American business leaders say they're optimistic about the future, but they don't expect increased sales figures to be matched by increases in hiring. Many bosses say their companies will see sales increase in the coming year, but almost two-thirds expect to retain the slimmed-down staffing levels that helped them weather the recession. "We have put the genie back in the bottle, and I'm not ready to let it out," says Don Washkewicz, CEO of Parker Hannifin.
Original Post: http://online.wsj.com/article/SB10001424052748704454304575081620015304194.html?mod=dist_smartbrief
By Clare Ansberry | WSJ
Corporate America is emerging from the worst downturn since the Great Depression smaller and thriftier.
To survive, companies have laid off millions of workers, closed hundreds of factories and vacated acres of office space. Like those who grew up in the Depression and still reuse sheets of aluminum foil, the experience has left them financially conservative and wary of risk.
Though appliance sales are expected to rise for the first time in four years, WhirlpoolCorp., which closed about a tenth of its production capacity in 2009, says it will continue cutting costs and paring capacity this year. It plans to close its Evansville, Ind., plant that made refrigerators and ice makers, shifting some output to Mexico.
The appliance maker will also hold on to its cash. "Given the amount of uncertainty that remains across the globe, we will carry a high cash balance over the course of the year, and we think that is appropriate," says Chief Executive Jeff Fettig.
Nearly every American industry ended last year in better shape than it started. Among the 95% of companies in the Standard and Poor's 500-stock index that have reported fourth-quarter results, the majority beat market forecasts. But in many cases their improved performances were driven more by cost cutting than revenue growth. With the economy growing again, many CEOs expect broader revenue gains this year.
APAlready corporate spending on technology has started to rebound. Computer-chip giantIntel Corp., considered a bellwether for the tech industry, had one of its most profitable quarters ever in the fourth quarter as sales rose 28%. The company, which a year ago announced that it would close several older factories as the economy slumped, displacing 5,000 to 6,000 workers, is investing billions of dollars in its U.S. plants as demand for consumer and business computers recovers.
The auto industry, which tanked in 2008, taking a sizable chunk of the economy with it, is starting to see some life, and the pickup is filtering down to its suppliers. Alexander "Sandy" Cutler, CEO of Eaton Corp., said the company's truck and auto-related businesses, typically among the first to respond to an economic recovery, are seeing growth in both volume and profitability, and the company is carrying a hefty backlog. "That gives us a good feeling early in the year," he says.
Stilll, Mr. Cutler, whose salaried U.S. workers were required to take four weeks of unpaid leave last year, says he doesn't see broad economic growth until 2011. For now, Eaton can make due with overtime and temporary workers, rather than permanent new hires.
Retailers ended 2009 on a high note, as did delivery companies, as consumers lost some of their skittishness. Industries driven by capital spending, such as data processing, machinery and heavy-equipment manufacturing, are beginning to benefit from looser corporate purse strings as well as public-works spending in China, India and Brazil. Manufacturing output grew at a 20% annualized rate in the fourth quarter and the sector, which has shed 2.2 million jobs since 2007, added jobs in January for the first time in nearly three years.
"Compared to last year, this environment is like day and night," says Klaus Kleinfeld, president and CEO of Alcoa Inc., which bolstered its cash holdings in 2009 in part by pressing customers to pay their outstanding balances. Mr. Kleinfeld is projecting 10% growth in the market for aluminum, half of which is coming from China. "If you ask the doomsayers, they say 'Yeah, but that growth rate is compared to a very bad 2009.' It's all a matter of perspective."
Some industries, such as aerospace and commercial construction, continue to lag. Hampered by continued instability in the housing market and uncertainty about infrastructure projects, the construction-machinery business was expected to end 2009 with an overall 43% drop in sales, according to the Association of Equipment Manufacturers, a Washington trade group.
"I think there is a lot of lingering gloom," says Don Washkewicz, chairman and CEO of Parker Hannifin Corp., which supplies hydraulic parts to several industries. A case in point: on Jan. 19, when the company reported quarterly earnings that nearly doubled market expectations and raised its forecast of profit from continuing operations by 44%, its stock, after an initial uptick, ended the day lower than it started.
Much of the uncertainty in markets and boardrooms can be traced to jobs, the economy's big wild card. One out of four of the 8.4 million American jobs lost during the recession isn't expected to come back, leaving it up to growing industries to fill the void. In January, on the same day United Parcel Service Inc., the world's largest package handler by volume, projected better-than-expected fourth-quarter earnings, it also said it would eliminate 1,800 management and administrative jobs.
Having cut jobs and capacity, streamlined production, distribution and logistics, many companies like their slimmer look. "We have put the genie back in the bottle, and I'm not ready to let it out," says Parker Hannifin's Mr. Washkewicz.
Indeed, while some employers have added modestly to their payrolls, the absence of broader hiring remains a problem for the nation's economy, which depends on consumer spending.
More than 60% of the 1,000 chief executives surveyed by YPO Global, a network of 17,000 executives, expect their work forces to be the same a year from now. About 30% see an increase and 7% a decrease.
Rather than hiring or adding capacity, some companies hope to use their accumulated cash to make bargain-priced acquisitions. Eaton, which has been on the sidelines for the past year, is looking for opportunities, says Mr. Cutler, its CEO.
Other companies are positioning themselves in different ways. Heavy-equipment makerCaterpillar is preparing for the recovery by making sure its supply chain is ready to pick up pace quickly and smoothly. "Our ability to ramp up is really a function of how well we manage the supply chain and suppliers," CEO Jim Owen told investors recently. "We're way out in front compared to any previous cycle I know of in getting ready for that eventuality."
Headwaters MB, a Denver investment bank, is coming out of the recession with a new gameplan. Dave Maney, chairman and co-founder, says the board met in the fall of 2008 and gave senior management carte blanche to ensure the company's survival. As a result, Headwaters laid off all but seven key employees, and invited the others to form independent member firms. Using its contacts to drum up business, Headwaters directed transactions to those firms, keeping a cut for itself.
The restructuring drastically reduced fixed costs and also freed management to do more marketing, rather than day-to-day investment-banking transactions. "It was a good strategy for us and positioned us for the future," Mr. Maney says.
Headwaters expects to add more independent firms by the end of the first quarter and be back up to its pre-recession head count of 42, including its own full-time employees and those working at its new affiliates.
Write to Clare Ansberry at clare.ansberry@wsj.com
