Caterpillar to cut up to 5,000 jobs by end of 2016, stock falls 6%

Shares of heavy-equipment maker Caterpillar (CAT) are down sharply after the company said today it is cutting its sales outlook for the year and will slash as many as 5,000 jobs between now and the end of 2016 in a cost-cutting move amid tough conditions in its energy, mining and construction businesses.

Caterpillar also warned that total layoffs could climb to more than 10,000 through 2018 and that sales and revenue could drop in 2016 for a record fourth straight year.

Caterpillar shares were getting pounded in late-morning trading, falling $4.41, or 6.3%, to $65.79, but its off its lowest levels of the day. The big loss in Caterpillar, which is viewed as a proxy for global economic health and a component of the 30-stock Dow Jones industrial average, dragged down the Dow. In early trading the Dow was off about 210 points.

In a sign the global economic slowdown is hurting sales of its machines, such as backhoes, asphalt pavers, excavators, dozers and hydraulic mining shovels, the company said it would cut 4,000 to 5,000 jobs by the end of 2016. Most of those job losses will occur this year, the company said.

It also slashed its 2015 sales and revenue projections to about $48 billion, or $1 billion lower than its prior outlook. 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.

In a sign of stress, the company said it is on track for its 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."

"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. "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."

In another cost-cutting move, the company also said this year it will offer a "voluntary retirement enhancement program" for qualifying employees.

The company had warned of headwinds in its second-quarter earnings report issued back in mid-July. At the time, Caterpillar acknowledged the headwinds from "continuing economic weakness" in China. In the second quarter, sales in the Asia/Pacific region fell 22%, due mainly to lower demand for contstruction and mining equipment, the company said in its earnings release at the time.

The sharp drop in key businesses, including mining and oil and gas, as well as the company's responsibility to manage through difficult times when demand is soft, was cited as a key to making the cost-cutting moves.

"Several of the key industries we serve – including mining, oil and gas, construction and rail – have a long history of substantial cyclicality. While they are the right businesses to be in for the long term, we have to manage through what can be considerable and sometimes prolonged downturns," added Oberhelman.

Caterpillar also said it plans on closing an estimated 20 manufacturing plants, or slightly more than 10% of its manufacturing square footage.The closings will be focused largely on a handful of key businesses: construction, resource industries and energy and transportation.