It is rare for one of America’s largest companies to lose a third or more of its sales in a brief time. When it happens, it is usually either because of market or economic forces, or because of a designed refocusing. 24/7 Wall St. identified the eight largest American companies whose revenue fell the most in the past five years and analysed the reasons behind the drops.
See America’s Eight Shrinking Corporate Giants >
Large companies can lose a significant amount of their revenues because they get into a great deal of financial trouble. A company may lose part of its customer base quickly because of economic forces, or it may be part of a financial catastrophe. As a result, the company’s revenue declines, and it begins to post large losses. In cases like these, companies often are forced to sell divisions to fund their survival. Alternatively, companies may close some of their operations that drain capital. General Motors and Citigroup are good examples of this category. Each moved from relative prosperity to difficulty in a very short period.
The other reason large companies shrink quickly is by design. The management of a corporation created by merger or acquisition activity may find that some of its pieces no longer fit together. One division may grow at a much higher or slower rate compared to others. Also, the way the stock market values one part of a large corporation may change because it is in a category Wall Street no longer favours. That, in turn, becomes a burden on the stock price of the entire enterprise. Telecom hardware company Motorola Solutions and media giant Time Warner fall into this category. Each is smaller than it was five years ago because it spun out a major business.
24/7 Wall St. used Capital IQ to screen the largest companies in America based on total revenue in 2006. We then screened for those that had the largest drops in total revenue between 2006 and 2010. Most of the eight companies on this list lost a third of their total revenue over the period, and some lost more than half. The list is ranked by total revenue loss from greatest to least.
- Drop in Sales: $6.8 billion
- 2006 Revenue: $73.0 billion
- 2010 Revenue: $66.2 billion
- Pct. Change: -9.3%
- Industry: big-box retail
Home Depot's fortunes were hurt by two factors over the past five years. The first was the collapse of the housing market. A drop in home sales and a rise in unemployment smothered both home building and the ability of people to pay for repairs. There is still some question about when the housing market will rebound. In the first three quarters of 2011, Home Depot's revenue rose only 2.9% to $54.4 billion.
The other reason Home Depot is smaller today than it was five years ago is that it sold its construction supply business in 2007 to concentrate on its in-store retail operations. The unit changed hands in 2007 when it was bought by private equity firms Bain Capital, Carlyle Group and Clayton, Dubilier & Rice. Home Depot built the wholesale construction-supply business through nearly 40 acquisitions totaling more than $7 billion over several years just before it was sold.
- Drop in Sales: $14.3 billion
- 2006 Revenue: $75.7 billion
- 2010 Revenue: $61.4 billion
- Pct. Change: -18.9%
- Industry: banking
Citigroup, like AIG, reorganized its business during and after the credit crisis of 2008. The need for a bailout seemed improbable in 2006 when the company's creator, Sandy Weill, retired. Known as the world's financial supermarket, Citi was created by Weill through a series of mergers and buyouts that included The travellers, Smith Barney and Salomon Brothers. But Citigroup's holdings of mortgage-backed securities made it vulnerable to the collapse of the housing market, and its existence was threatened by huge losses on these securities.
The total rescue of Citi involved stunning sums of bailout capital. The government loaned the financial firm money in two tranches. The first was for $20 billion and the second for $25 billion. The Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. then agreed to guarantee $306 billion in portfolio losses after Cit's first $36 billion in losses. The bank's new CEO, Vikram Pandit, then began to cut out the portions of the company that were most in trouble, and those that could be sold to make the most money to cover losses and loan obligations to the government. At the end of 2008, Pandit said he would cut 52,000 jobs. The company got even smaller when it sold several large businesses like its student loan operations and much of its business unit in Japan.
- Drop in Sales: $14.9 billion
- 2006 Revenue: $41.8 billion
- 2010 Revenue: $26.9 billion
- Pct. Change: -35.6%
- Industry: media
Time Warner is another company that was broken up based on a strategic plan set by its management and board. The conglomerate owned a series of cable systems, the world's largest magazine publisher Time Inc., Warner Bros. studio, several cable networks, including HBO and CNN, and online portal AOL. First, management decided to change Time Warner's focus to content, spinning off Time Warner Cable in the spring of 2009, about a year after its decision.
Time Warner also decided to leave the online portal business and further focus itself on print, movie and cable TV content. Internet portal AOL (NYSE: AOL) was spun off as a public company at the end of 2009. The results of all the divestitures was a five-year drop in revenue of more than one third.
