Job cut announcements made by large corporations are a useful and perhaps better indicator of unemployment than government released labour data. While official unemployment data provided by Statscan in Canada and the BLS in the U.S. give more precise numbers, they look at historical data. The numbers then make up the most current unemployment rate. Similarly, unofficial payroll and jobs data provided by companies such as ADP also look at historical data. However, the data only provides a historical snapshot without giving investors a glimpse into what may be coming. Trying to predict future unemployment by trending historical data may not be very useful, nor does it give a realistic picture of what may come.
Rather than looking at current unemployment numbers (which are historical), in order to try and predict what might be coming we can look at the amount of jobs that companies intend to eliminate in coming months. This gives us a good window into the near future, and a picture of major workforce reductions. Similarly, we can also look at announced corporate expansions for hints of an improved employment picture.
This is nothing extraordinary, but investors tend to focus too much on official stats, most likely because they are “official” numbers. They are also numbers that can be accurately compiled, whereas announced job cuts may or may not occur in the exact numbers that are stated by corporations.
On the growth side, there has been major expansion announcements across a variety of industries worldwide. Some include Toyota’s [TM] plans to invest $337 million in a new manufacturing factory in Indonesia, Coca-Cola’s [KO] plans to spend $2 billion in India (within the next five years), PSA Peugeot Citroen’s [PEUGY] $932.7 million plans for a manufacturing plant in India, and Merck’s [MRK] plans to complete a new R&D center by 2014 as part of its $1.5 billion investment in China (over next five years). North American expansion announcements include Japanese tire maker Bridgestone Corp’s [BRDCY] plans to spend $1.1 billion to expand its South Carolina facility and also build a new factory, and Ford Motor Co.’s [F] plans to add 7,000 jobs in the U.S. over the next two years. However, the clear trend has been expansion into emerging markets (which have been deemed top priorities by almost all companies) rather than in the world’s western or advanced economies, which have experienced significant workforce reductions on a global basis.
In recent months, there has been numerous announcements made by large multi-nationals regarding massive workforce reductions worldwide. These eliminations have not yet been completed, and therefore have not shown up in current unemployment numbers. They will not show up in the official numbers until the job cuts have actually been made, which look to be another 6 months down the road into 2012. We can expect to see some gains in jobs in 2012, but they may likely be small as cuts offset them. We can expect the overall higher than normal unemployment rate will continue a while longer. Below are some of the more significant global job cuts announced by large and well recognized companies.
Investor Note: Value investors tend to focus more on the micro level aspects of each individual company. Such workforce reductions or expansion announcements are definitely relevant and useful when looking at individual businesses. However, looking at the macro or economic level helps an investor gain visibility into the headwinds that individual companies or the industries in which they operate may likely face.
On 7/18/2011, network equipment giant Cisco Systems Inc [CSCO], announced additional details of its “comprehensive action plan” to reorganize operations and reduce expenses. This includes a reduction of its global workforce by approximate 6,500 employees or 9% of its full-time staff. It also includes approximately 2,100 employees who elected to take early retirement, as well as 15% of employees from vice president level and above. The company also announced that the sale of its set-top box manufacturing facility in Mexico to Foxconn Technology Group, will include transferring approximately 5,000 employees (resulting in no additional job reductions).
On 7/25/2011, Research In Motion [RIMM/RIM] the maker of Blackberry devices, announced details on its “Cost Optimization Program”. The program is focused on eliminating redundancies and reallocating resources to focus on high growth opportunities. As part of the program, RIM will reduce its global workforce across all functions by approximately 2,000 employees down to 17,0000. RIM stated that it will notify employees in North America and certain other countries during the week of the announcement. The remainder of the reductions would occur at a later date (subject to local laws and regulations).
On 7/29/2011, pharmaceutical and healthcare giant, Merck & Co Inc [MRK], announced its “New Phase of Merger Restructuring Program” with its Q2 results. Merck said it will “more aggressively reduce its cost structure” in order to invest in long term profitable growth opportunities and operate efficiently. As part of its next cost-cutting phase, the company will reduce its workforce by another 12-13% (approximately 12,000 employees) by the end of 2015, in addition to its previously planned elimination of 17,000 jobs. Last year the company cut 11,500 jobs to reduce its global workforce by 17% by 2012. At the same time, Merck announced it will “continue to hire new employees in strategic growth areas of the business such as emerging markets”. At the end of June 30, 2011, the company had 91,000 employees worldwide.
