Fortune 500: Profits bounce back

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  • floridaorange
    I'm merely a humble butler
    • Dec 2005
    • 29116

    Fortune 500: Profits bounce back

    The Fortune 500's profits virtually returned to normal after years of extremes, despite a feeble overall recovery that's far from normal.


    (Fortune) -- The long-awaited recovery is now under way, but it's a slow, painful slog that's short on animal spirits and long on a drumbeat of numbers that mostly shift from dreadful to less depressing.

    Twenty-seven months after the recession began, unemployment is stuck at 9.7%. Housing starts are dragging near half-century lows. Consumers are finally spending again, but they're still too fearful about their jobs and homes to crowd malls and auto lots with the buoyant abandon that heralds a full-rigged revival, the kind Americans are used to.


    2010 FORTUNE 500

    Full list: FORTUNE 500
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    Profits bounce back!
    Can DuPont be great again?
    Amazingly, as consumers struggle, U.S. corporations are staging a nearly unprecedented comeback that's largely escaping notice. The gargantuan, dispiriting job cuts that seem to dominate the news have also been the spur for an epic resurgence in profits. For 2009, the Fortune 500 lifted earnings 335%, to $391 billion, a $301 billion jump that's the second largest in the list's 56-year history, approaching the increase in the robust recovery of 2003. For last year the 500 raised their return on sales from less than 1% to 4%. That's close to the list's 4.7% historical average.

    Hence, the 500's profits virtually returned to normal after years of extremes -- bubbles in 2006 and 2007, collapse in 2008 -- despite a feeble overall recovery that's far from normal.

    This year's list -- reminder: the Fortune 500 ranks U.S. companies by revenue -- is packed with changes that reflect and spotlight the trends reshaping corporate America. The homebuilders that occupied 14 places in 2007 and three last year, including Centex and Pulte (PHM, Fortune 500), have all disappeared, casualties of shrinking sales. No fewer than nine newcomers from recession-resistant health care joined in 2009, among them drugmakers Genzyme (GENZ) (sales: $4.5 billion) and Allergan (AGN) ($4.5 billion).

    The fall in commodity prices removed half-a-dozen energy production, oil refining, and pipeline companies, and bumped last year's No. 1, Exxon Mobil (XOM, Fortune 500) ($285 billion), into second place, far behind the new leader, Wal-Mart ($408 billion). The collapse in car sales pushed General Motors ($105 billion) from sixth to 15th place, the first time in the list's history that GM didn't make the top 10.

    The stories that follow delve into the struggles and successes of some of the prominent players on the 500 list. There's the feud at Merrill Lynch that blocked a sale of the firm and cost shareholders $50 billion. There's the tale of the woman who is charged with restoring DuPont's faded glory. And there is a discussion by a panel of all-star business journalists on the market crash, who's to blame, and what to do about it.

    For 2009, though, the big story is how the Fortune 500 managed that jump in earnings when the number that usually pulls profits up or down -- revenues -- dropped sharply. Last year, Fortune 500 sales fell 8.7% to $9.8 trillion, the largest percentage decline since 1983. It was the frantic response to falling sales that laid the groundwork for the earnings renaissance.

    In late 2008 and early 2009, volumes and prices, two contributors to sales, both shrank drastically as GDP contracted at an incredible rate of around 6%. Fearing the onset of a depression, companies raced to lower expenses even faster. "Producers practically panicked," says Mark Zandi, chief economist at Moody's Analytics. "They cut costs incredibly aggressively."

    The crucial reductions came in the item accounting for two-thirds of their costs: labor. In 2009, the Fortune 500 shed 821,000 jobs, the biggest loss in its history -- almost 3.2% of its payroll. By mid-2009, companies were making fewer goods with far fewer workers.

    A pivotal turn began midyear. Sales bottomed, then began to rise gently, as headcounts continued falling. "The largest part of the gain came from lower payrolls rather than the sluggish rise in sales, but they both contributed," says Dirk van Dijk of Zacks Equity Research. The result was a wondrous surge in productivity, defined as the hours needed to make a bicycle, a PC, or a ton of insulation.

