Rising interest rates and corporate retrenchment were the twins bedeviling Compass (COMP 2.56%) stock these past few trading days. They helped push the big real estate company's share price down by almost 19% across this week, according to data compiled by S&P Global Market Intelligence.
The fortunes of the real estate business are inextricably tied to the development of interest rates. This stands to reason, as mortgages -- which are by far the most expensive recurring cost item for many people and families -- are based on those rates. That's a key reason companies like Compass took a hit on Wednesday, following the Federal Reserve's 75 basis point hike to its benchmark rate.
That was, of course, not the first Fed hike of this year, and it's likely not the last. Fully aware of which way the wind was blowing, on Tuesday Compass confirmed in a regulatory filing that it will be trimming its workforce. The goal is to hit non-GAAP (adjusted) operating expenses of $1.05 billion to $1.15 billion, as detailed in the company's August conference call discussing its second-quarter results.
Compass said it expects to book a pre-tax cash charge of roughly $23 million to $26 million in expenses related to employee dismissals for its current quarter, which ends next Friday, Sept. 30.
Although it's coming at a cost of peoples' jobs, Compass' retrenchment makes sense given the current market conditions. So far the company has been coping as well as can be expected. It did manage to post year-over-year revenue growth in its second quarter, although this amounted to only 4% and profitability slid precipitously.