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Corporate America has a message for Wall Street: It’s serious about cutting costs this year.
From toy and cosmetics makers to office software sellers, executives across sectors have announced layoffs and other plans to slash expenses — even at some corporations which are turning a profit. Barbie maker Mattel, PayPal, Cisco, Nike, Estée Lauder and Levi Strauss are only a couple of of the firms which have cut jobs in recent weeks.
Department store retailer Macy’s said it’ll close five of its namesake department shops and cut greater than 2,300 jobs. JetBlue Airways and Spirit Airlines have offered staff buyouts, while United Airlines cut first-class meals on some of its shortest flights.
As consumers watch their wallets, corporations have felt pressure from investors to do the same. Executives have sought to indicate shareholders that they are adjusting to consumer demand because it returns to typical patterns and even softens, in addition to aggressively countering higher expenses.
Airlines, automakers, media corporations and package giant UPS are all digesting recent labor contracts that gave raises to tens of hundreds of employees and drove costs higher.
Companies in years past could get away with passing on higher costs to customers who were willing to splurge on all the things from recent appliances to beach vacations. But businesses’ pricing power has waned, so executives are in search of other ways to administer the budget — or squeeze out more profits, said Gregory Daco, chief economist for EY.
“You’re in an environment where cost fatigue could be very much part of the equation for consumers and business leaders,” Daco said. “The cost of most all the things is far higher than it was before the pandemic, whether it’s goods, inputs, equipment, labor, even rates of interest.”
There are some exceptions to the recent cost-cutting wave: Walmart, for instance, said last month that it could construct or convert greater than 150 stores over the next five years, together with a greater than $9 billion investment to modernize many of its current stores.
And a few corporations, resembling banks, already made deep cuts. Five of the largest banks, including Wells Fargo and Goldman Sachs, together eliminated greater than 20,000 jobs in 2023. Now, they’re awaiting rate of interest cuts by the Federal Reserve that will unlock money for pent-up mergers and acquisitions.
But cost reductions unveiled in even just the first few weeks of the year amount to tens of hundreds of jobs and billions of dollars. In January, U.S. corporations announced 82,307 job cuts, greater than double the number in December, while still down 20% from a year ago, in response to Challenger, Gray and Christmas.
And the tightening of months prior is already showing up in financial reports.
Thus far this earnings season, results have indicated that corporations have focused on driving profits higher without the tailwind of big price increases and sales growth.
As of mid-February, greater than three-quarters of the S&P 500 had reported fourth-quarter results, with way more earnings beats than revenue beats. The quarter’s earnings, measured by a composite of S&P 500 corporations, are on pace to rise nearly 10%. Revenues, nonetheless, are up a more modest 3.4%.
Layoffs, flight cuts and store closures
While corporations’ drive for higher profits is not recent, they’ve made bolstering the bottom line a priority this year.
In recent weeks, Amazon, Alphabet, Microsoft and Cisco, amongst others, have announced staffing reductions.
And the layoffs have not been contained to tech. UPS said it was axing 12,000 jobs, saving the company $1 billion, CEO Carol Tome said late last month, citing softer demand. Many of the largest retail, media and entertainment corporations have also announced workforce reductions, along with other cuts.
Warner Bros. Discovery has slashed content spending and headcount as part of $4 billion in total cost savings from the merger of Discovery and WarnerMedia. Disney initially promised $5.5 billion in cost reductions in 2023, fueled by 7,000 layoffs. The corporate has since increased its savings promise to $7.5 billion, and executives suggested in its Feb. 7 quarterly earnings report that it may exceed that focus on.
Last week, Paramount Global announced a whole lot of layoffs in an effort to “operate as a leaner company and spend less,” in response to CEO Bob Bakish. Comcast’s NBCUniversal, the parent company of CNBC, has also recently eliminated jobs.
JetBlue Airways, which hasn’t posted an annual profit since before the pandemic, is deferring about $2.5 billion in capital expenditures on recent Airbus planes to the end of the decade, culling unprofitable routes and redeploying aircraft along with the employee buyouts.
Delta Air Lines, which is profitable, in November said it was cutting some office jobs, calling it a “small adjustment.”
Some cuts are even making their option to the front of the cabin. United Airlines, which also posted a profit in 2023, at the start of this year said it could serve first-class meals only on flights greater than 900 miles, up from 800 miles previously. “On flights which are 301 to 900 miles, United First customers can expect an offering from the premium snack basket,” in response to an internal post.