    At the same time, wages rose only slightly. So for all of U.S. industry, the labor costs of creating a good or service -- a measure known as unit labor costs -- fell by 4.6%, according to the U.S. Department of Labor. That's the sharpest drop in postwar history.

    As sales started rising in the second half of 2009, all of the extra revenues and cost reductions fell to the bottom line. Today employers are maintaining the super-low cost regimes they imposed during the crisis while the economy is finally growing. That explains the explosion in Fortune 500 profits.

    The rebound comes chiefly from three sectors: financial services, consumer cyclicals -- items ranging from toys to furniture -- and health care.

    In 2009 banks, securities firms, and insurance companies lowered their combined losses from a staggering $213 billion to just $20 billion. Buoyed by a government bailout, AIG (AIG, Fortune 500) swung from a loss of $99 billion in 2008 -- a Fortune 500 record -- to a deficit of $11 billion last year. The combined losses at Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) shrank by $15 billion to a still-huge $94 billion, as write-downs continued on subprime mortgages.

    By contrast, the banks and brokers, including J.P. Morgan (JPM, Fortune 500), Wells Fargo (WFC, Fortune 500), and Goldman Sachs (GS, Fortune 500), rebounded from losses of $8.7 billion to $38 billion in profits. Write-downs on toxic securities receded, and investment-banking profits jumped, helping offset losses on credit cards and mortgages. J.P. Morgan Chase doubled earnings to $12 billion, thanks chiefly to big gains in fixed-income trading.

    In consumer cyclicals, a category that could be labeled "things you'd like to buy but can put off," companies suffered losses of $42 billion in 2008. Casino operators, electronics retailers, and auto-parts suppliers saw revenues fall faster than they could slash costs.

    That trend reversed in 2009. Wal-Mart (WMT, Fortune 500) managed to lift revenues, on top of a big increase in 2008, by attracting bargain-hungry customers from competitors with remodeled stores and inexpensive private-label goods, offering everything from frozen pizza to patio furniture in one stop. A single trip also meant less spending on gas. Result: Earnings surged 7.0% to $14.3 billion.

    The 500's most exceptional study in ingenuity may be Mattel (MAT, Fortune 500), the world's largest toymaker. In late 2008, Mattel foresaw that sales would plunge in 2009 and introduced a clench-jawed cost-cutting campaign called Global Cost Leadership. Mattel pared its professional workforce by 10%, or 1,000 employees; paid down debt to lower interest costs by $10 million; and reduced overhead by $132 million. Its revenues did drop by $487 million, or 8%. But costs fell much more, by a remarkable $669 million before tax. Mattel booked a net income increase of $149 million, or 39%.

    The star of 2009 is undoubtedly health care. The sector's earnings jumped to an all-time high of $92 billion, placing it second behind tech at $94 billion. Health-care earnings rose by $23 billion, or 33%. It wasn't the band of new arrivals that accounted for most of the bounty, but extremely strong earnings from two groups, one surprising -- medical insurers -- and the other more predictable, pharmaceuticals.

    In medical insurance -- the big players include UnitedHealth (UNH, Fortune 500), WellPoint (WLP, Fortune 500), and Aetna (AET, Fortune 500) -- the sector suffered from losses on investments in 2008. The profit recovery in 2009 came from three factors. First, the value of these companies' portfolios rebounded with the surge in stock and bond prices. Second, they sharply reduced job rolls and overhead. And third, they raised premiums to cover rising medical costs.

    For the carriers, stringent state regulations tend to dampen price competition, giving them latitude to increase prices -- a pattern that's now causing a political uproar. The insurers are losing employee customers as small companies drop their plans and layoffs rise. But they're partly compensating by booking new customers from Medicaid, the federal and state program for the poor, and Medicare Advantage, a plan that allows seniors to choose private insurance. That business, along with cuts in interest expense, helped UnitedHealth lift its sales by 7% and its profits far more, by 28%, to $3.8 billion.

