by Marc Bastow | January 16, 2013 7:15 am
Corporate layoffs have never been popular among those being laid off, and they sure aren’t making the current unemployment picture rosier anytime soon.
But what about the other side of the equation — the company doing the cutbacks?
Lagging earnings typically are to blame for layoffs. Revenues are difficult to juice at a whim, so many instead try to reduce expenses — by hacking away at personnel — to prop up that bottom line.
But you can’t cut your way to prosperity. Operations can get bloated, and streamlining can produce a healthier company — but for meaningful growth, you eventually have to tackle the big revenue problem.
The following four companies weren’t shy about the cutting in 2012, as they posted record layoffs. But what they’re doing to augment their leaner structures is a little more suspect:
2012 Announced Layoffs: 27,000
Stock Performance Since Announcement: -19%
Back in May 2012, Hewlett-Packard (NYSE:HPQ) dropped the bomb, announcing it would eliminate 27,000 jobs, then adding 2,000 to the cut list for a total of 29,000 jobs expected to be slashed by the end of FY2014.
The goal: Snip more than $3 billion in costs.
HPQ’s stock pretty much tanked through the remainder of the year, but has recently gained some momentum on rumors of a possible investment by Carl Icahn. He’s a smart guy … but you’d think he’d have noticed the year’s worth of steady revenue decline at HP. Meanwhile, the past couple quarters have been hideous on the bottom line thanks to restructuring charges and lousy investments.
With interest in traditional PCs waning every year and virtually no mobile presence to speak of, significant growth at Hewlett-Packard seems unlikely. Cutting expenses makes sense, especially in a bloated company with seemingly no direction. But Hewlett-Packard still needs direction — and a legitimate plan for revenue growth.
2012 Announced Layoffs: 4,700
Stock Performance Since Announcement: -48%
Speaking of direction …
JCPenney (NYSE:JCP) has been a headliner all year, with CEO Ron Johnson trying to bring the once-popular retailer back to glory. Unfortunately, the result still remains a tangled mess.
JCP’s layoffs started with the shop floor in January and then the executive suite in June. Johnson canned almost 5,000 workers first, but later lost one of his newly hired subordinates.
The right-sizing effort is aimed at helping to cut costs while Johnson plows millions in hopes of transforming the stores. So far, he’s 1-for-2. Revenues have been abysmal, with the past three quarters showing contractions of more than 20% each! And it looks like the holiday season didn’t help things, either. Analysts say same-store sales might have declined as much as 30%.
Perhaps the only sign of “life” was a slightly narrower overall loss in the third quarter, but that’s a pretty tarnished silver lining. I doubt fewer clerks will be what saves JCP.
2012 Announced Layoffs: 11,000
Stock Performance Since Announcement: +12%
Citigroup (NYSE:C) announced in December that it was cutting 11,000 jobs. Though perhaps the biggest pink slip came earlier in the year — to CEO Vikrim Pandit, who apparently didn’t move quickly enough for the board. I suspect there is more to the story with Pandit, but that same board put noted cost-cutter Michael Corbat in place, and layoffs are on the way.
The layoffs hit what was an important core at Citi: Global consumer banking, as it will reduce operations in Pakistan, Romania, Uruguay and Paraguay in addition to closing 84 branches worldwide.
Because the layoffs were announced only a month ago, it’s hard to gauge their effect. But the Street took immediate notice, juicing Citi shares 6% on Dec. 5.
Closing operations and announcing layoffs isn’t going to help increase revenues, however. Citi’s sales have declined for eight straight quarters, including a 29% drop in the most recent period. Meanwhile, how and where Citi expects to eventually grow is unclear.
2012 Announced Layoffs: 8,700
Stock Performance Since Announcement:+7%
CEO Indra Nooyi must have been under some serious pressure to change the landscape at PepsiCo (NYSE:PEP) when she announced an effort back in February to “optimize operating practices and organization structure” — to the tune of 3% of the company’s work force.
Adjusted earnings have slid the past two quarters — restructuring took its bite, but those lower earnings also came alongside two straight quarters of revenue decline.
That said, the second part of the big initiative announced in February — increased ad spending — is really now starting to get going. Pepsi just announced a huge sponsorship deal with Beyonce, as well as a Super Bowl ad rush with Budweiser parent Anheuser-Busch InBev (NYSE:BUD). Those initiatives to thrust itself back into the spotlight aren’t any guarantee of success, but they’re decent ideas. Between that — and PepsiCo’s broad business and well-known-brands — PEP might have the best forward-looking prospects among these job-cutting companies.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing, he did not hold a position in any of the aforementioned securities.
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