Caterpillar Inc. (NYSE: CAT) today 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鈥檚 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鈥檚 salaried and management workforce, including agency, of 4,000 鈥� 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. 聽
- 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 our manufacturing square footage. A portion of these cost reductions are expected to be effective in 2016, with more savings anticipated in 2017 and 2018.
鈥淲e are facing a convergence of challenging marketplace conditions in key regions and industry sectors 鈥� namely in mining and energy,鈥� said Doug Oberhelman, Caterpillar Chairman and CEO. 鈥淲hile we鈥檝e already made substantial adjustments as these market conditions have emerged, we are taking even more decisive actions now. We don鈥檛 make these decisions lightly, but I鈥檓 confident these additional steps will better position Caterpillar to deliver solid results when demand improves.鈥�
This year is the company鈥檚 third consecutive down year for sales and revenues, and 2016 would mark the first time in Caterpillar鈥檚 90-year history that sales and revenues have decreased four years in a row. 鈥淥ur 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 鈥� including mining, oil and gas, construction and rail 鈥� 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,鈥� added Oberhelman.
While Caterpillar has taken action in response to macro-economic challenges, it has remained focused on strategy execution 鈥� and that has driven positive operational results, including:
- Market share has improved in products across much of the company.
- The company has delivered on decremental profit pull through targets as Lean manufacturing has driven its 2015 gross margin rate higher, and it is right in line with its highest level in 20 years.
- Product quality is as good as it has been in Caterpillar鈥檚 history.
- Today, Caterpillar safety levels are among the best for heavy manufacturers.
鈥淥perational improvements have contributed to our strong balance sheet and cash flow. In fact, three of our four best years of Machinery, Energy & Transportation (ME&T) operating cash flow have occurred since 2011 鈥� at the same time sales and revenues have been under pressure. That鈥檚 driven substantial improvement in our quarterly dividend. Our dividend increased 15 percent in 2013, 17 percent in 2014 and 10 percent in 2015. That鈥檚 enabled $8.2 billion of share repurchases over the past three years,鈥� said Oberhelman.
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