Caterpillar Slashes Capacity as Part of Restructuring Plan

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Researched by Industrial Info Resources (Sugar Land, Texas)--In response to decreased demand for construction and mining equipment worldwide, manufacturing company Caterpillar Incorporated (NYSE:CAT) (Peoria, Illinois) is in the process of cutting capacity through a new restructuring plan.

According to Caterpillar's first-quarter press release this year, total sales and revenues were $9.46 billion for the quarter, compared with $12.70 billion in the first quarter of 2015, a decline of 26%. The reduction was attributed to decline in sales volume (lower transportation and mining sales) and weaker-than-expected price realization.

The restructuring plan, initially announced September 2015, includes eliminating between 4,000 and 5,000 jobs by the end of 2016, with plans to cut more than 10,000 positions overall through the year 2018. The company is closing or consolidating at least 20 manufacturing facilities in several divisions, a move that is expected to cut $1.5 billion in annual costs. Production will shift to other Caterpillar facilities or transition to outside suppliers.

By the end of 2016, Caterpillar anticipates moving production from its Prentice, Wisconsin, forestry products plant to facilities in LaGrange, Georgia, and Victoria, Texas. The company also will close its fuel systems manufacturing facility in Thomasville, Georgia, and an engine emission components manufacturing facility in Santa Fe, New Mexico, consolidating operations from these two plants to Pontiac, Illinois. The closures will affect nearly 200 employees in Thomasville and 50 in Santa Fe. Caterpillar will also close its engine and undercarriage components manufacturing facility in Morganton, North Carolina, in 2017, impacting over 100 jobs.

According to Caterpillar's outlook for this year, restructuring costs are expected to be about $550 million, up $150 million from the previous outlook. The decision to end production of on-highway vocational trucks is the primary reason for the increase in restructuring costs. Caterpillar launched its first vocational truck in the North American market in 2011, working with Navistar (NYSE: NAV) (Lisle, Illinois) on product design and construction. Last year, the company announced its intention to relocate production and begin independently designing and manufacturing its own vocational truck products at the existing hydraulic excavator manufacturing plant in Victoria, Texas. Production in Victoria was scheduled to begin this year; however, the company announced in February its decision to discontinue production of the product altogether. The Victoria facility will continue to manufacture hydraulic excavators.

The company plans to release second-quarter results on July 26.

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