Improving unemployment numbers may typically lag an economic recovery, but a report out today said that July saw the highest number of job-cut announcements in three months. CNN reports that U.S. employers axed 85,117 jobs in July, a 43% increase over June's 59,715 cuts. And we thought executives mostly took the summer off. Clearly, they've forgone vacations to stay home and eliminate staff.
"Employers have all the cards," said John Challenger, CEO of Challenger Gray & Christmas, who released the report. "Not only are they sharpening their salary pencils, but the screening of candidates is probably the toughest it's ever been."
Gulp. And you were bucking for a raise.
In today's Motley Fool Take:
- Costco Dropkicked
- 10 Ways to Make More Money Now!
- GE Financed
- Discussion Board of the Day
- Gillette: "Oh Schick!"
- Quote of Note
- Quick Takes
- And Finally
Warehouse retailer Costco
Costco now expects to earn $0.46-$0.48 a share for the period ending August 31. The company's previous guidance was for $0.54-$0.56. It earned $0.52 per share in last year's Q4.
Costco's total and same-store sales results were strong for the first part of the quarter. But that top-line strength won't translate into earnings growth for the giant, unfortunately. It looks like a repeat of what we saw back in the second quarter, when earnings were hurt by a $16 million after-tax charge for shoring up worker's comp reserves.
Management didn't say how much of today's warning was directly attributable to higher employee costs, but the situation isn't likely to abate anytime soon. Although only one-third of Costco's employees work in California, California claims make up two-thirds of all claim costs. And the company has yet to figure out a way to temper the effects of this.
Costco is resistant to an obvious solution -- higher prices in its stores. That's evidenced by its admission today that gross margins trended lower than the company had hoped for. While it's known for being an honest company that will always charge the lowest prices no matter what, at some point those skinny margins may need to be reexamined.
Chief executive officer Jim Sinegal does recognize this, though. In a recent Fool radio interview, Tom Gardner (who recommended Costco for the May 2002 issue of the Motley Fool Stock Advisor) asked Sinegal, "If the higher worker's comp costs trend continues, will you consider passing the costs on in the form of higher prices?"
Sinegal responded, "If it continues, we'll have no choice. Our business has to be profitable. We look first at how we can mitigate that expense. How can we operate better? As you know, we're not very quick to raise prices. But if this becomes a cost of doing business and it's not going away, then we're going to have to account for it."
So far, Costco (and its shareholders) are still taking it on the chin for customers. That can't last forever, though. It will be interesting to watch how Costco handles this situation going forward.
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By Mathew Emmert
The deal makes sense for Aegon, as the company's $20 billion debt load -- much of which is a result of its 1999 purchase of Transamerica -- has been putting pressure on its credit rating, and the transaction will allow it to reduce its debt by about $1 billion.
For GE, however, the deal points to a growing dependence on its financial services business, and highlights its commitment to lean on it even more in the future.
A great many investors purchase stock in General Electric because it's viewed as one of the most diverse businesses in the world. Indeed, the company is jokingly referred to as a mutual fund, but with each acquisition GE is becoming more of a financial conglomerate than an old-economy industrial giant.
CEO Jeffrey Immelt is committed to growing and transforming GE Finance into a much larger and more flexible financial services firm. Since taking the reigns in 2001, he's injected a great deal of capital into the unit, purchased the lending divisions of Abby National and bankrupt Conseco, and shed GE's underperforming bond insurance business to PMI Group
Don't get me wrong here, GE is still involved in nearly every business imaginable, and I personally view the strategy as a positive, but as an investor you should be aware of what the bottom line is comprised of. In 2003, GE Finance will account for nearly 50% of earnings, and with Immelt's demonstrated commitment to acquisitions, that number will continue to grow.
Again, I like the strategy, which is why I began a position in GE shares nearly two years ago, but it's important to realize where the earnings, and a good deal of the future growth are coming from.
A final plus side is that, with divisions all over the financial services arena, GE Finance is a diverse business in its own right. So all in all, if the company maintains its discipline and sticks to fairly priced deals that are accretive to earnings (at least in a reasonable timeframe) the strategy could go a long way to returning some sizzle to GE's bottom line.
Mathew Emmert owns shares in General Electric. The Motley Fool has a disclosure policy.
Discussion Board of the Day
Will interest rates come back down or is the party over? Do you feel the urge to check out our Home Center to learn how to lock into the current rates before they tick higher? All this and more -- in the Buying or Selling a Home Discussion Board. Only on Fool.com.
Gillette : "Oh Schick!"
According to a Wall Street Journalarticle (subscription required), before Schick introduced its new Intuition razor for women in April, Gillette's share of the blade-and-razor market stood at 67.3%. By the end of July, that was down to 63%, while Schick's share had risen to 17%.
Next month, Schick rolls out its new four-blade razor for men -- the "Quattro." (Note: Gillette disputes the market share numbers, as they exclude sales at Wal-Mart
What's all the fuss about these "revolutionary" new razors, anyway? Well, our own Rex Moore asked the same question, providing some amusing answers. But for some more straight-faced explanations, peek at Schick's Intuition page and this article on Quattro.
Investors can learn a lot from these developments. For starters, never assume that your beloved 800-pound gorilla will remain one. Gorillas do have an edge, but they need to maintain sustainable competitive advantages. Next, take a minute to step back and appreciate the power of branding and advertising and psychology.
Razors are, or should be, a commodity -- they're blades on a stick. Yet razor-makers continually release newfangled shaving devices, each with groundbreaking technology. And we hapless humans, intrigued and excited by something new and cool-looking and supposedly more effective, often buy in droves. (Of course, if it's all hype, sales will eventually slump.)
Is Gillette's turnaround threatened? Possibly, in the short term. But expect the company to release some fancy new shaving solutions of its own soon enough. Its new three-blade razor for women, the Venus, already appears to be doing well. How well? Gillette announces its quarterly earnings results today.
What do you think? Share your thoughts on our Gillette discussion board -- a free trial is available.
Quote of Note
"We celebrate free cash flow (FCF) all across The Motley Fool because it is the most important thing a public company can accomplish." -- Analyst Jeff Fischer in a Motley Fool retrospective on the Joy of Free Cash Flow
Shares of biotech drugmaker Alexion Pharmaceuticals
The Institute for Supply Management's July service industry figures showed an expansion to 65.1, the highest since the survey began six years ago. June's reading was 60.6, and anything above 50 means expansion. This follows the ISM's Friday announcement that its manufacturing index rose to 51.8 in July from June's 49.8.
- For updated stories throughout the day, bookmark our ever-changing News section.
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- Stop Hyping That Stock!: Tom Jacobs spanks a big bank and sells two stocks.
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- Genzyme's Hungry Maw: The biotech drug pioneer gobbles up a profitable upstart.
- Know Your ATM: Make sure it's you getting the money when you hit that ATM.
Bob Bobala, Robert Brokamp, Paul Elliott, Mathew Emmert, Jeff Fischer, Tom Jacobs, LouAnn Lofton, Bill Mann, Selena Maranjian, Rex Moore, Rick Munarriz, Matt Richey, Reggie Santiago, Kate Southerland, Dayana Yochim
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