    For the drug industry, it's as if the recession never happened. The sector's earnings surged by one-third to $64 billion, with Pfizer (PFE, Fortune 500) (up 7%), Abbott Laboratories (ABT, Fortune 500) (up 18%), and Merck (MRK, Fortune 500) (up 65%, aided in part by its acquisition of Schering-Plough).

    The reasons are manifold: First, few blockbuster drugs lost their patent protection. Second, a raft of relatively recent therapies hit their stride or kept growing, including Januvia, Merck's diabetes drug, and Lyrica, Pfizer's medication for chronic nerve pain. Third, the industry, as usual, boasts the power to raise prices even in rough times. "Last year the industry was able to get increases in the mid-single digits," says Michael Levesque, a Moody's analyst.

    And finally, the drug industry has learned to rein in costs. Pfizer lowered its headcount in 2009 by almost 10%, to 74,000 (excluding the employees it added late last year through its acquisition of Wyeth).

    But the recession posed a historic threat to just about every other business. The Fortune 500's remarkable response is yet another chapter in the saga of a list that's gone from boom to bust to almost normal, all in the space of three short years. Never has getting to "almost normal" been a bigger achievement.

    It was fun while it lasted...
  • 88Mariner
    My dick is smaller
    • Nov 2006
    • 7128

    #2
    Re: Fortune 500: Profits bounce back

    Unemployment is way more than 9.7%. It's almost double that.
    you could put an Emfire release on for 2 minutes and you would be a sleep before it finishes - Chunky

    it's RA. they'd blow their load all over some stupid 20 minute loop of a snare if it had a quirky flange setting. - Tiddles

    Am I somewhere....in the corners of your mind....

    ----PEACE-----

    Comment

    • floridaorange
      I'm merely a humble butler
      • Dec 2005
      • 29116

      #3
      Re: Fortune 500: Profits bounce back

      Originally posted by 88Mariner
      Unemployment is way more than 9.7%. It's almost double that.
      Did you plan to back that statement up statistically, or?





      source: http://www.ncsl.org/?tabid=13307

      It was fun while it lasted...

      Comment

      • runningman
        Playa I'm a Sooth Saya
        • Jun 2004
        • 5995

        #4
        Re: Fortune 500: Profits bounce back

        The administration's alternative of emphasizing small business has the potential to create only several million jobs in the medium term. We need two or three times more jobs today than what the administration's three job stimulus initiatives will create over time -- on the order of 15 million more -- in order not to lose another decade to wage stagnation, extreme income inequality, and wide-scale unemployment.


        For the entire eight years of the Bush administration, those of us on the progressive side learned to live with the legislation and policy 'standard' of "better than nothing". Heck, they pretty much hated us, and "better than nothing" was, well, better than nothing.
        But it is beyond disappointing that in just 18 months this standard which is usually reserved for the minority Party has largely become President Obama's standard on what he promised were going to be the most immediate and urgent priorities of his new administration: job-creation and reordering our global trading, especially our trade with China which has been eating the average American worker's lunch for more than a decade.
        We are stuck in a jobless recovery with a real unemployment rate of nearly 20%, with even the 'false-positive' indicator of GDP growth that the administration wrongly relies on as its sole measure of economic vitality now at only a meager 2.4% annualized rate, versus the revised 3.7% rate of the previous few months. Yet the administration finds laudable - and seemingly sufficient - the 3.0 to 3.5 million jobs that it contends the 2009 federal stimulus bill will have "created or saved" (mostly just saved) by the end of this year, and, even more concerning, the relatively few 5 to 7 million jobs which it believes its three major jobs initiatives will create over the next five years.










        I can find many more. The administration doesn't count people who have lost benefits and who are discouraged and stopped looking for jobs. Please don't tell me you believe that there is only 9.5% unemployment

        Comment

        • floridaorange
          I'm merely a humble butler
          • Dec 2005
          • 29116

          #5
          Re: Fortune 500: Profits bounce back

          ^ why do you care about what the unemployment rate is in America?

          It was fun while it lasted...

