Late September, Caterpillar Inc. announced significant restructuring and cost reduction actions that are expected to lower operating costs by about $1.5 billion annually once fully implemented.
The cost reduction steps will begin in late 2015 and reflect recent, current and expected market conditions. For 2015, the company's sales and revenues outlook has weakened, with 2015 sales and revenues now expected to be about $48 billion, or $1 billion lower than the previous outlook of about $49 billion. For 2016, sales and revenues are expected to be about 5 percent below 2015.
Key steps planned by the company include: An expected permanent reduction in Caterpillar's salaried and management workforce, including agency, of 4,000 – 5,000 people between now and the end of 2016, with most occurring in 2015, and with a total possible workforce reduction of more than 10,000 people, including the contemplated consolidation and closures of manufacturing facilities occurring through 2018. The company will offer a voluntary retirement enhancement program for qualifying employees, which will be completed by the end of 2015.
Slightly less than half of the $1.5 billion of cost reduction is expected to be from lower Selling, General and Administrative (SG&A) costs. The reduction in SG&A will largely be in place and effective in 2016 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, which could impact more than 20 facilities and slightly more than 10 percent of manufacturing square footage. A portion of these cost reductions are expected to be effective in 2016, with more savings anticipated in 2017 and 2018. "We are facing a convergence of challenging marketplace conditions in key regions and industry sectors – namely in mining and energy," said Doug Oberhelman, Caterpillar Chairman and CEO. "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 year is the company's third consecutive down year for sales and revenues, and 2016 would mark the first time in Caterpillar's 90-year history that sales and revenues have decreased four years in a row.
Today's announcement is in addition to significant actions already taken. Since 2013, Caterpillar has closed or announced plans to close or consolidate more than 20 facilities, impacting 8 million square feet of manufacturing space. The company has also reduced its total workforce by more than 31,000 since mid-2012.
Mining equipment sales are far below the prior peak and are substantially below what Caterpillar considers a reasonable replacement level. Oil and gas has declined substantially as a result of lower oil prices, and construction equipment sales are well below prior peaks in North America, Latin America, Europe, Africa, the Middle East and Asia Pacific.
Restructuring actions could impact more than 20 facilities across three large segments ; Construction Industries, Resource Industries and Energy & Transportation. Employees will be notified as decisions are made for each facility.
With 2014 sales and revenues of $55.184 billion, Caterpillar is the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. The company principally operates through its three product segments - Construction Industries, Resource Industries and Energy & Transportation. For more information, visit http://www.caterpillar.com.
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