Several of the country’s largest automakers, resembling General Motors and Ford Motor, have lowered spending by billions of dollars through reduced or delayed investments on all-electric vehicles. The U.S.-based corporations in addition to others, resembling Netherlands-based Stellantis, have recently reduced headcount and payroll through voluntary buyouts or layoffs.
Even Chipotle, which reported more foot traffic and sales at its restaurants in the most recently reported quarter, is chasing higher productivity by testing an avocado-scooping robot called the Autocado that shortens the time it takes to make guacamole. It is also testing one other robot that may put together burrito bowls and salads. The robots, if expanded to other stores, could help cut costs by minimizing food waste or reducing the number of employees needed for those tasks.
Shifting patterns
Industry experts have chalked up some recent cuts to corporations catching their breath — and taking a tough have a look at how they operate — after an unusual four-year stretch attributable to the pandemic and its fallout.
EY’s Daco said the past few years have been marked by a mismatch in supply and demand on the subject of goods, services and even employees.
Customers went on shopping sprees, fueled by government stimulus and fewer experience-related spending. Airlines saw demand disappear after which skyrocket. Companies furloughed employees in the early pandemic after which struggled to fill jobs.
He said he expects corporations this year to “seek for an equilibrium.”
“You are seeing a rebalancing happening in the labor markets, in the capital markets,” he said. “And that rebalancing remains to be going to play out and steadily result in a more sustainable environment of lower inflation and lower rates of interest, and maybe a little bit bit slower growth.”
The auto industry, for instance, faced a supply issue during much of the Covid pandemic but is now facing a possible demand problem. Inventories of recent vehicles are rising — surpassing 2.5 million units and 71 days’ supply toward the end of 2023, up 57% year over year, in response to Cox Automotive — forcing automakers to increase more discounts in an effort to maneuver cars and trucks off dealer lots.
Automakers have also been contending with slower-than-expected adoption of EVs.
David Silverman, a retail analyst at Fitch Rankings, said corporations are “feeling a bit heavy as sales growth moderates and perhaps even declines.”
Cost cuts at UPS, Hasbro and Levi all followed sales declines in the most up-to-date fiscal quarter. Macy’s, which reports earnings later this month, has said it expects same-store sales to drop, and there is early evidence that will come to bear: Consumers pulled back on spending in January, with retail sales falling 0.8%, greater than economists expected, in response to the latest federal data.
Most major retailers, including Walmart, Goal and Home Depot, will report earnings in the coming weeks.
Credit rankings agency Fitch said it doesn’t expect the U.S. economy to tip into recession, however it does anticipate a continued pullback in discretionary spending.
“Part of corporations’ decision to lower their expense structure is consistent with their views that 2024 is probably not a incredible year from a top-line-growth standpoint,” Silverman said.
Plus, he added, corporations have had to seek out money to fund investments in newer technology resembling infrastructure that supports e-commerce, a resilient supply chain or investments in artificial intelligence.
Forward momentum
Companies can have another excuse to chop costs now, too. As they see other corporations shrinking the size of their workforces or budgets, there’s safety in numbers.
Or as Silverman noted, “layoffs beget layoffs.”
“As corporations have began to announce them it becomes normalized,” he said. “There’s less of a stigma.”
Even with rolling layoffs, the labor market stays strong, which can help explain why Wall Street has by and huge rewarded those corporations which have found areas to avoid wasting and returned profits to shareholders.
Shares of Meta, for instance, almost tripled in price in 2023 in that “year of efficiency,” making the stock the second-best gainer in the S&P 500, behind only Nvidia. After shedding greater than 20,000 employees in 2023, Meta on Feb. 2 announced its first-ever dividend and said it expanded its share buyback authorization by $50 billion.
UPS, fresh from job cuts, said it could raise its quarterly dividend by a penny.
Overall, dividends paid by corporations in the S&P 500 rose 5.05% last year, in response to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, and he estimated they’ll likely increase nearly 5.3% this year.
— CNBC’s Michael Wayland, Alex Sherman, Robert Hum, Amelia Lucas and Jonathan Vanian contributed to this story.
Disclosure: Comcast owns NBCUniversal, the parent company of CNBC.