Ritchie Feeds Off Recession: Under the Radar

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BOSTON (TheStreet) -- Caterpillar(CAT Quote) reported on Monday that global retail sales tumbled 48% for the three-month period ending in August. Although the company predicted the third quarter would be the weakest of its fiscal year, a halving of sales is jaw-dropping.

Interestingly, Cat's U.S. sales showed sequential improvement while its rest-of-the-world segment suffered a decline. If emerging-market construction companies aren't shelling out for new equipment, then Ritchie Brothers Auctioneers(RBA Quote) is a beneficiary.

The Vancouver, British Columbia-based company auctions industrial equipment, including trucks, drum rollers and cranes, in 25 countries around the world. Its second-quarter profit fell 15% to $39 million, or 37 cents a share, but revenue grew 4% to $120 million.

Its gross margin rose from 86% to 87% and its operating margin climbed from 44% to 46%. One factor benefitting Ritchie Brothers is that it operates in a comparatively uncompetitive space and provides an invaluable service, particularly for small and mid-sized construction companies.

For example, say you're a small construction company that just completed a project requiring expensive, specialized equipment. It's unlikely you want to store the equipment "just in case." Auctioning off the equipment streamlines inventory, eliminates storage costs and boosts cash.

All auctions are unreserved, so there are no minimum bids or reserve prices. And sellers are prohibited from bidding, so there are no price floors. The company lists auction items weeks in advance, so prospective bidders are welcome to inspect and test the equipment before the auction.

Unreserved auctions can have negative consequences, such as too-low prices when economic conditions are weak. So Ritchie Brothers has extended its marketplace globally, allowing bidders to participate online, so every piece of equipment is sold at its global fair-market value.