Will Caterpillar cuts fly?

Construction giant sends tremor through industry

An economical shockwave was felt around the globe on Thursday when Caterpillar announced the potential for up to 10,000 job cuts within the next three years. The announcement rides the coattails of a precarious global market and uncertainties in the industries of mining and energy. It sent nervous ripples through the stock market and leaves many in serious doubt about the prospects of the company and its affected industries.

Caterpillar cited marketplace difficulty, specifically a convergence of challenges in the mining and energy sectors, as motivation for its plans to downsize. “We are facing a convergence of challenging marketplace conditions in key regions and industry sectors – namely in mining and energy,” Doug Oberhelman, Caterpillar’s Chairman and CEO said in a statement. Yearly sales have been reduced to a figure of $48 billion, which is a full $1 billion lower than projected. Caterpillar says the layoffs and restructuring will help trim annual operating costs by $1.5 billion when the cutbacks are complete. The company said sales and revenue in 2016 will be 5% less than this year, which is catastrophic for a company with over 100,000 employees.

The initial wave of layoffs is expected to be up to 5,000 workers by the end of next year. In addition to this, 20 manufacturing plants are expected to shut down. This would account for more than 10% of its manufacturing areas globally. The closings will be focused largely on a handful of key businesses: construction, resource industries and energy and transportation.

Even citizens who are unseasoned in market language can see the obvious recent decline the company has tried to weather. Over the last three years, the construction giant has experienced sales declines. It appears on the verge of having a fourth down year in a row, which would be a first in the company’s 90-year history. The stock is down 25% this year to date, including a 7% drop on Thursday morning alone as a reaction to the devastating news.

Caterpillar also deals in the oil, gas, and railroad industries. All of these have a history of being cyclical, which may give some hope for a rebound. For the most part, however, investors and outsiders alike are running for cover.

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