Caterpillar Cuts Jobs, Revenue Outlook -- 3rd Update
September 24 2015 - 12:25PM
Dow Jones News
By Bob Tita
Caterpillar Inc. said it would slash thousands of jobs and cut
manufacturing space by 10%, as it expects weakening demand from
resource and construction companies will continue to drive down
sales of its heavy equipment through at least next year.
The Peoria, Ill.-based company said the job cuts could exceed
10,000 people through 2018, including 4,000 to 5,000 salaried and
management positions to be eliminated by the end of next year. It
aims to reduce annual costs by roughly $1.5 billion.
Caterpillar said it now expects 2015 revenue to be about $48
billion--$1 billion lower than its previous projection--which would
mark a decline of about 27% from a peak of nearly $66 billion in
2012. And it said 2016 revenue likely would fall another 5% from
2015, which would be the first time in Caterpillar's 90-year
history that sales declined for four consecutive years.
The announcement, which sent Caterpillar shares tumbling,
underscores the depth of the downturn in the mining and energy
sectors after years of rocketing demand for its excavators, mining
trucks, wheel loaders and industrial engines. Caterpillar already
had cut its global workforce, before Thursday's announcement, by
more than 31,000 since mid-2012, and it had closed or announced
plans to close or consolidate more than 20 facilities, affecting 8
million square feet of manufacturing space.
The company had 111,247 employees at the end of June.
Previous slumps in global mining have lasted for years, making
it difficult for Caterpillar to hold on to plants and workers in
anticipation of an upturn. And the latest restructuring makes clear
that Caterpillar expects the current pain to persist.
"We are facing a convergence of challenging marketplace
conditions in key regions and industry sectors--namely in mining
and energy," Chief Executive Doug Oberhelman said. "While we've
already made substantial adjustments as these market conditions
have emerged, we are taking even more decisive actions now."
He said the cuts would "better position Caterpillar to deliver
solid results when demand improves."
Caterpillar aggressively expanded during a commodities and
construction boom that followed the 2008 global economic slump,
anticipating sustained demand for equipment from China and other
overseas markets. To free up production capacity overseas, it moved
operations from Japan and elsewhere to the U.S., opening new plants
in Texas, Georgia and North Carolina. The company anticipated it
would need production capacity for equipment sales that would reach
about $100 billion annually.
It also acquired more factories and workers when it purchased
Milwaukee-based mining equipment maker Bucyrus International in
2010. The $8 billion purchase, the largest in Caterpillar's
history, was intended to help it benefit from surging demand for
iron ore, copper, coal and other mined commodities.
But commodity demand has collapsed amid slower economic growth
in China, and lower prices for oil also have squeezed demand from
Canada's oil sands region for Caterpillar's giant mining
trucks.
Throughout the slump, Caterpillar has remained profitable, with
earnings of $3.7 billion last year, down from $5.7 billion in 2012.
And even as it has shed workers to cut costs, it has spent $8.2
billion on share repurchases over the past three years to support
its stock.
Still, its share price has fallen sharply. They were trading off
more than 6% late Thursday morning, leaving them down about 41%
from their high in 2014.
Caterpillar on Thursday didn't update its profit outlook for
this year, saying it would do so when it reports third-quarter
results late next month.
The company said its restructuring effort is expected to lead to
pretax costs of roughly $2 billion but that it expects to see half
of the projected $1.5 billion in cost savings from the
restructuring next year. It said the restructuring could affect
more than 20 facilities, covering more than 10% of its
manufacturing square footage.
Caterpillar said it isn't abandoning plans for a new
headquarters building in downtown Peoria, but that there currently
is no schedule to begin construction.
"We do remain committed to Peoria and Illinois, and our vision
for a new downtown headquarters, [but] now is not the time to begin
work, and I can't say when," a spokeswoman said.
Tess Stynes contributed to this article.
Write to Bob Tita at robert.tita@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
September 24, 2015 12:10 ET (16:10 GMT)
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