Caterpillar (NYSE:CAT) the popular heavy equipment maker and one of the world's leading technology suppliers has announced on Thursday that major budget cuts are on the way, and thousands of employees will be impacted. According to company representatives about 5,000 jobs will be cut by the end of 2016, and more than 10,000 by 2018.
In addition, Caterpillar’s future projections are negative as well. The company warns that sales and revenue will likely continue to drop after four consecutive years of slow down.
Shares of Caterpillar dropped more than 6% Thursday, and had an impact on the entire stock market.
Some of the reasons for Caterpillar’s trouble in recent years are the business conditions in the energy, mining and constructions business. Caterpillar is heavily impacted by macro-economic factors that result in market volatility. For example, about 10% of the company’s income comes from operations in China. As a result of China’s shift from infrastructure building economy to a consumer driven economy, a slowdown in the countries growth has started, and companies with strong trade agreement with China like Caterpillar are felling the loses.
Doug Oberhelman, Caterpillar's Chairman and CEO has explained the situation, "We are facing a convergence of challenging marketplace conditions in key regions and industry sectors – namely in mining and energy… 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."
It is not all China’s fault, economic slowdown is currently witnessed globally, which has hurt the sales of some of Caterpillar’s most important machines, like dozers, asphalt pavers, excavators, as well as hydraulic mining shovels.