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Archive for January, 2009

Layoffs: negotiating a better severance deal

This article in Fortune questions the notion that you have no leverage in a layoff. It notes that under certain conditions, you might be able to finagle a better severance package.

For instance, let’s say your company’s rule of thumb is two weeks’ pay for each year of service. “That’s a commonly used formula left over from when people tended to stay with the same employer for many years,” Bayer notes. “But suppose you are a 50-year-old manager making $100,000 a year who was wooed away from a competitor and had to move across the country to take this job, and let’s say that was just two or three years ago. Is four or six weeks’ severance pay really fair?” In such a case, even the most hardnosed boss is likely to agree you should get more.

Another consideration: negotiating more favorable health coverage.

Sounds pretty Pollyanna-ish to a natural-born cynic like me. I mean, really, would any of this fly at a company like Caterpillar? Never know till you ask.

A more serious bit of advice to be culled from the article: find out your severance rights and do your utmost to get every penny you have coming to you. You might not get more but you should not settle for less.

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Tom Mangan posted at 9:51 am January 27th, 2009 |

The good old days of early 2007

CBS News ran this video on its Sunday morning program in February 2007. The number of assertions proved wrong since then makes it almost comically upbeat, and therefore worthy blog fodder (ridicule is implied merely by posting it).


Watch CBS Videos Online

(Note there’s an annoying ad at the beginning).

More Caterpillar appearances on CBS.

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Tom Mangan posted at 9:29 am January 27th, 2009 |

IBD: Free trade would save Caterpillar jobs

RealClearMarkets posts an Investors Business Daily commentary encouraging lawmakers to break eliminate trade barriers with Colombia, and everywhere else for that matter.

Economist Dan Griswold, director of the Center for Trade Policy Studies at the Cato Institute, found exports were responsible for 6,667 new U.S. jobs at Caterpillar alone.

“Caterpillar is in many ways a typical American company,” Griswold told IBD. “It sells more abroad (63% of sales) than here, and it’s increasingly a global company. The success of its U.S. workers and shareholders is determined by its success abroad. That depends on free trade, freedom of investment, and strong relations with its commercial partners.”

Without free trade, Caterpillar is stuck paying around $100,000 in tariffs for each earthmover it sells to Colombia, a big mining country that’s one of Caterpillar’s best markets.

The article notes that trade unions in Colombia wants the government to reduce the tariffs so their employers will buy more Cat equipment.

Cat’s already sounding the alarm against “buy American” provisions in the stimulus package, which might sound odd coming from a U.S.-based company, but the Cat brass are more concerned about the blowback from trade barriers. If we put anti-trade rules in our stimulus bills, so will everybody else.

This is precisely what happened in the Great Depression: laws designed to protect jobs killed them by discouraging trade.

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Tom Mangan posted at 9:13 am January 27th, 2009 |

What’s next with the U.S. stimulus plan?

We know the U.S. stimulus plan won’t realistically help Caterpillar or the construction industry for several quarters, but what’s happening inside the Beltway today can set the tone for the entire Obama administration. Right now the Republicans have gotten religion on fiscal discipline after eight years of living it up. They still have only one answer to all that ails the nation: cutting taxes.

This article in the San Francisco Chronicle offers a nice overview of the horse-trading over the stimulus package.

Obama’s efforts to reach out to the opposition party are unlike anything witnessed in the last administration or even those before it. He is trekking to Capitol Hill again today for Republican-only meetings in the House and Senate. He has already incorporated large tax cuts in the stimulus to lure GOP support. Obama is looking for two things: at least partial Republican ownership of a risky, costly policy experiment, and avoidance of the kind of partisan rupture that nearly killed a much smaller and less critical effort by President Bill Clinton in 1993.

“We don’t have any pride of ownership,” said White House press secretary Robert Gibbs.

Republicans face risks of their own. While attacking what they call pork and overspending, they do not want responsibility for killing what is now the government’s last, best hope to reverse or at least slow an alarming worldwide economic decline.

So far, Obama’s living up to his promise of a “reach across the aisle” presidency. The final result will be pug-ugly no matter what, but Obama has a canny knack for getting what he wants despite long odds. As much as the Democrats want to say “screw the GOP, we beat ’em fair and square,” they need to be able to avoid culpability in the next election if all goes wrong. Getting the GOP to go along is like insurance (though the GOP could make the cynical calculation to stand aside, let things go to hell and blame it all on the Democrats in 2010. Let’s hope they behave more like grownups.)

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Tom Mangan posted at 8:51 am January 27th, 2009 |

Caterpillar layoffs: what I know

I get a ton of Google hits from folks desperate for information about when and where Caterpillar’s next paycheck punch is coming from. It’s heartbreaking to have to tell folks hey, I know what’s available already online, and it ain’t much.

Caterpillar’s earnings announcement did not say where the cuts would happen. It’s about 10 percent of the global workforce (not 20 as some said yesterday, because 8,000 were contractors who were not counted in the official total.)

Demand for Cat machines is down across the board. The most notable order backlog is in big mining trucks, but commodity prices aside from gold and coal are too cheap to encourage much exploration that inspires buying new equipment.

