In a company press release issued Thursday, Caterpillar Inc ( CAT ), the world's largest manufacturer of construction and mining equipment, will be cutting up to 5,000 salaried and management jobs between now and the end of 2016. The total workforce reduction, however, could be more than 10,000 jobs lost, factoring in potential manufacturing closures through 2018.
These significant job cuts are a result of a corporate restructuring of the company that is expected to lower operating costs by approximately $1.5 billion on a yearly basis once executed. Caterpillar also lowered its 2015 guidance to $48 billion, which is $1 billion lower than the previous outlook of roughly $49 billion. In addition to a lowered guidance, its expected 2016 sales and revenues will be five percent lower than those of 2015.
"We are facing a convergence of challenging marketplace conditions in key regions and industry sectors - namely in mining and energy," said Caterpillar Chairman and CEO Doug Oberhelman. "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 restructuring is not necessarily surprising; 2015 is Caterpillar's third consecutive year that its sales and revenues have been down, and if that were to continue into 2016, it would mark the first time in the company's history that profits would have decreased four years in a row.
Oberhelman continues, saying that "our strategy is to deliver superior total shareholder returns through the business cycle, and growth is a key element of that strategy. However, several of the key industries we serve - including 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."
Since mid-2012, Caterpillar has slashed its entire workforce by more than 31,000, and after 2013, has either closed or announced plans to close over 20 facilities, resulting in 8 million square feet of manufacturing lost.
Caterpillar's stock was hit hard today, having fallen more than 6% in pre-market trading , and once the market opened, the stock was trading down over 7%. Even the Dow Jones felt the effects of Caterpillar's announcement, an index the company is a component of; the DJIA had decreased around 210 points. Currently, the stock is down $4.55, or 6.48%, to $65.59. Caterpillar holds a #3 (Hold) on the Zacks Rank.