Revenue's Down, Profit's Up. How's That Work?

This is corporate earnings season, the time when publicly traded companies let the world know how they're doing. For Morgan Stanley and Whirlpool, the new hasn't been great. For Apple and Southwest Airlines, the numbers were better than expected.

Among the winners and losers is a string of curious cases, companies that report their profits are up even though their revenues are down. Coca-Cola, for one, said quarterly profits are up 43 percent from last year — even as sales are down 9 percent. And then there's Starbucks, which went from a $6.7 million loss last year to a gain of $151.5 million — though revenue fell by 6.6 percent.

How's that possible? In a word(ish): cost-cutting.

After the jump, a closer look — with charts!

 

Consider the story of Starbucks. In December 2008, the coffee chain embarked on what will eventually be a $500 million cost-cutting program. Managers tightened the supply chain, cut down on waste and planned to close 900 stores. Starbucks doesn't have figures yet on how many store employees have been laid off, but it has reduced its non-store workforce by 1,700 since last year.

What we're seeing in an earnings report like the one from Starbucks is that the cost-cutting appears to be working, as the company reaches a size that makes sense.

More specifically, what we're seeing with regard to layoffs — at Starbucks and elsewhere — has to do with the size of the workforce matching the need. The Bureau of Labor Statistics' latest release on productivity shows that it began to tick up in the first quarter of 2009, as you can see from these charts.

Numbers like these confirm what employed people everywhere already know — that they've been asked to do more with less, and they're doing it.

If you're looking for work, the bad news for now is that companies are benefiting from laying people off. The good news is that the remaining workers have more work to do.

It's only when companies can make more money by bringing on additional people that they'll stop with the layoffs and start with the hiring. For that, we're aways off — as in 2011, according to the latest estimate from Federal Reserve Chairman Ben Bernanke.