Here’s the full description of Caterpillar’s employee-related cost-reduction plans for 2009 (sorry for the repetition if you saw some of it yesterday.)

  • Voluntary and involuntary separations and layoffs of about 4,000 full-time production employees. Depending on business conditions more layoffs may be required as the year unfolds.
  • Sharp declines in overtime work. Factory overtime is a key element of volume flexibility and many facilities were working high levels of overtime through most of 2008.
  • Several facilities have shortened workweeks, and thousands of employees have been, or will be, affected by temporary layoffs and full and partial plant shutdowns.
  • Elimination of almost 8,000 temporary, contract and agency workers. While these workers are a key element of our “flexible workforce” they are not included among the 112,887 full-time employees at year end.
  • Voluntary separations of about 2,500 support and management employees.
  • Additional layoffs or separations of as many as 5,000 support and management employees.
  • Hiring freezes and suspension of salary increases for most support and management employees.
  • Significant reductions in total compensation for executives / senior managers.

Also, here’s a post on what to do about health benefits if you end up out of work. Also: Six things to do before you get laid off.

My hunch is Cat figures good times’ll return in 2010 and it doesn’t want to have to rehire all the people it recently fired. I would expect far more days-and-hours reductions and temporary plant closings than permanent pink slips.

If you know anything more about Cat layoffs, please share in the comments.

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Tom Mangan posted at 8:08 am January 27th, 2009 |

Assessing Caterpillar’s conference call for Q4/08 earnings

Caterpillar’s earnings call was remarkable in the degree to which the record-breaking sales of last year were utterly irrelevant to the world we live in this year. Cat raced along fine for three quarters, then took a spectacular spill in the fourth. (Think “agony of defeat” ski jumper and remember — he survived).

Caterpillar CEO Jim Owens described a “seismic adjustment” in revenues for 2009. Cat was hoping for $50 billion; now it’ll settle for $36-44B. Caterpillar’s promise to deliver $2.50 a share in earnings — a 50 percent haircut from ’08 — this year drew some skeptical questioning from the analysts, but Owens and company assured them the “redundancy” operations (if they got no work for you, you’re redundant; and unemployed) of the first quarter, combined with reductions in prices for steel, copper and other essentials, should help get costs in line with sales volume.

Speaking of commodities, there’s a lot riding on how much miners can earn digging them out of the ground. Mike DeWalt, director of investor relations, noted that since the end of the third quarter, “copper, which is a bellwether commodity for us, is down about 50%; oil was off about 60%; and natural gas prices were down about a third.”

Owens highlighted the uncertainty that will affect whether Cat earns $2.50 a share: “… we just need to see where the bottom of this cycle is going to end up. It’s difficult to assess. Is oil going to be $30 or $80 at the end of the year? Is copper going to be $0.75 or $2.50 at the end of the year?” Cat expects copper to be in the $1.10 per pound range, which is below the price miners need to launch new projects.

What about inventories?
“We pretty much hit a wall in December,” DeWalt said. Things got bad enough that Cat called up its dealers and asked them to call off any orders that weren’t a sure thing. That means Cat won’t be heading in to the depths of recession with so many parking lots full of tractors nobody wants.

And what about the legendary order backlogs of the mega mining trucks? Owens says the three-year waiting list has helped, but things are pretty ugly across the mining sector. “The volatility in the orders of people slicing about or canceling orders has been very high,” Owens said. The order backlog “still looks reasonably good for this year,” he said, though some orders are likely to be canceled.

Cat’s pitch is that when the mining sector recovers, it’s going to have to do something about the 10-year average age of its fleet. Like, buy a bunch of new trucks, tractors and loaders.

What about cap-ex?
While Caterpillar plans to slash capital expenditures by 40 percent, it’s sticking to its guns about getting the North Little Rock, Arkansas, motor grader plant up and running. Same with the engine plant in Seguin, Texas.

Talking debt
Cat’s debt ratio swelled to 57 percent last year, which triggered some analyst consternation, but Group President Ed Rapp promised to get it back down to its historical range of 35 or so in the next year. Where the excess came from: 11 percent to fund the pension plan; 3 percent to load up on extra cash to ride out the financial crises; and 7 percent to integrate Cat Japan. Subtract those factors and Cat’s back to normal, he says.

Stimulus thoughts:
Mike DeWalt is hoping for “a good thoughtful package” in the United States and China. He added that a number of the emerging markets have relatively low inflation and stronger balance sheets than they’ve ever had heading into a major recession.

“If we just get the financial market to stabilize globally, this economy wants to grow and we, Caterpillar, I think are exceptionally well positioned.”

I’ve skipped some details on Cat Financial that are a bit out of my league. Nothing set off any car alarms, though.

Cat’s stock took a proper pummeling Monday, and there’s more in store, no doubt. Still, the five-years-down-the-road outlook is that when the economy recovers, commodities will again be in short supply and big yellow trucks, tractors and engines will be needed to get them to market. Doesn’t have to be Cat supplying all that machinery, but I suspect most folks who already own Cat equipment will buy more when their current supply wears out.

