Caterpillar Inc. (CAT) is contemplating to cut 1,400 jobs at its Belgium plant due to high costs and weak European economy.
The plant, located near Charleroi in Belgium, is one of Caterpillar’s largest facilities in Europe. It manufactures hydraulic excavators, loading vehicles and engine parts. Over the last five years, Caterpillar’s investment in the site has run up to around 210 million euros ($275.3 million). The plant currently has 3,700 employees and the planned layoff will leave 38% of the total manpower jobless.
Apart from the economic slowdown in Europe and increased competition, Caterpillar cited environmental rules, which made its production process more complicated as another reason for the layoffs. Given the high cost of production at the Belgian plant, it would be cheaper proposition to import the machines rather than producing them at the plant.
This follows a series of other layoffs by other companies in Belgium. In Oct 2012, Ford Motor Co. (F) also announced its plans to close its plant in Genk, Belgium that would render 4,000 employees jobless.
Last month, ArcelorMittal (MT), the world's largest steelmaker in terms of volume and Europe’s largest steelmaker, announced plans to permanently close its plant in Liege, Belgium owing to the slack demand and weakening European economy. The company also announced the idling of its liquid phase in Oct 2011 due to structural over-capacity in Northern Europe.
These plans, however, faced protests from the country's leaders. In response, ArcelorMittal has agreed to stall its restructuring programs through June until the European Union Commission publishes its plan to help Europe's steel industry.
Caterpillar’s results have borne the brunt of continued economic turmoil in Europe and its domino effect on the rest of the world. Reduced sales, lower production and a decline in inventory primarily resulted in lower fourth quarter 2012 earnings for Caterpillar. Caterpillar remains challenged by slowing demand and inventory correction as a result of higher production than demand.
The company expects sales in the first quarter of fiscal 2013 to decline more than $2 billion annually, as dealers are expected to continue to resize inventory levels to match demand. Earnings will be affected by lower-than-expected sales and negative cost impact of continuing low production levels and declining inventory.
Furthermore, the recent loss of sales momentum, declining backlog, negative impact of the European debt crisis and a slowing Chinese economy remain concerns. Caterpillar currently retains a short-term Zacks Rank #3 (Hold).
Other construction machinery makers with a favorable Zacks rank are Astec Industries, Inc. (ASTE), H&E Equipment Services Inc. (HEES), carrying Zacks Rank #2 (Buy).Read the Full Research Report on CAT
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