Equipment maker giant Caterpillar (NYSE:CAT) added to the global gloominess in the mining sector Thursday by announcing it plans to cut over 10,000 jobs over the next three years as a result of weak performance in the energy and construction markets.
The Peoria, Ill.-based firm said the majority of the job cuts would occur in the next 12 months, as it expects to permanently reduce its workforce by 4,000 to 5,000 by the end of 2016.
The cuts would happen through a reduction in its salaried and management staff and, longer term, through contemplated plant consolidations and closures, said Caterpillar.
The world’s largest maker of mining and construction equipment said the drastic measures are part of a corporate restructuring that it will help it lower operating costs by roughly $1.5 billion a year once implemented.
Caterpillar also revised its guidance for 2015 down, saying sales and revenues for the year are now expected to be about $48 billion—$1 billion lower than the previous outlook of about $49 billion. The firm also said that expected 2016 sales and revenues would be about 5% below this year.
“These are shocking numbers from Caterpillar and highlight the challenging marketplace conditions which the company is facing,” Fiona Cincotta, senior market analyst at Finspreads told MINING.com. “Given how heavily exposed Caterpillar is to China, with 10% of the company’s revenue being generated from there, it is easy to see why such drastic action is necessary.”
As a heavy equipment maker, Caterpillar has an out-sized influence on markets because it is seen as a barometer of economic activity. Not surprisingly, investors reacted negative to the news. The stock, which has fallen 31% over the past 12 months, dropped more than 7% in New York Thursday morning, trading at $65.22 at 10:24 am ET.
“We are facing a convergence of challenging marketplace conditions in key regions and industry sectors—namely in mining and energy,” Doug Oberhelman, the company’s chairman and CEO, said in the news release. “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.”
The executive added that 2015 represents the third consecutive down year for sales and revenues, adding that 2016 “would mark the first time in Caterpillar’s 90-year history that sales and revenues have decreased four years in a row.”
Today’s announced planned job cuts follows the company’s total workforce reduction of more than 31,000 since mid-2012.
Caterpillar said it would provide an update of its 2015 outlook when it releases its third-quarter results in late October.