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American companies are sending a message to Wall Street. This year we are serious about reducing costs.
Executives in industries ranging from toy and cosmetics manufacturers to office software distributors are announcing layoffs and other cost-cutting plans, and some companies are even turning a profit.barbie maker Mattel, PayPal, Cisco, Nike, estee lauder and Levi Strauss are just a few of the companies that have cut jobs in recent weeks.
department store retail store Macy’s The company announced it would close five department stores with the same name and cut more than 2,300 jobs. jet blue airlines and spirit airlines While proposing to buy out staff; united airlines The airline has cut back on first class meals on some of its shortest flights.
As consumers watch their wallets, companies are feeling pressure from investors to do the same. Management has sought to aggressively counter spending increases and demonstrate to shareholders that it is adapting to consumer demand as it returns to typical patterns or slows. .
Airlines, automakers, media companies and packaging giant UPS are all winding down new labor contracts that give raises to tens of thousands of workers and drive up costs.
Companies in the past few years have been able to get away with passing higher costs on to customers who are willing to splurge on everything from new appliances to beach vacations. But as companies’ pricing power declines, executives are looking for other ways to control budgets or squeeze more profits out, said Gregory Daco, chief economist at EY. talk.
“We are in an environment where cost fatigue is a huge issue for consumers and business leaders,” Daco said. “The cost of almost everything is much higher than before the pandemic, from goods, raw materials, equipment, labor, and even interest rates.”
There are some exceptions to the recent wave of cost reductions. walmart, For example, the company announced last month that it would invest more than $9 billion to build or convert more than 150 stores and modernize many of its current stores over the next five years.
And some companies, such as banks, have already made significant cuts.5 major banks including wells fargo and goldman sachs, Together, the two companies will cut more than 20,000 jobs by 2023. Now they’re waiting for a rate cut from the Federal Reserve that would free up cash for stalled mergers and acquisitions.
But the cost savings revealed in the first few weeks of this year alone amount to tens of thousands of jobs and billions of dollars. In January, U.S. companies announced 82,307 layoffs, more than double the number in December, but still down 20% from a year earlier, according to Challenger, Gray & Christmas.
And the tightening months ago is already showing up in financial reports.
Results so far this earnings season show that companies are focused on increasing profits without the tailwinds of large price increases or sales growth.
More than three-quarters as of mid-February S&P500 reported fourth-quarter results, with revenue far exceeding sales. Earnings for the quarter, as measured by the aggregate total of S&P 500 companies, are on pace to increase by nearly 10%. However, revenue only increased by 3.4%.
Reduction in personnel, reduction in flights, store closures
It’s not new for companies to aim to increase profits, but this year they’ve made strengthening their bottom line a priority.
In the last few weeks, Amazon, alphabet, microsoft and Cisco, Among other things, it announced layoffs.
And layoffs aren’t limited to the tech industry. UPS Chief Executive Officer Carol Thome announced late last month that the company would cut 12,000 jobs and save $1 billion in profits, citing weak demand. Many major retail, media and entertainment companies have also announced layoffs, in addition to other layoffs.
warner bros discovery As part of this move, we reduced content spending and headcount. 4 billion dollars Lower total costs from Discovery and WarnerMedia merger. disney initially promised $5.5 billion in cost savings in 2023, driven by 7,000 layoffs. The company has since increased its savings commitment to $7.5 billion, with executives suggesting in its Feb. 7 quarterly earnings call: may exceed That target.
last week, paramount global CEO Bob Bakish said the company announced hundreds of layoffs to “operate as a leaner company and reduce spending.” comcast’s NBCUniversal, the parent company of CNBC, Some jobs were recently deleted..
jet blue airlineshas not posted an annual profit since before the pandemic, but in addition to buying out workers, Airbus has postponed approximately $2.5 billion in capital investment for new planes until the end of 2010, eliminated unprofitable routes, and restarted its fleet. It is being deployed.
delta airlinesis profitable, but announced in November that it would cut some administrative staff as a “minor adjustment.”