          Comment

          • runningman
            Playa I'm a Sooth Saya
            • Jun 2004
            • 5995

            #6
            Re: Fortune 500: Profits bounce back



            I have already told you a million times.

            Comment

            • floridaorange
              I'm merely a humble butler
              • Dec 2005
              • 29116

              #7
              Re: Fortune 500: Profits bounce back

              Originally posted by runningman


              I have already told you a million times.
              Sounds like somebody needs an n-a-p

              It was fun while it lasted...

              Comment

              • res0nat0r
                Someone MARRY ME!! LOL
                • May 2006
                • 14475

                #8
                Re: Fortune 500: Profits bounce back

                If you think the economy/unemployment/debt is going to go back to plus numbers in a year or two you are crazy. It doesn't matter who is president, it ain't gonna happen that quickly no matter who is in charge.

                Comment

                • bobjuice
                  Banned
                  • May 2008
                  • 4894

                  #9
                  Re: Fortune 500: Profits bounce back

                  Originally posted by 88Mariner
                  Unemployment is way more than 9.7%. It's almost double that.
                  ^this

                  If things are anything like here in the UK then the people creating the figures leave out enormous chunks of population just to suit themselves. If you are classed as disabled but the govt then decides you are not, you no longer register on the figures.
                  If you are on a govt run scheme for long term unemployed (but still have no job) they choose not to count you.

                  If your benefit (welfare) is stopped for any other reason, eg you sell your home - you no longer qualify for benefit so fall off the figures, despite still being out of work

                  etc
                  etc

                  Comment

                  • floridaorange
                    I'm merely a humble butler
                    • Dec 2005
                    • 29116

                    #10
                    Re: Fortune 500: Profits bounce back





                    I scoured youtube for a production to support my unemployment claim, but unfortunately we'll just have to settle for a lowly Harvard Professor of Public Policy and Economics.

                    It was fun while it lasted...

                    Comment

                    • res0nat0r
                      Someone MARRY ME!! LOL
                      • May 2006
                      • 14475

                      #11
                      Re: Fortune 500: Profits bounce back

                      Originally posted by floridaorange
                      [



                      eh eh?

                      Comment

                      • floridaorange
                        I'm merely a humble butler
                        • Dec 2005
                        • 29116

                        #12
                        Re: Fortune 500: Profits bounce back

                        Originally posted by res0nat0r


                        eh eh?
                        The film cap game is in the Movies section res0

                        It was fun while it lasted...

                        Comment

                        • res0nat0r
                          Someone MARRY ME!! LOL
                          • May 2006
                          • 14475

                          #13
                          Re: Fortune 500: Profits bounce back

                          oops my bad

                          Comment

                          • superdave
                            Platinum Poster
                            • Jun 2004
                            • 1366

                            #14
                            Re: Fortune 500: Profits bounce back

                            If the profits continue, we'll see the unemployment rate drop. I'm thinking most businesses would like to see a few good quarters of profits before hiring again. My concern is that the profits begin drying up and the hiring freezes continue then the stock market drops. That would likely mean a double dip recession by end of the year. The government needs to avoid raising taxes until we're out of this recession and even lower taxes for middle class people. That would be a much more effective stimulus then give money to the large banks to sit on.
                            Never interrupt your enemy when he's making a mistake - Napoleon Bonaparte

                            Comment

                            • Localizer
                              Platinum Poster
                              • Jul 2004
                              • 2021

                              #15
                              Re: Fortune 500: Profits bounce back

                              Originally posted by floridaorange
                              http://www.charlierose.com/view/interview/11154



                              I scoured youtube for a production to support my unemployment claim, but unfortunately we'll just have to settle for a lowly Harvard Professor of Public Policy and Economics.
                              Harvard an IV league economics is what got us into this mess into the first place. Harvard economics is the drive of the obama admin. In fact, this admin largely derives its policies from Harvard.

                              Also, did no one see that we just shed another 150,000 jobs last week?
                              Many people would sooner die than think; In fact, they do so.
                              -Bertrand Russell

                              Comment

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