InvestorCenter

Earnings Season: Harbinger to Another Round of Big Layoffs?

by Douglas McIntyre Jul 12th 2011 11:00AM
Updated Jul 12th 2011 3:18PM
CiscoWall Street will watch second quarter earnings for telltale signs that the economy has slowed, or that revenue growth or margins have been compressed because of high commodities prices, or expenses which were added early in the year because a recovery had apparently begun.

Companies which warn that negative factors over the rest of the year will soften earnings will turn, in many cases, to layoffs. These won't be as severe as the ones three years ago, when the Great Recession sent many companies' bottom lines into loss territory. However, with the growth of U.S. employment stalled -- based on the June jobs report and high weekly jobless claims -- America's companies have probably already started to modify any plans they might have had to add employees.

Cisco (CSCO) could cut as many as 10,000 jobs next month according to several media reports. That news is just the tip of the iceberg.

Delta (DAL) recently said it would take a second quarter charge for job cuts. Fuel costs were one reason, and while those have moderated, the decrease has not driven prices down to the levels of a year and a half ago. The entire airline industry faces a drop in passenger travel as the economy falters, and margins which will stay tight as long as crude is above $90. American Airlines (AMR) stock has been battered by investors because of balance sheet concerns and worries that it is the only large U.S. carrier which has not engineered a merger to cut costs. AMR shares hit a 52-week low recently of $5.25.

The retail sector is also under pressure because of high costs for key commodities like cotton. Several smaller retail firms like American Apparel (APP) are under financial pressure because same-store sales have been challenged this year. Coldwater Creek (CWTR) and Talbots (TLB) have also been identified as firms in deep trouble with the start of the holiday season only three months away.

The industry that may have recovered the most from the downturn and now is in trouble again is banking. "Faced with weak markets and uncertainty over regulations, many of the biggest firms are preparing for deep cuts in jobs and other costs," The New York Times recently reported. Even profitable investment bank Goldman Sachs (GS) may lay off 10% of its staff.

Earnings season a year ago gave the markets hope that the rounds and rounds of layoffs that had become a hallmark of the economy were largely over. That no longer appears to be the case.

Learn about investing from the comfort of your own home.

Portfolio Basics

Take the first steps to building your portfolio.

View Course »

Investment Strategies

Learn the strategies you need to build a winning portfolio

View Course »
View All Courses

Add a Comment

Sign in »
*0 / 3000 Character Maximum

89 Comments

Filter by:
chris1011

Remember Jim Jones and the congregation he led from San Francisco to northern Guyana? Remember how he reacted to members of congress that came to investigate him? He murdered many. Then, all his followers drank the cyanide poison, most by obedience and some by force. It is a testimony to some 200 people's choice to embrace blind obedience, stupidity, and paranoia.

For years I have been claiming that the present Republican party is no longer Republican. It has been kidnapped by a group of extreme ideologues that uses the Republican name to fool people. Quite successfully.

Grover Norquist, a fundamentalist conservative, has had all Republican Congressmen, but 13, sign a pledge to never raise taxes or eliminate tax loop holes. Never, never, never. Thus, when it comes to taxes (and women's rights) those who sign the pledge have relinquished their independence, their intellectual abilities, and their loyalty to the constitution. Notice how often Republican congressmen vote unanimously on an issue. When two Republicans from Maine refuse, it becomes national news. They risk internal punishment from their party.

David Brooks, a conservative columnist for the NYTimes, wrote an article entitled, "the Mother of All No-Brainers,"on July 4. He concludes that the present group of uncompromising "Republican fanatics" are "not fit to govern."

Richard Cohen of the Washington Post wrote "the G.O.P......has become a political cult. The hallmark of a cult is to replace reason with feverish belief. It is the redoubt of certainty over reason, and in itself (is) significantly responsible for the government deficit that matters most: leadership."

These columns were written to illustrate why no compromise with President Obama is possible, regardless of the issue or the number of meetings.

I hate to think that we average citizens will allow this to continue. We can't wait for the next election to select independent thinkers. We must speak to our congressmen NOW, THIS WEEK. America needs her thinking, realistic citizens to reject these extremists. That is, while we still can.

July 13 2011 at 10:30 AM Report abuse -3 rate up rate down Reply
2 replies to chris1011's comment
nomorebarry7

Copy paste Ozombie crybaby

July 13 2011 at 11:09 AM Report abuse +2 rate up rate down Reply
bggdg

Yes, we really need more "independent thinkers" who spend their day scouring biased publications and then cutting and pasting the words of others. Are you truly dumb enough to be oblivious to the irony of your post, or is this an intentional ploy to mock bleating left wing statists who masquerade as "liberals"?

July 13 2011 at 11:20 AM Report abuse +2 rate up rate down Reply
Gumby

The rich will always profit from anything we throw at them.. taxes? they will make money , anyway .. Tax cuts, they wil stioll make money... Hang them, they will still make money!

