Manufacturing and farming giant Caterpillar Inc., which operates a large motor grader plant in North Little Rock with several hundred workers, announced a major across-the-board restructuring and cost reduction Thursday (Sept. 24) that could possibly affect more than 10,000 employees across the company’s expansive U.S. and international operations.
Caterpillar said the restructuring and cost reduction actions that “reflect recent, current and expected market conditions” are expected to lower operating costs by about $1.5 billion annually once fully implemented, beginning later this year.
In announcing the restructuring program, the Peoria, Ill.-based industrial giant said 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% below 2015.
“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 in news release. “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.”
Oberhelman said this 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.
“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,” the Caterpillar chief executive said.
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.
“We recognize today’s news and actions taken in recent years are difficult for our employees, their families and the communities where we’re located. We have a talented and dedicated workforce, and we know this will be hard for them,” Oberhelman said.
In the company’s news release announcing the companywide downsizing, Oberhelman did not offer any specifics about what Caterpillar locations or manufacturing facilities would be affected by the cost reductions and consolidations.
In a FAQ posted on the company’s website, Caterpillar said restructuring actions could impact more than 20 facilities around the world and across three large segments – Construction Industries, Resource Industries and Energy & Transportation. “There are many factors that impact these contemplated decisions and the subsequent timing of when each would be announced and implemented. Employees will be notified as decisions are made for each facility,” the company said.
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% 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.
In 2011, before the company’s downturn began, Oberhelman addressed Arkansas economic developers in Little Rock, laying out a cautiously optimistic assessment of the economy and touting his firm’s North Little Rock motor grader operations.
“We’ve seen the U.S. recover in our industry. We see some growth, although slow growth, for next year,” he said. “The world is still growing.”
Shortly after it officially began operations in North Little Rock in August 2010 with 600 employees on payroll, Caterpillar said it had planned to eventually hire about 900 workers at the facility within a few years. However, the Fortune 100 industrial giant has not announced any additional expansion to its North Little Rock workforce since work at the motor grader plant began five years ago.
North Little Rock Chamber of Commerce officials were not available for comment on Caterpillar’s operations in that city, according to a person answering the phone at the local economic development group.
In midday trading on the New York Stock Exchange, Caterpillar shares were caught in a market-wide downdraft at $65.81, down $4.39 or 6.24%.