V roce 2016 se očekává pokles prodeje u všech velkých korporací v oblasti Chicaga od McDonald´s po Boeing

10. 2. 2016

  • Země: US - Spojené státy americké
  • Datum zveřejnění: 10.02.2016

A most worrisome trend for corporate Chicago: Falling revenue

Welcome to Chicago, land of the shrinking corporate giants.

Financial forecasts for 2016 predict another year of falling sales at most of the largest companies based here, from McDonald's to United Airlines to Mondelez and even Boeing.

Local companies are far from alone in their top-line struggles. Revenue growth is hard to come by across many industries. In most cases, the causes are also common: slackening overseas economies, the strong U.S. dollar, and intensifying competition in U.S. markets.

Chicago feels the full force of these head winds because our companies are concentrated in mature industries like manufacturing and agriculture. We have less exposure to high-tech and other sectors facing less revenue pressure.

Some cases are worse than others, of course. Caterpillar, for example, is at ground zero of both the currency exchange imbalance and plunging global demand for commodities.

But even the few local companies escaping the downward trend aren't growing very fast. Allstate is expected to post just a 2.7 percent revenue increase, while Archer Daniels Midland projects a barely noticeable 0.2 percent rise. The only local company expecting double-digit growth is AbbVie, with a projected revenue increase of 13.9 percent. Trouble is, that growth is driven almost exclusively by a single drug, Humira, which loses patent protection at the end of the year.

There's a tendency among some financial experts to downplay revenue growth as a barometer of corporate performance. Wall Street focuses on earnings per share, the basis for stock prices. I understand revenue doesn't tell the whole story. The bottom line is the bottom line. Companies can inflate sales in ways that dilute profitability. Conversely, they can increase profits by cutting costs and lift EPS by repurchasing their shares.

But eventually you run out of costs to cut or shares to buy back. You can't generate consistent, long-term profit increases without revenue growth.

Drooping revenue sometimes reflects only transitory troubles, such as a cyclical downturn in demand. In other cases, it's a symptom of deeper woes. A projected 8 percent revenue decline at Deere, for example, stems from the latest periodic slump in agricultural equipment demand. A five-year string of sales declines at Sears Holdings, on the other hand, shows the retailer is fighting for its life.

In either situation, dwindling revenues reveal a fundamentally unpleasant fact: The company is shrinking, not growing. And that's bad for everybody, from investors to employees to C-suite executives.

Often management is forced to protect profits by cutting costs. That means job cuts, as we've seen at Caterpillar, Kraft Heinz and Motorola Solutions. Layoffs deflate morale, even among those who avoid the ax. “Endless disappointing news makes it hard on your employees who care,” says professor Erik Gordon of the University of Michigan's Ross School of Business. “It's not just the fear of job loss. It's the change from the satisfaction of contributing to a company that is winning to the dissatisfaction of making the same contribution but losing.”

Shrinking companies offer fewer opportunities for advancement. The dreaded “adverse selection” takes hold, as top performers land jobs elsewhere, while laggards without options remain.

Shrinking companies may also invest less money in their business, especially if executives are propping up the stock price by funneling dwindling revenues into share buybacks. This shortsighted approach can turn a temporary slowdown into a long-term competitive disadvantage, as the company falls behind rivals that invest in innovation and expansion.

Still, several local companies are pumping money into buybacks while cutting capital spending. And they wonder why revenue keeps falling.

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