Layoffs extend beyond technology. This is a troubling trend that investors should pay attention to.
On Thursday, chemical giant Dow (NYSE: DOW) reported a weaker-than-expected fourth quarter. The company sees a slowing global economy and is preparing for weakness by cutting costs and focusing on cash generation. This is a good playbook for vulnerable production environments.
Still, no one, especially employees, likes to see weakness in a business. Dow’s plan to cut costs by $1 billion includes laying off 2,000 people.
On Tuesday, 3M (MMM) also reported weaker-than-expected fourth-quarter results, announcing 2,500 layoffs. Those numbers may be more troubling than the cuts announced by the tech giants. Technology companies have reported incredible growth during his Covid-19 pandemic, although numbers are higher.
Take Google’s parent company Alphabet (GOOGL), Amazon.com (AMZN), and Microsoft (MSFT), for example. The trio announced a total of 40,000 job cuts for 2023. As of the end of 2021, Amazon will have over 1.6 million of his employees, Alphabet will employ about 157,000, and Microsoft will employ about 181,000. At the end of 2019, Amazon had about 800,000 employees, Alphabet had less than his 120,000, and Microsoft had about 144,000.
Employment at 3M and Dow totaled 131,000 at the end of 2021. At the end of 2019, there were approximately 133,000. There was no post-corona job boom by these industrial companies.
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Google, Amazon and Microsoft appear to be adjusting their workforces after a period of growth caused by the pandemic. Dow and 3M are cutting jobs as the economy weakens.
In terms of earnings, the Dow reported fourth-quarter earnings per share of 46 cents on sales of $11.9 billion. Earnings before interest, taxes, depreciation and amortization (Ebitda) were $1.3 billion. Wall Street was expecting EBITDA of $1.4 billion on sales of $12 billion and earnings of 57 cents per share.
However, it is not so important for chemical manufacturers to “win or lose” a sale. Input costs are highly variable and companies are usually judged by the spread they can earn between raw material prices and product prices.
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Cash from operations continues to perform well at over $2 billion, up from $1.9 billion generated in the third quarter of 2022.
In the fourth quarter of the year-ago quarter, Dow earned $2.15 per share on EBITDA of $2.9 billion and revenues of $15.3 billion.
CEO Jim Fitterling said: “In response, we shifted our focus to cash generation this quarter, reducing capacity utilization, implementing cost-cutting measures and prioritizing higher-value products where demand remains resilient.
The Dow shares fell 0.7% on Thursday.of
S&P 500
rose by 0.4%, while
Dow Jones Industrial Average
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It is up 0.1%.
Wall Street expects earnings of $4.20 per share next year on EBITDA of $7.2 billion and revenue of $51.9 billion.
The Dow shares trade at about 14 times their expected earnings in 2023, while the S&P 500 trades at about 16 times their expected earnings.
Please contact Al Root (allen.root@dowjones.com).