Caterpillar Announces Sweeping Layoff Plan

Caterpillar Inc., the world’s largest manufacturer of mining and construction equipment, announced on Thursday a layoff plan designed to reduce expenses and restructure existing business. The plan comes in response to 3 years of decreased earnings for the company, with a fourth expected to follow. The plan involves the layoff of between 4,000 and 5,000 employees by the end of 2016, with a total of 10,000 laid off by the end of 2018. The layoffs expected by the end of 2018 represent roughly 7.9% of the company’s global workforce.

The decrease in Caterpillar’s annual revenue since 2012, a deciding factor in the latest round of layoffs, has been substantial. In 2012, the company posted a total revenue of $66 billion. Current estimates for the 2015 year, adjusted after Thursday’s announcement, suggest that the company will only post a revenue of roughly $48 billion for this year, a drop of 27% since 2012. As commodity prices around the world drop in response to China’s slowing economy, revenues for Caterpillar are expected to continue to fall. As the largest provider of mining equipment to commodity based economies around the world, the company stands to experience a period of reduced profit as worldwide mining operations slow down.

In conjunction with the announcement of the layoffs, Caterpillar’s CEO Doug Oberhelman also announced that plans to build a new world headquarters will be postponed. The campus was to be built as an expansion of the current world headquarters building in Peoria, IL, and was approved earlier this year. At present, Oberhelman said, the company is not in the right position to take on such an expensive project. The construction of the new world headquarters is still planned, but will not begin next year as originally scheduled.

The price of Caterpillar’s stock, listed as a component of the Dow Jones Industrial Average, responded to Thursday’s announcement with a steep decline. Shares dropped to $66.17 at open, down from a close of $70.20 on Wednesday. Trading closed on Thursday with Caterpillar shares having fallen to a price of $65.86, the lowest level since 2010. The drop continued going into Friday, with shares opening at $65.05.

Full details of the layoff plan have not yet emerged. It is likely that manufacturing facilities will be hit the hardest, and Caterpillar has stated that salaried and management employees will be affected along with hourly workers. Those employed with the company as contractors are also likely to be widely affected. While no consolidation plans have yet been announced, the company has also stated that it would not rule out the possibility of closing and consolidating some manufacturing facilities if further cuts needed to be made. All told, the current layoff plan is expected to save Caterpillar around $1.5 billion in expenditures by the end of the year 2018.