Caterpillar announced restructuring and cost-reduction actions to lower operating costs by about $1.5 billion annually that will include staff reduction of 4,000 to 5,000 people between now and the end of 2016. The workforce reduction could be more than 10,000 people, including the contemplated consolidation and closures of manufacturing facilities occurring through 2018.
The cost reduction steps will begin in late 2015 and reflect recent, current and expected market conditions, the company said. For 2015 sales and revenues outlook has weakened, with 2015 sales and revenues now expected to be about $48 billion, or $1 billion lower than the previous outlook of about $49 billion.
Caterpillar expects 2016 sales and revenues to decline about 5 percent from 2015.
The company will offer a voluntary retirement enhancement program for qualifying employees, which will be completed by the end of 2015.
Slightly less than half of the $1.5 billion of cost reduction is expected to be from lower selling, general and administrative costs. The cuts will occur across the company.
The remaining cost reductions are expected to come from lower period manufacturing costs, including savings from additional contemplated facility consolidations and closures, which could impact more than 20 facilities and more than 10 percent of manufacturing square footage.
“We are facing a convergence of challenging marketplace conditions in key regions and industry sectors, namely in mining and energy,” said Doug Oberhelman, Caterpillar chairman and CEO. “While we’ve already made substantial adjustments as these market conditions have emerged, we are taking even more decisive actions now. We don’t make these decisions lightly, but I’m confident these additional steps will better position Caterpillar to deliver solid results when demand improves.”
This year is Caterpillar’s third consecutive year of declines in sales and revenues, and 2016 would mark the first time in Caterpillar’s 90-year history that sales and revenues have decreased four years in a row.
Oberhelman added the several of the company’s key industries – mining, oil and gas, construction and rail – have a long history of substantial cyclicality.
“While they are the right businesses to be in for the long term, we have to manage through what can be considerable and sometimes prolonged downturns,” he said.
Caterpillar’s restructuring has, in fact, been going on for some time. Since 2013, Caterpillar has closed or announced plans to close or consolidate more than 20 facilities, impacting 8 million square feet of manufacturing space. The company has reduced its total workforce by more than 31,000 since mid-2012.
About the Author
Michael Roth
Editor
Michael Roth has covered the equipment rental industry full time for RER since 1989 and has served as the magazine’s editor in chief since 1994. He has nearly 30 years experience as a professional journalist. Roth has visited hundreds of rental centers and industry manufacturers, written hundreds of feature stories for RER and thousands of news stories for the magazine and its electronic newsletter RER Reports. Roth has interviewed leading executives for most of the industry’s largest rental companies and manufacturers as well as hundreds of smaller independent companies. He has visited with and reported on rental companies and manufacturers in Europe, Central America and Asia as well as Mexico, Canada and the United States. Roth was co-founder of RER Reports, the industry’s first weekly newsletter, which began as a fax newsletter in 1996, and later became an online newsletter. Roth has spoken at conventions sponsored by the American Rental Association, Associated Equipment Distributors, California Rental Association and other industry events and has spoken before industry groups in several countries. He lives and works in Los Angeles when he’s not traveling to cover industry events.