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Tom Mangan posted at 12:03 am January 27th, 2009 |

Today’s close: Down 8.38%

Wall Street piled the hurt on Caterpillar today after it predicted a likely 20 percent reduction in sales and 50-plus reduction in profit for 2009, plus 20,000 lost jobs by first quarter’s end. As gawdawful as that was, imagine how bad things might’ve been if the Conference Board hadn’t announced a surprise uptick in December’s index of leading indicators. Full quote at Yahoo Finance.

Broader markets tried to rally but couldn’t get much, uh, traction in light of Cat’s news and a spate of layoff announcements. Dow, up .48%; Nasdaq, up .82%; S&P 500, up .56%. Wrap-up at Market Watch.

Caterpillar’s volume was over 45 million shares, double Friday’s volume and four times the average, though a barrage of sell orders at the open gave way to listless action into the close. Support level is around $32 a share and it’s safe to say Cat is oversold.

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Tom Mangan posted at 1:16 pm January 26th, 2009 |

Quick note about Cat’s conference call

I’m going to wait till the text transcript is posted before I post any thoughts on Caterpillar’s conference call. Most of the chatter was covered in the earnings release but there were a few interesting insights on mining, commodities and Cat’s finance arm.

One thing I’m still unclear on: Caterpillar’s “trough plan” — its playbook for earning a profit when the business goes bad — envisions a profit of $2.50 per share on revenues of $36 to $44 billion. Cat presumably based its trough model on previous downturns, but it also expects the worst economic environment of the post World War II era. My notes of the call have one of the Cat brass saying $2.50 would be double the EPS of the 2002 downturn, one of the mildest recessions of the past 50 years.

How can Cat plausibly expect twice the EPS from 2002 when things look more like 1982? Stay tuned, and I’ll see what I can find out.

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Tom Mangan posted at 10:08 am January 26th, 2009 |

Caterpillar Inc. earnings: Wonderful 2008; woeful 2009

Caterpillar Inc. is a assuming a 20 percent reduction in sales for 2009, and 50-plus percent reduction in profits. Perhaps the scariest thing in this morning’s earnings report:

We expect 2009 will be the weakest year for economic growth in the postwar period. We are expecting recessionary conditions to persist in most of the world throughout the year, with no growth in the world economy.

So, don’t get your hopes up.

The other day I posted a list of bullet points to look for in this morning’s earnings release. Let’s revisit:

  • Access to financing: Caterpillar had buyers for a bunch of bonds in December, and its credit rating ensures it has access to as much financing as it may need.
  • Order backlog: Plunged in the fourth quarter and ended the year at $14.7 billion, well below the year-end 2007 level of $17.8 billion. Demand for giant mining trucks is easing, but customers are primarily delaying orders rather than canceling them.
  • Commodities: Prices are down across the board, which is pinching much of Cat’s customer base. Steel prices hurt Cat last year but presumably that’ll be less of an issue this year.
  • Labor: 20,000 jobs gone by the end of the first quarter of 2009.
  • Infrastructure: Cat called stimulus plans a step in the right direction, but didn’t expect to see much improvement to Cat’s bottom line until late in 2009.
  • Green energy: Didn’t see anything here, but it could come up in the conference call.

I’m at least somewhat disappointed that Caterpillar didn’t issue an earnings warning before this morning. When you expect your profits to fall by over half in the next year, investors deserve a heads-up.

A few quotes from the headlines:

Bloomberg:

“The results were worse than we were even anticipating, and we had lowered our expectations considerably,” Kristine Kubacki, a St. Louis-based analyst with Avondale Partners LLC, said in an interview. Comments about order cancellations in December “were particularly worrisome,” she said.

Note: Cat says it requested that dealers cancel some orders to avoid inventory build-up.

Wall Street Journal:

As the financial crisis has continued to worsen in recent months, Caterpillar’s ability to issue corporate bonds has been hurt. Its finance arm has been driven to offer sharply higher yields on recent bond sales to lure investors.

At least Caterpillar is finding buyers besides the U.S. government.


Disclosure: I own no shares of Caterpillar Inc.

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Tom Mangan posted at 7:06 am January 26th, 2009 |

Caterpillar layoffs: what today’s earnings report tells us

Caterpillar Inc. reported this morning that it expects to have its workforce reduction — you know, firings and such — complete by the end of the first quarter of 2009. The total adds up to 20,000, but 8,000 of those are contract/agency employees who, as far as we know, have mostly been let go already.

Adding in 2,500 voluntary separations (buyouts, etc.) cuts the 20k figure in half, but the report clearly states that says 4,000 full-time production employees will have been let go by the end of March, as will 5,000 support and management employees. And any more the economy dictates.

Further good news: Overtime is being slashed and hours are being cut, so even those who keep their jobs may end up pinching pennies this year.

Sadly, the report does not say where the cuts will happen. I’ve heard of layoffs in Aurora, Illinois, and Lafayette, Indiana, in the past couple days.

If you’re hearing about any where you work, let us know in the comments.

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Tom Mangan posted at 6:31 am January 26th, 2009 |