Caterpillar Inc announced it would cut nearly 20,000 jobs and warned of a tough year ahead as a downturn that began in the United States metastasized into a full-blown global recession, gutting orders for earth-moving equipment.
The world's largest maker of construction and mining machines, which also reported lower-than-expected fourth-quarter earnings, said on Monday it was laying off 17,000 workers, and buying out 2,500 others, to reduce costs in the face of what it predicted would be the weakest year since the end of World War Two.
The company slashed its outlook for 2009 and seemed to raise the possibility that it would report a loss in the current quarter.
The news sent Caterpillar shares skidding as much as 10% on the New York Stock Exchange and also pulled down the broad market early on although the Dow Jones industrial average later recovered.
Caterpillar Chief Executive Jim Owens said the company had been “whipsawed” by a rapidly deteriorating global economy and plunging commodity prices.
He said Caterpillar had reacted by encouraging dealers to align their inventory levels with falling volume and “they responded with significant order cancellations, particularly in December.”
The layoffs and buyouts, to hit one in every 10 of the company's regular workers and idle 8,000 contract workers, represent the biggest wave of job cuts at Caterpillar since the early 1980s, when the company was losing about $1 million a day.
In addition, the company said it was freezing salaries of most employees and significantly reducing the total compensation of executives and senior managers.
“It's just a very pessimistic outlook in terms of the world economy,” said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York.
“Clearly the building of global infrastructure has come to a grinding halt.”
The company reported a fourth-quarter profit of $661 million, or $1.08 a share, compared with $975 million, or $1.50 a share, a year ago.
Sales rose 6% to $12.92 billion.
The company attributed the drop in profitability to significantly higher operating costs in its manufacturing operations as capacity utilization plunged. It also blamed a sharp decline in profit in its captive finance unit.
Analysts on average expected the Peoria, Illinois-based company to report a profit of $1.28 a share on sales of $11.97 billion.
Looking forward, Caterpillar slashed its outlook for 2009, saying sales could tumble as much as 32% to $40 billion. It also said full-year earnings per share before costs associated with the job cuts could fall to just $2.50, compared with this year's $5.66.
“If this comes to fruition, it says a lot of bad things not just for Caterpillar but for the economy as a whole,” said Morningstar analyst John Kearney.
After shrugging off the downturn in US housing that sparked the worldwide crisis, Caterpillar and other makers of bulldozers, dump trucks and excavators have suddenly faced a world of challenges, including a drop in spending by their well-heeled energy and mining customers.
“We knew Caterpillar was going to be a disaster.” said Eli Lustgarten, an analyst at Longbow Research. “We just didn't know the magnitude of it. And it's ugly.”
Caterpillar shares were down $2.56 or 7.2% at $33.10 in midmorning, off an earlier low at $31.92. (Reuters)