Caterpillar to Shut Facilities, Layoff 880 Jobs to Cut Costs

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Caterpillar Inc.CAT is planning to close two facilities in Texas and Panama and is also mulling the shutdown of its engine manufacturing plant in Illinois, per a Reuters report. Though the move could lead to a layoff of 880 jobs, it is in sync with the company's strategy to cut cost. Consequently, this will boost margins and equip the company to better handle business cycles.

The move will affect its work tools facility in Waco, TX, and its demonstration centre in Panama. The work at the Texas plant will be shifted to Wamego, KS, affecting 200 regular and contract positions. The shutdown of the Panama facility will lead to elimination of about 80 positions. Caterpillar's Progress Rail unit is contemplating the closure of its engine manufacturing facility in La Grange, IL. The work will be shifted to Winston-Salem, NC, and outside suppliers.

Restructuring to Drive Margins

In September 2015, Caterpillar set out with significant restructuring and cost reduction initiative, with actions expected through 2018. Once fully implemented, the plan would lower annual operating costs by about $1.5 billion. This includes the consolidation or closure of more than 30 facilities and reduction of workforce by more than 16,000.

Caterpillar Inc. Price and Consensus

Caterpillar Inc. price-consensus-chart | Caterpillar Inc. Quote

Thanks to its incessant efforts to cut down costs, the company was able to deliver a turnaround performance in 2017 after bearing the brunt of weak-end markets for few years. Notably, Caterpillar reported year-over-year improvement in both top and bottom-line in the first quarter of 2017 - the first time in 10 quarters. Retail sales growth entered the positive trajectory in March following an unprecedented stretch of declines for 51 months.

Expanded Offerings to Fuel Growth

In addition to restructuring activities, Caterpillar continues to focus on customers and on the future by continuing to invest in digital capabilities, connecting assets and jobsites along with developing the next generation of more productive and efficient products. Caterpillar is preparing factories and suppliers to be ready to meet increased demand, while remaining focused on developing a more competitive and flexible cost structure. This should enable the company to respond quickly if economic fundamentals change.

The company is in the early stages of implementing its strategy for profitable growth. During 2018, the company will continue to make additional investments in expanded offerings and services important for its long-term success. Caterpillar will use Operating & Execution Model to divert resources to areas that represent the greatest opportunity for return on investments.

Caterpillar's share price has surged 64% over the past year, outperforming the industry 's growth of 61%.

The company currently carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Some other top-ranked stocks in the same industry are Deere & Company DE , Komatsu Ltd. KMTUY and H&E Equipment Services, Inc. HEES . All these stocks carry a Zacks Rank #2.

Deere has a long-term earnings growth rate of 8.2%. The company's shares have been up 48% in a year's time.

Komatsu has a long-term earnings growth rate of 31.7%. Its shares have gone up 26% in the past year.

H&E Equipment Services has a long-term earnings growth rate of 14.4%. The stock has gained 61% in a year's time.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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