There are many indicators of a company´s performance. Analysts love to cite quarterly reports, revenues, cash flow, debt level, and even fabricate some metrics of their own. However, employment might be the best way to measure a company’s performance. “We definitely have had a decline in orders and our workforce matches the orders so…if the number of machines we build reduces, then we need to reduce our workforce,” said Caterpillar Inc. (NYSE:CAT)´s Human Resources Manager, Brett Smith. And, even though I disagree with the policy, the point is very clear: lower demand leads to employment cuts. Most importantly, it leads to inefficient capital returns.
Mr. Smith added that workers were not surprised. I add that employees were not happy either. The most worrying statement for investors, made by Mr. Smith, is the following: I am not planning for an upturn anytime soon in the market place. Whether more lay-offs will be carried out by Caterpillar Inc. (NYSE:CAT), we do not know. But, with struggling operations in Australia and a new government coming to power, I am sure that something will have to be done. A new political power does not want the first news to be titled “Rising Unemployment puts Pressure on Recently Elected PM”.
Caterpillar Inc. (NYSE:CAT) struck a deal with the Tony Abbott before the election.
The accord granted a $10 million co-investment to keep lay-offs from happening, and sustain employment levels in the long-term. Whether the deal will be sustained by Kevin Rudd, Labor party leader and elected Prime Minister, is yet to be seen.
Telephones have already been ringing at the Parliament of Australia trying to get confirmation on the stability of the deal. So far, neither side has been able to provide information concerning the issue, but Manufacturing Workers Union representative John Short is already putting pressure on the new government to honor the agreement made by Tony Abbott.
What can be inferred from the current situation is that government representatives will ask Caterpillar Inc. (NYSE:CAT) to make adjustments. In other words, if the company wants to be aided by the government, some internal restructuring will have to take place. Nothing is free in politics, especially when dealing with rescuing the private sector. The new Australian government has a strong incentive to proceed with the deal stroke by previous administrations, because higher unemployment would negatively reflect upon the new PM.
The new Australian government has a strong incentive to proceed with the deal stroke by previous administrations, because higher unemployment would negatively reflect upon the new PM. On the other hand, Caterpillar Inc. (NYSE:CAT) will be forced to tweak its business model because lay-offs will no longer be an option to bump performance. Last, even though the Chinese economy recently gave an interesting push to the firm’s stock, long-term growth remains elusive.
Disclosure: Jodor Jalit holds no position in any stocks mentioned
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