While it is an enormous downgrade by any measure it is half the size of the 20,000 cut Caterpillar made in 2009 when the global financial crisis bit.
News of the cuts dragged the New York Stock Exchange down considerably. Big Yellow was the biggest drag on the Dow and the third-biggest weight on the S&P500, according to Reuters.
The cuts are part of a significant restructuring and cost reduction program expected to lower operating costs by about $US1.5 ($A2.14) billion a year once fully implemented.
Caterpillar has also downgraded its sales and revenue outlook for 2015 by $1 billion to about $48 billion for 2015. The company expects 2016 sales and revenues to be down about 5% on 2015.
This is the company’s third consecutive down year for sales and revenues. It the trend continues next year it will be first time in Caterpillar’s 90-year history that sales and revenues have decrease four years in a row.
The bulk of the initial staff cut is expected to occur in 2015.
Caterpillar will offer a voluntary retirement enhancement program for qualifying employees, which will be completed by the end of 2015.
Slightly less than half the $1.5 cost reduction is expected to come from lower Selling, General and Administrative costs.
The SG&A reduction will largely be in place and effective in 2016, Caterpillar says, and 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.
Those consolidations and closures could affect more than 20 facilities and slightly more than 10% of Caterpillar’s manufacturing square footage.
A portion of those cost reductions are expected to be effective in 2016 with more savings expected in 2017 and 2018.
“We are facing a convergence of challenging marketplace conditions in key regions and industry sectors – namely in mining and energy,” Caterpillar chairman and CEO Doug Oberhelman said.
“While we’ve already made substantial adjustment 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.”
Since 2013 Caterpillar has closed or announced plans to close or consolidate more than 20 facilities. The company has also cut its total workforce by more than 31,000 since mid-2012.
“We recognise that today’s news and actions taken in recent years are difficult for our employees, their families and the communities where we’re located,” Oberhelman said.
On the positive side, Caterpillar has managed to increase its market share in products across much of the company.
