By Christian Berthelsen
Major U.S. corporations have added a second sour note to a
third-quarter earnings season notable for disappointments:
announcements of major layoffs.
In recent days, Corning Inc. (GLW), Lockheed Martin Corp. (LMT),
Kimberly-Clark Corp. (KMB), Dow Chemical (DOW) and Zynga Inc.
(ZNGA) have all said they will or may downsize employees in the
face of a global economic slowdown, weak growth, worries about
drastic U.S. government spending cuts and tax hikes and, in some
cases, company-specific concerns as managers try to adjust staffing
in the face of underwhelming business results.
And ever-volatile Wall Street employment continues to decline as
a new regulatory framework looms that could drastically alter the
way banks do business.
Layoff announcements are common this time of year as executives,
with the benefit of three quarters' worth of results in hindsight,
square up their books with budgets and projections from the
beginning of the year and beginning planning for the future. But
this year, the announcements are coming on the back of lackluster
profits, with a weak economy and tight U.S. presidential race as a
backdrop.
"The global economy has been slowing for a few quarters now and
clearly that's starting to impact companies' bottom lines," said
Julia Coronado, chief U.S. economist at BNP Paribas. "It's a
difficult choice: Is this temporary slowdown where you can weather
the storm and take the longer view, or is it something that you
think is more lasting and need to adjust the business
accordingly?"
Kimberly-Clark has said it will eliminate 1,500 jobs, or 2.6% of
its global work force, as it restructures its European operations
to reduce exposure to struggling consumers there. Dow Chemical said
it would shut 20 facilities and eliminate 2,400 jobs, or 5% of
total workforce, in Europe, the U.S. and Japan in response to
falling global demand. The announcement came as part of a
third-quarter earnings announcement in which results were 39% lower
than a year ago.
Corning said it is considering job cuts to contend with
underperforming growth in telecom and environmental technology.
Lockheed said it may issue layoff notices if the U.S. goes over the
so-called "fiscal cliff," which would involve stiff cuts in defense
spending. BNP estimates the combination of tax hikes and spending
cuts could draw 3.5% of gross domestic product growth from the
economy if they all come to pass, more than tipping the U.S. back
into recession.
And games maker Zynga said it will cut 5% of its 3,400
employees, which translates to 170 workers, as it shutters studios
and eliminates games in advance of quarterly earnings that are
expected to disappoint. Meanwhile, New York State Comptroller
Thomas DiNapoli recently said Wall Street has cut 1,200 jobs since
the beginning of the year and will likely cut more.
The picture is not all bad. While there were 811 announcements
of "mass layoffs" involving 50 or more workers by a single employer
in September according to the U.S. Bureau of Labor Statistics, that
figure is lower than Septembers in each of the three previous
years, data shows. And while legendary investor and Berkshire
Hathaway chairman Warren Buffett said results of businesses in his
holding company also suggest a global slowdown, he said his
workforce is likely to be 8,000 employees larger by the end of the
year, after starting the year with about 27,000.
But it is still early in the earnings season, and if the parade
of weak results continues more layoff announcements may be on the
way. According to Thomson Reuters, 26.9% of the S&P 500
companies that have reported earnings thus far have missed
expectations, compared with an average of 21% in a typical
quarter.
"Layoffs generally have been at a fairly low ebb for 2012, not
very heavy. We may be starting to see some changes in that," said
John Challenger, chief executive of outplacement and labor
consulting firm Challenger Gray & Christmas. "Certainly,
there's no question that there's pressure on earnings. We knew this
was coming, because [gross domestic product] dropped to 1.3%.
That's a very slow rate of growth and that's going to translate
back into slower orders for companies, and reduce profitability.
Companies in slow-growth mode feel like they can't stoke or rev up
sales because it's just not there. To keep profit levels, they
often turn to cost-cutting, and cost-cutting often means layoffs.
So I do think the spate of earnings announcements where companies
have not met expectations is a harbinger of more layoffs to
come."
Write to Christian Berthelsen at
christian.berthelsen@dowjones.com