Construction Equipment

# Executive Summary * The Construction Equipment industry is at a technological inflection point, with electrification, autonomy, and digitalization fundamentally reshaping equipment and creating long-term winners and losers. * Severe macroeconomic headwinds, including high interest rates and slowing global growth, are causing a sharp cyclical downturn in demand, particularly for agriculture and residential construction. * A multi-year tailwind from government infrastructure spending is providing a powerful offset, driving resilient growth for companies exposed to road, grid, and utility projects. * Financial performance is bifurcating, with infrastructure-focused players showing growth while larger, diversified OEMs face double-digit revenue declines due to dealer destocking. * Profitability is under pressure from tariffs and input cost inflation, forcing companies to focus on operational efficiency and supply chain resilience. * Strategic mergers and acquisitions (M&A) and portfolio optimization are accelerating as companies seek to reduce cyclicality and acquire key technologies. ## Key Trends & Outlook The Construction Equipment industry is undergoing a profound technological transformation, shifting from a focus on hardware to integrated, intelligent solutions. The market for electric equipment is forecast to grow at a staggering 22.9% CAGR through 2034, driven by sustainability goals and regulatory pressure. This shift changes the business model towards higher-margin, recurring revenue from software and data services, as exemplified by Deere & Company's John Deere Operations Center platform, which saw engaged acres grow by nearly 15% year-over-year to over 475 million acres by Q2 FY25. Leaders like Caterpillar Inc. are making substantial investments in autonomy, such as its MineStar Command for hauling, and connectivity, with 1.5 million connected assets, to drive efficiency and create a competitive moat. This technological arms race is the primary determinant of long-term market leadership. In the near term, the industry faces a sharp cyclical downturn driven by high interest rates, which has led to significant revenue declines of -22% at Deere & Company for 6M FY25 and -10% at Caterpillar Inc. for Q1-25. However, this is being countered by a powerful, multi-year tailwind from government infrastructure programs like the U.S. Infrastructure Investment and Jobs Act (IIJA). This dynamic is creating a clear performance divide, fueling growth at infrastructure-focused firms like Custom Truck One Source, Inc. (+7.8% YoY in Q3-25) that serve resilient sectors like grid modernization. The largest opportunity lies in capitalizing on government-funded infrastructure and energy transition projects, which offer a visible and long-term demand pipeline insulated from broader economic volatility. The most significant near-term risk is the combination of persistent inflation and high borrowing costs, further eroding margins and delaying customer capital investment, compounded by direct cost pressures from tariffs, which are expected to cost Caterpillar Inc. up to $1.8 billion in 2025. ## Competitive Landscape The construction equipment market structure is characterized by a mix of large, diversified global manufacturers, specialized niche leaders, and service-based rental platforms. Manitowoc Company, Inc. holds an estimated 10-15% aggregate market share in its crane segment, indicating fragmentation in certain niches. A dominant strategy is pursued by global scale leaders like Caterpillar Inc., who leverage vast dealer networks and brand strength to offer a comprehensive product portfolio across multiple end-markets, including construction, mining, and energy. Their core strategy involves utilizing economies of scale in research and development (R&D) and manufacturing, alongside unparalleled distribution and service reach, to maintain brand loyalty and pricing power. However, these companies face high sensitivity to global macroeconomic cycles, complex supply chains vulnerable to tariffs and geopolitical disruption, and significant capital intensity. In contrast, other firms find success by specializing in niche end-markets, such as Custom Truck One Source, Inc.'s focus on specialized equipment for the electric utility transmission and distribution (T&D) and telecommunications sectors. These niche market specialists dominate by providing highly specialized, purpose-built equipment and deep domain expertise, fostering strong customer relationships and often benefiting from insulation from broader economic cycles due to reliance on government or regulated utility budgets. Their vulnerabilities include a limited total addressable market and potential dependence on a narrow set of customers or funding sources. A third, distinct model is the equipment-as-a-service platform, led by companies like United Rentals, Inc. As the world's largest equipment rental company, United Rentals provides access to a vast fleet of equipment through a rental model, competing on availability, logistics, and value-added services. This model benefits from customers' desire to reduce capital expenditures, captures a broad customer base, and can generate stable revenue streams, with scale providing significant purchasing power and operational leverage. This approach is highly capital-intensive and sensitive to utilization rates, and exposed to rising fleet financing and maintenance costs. The key competitive battlegrounds are shifting towards technology integration and aftermarket service capabilities. ## Financial Performance Revenue growth in the construction equipment industry is sharply bifurcating, reflecting the conflicting macroeconomic and infrastructure trends. Companies heavily exposed to agriculture and general construction are experiencing a sharp downturn as high interest rates curb demand and force dealer destocking. This divergence is starkly illustrated by Deere & Company's -22% revenue decline for 6M FY25, driven by the agricultural downturn. In contrast, companies aligned with government infrastructure spending are posting resilient growth, with Custom Truck One Source, Inc. demonstrating +7.8% year-over-year revenue growth in Q3-25, fueled by demand from grid modernization and data centers. Dealer destocking is the primary mechanism causing the sales slowdown for the larger original equipment manufacturers (OEMs). {{chart_0}} Profitability is under pressure for most companies, with operating margins ranging from low single digits, such as Manitowoc Company, Inc.'s 1.13% in Q1-25, to high teens. Margin pressure stems from two key factors: unfavorable price realization amid slowing demand and direct cost headwinds from tariffs and persistent input inflation. Caterpillar Inc.'s 18.3% adjusted operating margin in Q1-25 demonstrates the pricing power of a market leader. However, the significant tariff headwinds it and Deere & Company face, with Caterpillar Inc. estimating a $1.5 billion to $1.8 billion impact in 2025 and Deere & Company forecasting over $500 million in pre-tax tariff costs for fiscal year 2025, show the pervasive external pressures on profitability. {{chart_1}} Capital allocation strategies reflect companies' positions in the cycle, with a mix of shareholder returns from mature players and strategic investment or M&A from those undergoing transformation. The theme is best shown by contrasting United Rentals, Inc.'s plan to repurchase $1.9 billion in common stock in 2025 with Terex Corporation's transformative $9 billion enterprise-value merger with REV Group, announced on October 31, 2025, alongside strategic divestitures of its Aerials and crane businesses. Despite macroeconomic pressures, most companies maintain generally healthy and resilient financial positions, having fortified their balance sheets after previous downturns. Ample liquidity from cash and credit facilities provides the flexibility to navigate the current slowdown while continuing to invest in key technologies and strategic M&A. Gencor Industries, Inc.'s debt-free balance sheet, with $27.87 million in cash and cash equivalents and $108.10 million in marketable securities at June 30, 2025, is an exceptional example of financial strength. The ample liquidity at firms like United Rentals, Inc. ($2.45 billion in available liquidity as of September 30, 2025) and Terex Corporation ($1.3 billion in total liquidity at September 30, 2025) is representative of the industry's overall resilience. {{chart_2}}