Some cuts go all the way to the front of the cabin. united airlines, The airline remained profitable in 2023, but announced earlier this year that it would only offer first class meals on flights over 900 miles, up from the previous 800 miles. “On flights between 301 and 900 miles, United First customers can expect a premium snack basket,” according to an internal post.
Some of the country’s largest automakers general motors and ford motorhas reduced spending by billions of dollars by reducing or deferring investments in fully electric vehicles.US-based companies and Netherlands-based companies, etc. Stellantishas recently reduced its workforce and payroll through voluntary buyouts and layoffs.
flat chipotle pepperThe company, which reported an increase in restaurant traffic and sales in its most recently reported quarter, is pursuing productivity gains by testing an avocado-scooping robot called Autokado that reduces the time it takes to make guacamole. ing. We’re also testing another robot that can assemble burrito bowls and salads. If expanded to other stores, the robot could lead to cost savings by minimizing food waste and reducing the number of workers needed to perform those tasks.
shift pattern
Industry experts chalked up some recent cuts to companies that are taking a breather and taking a hard look at how they operate after an unusual four years brought on by the pandemic and its aftermath. ing.
EY’s Daco said the past few years have been characterized by a mismatch between supply and demand for goods, services and even workers.
Customers started buying sprees in the wake of government stimulus and reduced experiential spending. Airlines saw demand disappear and then skyrocket. Companies furloughed employees early in the pandemic, but have since struggled to fill jobs.
He said he expected companies to “search for balance” this year.
“We’re seeing a rebalancing happening in labor markets and capital markets,” he said. “And that rebalancing will continue, leading to a more sustainable environment of gradually lower inflation, lower interest rates, and perhaps some slower growth.”
The auto industry, for example, faced supply issues for much of the COVID-19 pandemic, but now faces pent-up demand issues. According to Cox Automotive, new car inventories are increasing, with a 71-day supply and more than 2.5 million vehicles heading into the end of 2023, an increase of 57% from a year ago. Automakers are being forced to offer even more discounts to move cars and trucks off dealership lots.
Automakers are also grappling with slower-than-expected EV adoption.
Fitch Ratings retail analyst David Silverman said businesses are “a little bit nervous because sales growth could slow and in some cases decline.”
UPS, Hasbro, and Levi’s all cut costs after sales fell in their most recent fiscal quarters. Macy’s, which reports earnings later this month, said it expects same-store sales to decline, and there is early evidence of that. Consumers cut back on spending in January. The latest federal data showed retail sales fell 0.8%, more than economists expected.
Most major retailers, including Walmart, the goal and home depot, We expect to report earnings in the coming weeks.
Credit rating agency Fitch said it does not expect the U.S. economy to fall into recession, but it does expect the decline in discretionary spending to continue.
“Part of the company’s decision to lower its expense structure is consistent with the company’s view that 2024 may not be a great year from a sales growth perspective,” Silverman said.
It added that businesses need to set aside cash to fund investments in new technologies, such as infrastructure to support e-commerce, resilient supply chains and investments in artificial intelligence.
forward momentum
Companies may have other reasons to cut costs now. We see other companies downsizing their workforces and budgets and think there’s safety in the numbers.
Or, as Silverman pointed out, “layoffs beget layoffs.”
“Once companies start announcing things, it becomes the norm,” he said. “There’s less prejudice.”
Even with gradual layoffs, The labor market remains strong, which may help explain why Wall Street has generally rewarded companies that found areas to save and returned profits to shareholders.
For example, Meta’s stock price almost tripled in 2023, its “Year of Efficiency,” making it the second-highest gainer in the S&P 500, behind only one stock. Nvidia. After laying off more than 20,000 employees in 2023, Meta announced its first-ever dividend on February 2 and announced expanded authorization for share buybacks by 2023. 50 billion dollars.
UPS just finished cutting jobs and announced it will increase its quarterly dividend by a penny.
Dividends paid by S&P 500 companies overall rose 5.05% last year and are likely to rise nearly 5.3% this year, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. doing.
—CNBC’s Michael Wayland, Alex Sherman, Robert Hum, Amelia Lucas and Jonathan Vanian contributed to this article.
Disclosure: Comcast owns NBCUniversal, the parent company of CNBC.