Caterpillar’s cost-cutting plans a mark of struggling global economy – by Brian Milner (Globe and Mail – September 25, 2015)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

It must have seemed like a good idea when Caterpillar Inc. forked out $7.6-billion (U.S.) in 2011 to acquire mining machinery heavyweight Bucyrus International Inc.

At the time, Caterpillar could not keep up with the soaring demand for massive trucks, earth-movers and other heavy equipment in the midst of a global resource boom.

So the company happily paid more than a 30-per-cent premium to get its hands on Bucyrus and its hydraulic shovels, draglines and other expensive specialized gear it did not produce on its own.

But as it soon turned out, the timing of the costly expansion could not have been worse for the world’s biggest maker of construction and mining equipment. The resource balloon began deflating by mid-2012, and things have been going from bad to worse for Caterpillar ever since.

Facing its third consecutive year of declining sales and a further decline in 2016 – the four down years in a row would mark a first in the nine-decade history of the company based in Peoria, Ill. – Caterpillar plans to slash about $1.5-billion in operating expenses.

It has reduced its previous revenue forecast for 2015 by another $1-billion to about $48-billion. And its outlook is equally clouded for next year, when it expects a further 5-per-cent drop in sales due to falling resource demand in China and feeble growth or retrenchment just about everywhere else.

As part of an effort to cope with the new reality, the company plans to shed up to 5,000 jobs by the end of 2016 from a global work force of more than 126,000. The company is weighing plant closings and other production cuts, and as many as 10,000 jobs will be gone by the end of 2018.

For the rest of this article, click here: http://www.theglobeandmail.com/report-on-business/rob-commentary/executive-insight/caterpillars-cost-cutting-plans-a-mark-of-struggling-global-economy/article26535233/

Comments are closed.