Caterpillar to cut $1.5B in costs

News Story
- 1 Oct 2015 ( #738 ) - Peoria, IL, United States
2 min read
Caterpillar Inc. has announced significant restructuring and cost reduction actions expected to cut operating costs by about USD1.5 billion per year once fully implemented.

The cost reduction steps will begin in late 2015. They 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 USD48 billion - down USD1 billion from the previous outlook of about USD49 billion. For 2016, sales and revenues are expected to be about 5% less than in 2015.

One of the key steps will be a permanent reduction in Caterpillar's salaried and management workforce by up to 5,000 people by the end of 2016, with most occurring in 2015. The company says staff cuts could exceed 10,000 people by 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 USD1.5 billion of cost reduction is expected to come from lower selling, general, and administrative (SG&A) costs. The reduction in SG&A will largely be in place and effective by 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 affect more than 20 facilities and slightly more than 10% of the company's manufacturing space. A portion of those 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," says 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 is the company's third consecutive year of lower 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.

Last week, giant British equipment maker JCB announced it is cutting 400 jobs over the coming weeks after a "dramatic" slowdown in world markets.

The Staffordshire-based equipment firm cited a 43% fall in the equipment market in Brazil, Russia, China and India from the same period in 2014.
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