On 8/1/2011, HSBC Holdings PLC [HBC] group Chief Executive, Stuart Gulliver, announced in the global banking & financial services company’s 2011 interim results that it expects “to make a further 25,000 job cuts” by the end of 2013. Gulliver also confirmed that the company had cut 5,000 jobs during the first half of the year (700 in France, 700 in the UK, 1,700 in Latin America, 1,400 in the United States, 300 in the Middle East). The additional 25,000 jobs would bring the total global workforce reduction to a staggering 30,000. The number also does not include “headcount that leaves the firm as a result of selling a business” which the banking giant has been doing recently in efforts to withdraw from some countries and refocus on high-growth markets..
On 8/2/2011, financial services giant, Barclays PLC [BCS], announced that it will cut approximately 3,000 jobs during the year to reduce costs after first half profits declined by a third.
On 8/16/2011, Qantas Airways Ltd. [QAN], the international airline said it plans to eliminate up to 1,000 jobs. The cuts are part of changes made to its international business and launch of a new Asia-based airline. The company had forecasts a loss of $210 million for 2011 due to intense competition and high operational costs.
On 8/23/2011, Switzerland’s largest bank UBS AG [UBS], said it expects eliminate 3,500 jobs in efforts to reduce its annual costs by 2 billion Swiss francs ($2.5 billion).
On 9/12/2011, the Bank of America [BAC], announced it was nearing completion of its Phase I reorganization plans. The financial services provider stated that “employment levels in the areas under review during Phase I are expected to be reduced by approximately 30,000 jobs over the next few years”. Bank of America expects Phase I to result in net expense reductions of $5 billion per year by 2014.
Bank of America: http://mediaroom.bankofamerica.com/phoenix.zhtml?c=234503&p=irol-newsArticle&ID=1605904&highlight=
On 9/27/2011, global defense contractor (and Europe’s largest), BAE Systems PLC [BA], announced it will cut 2,942 jobs in Britain due to smaller global defense budgets for orders of its fighter jets. The company specifically cited slowing production rates and budget pressures in the Eurofighter Typhoon program from the four partner nations (UK, Germany, Italy, Spain), as well as slowing U.S. production of the F-35 Joint Strike Fighter jet.
On 9/29/2011, global telecom giant, Nokia Corporation [NOK], announced “plans to take additional actions to align its workforce and operations”, which will result in additional facility closures and the loss of 3,500 jobs by the end of 2012. The new measures are in addition to the announcement made earlier in the year and will focus phone manufacturing. As a result, Nokia plans to close its manufacturing facility in Cluj, Romania by the end of 2011, in favor of Nokia’s “high-volume Asian factories” which “provide greater scale and proximity benefits”. The company also said it will review the long-term role of its manufacturing operations in Salo, Finland, Komarom, Hungary, and Reynosa, Mexico. Although these factories are expected to continue to play a key role in serving European and North American smartphone markets, the company’s “plan is to gradually shift their focus to customer and market-specific software and sales package customization”. Nokia estimates no impact to its workforce this year and “expects to have more visibility into the possible headcount impacts in the first quarter of 2012”. “The planned closure of the Cluj factory combined with adjustments to supply chain operations is estimated to impact approximately 2,200 employees. The planned changes in the Location & Commerce business are estimated to impact approximately 1,300 employees”. The workforce reductions are in addition to the measures announced in April. Nokia expects the new measure to take effect by the end of 2012.
On 10/17/2011, Koninklijke Philips Electronics N.V. (Royal Philips Electronics) [PHG], the large healthcare, consumer electronics, and lighting company, gave an update on “Accelerate!, Philips’ change and performance program”. The program is focused on investing in growth, structural change, execution, reducing overhead costs and adopting a new company culture. As part of the cost-savings program the company is targeting EUR 800 million in savings. Philips said that “60% of the savings are people-related and will result in the loss of 4,500 positions, 1,400 of which will be in the Netherlands”. The remaining 40% relate to other structural costs.
On 10/17/2011, home improvement retailer Lowe’s Companies Inc [LOW], announced the closing of 20 stores in 15 states. The company has also discontinued a number of planned new store projects. “Approximately 1,950 employees will be affected by these closings”.
On 10/19/2011, Maple Leaf Foods Inc [MFI], the Canadian food manufacturing giant, announced they are proceeding with the final phase of their “Value Creation Plan” to reduce operating costs & increase productivity. The company plans to construct a new facility as well as invest in exisiting plants in Canada. However, other smaller facilities will close by 2014. These moves will result “in a net reduction of approximately 1,550 positions, with the majority of the workforce reductions occurring in 2014”.
