After four years of belt-tightening, American companies are good at squeezing more profit out of every dollar of sales - a skill that chief executives regard as critical in the face of an uncertain economy.
While the headline-making cuts of the last recession - when companies shed tens of thousands of workers as they scrambled to lower costs - have mostly passed, they have kept their focus on finding lots of small steps to improve earnings.
For some companies, the changes are relatively simple. McDonald's Corp was able to beat Wall Street's profit forecasts by keeping its locations open on Christmas and rolling out the cult favorite McRib sandwich in December.
For others, pumping up the results involves a more complicated dance, keeping costs down while still spending enough on research and development to ensure they have a steady stream of new products to rely on.
Toothpaste and detergent maker Procter & Gamble Co reported a 12 percent rise in fourth quarter earnings on 2 percent sales growth, reflecting both cost controls - it cut more than 5,000 jobs last year - and new products, said Chief Executive Bob McDonald.
"You've got to do both at the same time. You have to do innovation and productivity at the same time," McDonald said in an interview.
Conglomerate HoneywellBSE 0.88 % International Inc, which reported a 6 percent rise in profit on 1 percent sales growth, faced a similar challenge.
"We want to be able to do everything right and fast," said CEO David Cote. "In a slow-growth global economy, this becomes especially important for margin rate growth."
More broadly, companies in the Standard & Poor's 500 index that have reported quarterly results so far this earnings season have averaged a 7.7 percent rise in profit on 5.2 percent revenue growth.
Management consultants say that is due, in part, to a renewed focus on spending to grow.
"I'm seeing organizations being very, very disciplined. They are willing to invest, but they are only willing to invest where they see tangible returns," said David Axson, a managing director in Accenture's finance and enterprise performance consulting group who works with Fortune 100-level CFOs."Profit opportunities are very transitory at the moment.
LITTLE FAT TO TRIM
Corporate America has become far more selective in its cutting, largely because it has already become so lean. "They have done a phenomenal job of becoming more efficient," said JJ Kinahan, chief derivatives strategist at TD Ameritrade in Omaha.
"There's not a company now that can actually survive with any fat on the bones." Honeywell's focus on margin improvement is constant and extends across most of the company - from tweaking manufacturing processes to make products with less waste, to focusing on newer products that face less competition and can command higher prices, said Chief Financial Officer Dave Anderson.
"It's not just squeezing," Anderson said in a telephone interview. "Anybody can do that on a short-term basis, but you can't sustain it." Companies have continued to find fat to trim, though.
Lockheed Martin Corp, the Pentagon's biggest supplier, is facing huge defense spending cutbacks that could trim sales as much as 6 percent this year.
But still, it forecast profits would rise as much as 9 percent in 2013, even without layoffs, as it takes steps to reduce pension costs by pre-funding to reduce future liabilities.
Diversified manufacturer 3M Co said it would cut about 300 workers as it merges its security and traffic safety businesses.
That is a relative drop in the bucket for a company that employs some 84,000 people worldwide, but is a key part of CEO Inge Thulin's plan to fix or sell underperforming parts of the company.
indiatimes.com
While the headline-making cuts of the last recession - when companies shed tens of thousands of workers as they scrambled to lower costs - have mostly passed, they have kept their focus on finding lots of small steps to improve earnings.
For some companies, the changes are relatively simple. McDonald's Corp was able to beat Wall Street's profit forecasts by keeping its locations open on Christmas and rolling out the cult favorite McRib sandwich in December.
For others, pumping up the results involves a more complicated dance, keeping costs down while still spending enough on research and development to ensure they have a steady stream of new products to rely on.
Toothpaste and detergent maker Procter & Gamble Co reported a 12 percent rise in fourth quarter earnings on 2 percent sales growth, reflecting both cost controls - it cut more than 5,000 jobs last year - and new products, said Chief Executive Bob McDonald.
"You've got to do both at the same time. You have to do innovation and productivity at the same time," McDonald said in an interview.
Conglomerate HoneywellBSE 0.88 % International Inc, which reported a 6 percent rise in profit on 1 percent sales growth, faced a similar challenge.
"We want to be able to do everything right and fast," said CEO David Cote. "In a slow-growth global economy, this becomes especially important for margin rate growth."
More broadly, companies in the Standard & Poor's 500 index that have reported quarterly results so far this earnings season have averaged a 7.7 percent rise in profit on 5.2 percent revenue growth.
Management consultants say that is due, in part, to a renewed focus on spending to grow.
"I'm seeing organizations being very, very disciplined. They are willing to invest, but they are only willing to invest where they see tangible returns," said David Axson, a managing director in Accenture's finance and enterprise performance consulting group who works with Fortune 100-level CFOs."Profit opportunities are very transitory at the moment.
LITTLE FAT TO TRIM
Corporate America has become far more selective in its cutting, largely because it has already become so lean. "They have done a phenomenal job of becoming more efficient," said JJ Kinahan, chief derivatives strategist at TD Ameritrade in Omaha.
"There's not a company now that can actually survive with any fat on the bones." Honeywell's focus on margin improvement is constant and extends across most of the company - from tweaking manufacturing processes to make products with less waste, to focusing on newer products that face less competition and can command higher prices, said Chief Financial Officer Dave Anderson.
"It's not just squeezing," Anderson said in a telephone interview. "Anybody can do that on a short-term basis, but you can't sustain it." Companies have continued to find fat to trim, though.
Lockheed Martin Corp, the Pentagon's biggest supplier, is facing huge defense spending cutbacks that could trim sales as much as 6 percent this year.
But still, it forecast profits would rise as much as 9 percent in 2013, even without layoffs, as it takes steps to reduce pension costs by pre-funding to reduce future liabilities.
Diversified manufacturer 3M Co said it would cut about 300 workers as it merges its security and traffic safety businesses.
That is a relative drop in the bucket for a company that employs some 84,000 people worldwide, but is a key part of CEO Inge Thulin's plan to fix or sell underperforming parts of the company.
indiatimes.com
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