Companies make 2024 the year of cost cuts

Corporate America is sending a message to Wall Street: It’s serious about cutting costs this year.

Executives in industries ranging from toy and cosmetics makers to office software sellers have announced layoffs and other cuts — even at some companies that are making a profit.barbie maker Mattel, Paypal, cisco, Nike, Estee Lauder and Levi Strauss These are just a few of the companies that have cut jobs in recent weeks.

department store retailer macy’s department store said it would close five department stores of the same name and lay off more than 2,300 people. JetBlue Airways and spirit airlines Buyouts have been offered to employees, while United Airlines Cut back on first-class meals on some of the shortest flights.

As consumers watch their wallets, companies are feeling pressure from investors to do the same. Executives are trying to show shareholders that they are adjusting to consumer demand and responding aggressively to higher spending as consumer demand returns to typical patterns or even softens.

Airlines, automakers, media companies and package giant UPS are all digesting new labor contracts that give tens of thousands of workers pay raises and drive up costs.

In past years, companies were able to pass on higher costs to customers willing to spend money on everything from new appliances to beach vacations. But companies’ pricing power has diminished, so executives are looking for other ways to manage budgets or squeeze out more profits, said Gregory Dako, chief economist at Ernst & Young.

“Cost fatigue is a big factor for consumers and business leaders,” said Daco. “Almost everything costs much more than before the pandemic, whether it’s goods, inputs, equipment. , labor, and even interest rates.”

There are some exceptions to the recent wave of cost cutting: Walmart, For example, the company said last month it would build or renovate more than 150 stores over the next five years and invest more than $9 billion to modernize many existing stores.

Some companies, including banks, have already slashed spending.The five largest banks, including FuGuo bank and Goldman Sachs, In total, they will eliminate more than 20,000 jobs by 2023. Now, they are waiting for the Federal Reserve to cut interest rates to free up pent-up M&A cash.

But even in the first few weeks of this year, cost-cutting measures have resulted in tens of thousands of jobs and billions of dollars in funding. U.S. companies announced 82,307 job cuts in January, more than double the number in December but still down 20% from the same period last year, according to Challenger, Grey, and Christmas.

The austerity measures taken months ago are already showing up in financial reports.

Results so far this earnings season suggest companies have been focused on boosting profits without the push of big price hikes and sales growth.

As of mid-February, more than three-quarters of S&P 500 Index Fourth-quarter results were announced, and profit beat estimates by far more than revenue beat estimates. Earnings for the combined S&P 500 companies are expected to rise nearly 10% this quarter. However, revenue grew only 3.4%.

While companies’ pursuit of higher profits is nothing new, they have made boosting profits a top priority this year.

downsized It’s having ripple effects across the tech industry as companies follow suit Yuan The layoffs in 2023, which many analysts believe will help the social media giant recover from a difficult period in 2022. Mark Zuckerberg, chief executive of the parent company of Facebook and Instagram, has dubbed 2023 the “year of efficiency” as the company slashes its workforce and vows to continue its streamlined approach.

Warner Bros. Discovery Cuts content spending and headcount as $4 billion The combination of Discovery and WarnerMedia provides total cost savings. disney It initially pledged to cut $5.5 billion in costs by 2023 and cut 7,000 jobs. The company has since increased its savings commitment to $7.5 billion, executives said in its quarterly earnings report on February 7. may exceed That goal.

last week, Paramount Worldwide Chief Executive Bob Bakish said the company announced hundreds of layoffs to “operate in a leaner manner and reduce expenses.” Comcast NBCUniversal, the parent company of CNBC Jobs have also been canceled recently.

JetBlue AirwaysThe company, which has not reported an annual profit since before the pandemic, is delaying about $2.5 billion in capital spending on new Airbus planes until the end of the decade, culling unprofitable routes and redeploying them in addition to employee buyouts airplane.

Delta AirlinesIn November, the company became profitable and said it would cut some office positions, calling it a “minor adjustment.”

Some cuts even extend to the front of the cabin. United Airlines, The company, which is also targeting profitability in 2023, said earlier this year it would only offer first-class meals on flights over 900 miles, down from 800 miles previously. “On flights between 301 and 900 miles, United First passengers can enjoy premium snack baskets,” an internal post reads.

Several of the country’s largest car manufacturers, such as General Motors and FordBillions of dollars in spending have been reduced by reducing or delaying investments in all-electric vehicles.Companies headquartered in the United States as well as other companies, such as companies headquartered in the Netherlands starhas recently reduced headcount and wages through voluntary buyouts or layoffs.

even ChipotleThe company, which reported an increase in traffic and sales at its restaurants in its most recently reported quarter, is pursuing higher productivity by testing an avocado-scooping robot called Autocado that can shorten the time it takes to make guacamole. required time. It’s also testing another robot that can put together burrito bowls and salads. These robots, if expanded to other stores, could help reduce costs by minimizing food waste or reducing the number of workers required to perform these tasks.

Industry experts attribute some of the recent layoffs to companies taking a breather and taking a hard look at how they operate after an unusual four-year stretch caused by the pandemic and its fallout.

The past few years have been characterized by a mismatch between supply and demand for goods, services and even workers, said EY’s Darko.

Customers continue to go on shopping sprees, driven by government stimulus measures and reduced experience-related spending. Airlines saw demand disappear and then surge. Companies furloughed workers early in the pandemic and then struggled to fill jobs.

He said he expected the company to “seek a balance” this year.

“You’re going to see a rebalancing of labor markets and capital markets,” he said. “That rebalancing will still play out and gradually lead to a more sustainable environment of lower inflation and lower interest rates and perhaps slightly slower growth.”

For example, the auto industry faced supply issues during the pandemic but now faces underlying demand issues. According to data from Cox Automotive, new car inventories are increasing and will exceed 2.5 million vehicles by the end of 2023, with a supply of 71 days, an increase of 57% year-over-year, forcing automakers to offer more discounts to bring vehicles to market. and trucks moved away from dealers. a lot of.

Automakers have also been grappling with slower-than-expected adoption of electric vehicles.

Fitch Ratings retail analyst David Silverman said businesses are “feeling a little heavy” as sales growth slows and could even decline.

UPS, Hasbro and Levi’s have all cut costs after sales fell in their latest fiscal quarters. Macy’s, which reports earnings later this month, said it expects same-store sales to decline, and there’s early evidence that may bear that out: Consumers spent less in January, According to the latest federal data, retail sales fell 0.8%, exceeding economists’ expectations.

Even with rolling layoffs, The labor market remains strong, which may help explain why Wall Street generally rewards companies that find room for savings and return profits to shareholders.

For example, Meta’s stock price nearly tripled in 2023, the “Year of Efficiency,” making the stock the second-best gainer in the S&P 500 behind Nvidia. After laying off more than 20,000 employees in 2023, Meta announced its first-ever dividend on February 2 and said it expanded its stock repurchase authorization $50 billion.

United Parcel Service, which just ended layoffs, said it will raise its quarterly dividend by one cent.

Overall, dividends paid by S&P 500 companies increased 5.05% last year, said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, and he expects dividends could grow nearly 5.3% this year.

—CNBC’s Michael Wayland, Alex Sherman, Robert Hum, Amelia Lucas and Jonathan Vanian contributed to this article.

Revealed: Comcast owns NBCUniversal, the parent company of CNBC.