Maple Leaf: http://investor.mapleleaf.ca/phoenix.zhtml?c=88490&p=irol-newsArticle&ID=1619258&highlight=
On 10/25/2011, Europe’s second largest drug company, Novartis AG [NVS], announced during the company’s conference call that it plans to eliminate 2,000 jobs in Switzerland (1,100) and the U.S. (900), or approximately 1% of the company’s workforce, over the next three to five years. Novartis will also close facilities in Nyon (Switzerland), Base, and Torre (Italy), and plans to take a $300 million fourth quarter charge. The company plans to add 700 positions in China and India for data management and trial monitoring.
On 10/26/2011, French automaker, PSA Peugeot Citroen SA (Peugeot SA) [PEUGY], announced plans to eliminate approximately 6,000 jobs across Europe in 2012, in an attempt to save €800 million ($1.1 billion). The company expects a reduction of 1,000 manufacturing jobs, with the remaining cuts spread equally among outside contractors and Peugeot Citroen staff in non-production jobs (sales, marketing, R&D, IT).
On 10/28/2011, North American appliance manufacturer, Whirlpool Corporation [WHR], announced third quarter results which laid out “aggressive plans that will result in substantial cost and capacity reductions”. The plans includes “a workforce reduction of more than 5,000 positions primarily within North America and Europe (approximately a 10 percent workforce reduction in those regions)”. As part of the restructuring, will see a reduction of approximately 1,200 salaried positions, the closure of the refrigeration manufacturing facility in Fort Smith (Arkansas) by mid-2012 (consolidation into current North American sites), and the relocation of dishwasher production from Neunkirchen (Germany) to Poland in January 2012.
On 11/03/2011, Dutch financial services group, ING Groep N.V. (ING Group) [ING], announced cost reduction and efficiency steps in its retail banking operations in the Netherlands. In the third quarter results, the company’s CEO Jan Hommen said “these measures will lead to redundancies of approximately 2,000 internal FTEs and 700 external FTEs”, or a total of 2,700 jobs. ING along with other Dutch lenders have been cutting jobs as “income is coming under pressure” due to deteriorating market conditions.
On 11/08/2011, digital content authoring solutions provider, Adobe Systems Incorporated [ADBE], announced in its fourth quarter results, plans to “align business around growth opportunities” in Digital Media and Digital Marketing. The plan involves restructuring its business and includes “the elimination of approximately 750 full-time positions primarily in North America and Europe”.
On 11/23/2011, Nokia Siemens Networks, the joint venture between Nokia Corporation [NOK] and Siemens AG [SI],announced that it will “focus on mobile broadband and services and the launch of an extensive global restructuring program”. The company “plans to reduce its global workforce by approximately 17,000 by the end of 2013. These planned reductions are expected to be driven by aligning the company’s workforce with its new strategy as well as through a range of productivity and efficiency measures. These planned measures are expected to include elimination of the company’s matrix organizational structure, site consolidation, transfer of activities to global delivery centers, consolidation of certain central functions, cost synergies from the integration of Motorola’s wireless assets, efficiencies in service operations, and company-wide process simplification”. “The total global workforce of Nokia Siemens Networks on 1 November 2011 was approximately 74,000”.
Nokia Siemens Networks: http://www.nokiasiemensnetworks.com/news-events/press-room/press-releases/nokia-siemens-networks-puts-mobile-broadband-and-services-at-the-heart-of-its-strategy
On 12/06/2011, global financial services company, Citigroup Inc. [C], announced at the Goldman Sachs Financial Services Conference that it will cut 4,500 jobs globally or approximately 2% of the bank’s workforce. The bank told regulators that approximately 413 positions will be from New York City. At the end of the third quarter, the bank had 267,000 employees.
On 12/15/2011, global financial services firm, Morgan Stanely [MS], said in an interview that it plans to eliminate approximately 1,600 jobs at all levels. The workforce reductions are planned to occur in the first quarter of 2012. At the end of September 30, 2011, Morgan Stanely had 62,648 employees worldwide.
On 12/27/2011, Sears Holding Corporation [SHLD], the North American retail giant gave an update on its quarter-to-date performance and “planned actions to improve and accelerate the transformation of its business”. Sears’ CEO, Lou D’Ambrosio, announced the retailer’s plans to “close 100 to 120 Kmart and Sears Full-line stores”. “Final determination of the stores to be closed has not yet been made. The list of stores closing will be posted at http://www.searsmedia.com when final determination is made”.
I am long Coca-Cola, and do not plan on acquiring or selling any shares within the next 3 trading days.
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