There's Only So Much Fat To Cut ...
-- February 7, 2003
During this economic slump, companies have unloaded billions of dollars worth of assets and millions of workers as part of a cost-cutting effort designed to boost profits. Citigroup sold its Manhattan headquarters for $1.1 billion in the third quarter of 2002 and managed to boost its earnings by $332 million. In the same quarter, General Electric off-loaded an entire division to meet its goals. The company sold its Internet commerce arm, a move that added $317 million to its bottom line. Merrill Lynch slashed its payrolls by 21,000 over a two-year span to boost its profits. That's just a few of the countless examples.
And while trimming the fat should be a goal for every company, it's not what will make a company strong in the long run. Without expanding existing markets and creating new ones for its products and services, a company can't continue to post solid earnings over the long term.
A genuinely positive earnings report is one in which the company's earnings are driven by higher sales of their products and services -- rather than being the result of fire sales to meet already lowered expectations!
related article: Cost-Cutting Helped Corporate Earnings