Brazil is considered one of the world’s most important emerging nations, and it’s closer to the U.S. in many ways than any other. Still, North American investors rarely focus on the country and its role in global corporate performance. China, Russia, even India — the other members of the famed BRIC quartet of newly developing economies — get the lion’s share of attention. But Brazil is hot, and on the verge of getting hotter, and corporations looking to expand their worldwide reach certainly haven’t missed this.
Its economy is already the world’s sixth largest, and with annual GDP growth of more than 5%, Brazil is expected to move even higher up that list. It will also be harder to ignore as it takes its star turn on the global stage by hosting the World Cup in 2014 and the Summer Olympics in 2016.
Winner #1: Caterpillar Inc. (NYSE:CAT)
Shares of the top global supplier of construction and mining equipment took a big hit in mid-February, when Caterpillar announced a decline in its three-month rolling sales results due to a steep dip in January.
But the news from the November-January period wasn’t bad everywhere: North American sales fell by 11% and the Asian-Pacific region dropped 12%, but sales in Latin America rose 3%.
In its fourth-quarter 2012 earnings release in late January, Cat executives cited Brazil as one of the world’s bright spots for them. The country plans to spend $491 million on infrastructure projects ahead of the two upcoming global sporting events it will host, they noted, and its growing economy should also boost business in other ways.
Cat has been courting business in Brazil for several years, with one of its biggest wins being a deal to supply 100% of the equipment for construction of the world’s third-largest hydroelectric dam in Belo Monte. When completed, the project will be using more than 1,000 machines and 100 generator sets supplied by Caterpillar. The company also recently opened a new facility in Campo Largo for production of backhoe loaders and small wheel loaders.
The region represents 18% of Cat’s mining machine sales, 15% of its construction sales, and 12% of its power system sales. Brazil should continue to be a bright spot for them over the next several years.
Winner #2: Deere & Company (NYSE:DE)
The largest farm machinery dealer in the world, with a large construction equipment division as well, Deere has big upside potential in Brazil. Executives acknowledged as much in their fiscal year first-quarter 2013 results, announced in early February. They noted that they expect the strongest demand for their ag equipment next year to come from South America, “reflecting a booming commodities market in Brazil.”
Like a lot of these firms, Deere doesn’t break out results by country — other than to say that United States and Canadian sales account for 63% of their global total. But some of the information they did release recently still proves illuminating. Central and South American net sales grew 125% from 2007 through 2012, for example, a period when the company doubled its dealer locations and introduced more than 50 new or updated products in Brazil. Farm production in the country is also expected to increase about 9% in 2013 from last year, executives said, with Deere positioned to grab a significant portion of that new business.
Additionally, the company noted plans to build two new plants in Brazil for construction equipment like backhoe loaders, excavators, and 4-wheel-drive loaders. This will supplement its existing factories there producing tractors, planters, combine harvesters and sugarcane harvesters.
Deere’s efforts have paid off so far, with a 6-point share gain in the tractor market since 2011 as just one example. More gains should follow.
