Rising profits are always heartening. But rising profits in the midst of economic calamity -- when employment and GDP are tanking, consumer demand is falling and companies like Citigroup (C, news, msgs), Time Warner (TWX, news, msgs) and Motorola (MOT, news, msgs) are reporting quarterly losses in the billions of dollars -- that kind of success is the sweet nectar of the corporate gods.
As we come out of one of the worst quarters in American history, what's emerging is the picture of a handful of winners; companies that managed, through luck, planning or cunning, to see their profits go up in the final quarter of 2008.
Call them the Survivors.
How did they do it? We asked Praveen Nayyar, a corporate strategy expert and professor of operations management at New York University's Stern School of Business, to tell us what these companies did right.
- Talk back: Will the economy recover?
Of course, like a kiss, a quarter is just a quarter -- sweet but fleeting, and not the kind of thing you'd build any long-term predictions around. But in this economy, you've got to take your good news where you can get it.
Rather not leave home
Across the country, retailers have been groaning about a lack of customers; several have been forced into bankruptcy. Evidence suggests that Americans are still consuming, but they're relying more on Netflix (NFLX, news, msgs) and Amazon.com (AMZN, news, msgs).Amazon's net sales rose 18% last quarter and its profit jumped 9%.
Netflix, the company that made mail cool again, added 718,000 customers in the last quarter of 2008, bringing its total close to 10 million.
Even better, the cost of each of those subscribers fell 23% from the same period the preceding year. The result: Netflix saw revenues rise 19% and profit increase by 45%.
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And both paid attention to customer service, with Amazon.com, in particular, shortening its delivery time.
"Amazon has sped up its supply chain," says Nayyar. "It used to take five or six days to get something, and now it's one or two days." That helped the company beat its rival, eBay (EBAY, news, msgs), which saw profits fall by nearly one-third over the quarter.
But ultimately, Netflix and Amazon were in the right place at the right time. In a bad economy, people want a range of cheap entertainment, and they'd rather not leave their homes to get it. The companies offered value and convenience, and their profits grew as a result.
Verizon: Planning ahead
The telecommunications sector was hard hit by the economic downturn in the final quarter of 2008. AT&T (T, news, msgs) saw its profit fall 10%, while Qwest Communications (Q, news, msgs) posted a 50% decline in profit.At least Qwest still had profits: Sprint Nextel (S, news, msgs) lost $1.6 billion in the year's final three months. It bled customers as well; 1.3 million went elsewhere in the fourth quarter and Sprint lost 4.6 million customers over the full year.
Against that backdrop, the performance of Verizon Communications (VZ, news, msgs) was a tour de force. Its fourth-quarter profit rose 15%, to $1.2 billion. The number of Verizon wireless subscribers grew by 1.4 million in the period.
How did Verizon do it? By planning ahead.
| Company | Industry | Year-to-date change | Earnings per share |
|---|---|---|---|
Online retail | 21% | $2.49 | |
Online movie rentals | 16% | $1.33 | |
Telecommunications | -17% | $2.25 | |
Food | -15% | $2.96 | |
Confections | -4% | $1.36 | |
Personal products | -16% | $3.66 |
Verizon has spent a lot of money building out its high-speed broadband network, says Nayyar. After years of pouring money into its FiOS fiber-optic network (and promoting the hell out of it in TV ads) the company can offer a better bundle of television and high-speed Internet services than its competitors.
Verizon added 282,000 FiOS customers in the fourth quarter, up from 244,000 in the same period the year before. As one analyst put it, FiOS lets Verizon play offense in a defensive market.
Not only does better broadband help Verizon draw more customers, it also means those customers are higher-end, and less likely to cut their service because they can no longer afford it. And even when people are pinched, wireless and phone service is usually the last to go.
"After paying the mortgage, the next thing you pay is your telecom link," says Nayyar.
Continued: Resistant to recession
