Bernie Marcus, the co-founder of Home Depot (HD), is one of my favorite personalities in the business world. Anytime I'm aware that Marcus is speaking, I try and make myself available to hear what he has to say. I believe he offers good points of view, his opinions are fair, and he is entertaining as well. On Thursday, September 15, Marcus was a guest on CNBC and spoke about an array of topics, which included his foundation, jobs, politics, business, and the market, among others. But what I found most interesting was his view of the proposed jobs plan and the mindset of corporate America after the recession. Below, I have paraphrased areas of the interview that I find to be the most interesting; the interview in its entirety is available here.
The two areas I find most interesting were Marcus' opinions regarding the president's job plan and the mindset of the business corporations. To paraphrase, he does not believe the job's plan will be effective; he even described it as "putting a band aid on a hemorrhage."
His argument centered around the mindset of the business owner, or CEO, that views a company with a long term perspective and is not affected by the immediate gratification President Obama has to offer. Because the end result is higher taxes, the business owner or CEO is not worried about a short-term tax credit over a one-year period, but rather is concerned with the next 10 years, and has adopted a new mindset of business operations since the recession.
Marcus said in his interview that business people are making more money than ever before, which was based on his conversations with business owners and executives all across America. He said that, since 2008,. companies have laid off more employees, are operating more efficiently, and have operationally evolved in order to remain successful. He further added that companies are not creating anything because of uncertainty, and later gave these reasons for why companies will not buy the short-term fix President Obama's jobs plan could create.
Marcus' beliefs are fairly accurate in regards to many of the large corporations and small companies throughout America. The mindset of the business owner or CEO is what's important, and according to Marcus, business people are making more money, operating more efficiently, and are not creating "anything" because of uncertainty. I believe this idea to be 100% correct in regards to many of America's largest companies, because despite the fact that most companies are creating more revenue in comparison to just 2 years ago, the companies are still not hiring new employees. In fact, several corporations are laying off employees despite more revenue and higher income.
Below is a look at some of the largest companies and their employment trends over the last 2 years. This chart will show 11 of the largest employers, and the number of employees for each company that was reported on the end-of-year 2009 report. The end-of-year 2009 numbers will then be compared to current employment numbers, along with the difference from 2011 and end-of-year 2009. All numbers obtained from CNN and Yahoo Finance.
Employment Trends | |||
Company | Ticker | 2011 | 2009 |
United Parcel Service | (UPS) | 400,600 | 408,000 |
Sears Holdings Corporation | (SHLD) | 312,000 | 322,000 |
General Electric | (GE) | 287,000 | 304,000 |
Home Depot | (HD) | 189,390 | 255,185 |
FedEX Corporation | (FDX) | 222,300 | 247,908 |
General Motors | (GM) | 208,000 | 217,000 |
Lowe's Companies, Inc | (LOW) | 161,000 | 202,500 |
Walgreen Company | (WAG) | 177,000 | 202,000 |
HCA Holdings | (HCA) | 146,000 | 165,500 |
The Procter & Gamble Company | (PG) | 129,000 | 135,000 |
Pfizer Inc | (PFE) | 111,800 | 116,000 |
These companies are among the 50 largest companies in America by employees. In addition to the 11 companies listed above, there were more than half that follow the same trend and several additional companies that are smaller that fall into the same category. These 11 companies employed 2,575,093 people in 2009 and 2,344,090 in 2011. This means that on average these companies have laid off or fired nearly 10% of all employees since the start of 2010.
In an effort to see if Marcus' claim is true, we must look at revenue of these companies as well. Bernie said that business people are making more than ever while operating more efficiently. Below is a chart of revenue during 2009 and 2010 for the 11 companies above, which was obtained from Google Finance.
Revenue Trend (Millions) | |||
| Company | Ticker | 2010 | 2009 |
| United Parcel Service | UPS | $49,545 | $45,297 |
| Sears Holdings Corporation | SHLD | $43,326 | $44,043 |
| General Electric | GE | $150,211 | $155,278 |
| Home Depot | HD | $67,997 | $66,176 |
| FedEX Corporation | FDX | $39,304 | $34,734 |
| General Motors | GM | $135,592 | $104,589 |
| Lowe's Companies | LOW | $48,815 | $47,220 |
| Walgreen Company | WAG | $67,420 | $63,335 |
| HCA Holdings | HCA | $30,683 | $30,052 |
| The Procter & Gamble Company | PG | $82,559 | $78,938 |
| Pfizer Inc | PFE | $67,809 | $50,009 |
Of the 11 companies listed above, 9 posted higher revenue year-over-year, but all reported fewer employees. With the exception of Sears Holdings and Pfizer, each company posted higher net income year-over-year and are on pace to outperform 2010 in revenue. The total revenue for the 11 companies was $783,261,000 last year compared to $719,671,000 reported on the full-year report of 2009.
The total revenue for the 11 companies listed above increased an average of almost 9% year-over-year, yet total employees decreased nearly 10%. Therefore, the beliefs that companies are both operating more efficiently and are not going to respond to the jobs plan could be correct. Several of these companies increased revenue and income by a large margin, yet still decreased total employees; therefore it seems unlikely that a few thousand dollars in tax credits for one year will encourage these employers to hire.
The direction of the economy is unclear and presents more questions than answers. I agree with Bernie Marcus and his analysis of the job plan in that it will not drastically affect employment, but rather increase taxes. It's going to be hard to make an impact when companies such as Nokia (NOK) are laying off 4,000 employees, and banking giant Bank of America BAC) is set to lay off as many as 30,000 employees. This trend is expected to continue over the next several months, with many of the largest employers cutting costs in an uncertain economy.
The issue of jobs in our economy will only get better when employers believe the economy is improving. Until that day, companies will continue to cut costs, save cash, and give more compensation to top executives. Hopefully the situation will improve soon, because although this recipe for company success may keep shareholders happy, it's hurting our economy in a time where employment is the most important measurement of our future success.
Disclosure: I am long GM.
Additional disclosure: All information and statistics were obtained from the listed source.
