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Jan 27, 2009

Caterpillar moves to lay off 22,000 workers

Catepillar Inc hit hard by the global economy's sudden meltdown, said Monday it is chopping nearly 20,000 workers from its payroll as it ratchets down production to match fast-weakening demand.

For most of 2008, booming demand from overseas markets helped shield the Peoria-based heavy-equipment giant from the worst effects of the U.S. recession, and most of the company's factories continued to operate at full capacity.

But late last year, economies around the world toppled into recession, and the result was a drop in demand for the company's earthmovers, mining trucks and other equipment.

Caterpillar, which employs more than 28,000 workers in Illinois and has 112,000 employees worldwide, declined to provide specifics about where the job cuts will take place.

Also Monday, Caterpillar jarred Wall Street by reporting fourth-quarter earnings that fell well short of forecasts.

"It is now clear that we need to sharply lower our production and costs," Chairman and Chief Executive Jim Owens said.

Caterpillar is cutting back capital spending, suspending its share-repurchase activities and taking other actions designed to preserve capital.

But the centerpiece of the company's response to sagging sales is its elimination of 20,000 jobs from the factories, offices and other facilities it operates around the globe.

Besides the layoffs, the company said it intends to reduce overtime and have certain plants run on a reduced workweek, which will trim earnings for remaining workers.

Caterpillar has implemented a portion of the job cuts, and officials predicted the workforce reduction will be completed by the end of the first quarter.

The plan calls for Caterpillar to eliminate the jobs of nearly 8,000 temporary and contract workers, who are not considered employees.

About 11,500 full-time Caterpillar workers are losing their jobs. That includes 4,000 production employees and about 2,500 support and management staffers who have accepted voluntary separation. It also expects to eliminate up to 5,000 support and management jobs.

After three strong quarters in 2008, Owens said, Caterpillar was "whipsawed" in the fourth quarter by what he told analysts in a conference call were "seismic moves in the global economy."

As a result, he said, Caterpillar "pretty much hit a wall in December."

Despite a hefty one-time income-tax benefit, the slowdown caused Caterpillar's earnings to drop 32 percent, to $661 million, or $1.08 a share, from the year-ago quarter's $975 million, or $1.50 a share.

Caterpillar said it expects 2009 per-share earnings to be about $2.50—well below the $4.32 a share that analysts had been projecting. The forecast doesn't include the up to $500 million in costs Caterpillar expects to record in connection with the cuts.

"It was an ugly quarter, no matter how you slice it. The good news is that 2008 is over, and the bad news is that 2009 will be worse," said analyst Matt Collins of Edward Jones.

Larry De Maria, an analyst with Sterne Agee & Leach Inc. said: "The ray of hope is that Caterpillar comes out of this a better company in 2010 when global growth may resume."

Caterpillar shares dropped $2.99, or 8.4 percent, to $32.67.

Source : ChicagoTribune
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