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How to Play the Real Story Behind Earnings

Waf sees the light!

These companies have succesfully cut the dead weight, which is what a recession is good for. Industry inventory levels are incredibly low. Commonsense would tell someone that at some point the supply channel is going to have to be filled back up. These companies are going to do that with less hourly workers subsequently becoming more profitable with modest top line growth from quarter to quarter. What all these so called experts are missing is the fact that reducing staffing levels is what allows increased profitibility even if topline growth is lethargic. And it will be hard, as it always is, for these companies to justify adding employees due to the incredible margins they will be getting out of selling more product with less people. In this scenario they will hold out unitl Q1 2010 when they start looking at manpower scheduling in order to get rid or overtime and at that point they will begin rehiring. Any CEO will try to holdout as long as he can to enjoy good margins and good stock appreciation. But at some point it becomes more expensive, due to overtime, to build more with less people. This is exaclty why unemployment is a lagging indicator.

A CEO with a team that watches manpower scheduling all the time is one who doesn't have to have massive layoffs when things get bad. These companies would have already adjusted their staffing levels along with a deteriorating economy. This is why unionized workforces assure companies of being cyclical companies. You can never get rid of the deadweight fast enough.