NEWS ANALYSIS : Caterpillar Emerges From Strike Year With Profit Intact : Labor: Report of record earnings reflects company’s ability to operate without union. Case is being watched closely.
Despite a long strike by union workers, Caterpillar Inc. on Thursday reported record earnings of $955 million for 1994 and said productivity increased substantially since the walkout began in June.
The performance, though disappointing to investors, reflects Caterpillar’s ability to run plants effectively with managers, temporary workers and union members who crossed the picket lines. It is also the result of strong worldwide demand for heavy construction equipment.
The strike, the longest in Caterpillar’s history, is being closely watched by government officials and other manufacturers, several of which are engaged in contract disputes or have labor agreements that will soon expire.
The earnings report comes as negotiators for the United Auto Workers union and Caterpillar are set to meet today with a federal mediator in an effort to get contract talks restarted.
“The UAW strike, which began June 21, had virtually no impact on sales or profits,” Caterpillar President Jim Owens said.
However, union officials said Caterpillar’s profit would have been even higher if not for the strike, saying both productivity and quality have suffered.
“The company’s campaign is clearly intended to break the union,” the UAW said in a statement released Wednesday in anticipation of the earnings report. UAW officials declined requests for interviews Thursday.
Caterpillar, based in Peoria, Ill., is the world’s largest producer of earthmoving and construction equipment. It reported net income of $279 million in the fourth quarter, compared to $148 million in the last three months of 1993. Its $955 million in earnings last year compares to a profit of $652 million--including a one-time $251-million income tax credit--for 1993.
Caterpillar’s stock fell to $54.75, down $3.875, in heavy trading on the New York Stock Exchange. Analysts said the main concern was that profit margins were flat despite strong sales.
“One would have expected greater profit margins with sales growth of 24%,” said Barry Bannister, analyst with S.G. Warburg & Co.
One reason is that the company had higher labor costs associated with hiring, training and moving thousands of temporary replacement workers. Analysts said those costs could have been as high as $40 million.
“Still, what they have done is remarkable,” said Tobias Lefkovich, analyst for Smith Barney Shearson. “To literally replace your work force and still get this kind of productivity and profits--it has never been done before.”
The UAW and Caterpillar have been locked in a bitter dispute since 1991. Union members walked out when the company refused to agree to a pattern agreement, a contract similar to one signed by Deere & Co. and other competitors.
Caterpillar said the proposed contract did not give it the flexibility needed to compete globally. The UAW ended the walkout when the company threatened to permanently replace the union workers with new hires.
Last June, about 14,000 union members again walked out of seven plants in Illinois, Pennsylvania and Colorado in protest of allegedly unfair labor practices. More than 100 unfair-labor-practice charges were lodged against Caterpillar.
The company quickly moved to keep the plants operating by shifting 6,200 managers to floor jobs and hiring 4,700 temporary replacements. The company said 5,000 union members returned to work--a figure the union contests.
Even with the new work force, Owens said the average production rate at the plants improved 14% in the last half of 1994 compared to the first half. Sales hit a record $13.9 billion and dealer inventories are higher than a year ago.
But the UAW says production estimates provided by Stark’s Off-Highway Ledger, a Chicago-based industry newsletter, shows fewer units being made at three Illinois plants. The company and analysts said the estimates are wrong.
Caterpillar has weathered the strike so well partly because of favorable economic conditions. Exports were up 20% in 1994 and should increase in 1995. Domestic sales should increase more moderately as the U.S. economy slows.
Another factor is that Caterpillar in recent years installed $2 billion worth of automation and high-tech systems that allow it to produce equipment with less need for highly skilled union workers.
The labor situation at Caterpillar is drawing keen attention among other heavy manufacturers. Deere, for example, recently sought a new three-year contract that included work-rule changes similar to the ones Caterpillar adopted. The union rejected the proposal.
“Deere is watching Caterpillar,” Lefkovich said. “GM is watching Caterpillar. Every company that has a contract with the UAW is watching Caterpillar.”
* GM STRIKE EFFECTS FELT
A strike at a General Motors parts plant began to make itself felt in the auto maker’s assembly operations. D2
