Published October 23, 2012
BOSTON – Faced with weakening revenue, two of the largest U.S. companies warned on Tuesday that they would cut jobs as a way of protecting their profits.
DuPont Co said it planned to lay off about 1,500 workers - roughly 2 percent of its global headcount - as the chemical company grapples with weakening demand from the construction and renewable energy sectors.
United Technologies Corp did not specify the magnitude of the cuts it was considering, but said it would raise its full-year, restructuring budget by 20 percent to $600 million as demand for its military equipment declines.
Both companies, components of the widely watched Dow Jones industrial average , reported weaker-than-expected sales for the third quarter, following an overall trend. Of the companies in the broad Standard & Poor's 500 index that have reported results, 63 percent came in below analysts' revenue forecasts - well above the 38 percent sales-miss rate in a typical earnings season, according to Thomson Reuters I/B/E/S.
"Obviously, we're looking carefully at the macro environment," United Tech Chief Executive Louis Chenevert told Reuters. "In Europe, the economy continues to be very sluggish, and in North America, it's a slow recovery.
DuPont and United Tech are by no means the only big U.S. companies to begin cutting jobs. Most dramatically, chipmaker Advanced Micro Devices said last week that it would reduce its 12,000-person workforce by 15 percent as it copes with weak demand and a consumer shift towards tablet computers.
Engine maker Cummins Inc , the PayPal arm of eBay Inc and for-profit college operator Apollo Group Inc announced smaller rounds of cuts earlier this month.
While the U.S. unemployment rate ticked down to a four-year low of 7.8 percent in September, it remains one of the main roadblocks to a stronger U.S. recovery from the 2007-2009 recession.
Fresh waves of pink slips, though not all of the cuts will come in the United States, would not be good news for Democratic President Barack Obama, who is locked in a tight re-election battle with former Massachusetts Gov. Mitt Romney, a Republican, who has criticized Obama's handling of the economy.
The job cuts are one of the more extreme reactions so far this earnings season to slipping demand and global economic uncertainty, and recent data suggests more layoffs could be on the way.
The number of jobs cut at U.S.-based employers jumped 5 percent in September from August, when layoffs hit a 20-month low, according to Challenger, Gray and Christmas, a consulting firm that tracks layoff data.
"This may be a harbinger of things to come," John Challenger, the firm's chief executive, said of DuPont's layoffs.
But the magnitude of cuts DuPont discussed do not compare with the waves of thousands of layoffs big U.S. employers began during and after the recession. Since the recession ended, most have kept staffing levels low, which leaves them less room for more.
"Revenue has been slowing down and you could see companies turning to layoffs as another way to increase the bottom line," said Perry Adams, a portfolio manager at Northwestern Bank in Traverse City, Michigan, whose holdings include United Tech and 3M. "But they're running pretty lean and have to be careful."
Companies across a range of sectors, including manufacturer 3M Co , tech equipment and service supplier Xerox Corp and No. 1 package-delivery company United Parcel Service Inc all reported weaker-than-expected revenue in the quarter.
The revenue misses reflect a sharp strengthening in the dollar's value in the third quarter, a year after it dove when Standard & Poor's stripped the United States of its "AAA" credit rating. The dollar's rise diminishes the reported value of sales made outside the United States.
3M and Xerox cut their profit forecasts for the remainder of the year, while UPS held its steady. Investors greeted that as good news and UPS shares were up almost 3 percent to $73.60, while DuPont slumped 8.5 percent to $45.50, Xerox fell 6.5 percent to $6.57 and 3M slipped 3.4 percent to $39.34, pulling down the broader U.S. stock market.
3M CEO Inge Thulin, who took the reins in February and has been focused on controlling costs, said the company expects the economy to remain steady in the fourth quarter, neither slowing dramatically nor materially improving.
"We don't see any uptick, but we believe it's stable," Thulin told investors. "There's many uncertainties."
Investors and CEOs are now watching to see what Americans do over the next two months, the holiday shopping season that is a critical time for retailers, consumer goods companies and shipping firms.
UPS warned that it was unclear how robust results would be in the year-end holiday shipping season, when UPS planes and trucks haul gifts.
"There is some uncertainty around the magnitude of the holiday shopping season," Chief Financial Officer Kurt Kuehn told investors on a conference call.
Companies that sell to consumers, rather than corporate buyers, sounded a somewhat brighter note on Tuesday.
Appliance maker Whirlpool Corp reported better-than-expected third-quarter earnings and raised its profit forecast for the rest of the year as it succeeded in a campaign to push through price increases.
Higher prices boosted the company's profit margins but weighed on sales, which fell 2.8 percent in the quarter.
Likewise, Coach Inc beat Wall Street's earnings expectations as consumers proved ready to buy the company's handbags, wallets and other luxury leather goods that shoppers saw as more affordable alternatives to those made by rivals such as France's LVMH Moet Hennessy Louis Vuitton SA or Italy's Prada SpA <1913.HK>.
That price strategy also helped the company to expand sales in China, said CEO Lew Frankfort.
"Our price points are extremely compelling relative to the European luxury brands," he said in an interview.
Investors welcomed those reports, with Coach up 6.9 percent at $57.87 and Whirlpool up 4.3 percent at $89.99.
But overall, investors remained worried that slowing sales growth would dim corporate prospects.
"We're definitely seeing pressure on sales. Most are coming in below expectations while earnings have been mixed," said Jeff Windau, an industrials analyst at Edward Jones in St. Louis.
(Additional reporting by Nick Zieminski and Ernest Scheyder in New York; Editing by Patricia Kranz, Lisa Von Ahn and Leslie Gevirtz)