditions and usage metrics. Manufacturers can analyse this data to provide preventative maintenance recommendations or usage suggestions to machine operators that will help reduce their equipment downtime, lower operating costs, and improve fuel economy. This will lead to major cost savings for customers and consequently create customer loyalty as well as additional sales for manufacturers. Machine data can also be used by manufacturers to improve their product designs.

Caterpillar continues to focus on customers and the future by continuing to invest in digital capabilities, connecting assets and jobsites. Further, it is developing the next generation of more productive and efficient products. The company will now be able to retrofit used Cat equipment with new technology. Combined with connected new equipment, the data captured from these machines will help improve customer's productivity through the Cat Connect Technologies and Services.

Year-to-date, the Caterpillar stock has outperformed the Zacks Categorized Machinery – Construction/Mining industry. The company has delivered a return of 16.1%, while the industry gained 14.4%.

Caterpillar currently sports a Zacks Rank #1 (Strong Buy).

Some other top-ranked stocks worth considering in the same sector include AGCO Corporation (NYSE:AGCO) and Parker-Hannifin Corporation (NYSE:PH) . Both the stocks flaunt a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

AGCO has an average positive earnings surprise of 40.39% in the trailing four quarters. Parker-Hannifin has an average positive earnings surprise of 14.94% in the last four quarters.

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