July 13 2011 at 3:24 AM Report abuse rate up rate down Reply
1 reply to Gumby's comment
bggdg

"The rich" don't profit just by waking up in the morning as you imply. In fact, economic mobility is higher in the US than in the vast majority of the rest of the world. This means more both high income earners move down the earnings ladder, and more middle and low income earners become higher earners than is typical in most other parts of the world. It is our history of individual freedom that produces such outcomes, not government force and coercion.

July 13 2011 at 8:22 AM Report abuse rate up rate down Reply
Gumby

We usually will have no choice but to reinflate ourselves out of this misery! We did that during the 1970's. We never really conquered inflation , never.. We borrow money to pay for stuff and service at ever inflated prices every day, week, month, year, etc.. As of lately, we cut interest rates to help whittle down our interest expenses on the Mt.Debt. The last high interest bonds and bills are largely rolled over by now.. Now, it is time to reinflate and pay off the worthless bonds and bills. We will have inflation for a numberr of years while we will undergo necessary restructurings of our economic models like moving away from fossil fuels toward alternate energy, increasing health awareness to reduce medical expenses, moving toward manufactured homes away from stick built homes, much lighter and fuel efficient cars, etc. I dont know if the rich will be made to contribute fair share for that change which is not easy to do . The rich simply knows that we will depend on them to carry out the changes for us.. Can we do it ourselves like reading complex blueprints either on paper or computer. it is a complex world that the rich can navigate for us more smartly than we , Bolseviks, can..

July 13 2011 at 3:22 AM Report abuse rate up rate down Reply
1 reply to Gumby's comment
bggdg

Gumby, what is the source of your incapacity?

July 13 2011 at 8:06 AM Report abuse rate up rate down Reply
donahooz

we need to raise taxes on the poor that is the people who shop at walmart . when you raise the tax rate on big companies they raise their prices therefore the little people pay the tax. dumb ass 101 anyone who has ever run a business knows this high finance maneuver. Obama has never run a business but he does know how to ruin a country.

July 12 2011 at 9:00 PM Report abuse +1 rate up rate down Reply
bggdg

Federal spending as a share of the overall economy is at the highest level in the entire history of our country with the exception of three years during WWII in the mid 40's. A return to the lower spending rates of 1950 - when many Americans prospered, and calls for increased government spending were fairly muted - would wipe out most of the deficit.

Despite all that, just over a year ago congressional Democrats and President Obama shut minority Republicans out of negotiations when enacting ObamaCare, a massive tax increase waiting ot be unleashed on American citizens.

Their adamant stand puzzled many analysts at the time. But now it is all beginning to make sense. Democrats seek to increase the poser and influence they hold over American citizens. To do so requires they steal the freedom of the citizenry. Unfortunately, the most intellectually defenseless component of the citizenry cheer on their very attackers, enabling the type of hubris described above.

July 12 2011 at 5:24 PM Report abuse +1 rate up rate down Reply
1 reply to bggdg's comment
Gumby

Oil , natural gas, coal, nuclear consumption and prices etc is at the highest level in the entire history of our country, too. Credit card charges , too. There is many other high crazy spendings besides the government. You cannot blame the government alone..

July 13 2011 at 3:11 AM Report abuse -1 rate up rate down Reply
1 reply to Gumby's comment
bggdg

Actually, no. When viewed as a percent of GDP, all the items you mention have been higher. But the even bigger point is that in the private sector one person's expense is anothers income. So if we were to theoretically say that widget spending was at an all-time high as a percent of GDP, we'd know that consumers were voluntarily dedicating a greater component of the fruits of their labor to widget consumption, AND that widget producers were generating a greater degree of widget sales than ever before. In other words, widgets were in high demand and were producunbg earnings and employing widget producers. But the public sector doesn't produce. It is instead a zero sum game where every dime spent by the governemnt is a dime less of spending/investment that takes place in the productive private sector. So when you find economic sectors where spending as a percent of GDP actually is at an all-time high, that only illustrates that you've located a sector that is experiencing economic growth. When government spending reaches an all-time, this is not an illustration of economic growth as government spending reflects force and coercion, not economic demand for goods and services that is also producing income and jobs fro those supplying the good/service in question.

July 13 2011 at 7:30 AM Report abuse rate up rate down
chris1011

The ranks of those who can call themselves a rich city slicker have grown a bit thicker. Reflecting the global surge of millionaires reported recently, the United States' 10 wealthiest urban areas produced 7.3% more high net worth individuals in 2010, Cap Gemini announced Tuesday in its U.S. Metro Wealth Index.

From No. 1 New York (with a 7.9 % increase to 720,000 millionaires) to No. 10 San Jose (2.7% to 89,000), every major economic hub minted more officially affluent people than it lost.

July 12 2011 at 5:11 PM Report abuse -1 rate up rate down Reply
1 reply to chris1011's comment
bggdg

Oh, no! Not more millionaires. EEEEEEK!

