Ever since the financial crisis, sales growth has been pretty anemic.
Corporations, however, have satisfied their investors by delivering healthy profit growth by boosting profit margins. These fatter profit margins come from cutting costs, which usually means getting more productivity out of a fewer number of workers.
After around five years of cost-cutting, some market watchers have warned that there aren’t any more costs to be cut.
However, the early read from Q2 earnings announcements is that the cost-cutting theme is alive and well.
“With earnings growth (4.6%) expected to rise at a faster rate than revenue growth (2.7%) in Q2 and in future quarters, companies (particularly in food-oriented industries) have continued to discuss cost- cutting initiatives to maintain earnings growth rates and profit margins,” writes FactSet’s John Butters.
In his latest Earnings Insight note, Butters quotes five recent earnings announcements and conference calls:
“Cost savings from the company’s CCI program and the impact of higher-margin industrial products improved gross profit margin, which rose to 39.9% from 39.3% in the year-ago period.” — McCormick & Co. (Jun. 26)
“Our Consumer Foods supply chain cost reduction programs continue to yield good results, and delivered cost savings of approximately $US50 million for the quarter.” — ConAgra Foods (Jun. 26)
“In addition, supply chain cost-savings from our ongoing Holistic Margin Management (HMM) program are expected to exceed $US400 million in 2015. We anticipate these savings will offset input cost inflation, which we estimate at 3 per cent for the new year.” — General Mills (Jun. 25)
“We remain focused on cost discipline to offset the negative effects of our gross profit dollar growth. We will be accelerating our optimization efforts, taking additional steps to lower our expenses company- wide.” — Walgreen (Jun. 24)
“We’ve continued to achieve a more cost-effective platform. Transformative changes that we’ve talked about the past in Darden’s operations have significantly reduced costs by over $US150 million annually in selected operating areas around support including supply chain, facilities management, water and energy usage.” — Darden Restaurants (Jun. 20)
Keep in mind that these are just anecdotes, and we’re still at the very beginning of Q2 earnings announcement season.
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