There’s a thread that runs through most of the calls I listen to: Demand is weak; we are responding by cutting the fat and becoming leaner and meaner; when demand picks up, we’ll be in good shape.
Most of the companies I follow have a line in their income statements: Restructuring charges. When they close a plant and lay people off (“headcount reductions”), they have to pay severance and, for instance, break leases. And that’s what restructuring charges are all about. Granted, I don’t follow upper-class companies like Exxon or IBM or Microsoft; but pretty much every US company I do follow has this line in its income statement. And even most of the blue-chips have probably taken these restructuring charges at some point in the past two or three years. Yes, even Microsoft ($290 million in the March quarter of 2009).
Just as an aside here, there’s a reason for them breaking it out like that as a separate line-item in their expenses: that way, they can present it as a “one-time charge”. Analysts like me are supposed to discount it in looking at their “real” underlying cash flow and in forecasting their financial futures. It’s a one-time charge. Trouble is, it almost never is a one-time charge. That line, Restructuring Charges, appears, for most of my companies, every single quarter. Sometimes you begin to wonder what’s left to restructure.
Most CEOs and CFOs on earnings calls are not taking the big-picture view. They’re focused on the details of their own particular business. Still, I often ask myself if they see the connection that’s staring you right in the face: when is “the consumer” going to start spending again? Well, maybe when you stop firing him.