Why Caterpillar has to cut all those jobs

The equipment manufacturer also said Thursday that it was dropping its 2015 revenue outlook by $1 billion, and its profit forecast will take a hit as well.

Richard Carson/REUTERS/File
A scratched and worn Caterpillar logo is pictured at the back of a bulldozer in the rental equipment yard of Holt Caterpillar, the largest Caterpillar dealer in the United States, in San Antonio, Texas, in this 2012 file photo.

Caterpillar is planning another round of job cuts that could exceed 10,000 people through 2018, as the construction and mining equipment maker adjusts to downturns in key markets.

That could amount to more than 8 percent of the 126,800 employees it had globally as of June.

The Peoria, Illinois, company said Thursday that it will cut as many as 5,000 people mostly by the end of this year from its salaried and management workforce. It then could cut thousands more, raising the total above 10,000, as it figures out which factories and manufacturing sites to close through 2018.

Caterpillar also said Thursday that it was dropping its 2015 revenue outlook by $1 billion, and its profit forecast will take a hit as well.

Caterpillar makes diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives, aside from construction and mining equipment. Several sectors that it serves have been hit by problems beyond the company's control.

Low oil prices have hurt the company's Energy & Transportation business, which makes products used in oil and gas production. Caterpillar said its construction equipment sales have fallen far below peak levels in North America, Latin America, Europe and the Middle East. Mining equipment sales have stayed well below a level considered normal for customers replacing or upgrading their equipment.

The company has been hurt, in particular, by a slowdown in China's construction boom. That contributed to a 21 percent drop in Caterpillar's Asia-Pacific region sales during the second quarter.

Caterpillar has been cutting costs to counter those problems.

But the company also had kept a more positive outlook than its competitors about its end markets for much of this year, said Kwame Webb, an analyst who covers Caterpillar for Morningstar.

"I'm sort of surprised it took them so long to come to this point," he said after the cuts were announced.

Caterpillar executives said Thursday in a statement that industries like mining, oil and gas and construction are the right businesses to be in for the long term, even with a history that includes prolonged downturns.

Caterpillar now expects 2015 revenue of about $48 billion, and it said 2016 sales should be about 5 percent lower.

Analysts expect, on average, revenue of $48.93 billion this year, according to FactSet.

The company didn't update its 2015 profit forecast, but it noted that the lower sales outlook and higher restructuring costs will hurt its bottom line. It said it would provide an update when it releases third-quarter results in late October.

Caterpillar brought in brought in $55.18 billion in revenue last year. If sales drop again in 2016, that would mark the first time in Caterpillar's 90-year history that the company's topline figure has decreased four years in a row.

The company said the job cuts announced Thursday and other expense reductions are expected to help lower operating costs by around $1.5 billion.

Caterpillar has trimmed its total workforce by more than 31,000 since the middle of 2012. Caterpillar Inc. It also has closed or laid out plans to close more than 20 manufacturing locations since 2013.

Peoria Mayor Jim Ardis said Thursday that he expects the city and region to absorb a sizable hit from the latest round of job cuts, though he said the company has not shared specifics.

Caterpillar said in February that it had decided to keep its global headquarters in Peoria, about 160 miles southwest of Chicago, after considering other locations. It said then that it would expand and modernize the complex. Chairman and CEO Doug Oberhelman wrote Thursday in a guest column for the Peoria Journal-Star that plans for the new headquarters "still stand, although given current conditions we can't say when the project will begin."

Shares of Caterpillar Inc. sank more than 6 percent, or $4.49, to $65.71 Thursday afternoon, while broader indexes dropped nearly 1 percent. Caterpillar's stock price had fallen more than 28 percent so far this year.

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