In an effort to slash production capacity in the wake of dropping sales, Caterpillar Inc. CAT is closing its machine production plant in Aurora and will shift production to other sites. This move will lead to a retrenching of about 800 employees.
The company has been contemplating this move since January. Per the plan, it will shift production of large wheel loaders and compactors to its Decatur, IL plant while production of medium wheel loaders will move to North Little Rock, AR plant.
Although manufacturing will shift from the Aurora plant, Caterpillar will still have about 1,200 workers, including management, engineering and support jobs in Aurora. As per a tentative agreement between Caterpillar and the United Auto Workers, severance benefits for affected Aurora workers will include 40 hours of pay for each year of service. Following the move, about 500 positions will likely be added in Decatur and about 150 positions in North Little Rock. Some jobs will move to various suppliers, and other positions will be eliminated.
Caterpillar, Inc. Price
While commodity prices have improved lately, it is not sufficient to drive a relevant increase in short-term demand for new equipment. As prevalent in recent years, mining customers continue to focus on improving productivity in existing mines and reducing total capital expenditures. The company expects miners’ capital spending to be about flat in 2017.
Caterpillar is currently facing a probe regarding, among other things, export filings that relate to business with its Swiss subsidiary, CSARL. If the allegations against Caterpillar are proven true, this could have a substantial impact on the company. Further, it could be restricted from bidding for federal contracts, which would be a big blow given that Caterpillar is touted to be one of the biggest beneficiaries from the infrastructure spending promised by President Trump.
Caterpillar has underperformed the Zacks categorized Machinery – Construction/ Mining sub industry in the last one year. While the stock increased 27.1%, the industry has witnessed a gain of 29.4%.
Caterpillar currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked stocks worth considering in the broader sector include ACCO Brands Corporation ACCO, Parker-Hannifin Corporation PH and Brady Corporation BRC. ACCO Brands has an average positive earnings surprise of 24.74% in the past four quarters and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Parker-Hannifin Corporation has delivered an average positive earnings surprise of 12.44% in the past four quarters and flaunts a Zacks Rank #1. Brady Corporation, a Zacks Rank #2 (Buy) stock has an average positive earnings surprise of 20.84% in the same time frame.
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