Companies sharpen job-cutting shears as sales slow
BOSTON (Reuters) - Faced with weakening revenue, three of the largest U.S. companies warned on Tuesday that they would cut jobs to protect profits.
Dow Chemical Co (DOW.N) said it would cut 2,400 jobs, about 5 percent of its staff, and close 20 manufacturing facilities in a bid to save $500 million a year in operating costs. The company said it would also cut back capital spending and investments to save another $500 million on top of that.
DuPont Co (DD.N) said it planned to lay off about 1,500 workers - roughly 2 percent of its global headcount - as the chemical company grapples with weakening demand from the construction and renewable energy sectors.
United Technologies Corp (UTX.N) did not specify the magnitude of the cuts it was considering but said it would raise its full-year, restructuring budget by 20 percent to $600 million as demand for its military equipment declines.
Both DuPont and United Technologies, components of the widely watched Dow Jones industrial average .DJI, reported weaker-than-expected sales for the third quarter, following an overall trend. Of the companies in the broad Standard & Poor's 500 index .SPX that have reported results, 63 percent came in below analysts' revenue forecasts, well above the 38 percent sales-miss rate in a typical earnings season, according to Thomson Reuters I/B/E/S.
"Obviously, we're looking carefully at the macro environment," United Tech Chief Executive Louis Chenevert told Reuters. "In Europe, the economy continues to be very sluggish, and in North America it's a slow recovery.
Dow, DuPont and United Tech are by no means the only big U.S. companies to begin cutting jobs. Chipmaker Advanced Micro Devices AMD.N said last week that it would reduce its workforce of 12,000 by 15 percent as it copes with weak demand and a consumer shift towards tablet computers.
Engine maker Cummins Inc (CMI.N), the PayPal arm of eBay Inc (EBAY.O) and for-profit college operator Apollo Group Inc (APOL.O) announced smaller rounds of cuts earlier this month.
While the U.S. unemployment rate ticked down to a four-year low of 7.8 percent in September, it remains one of the main roadblocks to a stronger U.S. recovery from the recession.
Though not all of the cuts would come in the United States, more waves of pink slips would not be good news for Democratic President Barack Obama, who is locked in a tight re-election battle with former Massachusetts Governor Mitt Romney, a Republican, who has criticized Obama's handling of the economy.
The job cuts are one of the more extreme reactions so far this earnings season to slipping demand and global economic uncertainty, and recent data suggests more layoffs could be on the way.
The number of jobs cut at U.S.-based employers rose 5 percent in September from August, when layoffs hit a 20-month low, according to Challenger, Gray and Christmas, a consulting firm that tracks layoff data.
"This may be a harbinger of things to come," John Challenger, the firm's chief executive, said of DuPont's layoffs.
The magnitude of cuts DuPont discussed do not compare with thousands of layoffs by big U.S. employers during and after the recession. Most have kept staffing levels low, leaving little room for more job losses.
"Revenue has been slowing down, and you could see companies turning to layoffs as another way to increase the bottom line," said Perry Adams, a portfolio manager at Northwestern Bank in Traverse City, Michigan, whose holdings include United Tech and 3M. "But they're running pretty lean and have to be careful."
Companies across a range of sectors, including manufacturer 3M Co (MMM.N), tech equipment and service supplier Xerox Corp (XRX.N) and No. 1 package-delivery company United Parcel Service Inc (UPS.N) reported weaker-than-expected revenue in the quarter.
The revenue misses reflect a sharp strengthening in the dollar's value in the third quarter, a year after it dove when Standard & Poor's stripped the United States of its AAA credit rating. A stronger dollar makes U.S. goods more expensive overseas and reduces the revenue booked from foreign sales.
3M and Xerox cut their profit forecasts for the remainder of the year, while UPS held its steady. UPS shares closed up 3 percent at $73.73, while DuPont finished down 9 percent at $45.25, Xerox closed down 5.1 percent at $6.67 and 3M closed down 4.1 percent at $88.73.
3M CEO Inge Thulin, who took the reins in February and has been focused on controlling costs, said the company expects the economy to remain steady in the fourth quarter, neither slowing dramatically nor materially improving.
"We don't see any uptick, but we believe it's stable," Thulin told investors. "There's many uncertainties."
Among those uncertainties is China, whose economic slowdown has caused it be a less reliable growth engine for multinational companies. 3M noted that its sales in China were essentially flat in the quarter, with declines in demand for industrial and transportation products offsetting growth in healthcare and office supplies.
Investors are also waiting to see what Americans do over the next two months during the holiday shopping season, which is critical for retailers, consumer goods companies and shipping companies.
UPS said on Tuesday that although there was some uncertainty around the "magnitude" of the holiday shopping season, it expects to handle more than 500 million packages between the U.S. Thanksgiving Day holiday and Christmas, and said it would release more estimates and holiday hiring plans within a few weeks.
Companies that sell to consumers rather than corporate buyers sounded a somewhat brighter note on Tuesday. Appliance maker Whirlpool Corp (WHR.N) had better-than-expected third-quarter earnings and raised its profit forecast for the rest of the year as it succeeded in a campaign to raise prices. Higher prices boosted its profit margins but weighed on sales, which fell 2.8 percent in the quarter.
Coach Inc (COH.N) beat Wall Street's earnings expectations as consumers proved ready to buy its handbags and other luxury leather goods that are more affordable than those made by rivals such as France's LVMH Moet Hennessy Louis Vuitton SA (LVMH.PA) or Italy's Prada SpA (1913.HK).
Price strategy also helped Coach expand sales in China, said CEO Lew Frankfort. "Our price points are extremely compelling relative to the European luxury brands," he said in an interview.
Investors sent Coach shares up 7.3 percent to a close of $58.15 and Whirlpool shares up 8.7 percent to close at $93.81.
Overall, though, investors remained worried that slowing sales growth would dim corporate prospects.
"We're definitely seeing pressure on sales. Most are coming in below expectations while earnings have been mixed," said Jeff Windau, an industrials analyst at Edward Jones in St. Louis.
The overall decline left executives stretching for any positive indicators to share with investors. DuPont vice president of investor relations, Karen Fletcher, pointed out strong sales of cyanide as one of the company's bright spots in the quarter.
While the company sells that chemical for use in gold mining, cyanide is commonly known for being highly poisonous.