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Construction equipment sales strong in North America

Pat Olney, President and CEO of Volvo CE, believes that the recovery in the North American construction equipment market is gathering momentum. He made his comments at a recent press event on sustainability held in Miami, during a stopover of the Volvo Ocean Race.

Volvo has already seen a dramatic jump in their sales in North America, posting a 111% increase in like-for-like sales in the first quarter of the year. This helped the company achieve a 17% increase in global net sales and to post record levels of profitability for a first quarter.

“Demand for construction equipment in North America jumped 35% during the first three months of the year,” Mr. Olney stated. “This shows us that the recovery that began last year is gathering pace and that our earlier forecast of a 15-25% year-on-year improvement for 2012 is attainable.”

Other manufacturers are also seeing strong results. Construction Quarterly, Q2 2012, issued by Wells Fargo Equipment Finance, Inc., summarizes the performance of several construction equipment manufacturers, rental companies,and the U.S. construction industry (to view the report, visit heg.baumpub.com and enter Wells Fargo in the Search bar).

The report shows the results for the first quarter (Q1) of 2012 compared to the same quarter in 2011, except for Deere & Company reporting for their Q2 (ending April 30) with net sales in the U.S. and Canada up 18%; CNH saw sales of light equipment go up 45% and for heavy equipment by 30% for North America; Caterpillar reported a record profit, with sales and revenues increasing 23%; Astec Industries saw sales increase 16% and earnings up 20%; Manitowoc’s net sales in the crane segment were up 29.3%; Hitachi sales in the Americas rose 48.1%; and Komatsu sales in North America rose 14.6%. 

To meet demand, manufacturers are investing in their production facilities. For example, Volvo CE is spending $100 million in a product and manufacturing expansion program at its North American facilities to accommodate production of wheel loaders, excavators and articulated haulers – adding 16 new machines to the 50 road machinery products already produced at the plant.

Supporting Mr. Olney’s prediction is a new TD Economics report, Milking America’s Cash Cow: The Case for Stronger Investment Growth. It states that corporate profits now make up 10 percent of U.S. GDP, nearly double the pre-recession average, and liquidity (the ratio of current assets to short term liabilities) has risen to levels not seen since the 1950s. What this means is that a substantial gap has emerged between cash-on-hand and equipment investment. The severe pullback in investment during the recession caused the U.S. stock of equipment and software to shrink in real terms for the first time since WWII. There is evidence that the process of rebuilding that stock is not yet complete, even in the face of rising consumer demand. 

“Historically, investment deficits do not to last when corporate balance sheets are strong,” said Beata Caranci, Vice President and Deputy Chief Economist, TD Economics. “As the economy continues to stabilize, healthy finances give businesses the means to expand investment.”

Anthony Sasso, Head of TD Bank’s TD Equipment Finance unit, adds: “The recession has yielded a wealth of investment opportunities that businesses haven’t taken full advantage of. We see an ongoing need to replace depreciated asset stocks.”

Taking a look at sales and revenue for equipment manufacturers shows that asset building is proceeding at a healthy pace in the construction market.