Caterpillar Closes, Consolidates Coal and Mining-Related Facilities as Prices Pummel Bottom Line

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Researched by Industrial Info Resources (Sugar Land, Texas)--Leading manufacturing company Caterpillar Incorporated (NYSE:CAT) (Peoria, Illinois) has suffered a series of economic setbacks from the long-term slump in commodity prices, with the coal market proving especially brutal to its mining-related assets. End-user demand for mining products declined across all of the company's geographic regions in the previous quarter, and marginal improvements in commodity prices were of little help. Industrial Info is tracking more than $102 million in active projects involving Caterpillar.

The coal and mining-related problems are contributing significantly to what analysts expect to be the fourth straight year of lower overall sales. Sales and revenues for the recently ended second quarter were reported to be $10.34 billion, a 16% decrease from second-quarter 2015.

At $580 million in the second quarter, the company's overall capital spending already had declined from $656 million in the same period last year, but executives are now pointing to deeper cuts at some of its most established facilities. Caterpillar announced last week that it was considering "strategic alternatives" for its room and pillar products, a major part of its underground mining operations, including divestiture. In a press release, Caterpillar said these products include continuous miners, feeder breakers, coal-haulage systems, high-wall miners, roof bolters, utility vehicles and diesel vehicles.

Caterpillar will stop taking new orders for the room and pillar products while it considers its options, and will reduce its work force in Houston, Pennsylvania, where the products are manufactured. The company also is ending production of track drills at its plant in Denison, Texas, long a part of its Resource Industries portfolio. About 155 jobs will be lost at the Pennsylvania plant, and about 40 at the Texas plant.

Later this year, Caterpillar will end mining-material production at its facility in Winston-Salem, North Carolina, with plans to eventually transform it into a rail facility. Progress Rail, a Caterpillar subsidiary, will take over operations. Caterpillar's existing plant in Decatur, Illinois, will take over the manufacturing of some components used in large mining trucks. Industrial Info is tracking progress at the Winston-Salem and Decatur plants.

Industrial Info also is tracking activity Caterpillar's plant in Mapleton, Illinois, which assumed the iron-foundry operations for its Reman, Components and Work Tools division from two plants in the Georgia cities of Franklin and Toccoa, both of which closed earlier this year. The Mapleton Gray & Ductile Foundry is expected to undergo two shutdowns this year and another two next year. Each pair of shutdowns is valued at about $1 million, and each single shutdown lasts about two weeks. For more information, see Industrial Info's project reports on the 2016 shutdowns and 2017 shutdowns.

"Mining has just continued to be a very challenged industry," said Michael Lynn DeWalt, the vice president of Caterpillar's Financial Services Division, in a recent quarterly earnings conference call. "Customers are pushing out replacement purchases. They're delaying as much repair as they can and we see that in our sales." He later added: "Construction demand is relatively steady, but with continuing price pressure. We have no clear signs of recovery [this year] in mining or oil and gas or rail for that matter."

Weak commodity prices are affecting other major Caterpillar segments as well. "Oil prices, drill rig counts and our customers' fleet utilization rates continue to remain low," said Jim Umpleby, Caterpillar's Energy and Transportation Group president, earlier this month at the Jefferies 2016 Industrials Conference in New York City. He added that Caterpillar doesn't expect to see any demand growth for products in his segment this year, either.

Economic conditions have forced the closure and consolidation of several other Caterpillar facilities across the U.S. South, including:

• $2.5 million: Olympian generator set parts plant in Newberry, South Carolina
  For more information, see Industrial Info's project report.
• $2 million: Steel foundry in Danville, Kentucky
  For more information, see Industrial Info's project report.
• $2 million: Hose couplings manufacturing plant in Oxford, Mississippi
  For more information, see Industrial Info's project report.
• $1.5 million: Generator assembly panel manufacturing plant in Ridgeway, South Carolina
  For more information, see Industrial Info's project report.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.