U.S. chief executives can't break cost-cutting habit [View all]
(Reuters) - A disconcerting trend lurks beneath the recent round of solid profit forecasts announced by companies ranging from United Technologies Corp (UTX.N) to Wendy's Co (WEN.O): More than three years into the recovery, CEOs are still relying on cost cuts to prop up earnings.
While the cuts are not as severe as those that followed the 2008 financial crisis, companies remain cautious, mindful that revenue growth is still tepid. As a result, many appear to be more comfortable wringing efficiencies out of their businesses than gearing up for accelerated production.
The risk is those cuts may be too deep at this stage in the economic cycle, and prevent companies from responding if and when demand takes off.
"Corporate America has cost-cut just about as much as they can," said Jeffery Saut, chief investment strategist at Raymond James Financial. "I think the economy is going to pick up, and if you're understaffed and don't have enough throughput in your factories, yeah, I think you're going to miss out on some things."
I have been experiencing this first hand with the company I have worked for for 30 years. It is a shame to watch them throw great technology and people to the curb so the CEO can show a profit, prop up stock prices or pad his salary. As long as this continues, there will be no true economic recovery.