Free Paper on Caterpillar Inc.: Navigating Industry Impact and Payout Strategies Amidst Crisis

Firm Profile

Caterpillar Company has given substantial support to its customers since 1925 while aiming to build a better world. According to Lacy, Long & Spindler, (2020), it was initially called Caterpillar Tractor Co. and later in 1986, changed its name to Caterpillar Inc. Over its 2019 sales, the company has generated revenues amounting to $53.8 billion, although it is the world’s largest manufacturer and supply of building and mining apparatus such as; diesel and natural gas engines, industrial gas turbines, as well as diesel-electric locomotives (Lacy, Long & Spindler, 2020). The unique services offered throughout its product life cycle have set Caterpillar apart providing exceptional values to the successful progress of its customers. The company has three major segments from which it operates; the Construction industry segment, the Resource industry segment, and the Energy and transportation industry segment (Lacy, Long & Spindler, 2020).

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The construction segments support customers through the use of machinery in infrastructure, forestry, and building structures. The resource industry helps customers by the use of machinery in mining, quarrying, waste, and handling of materials by manufacturing tools used for both surface and underground mining across the world. Lastly, the energy and transportation industry helps customers with the generation of oil and gas, electric power, marine, rail, and all sorts of industrial applications (Lacy, Long & Spindler, 2020).

Firm Overview

According to the detailed information given regarding Caterpillar Inc., the firm is a mature industry. It is one of the biggest firms that provides three major segments to customers worldwide, as mentioned earlier (Byrne & Moyle, 2020). Thus, CAT qualifies to be a mature industry offering the best and most satisfying services to its clients across the sphere.

The Role of the Firm to the Industry

CAT is a leading and largest global manufacturer of construction and mining apparatus, industrial gas turbines, and electric locomotive appliances all over the world. For this reason, CAT firm has economically contributed to the growth of the industry, resulting in economic growth and development of the country. To ascertain this, Caterpillar has ensured the best services given to customers. Also, it has led to the growth of a profitable business. Byrne & Moyle prove that the firm has encouraged social cohesion and responsibility; that is, it has had its focused on improving the living standards of individuals while sustaining the quality of the earth’s surface during its period of operations (2020).

Payout Strategy Employed

Regarding the payout strategy, CAT announced the distribution of $500 million to its shareholders. It announced an indication that some of its plants will stop their various operations soon due to the current worldwide pandemic of COVID-19. However, the firm resisted declaring the number of workers likely to be affected (LOH, 2020). For instance, according to Caterpillar spokeswoman’s email, she stated that “They are taking various actions worldwide but no discussions to be held over the number of individuals impacted.” However, the firm’s website contained an encouraging statement, which stated that its dedication and services to the safety, health as well and well-being of its members and the community they serve remain strong despite the crisis (LOH, 2020).

The main aim of the announcement made by CAT Inc. was to prepare its employees not to expect their usual monthly salaries due to the Coronavirus it is experiencing. Also, it was a signal to its shareholders that they also received their dividends earlier due to unavoidable circumstances that had been brought about by the pandemic to their firm. Also, the virus had already turned existing economic logic on its head, having essential workers face risks continuously while others were forced to stay at home (LOH, 2020).

According to my study of dividends and other payouts, the strategy used in paying dividends to shareholders does not make sense. At such a time of crisis, the company could decide to invest the excess earnings to its workers, and other firm operations to generate more income for the firm. Similarly, according to LOH (2020), dividends are usually paid to the firm’s shareholders only after the agreeable period has been reached. On the same note, the payouts are made based on their contributions to the firm, but according to CAT’s announcement, dividends were paid to shareholders regardless of whether it was time to pay. Finally, the strategy did not make sense because the firm’s employees were not considered during the payout, yet they are the critical factor in the firm’s success.

Based on the announcement made by CAT, the management is sending specific signals to both workers and shareholders. For example, by stating that, “Due to pandemic, operations have been temporarily suspended in certain facilities.” This was a strong signal to all workers to prepare for the potential layoffs. Two weeks later, CAT announced it to give $500 to shareholders in cash dividends. Additionally, Kenny said that they would take various actions at their global facilities to cut down production (LOH, 2020). He said that the main reason is due to low demand from customers, constraints in supply, and the increase of Covid-19. Thus, all these are enough for management to signify potential layoffs and even indefinite shutdown of the facilities.

I can't entirely agree with this decision because it was not the only option to cope with the current global situation of the Coronavirus. Similarly, as a shareholder, I wouldn’t be pleased with such an announcement. The announcement was a clear indication of layoffs of employees and a sign of the potential collapse of the firm. Therefore, according to my perception, when this happens, many people will be desperate for employment, and the economy of the country fluctuates, resulting in recession and, finally, increasing the poverty level.

References

Byrne, C. J., & Moyle, D. I. (2020). The Caterpillar Key Fact Sheet: Yponomeutidae.

Lacy, P., Long, J., & Spindler, W. (2020). Machinery & Industrial Equipment (M&IE) Industry Profile. In The Circular Economy Handbook (pp. 129-137). Palgrave Macmillan, London.

LOH, K. (2020). Accounting For Recovery: The Art Of Navigating A Pandemic.