- Drop in Sales: $17.9 billion
- 2006 Revenue: $34.8 billion
- 2010 Revenue: $16.9 billion
- Pct. Change: -51.5%
- Industry: tobacco
Altria used to make and manufacture all of the cigarettes under the Philip Morris brands. It also held a majority interest in Kraft. The company's board found that there were very few economies of scale in the ownership of both food and tobacco companies, although each operated in the same geographical markets and each had large manufacturing facilities. Kraft (NYSE: KFT) was spun off to its shareholders in 2007.
The most significant change to Altria was when it spun off its international business and created a publicly traded company called Philip Morris (NYSE: PM). Altria kept the cigarette business in the U.S. When the deal was announced in mid-2007, Philip Morris International revenues were more than double those of the U.S. unit, with 2006 revenues of $48.26 compared to Philip Morris USA's $18.47 billion. The logic behind the decision was that the U.S. business was highly regulated and was posting only modest growth, while the overseas business had more potential to continue to expand.
- Drop in Sales: $27.5 billion
- 2006 Revenue: $35.3 billion
- 2010 Revenue: $7.8 billion
- Pct. Change: -77.9%
- Industry: telecommunications
Motorola was one of the most successful consumer electronics companies in 2005 and 2006, selling 130 million units of its RAZR handset from 2004 to 2007. By 2010 the company was broken into pieces. Motorola had been a strange conglomerate for years. It had its flagship mobile phone business, but also a division that made TV set-top boxes and a unit that built infrastructure for telecom companies.
The menagerie of divisions became unwieldy when handset sales dropped precipitously when Motorola failed to follow the RAZR's success with another product. The set-top boxes and infrastructure businesses had no synergy with handsets. The company's management and board therefore decided to break the parent into two publicly traded companies and sell off the smallest division. Nokia Siemens Networks bought the wireless-network equipment division of Motorola in June 2010 for $1.2 billion. In the final separation of the parent company, Motorola Solutions kept the enterprise and infrastructure operations, while Motorola Mobility (NYSE: MMI) took the mobile phone operations. Motorola Mobility recently agreed to be sold to Google (NASDAQ: GOOG) for $12.5 billion. The deal is expected to close early this year, pending regulatory approval.
- Drop in Sales: $31.3 billion
- 2006 Revenue: $108.9 billion (2005)
- 2010 Revenue: $77.6 billion
- Pct. Change: -28.7%
- Industry: insurance
AIG was caught on the wrong side of the mortgage-backed securities collapse more than any other financial firm. U.S. taxpayers had to commit $182 billion to keep the massive insurance company afloat. Part of the decision to salvage AIG was because of its financial relationships with large banks, including Goldman Sachs (NYSE: GS) and Bank of America (NYSE: BAC). The rescue was to protect against the destruction of a number of such firms as the credit crisis crested. The U.S. government took effective control of AIG in September 2008. It was the start of a process that led Congress to create the $700 billion Troubled Asset Relief Program (TARP), meant to aid a number of other Wall Street firms that were on the brink of collapse.
AIG was able to pay the government back by issuing stock, much of which the Treasury sold, and by selling off a number of divisions. The largest sales included the sale of American Life Insurance Company to MetLife (NYSE: MET) in early 2010 for $15.5 billion, the sale of AIG Star and AIG Edison to Prudential Financial (NYSE: PRU) for $4.2 billion in late 2010, and the sale of AIG Credit and 21st Century Insurance to Farmers Insurance Group of Los Angeles in mid-2009. Because all of these sales, as well as drops in revenue among its core divisions, AIG's revenue fell 28.7% over five years.
- Drop in Sales: $59.5 billion
- 2006 Revenue: $195.0 billion
- 2010 Revenue: $135.5 billion
- Pct. Change: -30.5%
- Industry: automotive
The near-death experience of GM has been well-chronicled. The automaker had a whopping 50% share of the domestic market in the 1960s. That began to erode when gas prices rose and the number one U.S. car company was slow to move to four-cylinder engines. Japanese imports took market share away from GM because of their quality and fuel efficiency. By the start of the last decade, GM had to fight a two-front war against both the UAW and competition from Asia and Europe. The start of the Great Recession, which began in December 2007, was too much for GM to handle. U.S. car and light truck sales dropped from almost 17 million in 2005 to 10.4 million in 2009. GM declared Chapter 11, with government financing, on June 1, 2009.
The reasons for GM's revenue drop are largely twofold. The first is simply the decline in its sales in both the U.S. and Europe. The other is that GM decided to shed units that were not profitable. It shuttered Saturn in the summer of 2009. Pontiac had been closed two months earlier. Hummer was shut down in early 2010. These closures may have contributed to higher profitability, but they cut GM's overall revenue. Lately, GM has begun to grow again. In its most recently announced quarterly results -- the third quarter of 2011 -- revenue increased to $36.7 billion from $34.1 billion in the same quarter of 2010.