July 12 2011 at 5:31 PM Report abuse rate up rate down Reply
WILLS

Debt ceiling notwithstanding and all of the hype ove fighting that goes with it - pass it will. Unfortunately, it solves little.
The real issue here is the system itself and it is one that rewards incompetence, greed and supported by near eveyone on the Hill. Simply put, if there is any real leadership these days it is not evident in our political system. What is needed is another Teddy like that is a peoples advocate and patriot - and not in anyone's pocket. So far the only one that fits the picture is Spitzer and after his love life scandal, he is not in the running. This is too bad for the public as I presume there are many others that don't give a damn about personal matters, but care greatly about getting someone who might be able to fix this mess. If not, the place will continue to slide.

July 12 2011 at 5:08 PM Report abuse +1 rate up rate down Reply
marine1942

Now would be a great time to raise taxes, give more foreign aid to Egypt and IMF. Raise the debt limit. All wonderful ideas if you hate the USA---hey, but who would do that ?

July 12 2011 at 4:36 PM Report abuse +2 rate up rate down Reply
1 reply to marine1942's comment
chris1011

McConnell and the Baggers turned down a deal to reduce the deficit by $4 trillion, seemingly in defiance of every mantra they have ever thrown out. Taxes would have increased slightly on those earning over 1 million per year and only on the amount over 1 million, yet even that is too much for the super rich. Basically the GOP would have gotten 90% of what they want and would have only given up 10%. They would rather torpedo the economy so that they can blame Obama and achieve the presidency next year. People will not be fooled.

July 12 2011 at 4:54 PM Report abuse -3 rate up rate down Reply
1 reply to chris1011's comment
bggdg

(Some) people already were fooled. Or did you forget "hope and change"?

July 12 2011 at 5:34 PM Report abuse +1 rate up rate down
Greetings Lou

Public companies, earnings, analyst estimates...is it really a surprise that there may be more layoffs?! As a publicly traded company it's your job to appease the Wall Street masses. Unsatisfactory report and your company is now worth a bit less than the day before. So what's a company to do that relies on customer not simply window shopping but actually spending during this economy.....CUT COSTS!! All employees are a cost to the company and as such when revenues a lacking, they must lower the red portion of the equation so more black ink shows. That's why everything is more expensive and comes in smaller containers or why insurance costs always climb up while mostly everyone gets their single digit percent COLA (cost of living adjustment) as a starting point to any potential yearly raise. Meanwhile needly cost like food, clothing, utilities and our weekly gas fill up all go higher by double digit percent increases. So this scenario is kind of like a falling domino line in that if Wall Street is unhappy with the company report then they fall onto the Reporting company to improve their numbers, with a bad economy and not many spenders the company falls onto a cost cutting mode to improve figures and of course after every paper clip has been sold off.....the next cost is people and unfortunately for many of us, it's never the people with the boats, cars and mansions. In the end we are the last domino to fall....the one that gets piled on by all the others that fell before it.

July 12 2011 at 4:13 PM Report abuse rate up rate down Reply
1 reply to Greetings Lou's comment
ajgorm

Remove the customers ability to purchase as the banks have done freezing our credit and selling our mortgage assetsabroad to investors insuring toxic loans, while our government allows out sourcing to continue where they also use slave labor ,where will we find consumers to buy goods if this continues..What did you think would hasppen that we would get trickle down jobs promised by liberal thinking ..LOL...Bigger government wont work..

July 12 2011 at 4:20 PM Report abuse +2 rate up rate down Reply
chris1011

Fun facts:

Since 1960, the debt ceiling has been passed with one or two sentences.

49 times for GOPers

25/26 times for Dems.

July 12 2011 at 3:58 PM Report abuse -1 rate up rate down Reply
2 replies to chris1011's comment
ajgorm

Your a misinformed individual getting your numbers from a fed that we cant audit hoping the figures they gave us are right. Making what you say pure speculation..Maybe you should focus on why we are going broke and tell us how to fix it instead of telling us what is wrong with us, What a waste of time ..

July 12 2011 at 4:15 PM Report abuse +1 rate up rate down Reply
1 reply to ajgorm's comment
chris1011

AJ, we are not going broke. Social Security has IOUs in the form of treasury bonds and will not go broke, regardless of what the politicians are telling you.

The debt ceiling has to be raised to pay for past spending, most of which was done by Repubs under Bush2.

When people are asked if we should stop spending and cut their particular taxes, they pretty much agree. When confronted with a resultant loss of services, they don't want that either. It's human nature to always want services but not pay for them.

July 12 2011 at 4:46 PM Report abuse +1 rate up rate down
marine1942

Obama voted against it ---was he playing politics or just a community orginizer from Chicago ??

July 12 2011 at 4:33 PM Report abuse +1 rate up rate down Reply
2 replies to marine1942's comment
chris1011

Politics of course. Everything is politics.

July 12 2011 at 4:42 PM Report abuse rate up rate down
bggdg

Do as I say, not as I do? That Obama is quite a role model, huh (if you're a brain dead sheeple)?

July 12 2011 at 5:35 PM Report abuse +1 rate up rate down