Caterpillar plans up to 5000 job cuts as key markets slow

Global equipment giant Caterpillar announced September 24 it could be cutting about 10,000 jobs in the coming years as part of across-the-board cost-cutting measures meant to save the company $1.5 billion a year once implemented.

The company will offer a voluntary retirement enhancement programme to qualifying employees, which will complete by the end of 2015. The reduction in SG&A will largely be in place and effective in 2016 and occur across the company. It then could cut thousands more, raising the total above 10,000, as it figures out which factories and manufacturing sites to close through 2018.

A portion of these cost reductions are expected to be effective in 2016, with more savings expected in 2017 and 2018.

The latest announcement is in addition to actions already taken by Caterpillar. The company has been reducing jobs since 2012 and as a result its workforce slashed to 126,800 apart from shutting down almost 20 plants.

The Peoria, Illinois-based company, whose workforce stood at 114,233 employees as of 31 December, 2014 according to Thomson Reuters data, has already laid off 31,000 employees since mid-2012.

Caterpillar shares were down 7 percent at $65.21 in morning trading. “That has meant improved profit and product quality – some of our best in history – as well as safety”.

Caterpillar is heavily exposed to the turbulence ripping through the world’s economy. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk, weak operating cash flow and a generally disappointing performance in the stock itself. That’s driven substantial improvement in our quarterly dividend.

Caterpillar expects pre-tax costs of about $2 billion tied to the layoffs and consolidating manufacturing facilities. Which of your businesses are affected?

It is unclear what regions will be impacted.

In the United States, Bureau of Labor statistics indicate that employment in mining has fallen by as much as 90,000 since its peak in December. In our 90-year history, Caterpillar has had great success. The $1 billion decline is slated to impact both Q3 and Q4. So as we look at what we’re facing, we have to make the tough decision to get our cost structure right.

The new cuts are the latest of many over the last three years for the company.

The moves are a response to weakness in the mining and energy sectors, two of Caterpillar’s core areas.

“When they finally went negative in energy, they said ‘We have to bite the bullet, ‘” Ubelhart said in an interview Thursday.

The company expects to save up to $1.5 billion annually from the restructuring. “We aren’t providing details of what specific plants that will impact”.

Now, tumbling oil and gas prices are leading to a similar retreat by drillers, hitting Caterpillar’s business selling energy producers the engines that run their rigs.