Owing to reduced global demand for mining equipment and to
bring production in line with demand,
) announced plans to layoff more than 400 employees or about 11%
of its work force at its Decatur, Ill., factory.
The Decatur plant manufactures mining equipment. Amid the growing
concerns of the sluggish pace of global economic recovery,
Caterpillar temporarily retrenched employees in October and shut
down parts of its Decatur facility for a week in November and
entire month of December due to the fall in demand. However, this
time the layoffs are permanent.
This news comes on the back of another job cut by Caterpillar at
its South Milwaukee plant. Earlier, in March, the company
announced job cuts at its Belgium plant due to high costs and
weak European economy, similar to the strategy adopted by
Ford Motor Co.
) in the region.
Caterpillar previously added production capacity for many of its
products. However, with the growing concerns and uncertainty
about the pace of economic growth, short-term economic risks in
the U.S, the Eurozone debt crisis, and the slowdown in China's
growth, Caterpillar has now opted to be cautious toward
acquisitions and expansion investments. Mining companies
such as Vale S.A. (
) and BHP Billiton Limited (
) also have been revisiting and trimming their capital
expenditures plans following the slowdown in economic expansion
in China, the world's largest user of coal and metals. Prices for
coal and iron ore have dropped due to slowing growth in China and
European debt problems.
Caterpillar's results have borne the brunt of continued economic
turmoil in Europe and its domino effect on the rest of the world.
Furthermore, reduced sales, lower production and a decline in
inventory primarily resulted in lower fourth quarter 2012
earnings for Caterpillar. Caterpillar remains challenged with
slowing demand and inventory correction as a result of higher
production than demand.
The downslide in sales continued in 2013 as well with
Caterpillar's worldwide sales declining 13% for the three months
ending Feb 2013, the third consecutive month of declining sales.
The growth rate has, in fact, worsened from the 4% and 1% dip
reported in Jan 2013 and Dec 2012, respectively.
The situation is not expected to improve in the first quarter of
2013 as Caterpillar expects sales to be significantly lower on an
annual basis as dealers are anticipated to continue to lower
their new machine inventories. The company foresees earnings to
be affected by lower-than-expected sales and negative cost impact
of continuing low production levels and declining inventory. For
fiscal 2013, sales are expected to be in the range of $60 to $68
billion and earnings between $7.00 and $9.00.
Even though Caterpillar will benefit from the recovery in the
U.S. construction sector, the recent slowdown in sales, declining
backlog, negative impact of the European debt crisis and a
slowing Chinese economy remain concerns.
Caterpillar currently retains a Zacks Rank #3 (Hold). In the same
Deere & Company
) holds a Zacks Rank #2 (Buy) and is a more favorable option for
investors given its exposure to the agriculture sector.
CATERPILLAR INC (CAT): Free Stock Analysis
DEERE & CO (DE): Free Stock Analysis
FORD MOTOR CO (F): Free Stock Analysis Report
ARCELOR MITTAL (MT): Free Stock Analysis
To read this article on Zacks.com click here.