You saw it out of IBM and Texas Instruments. You saw it this morning with Goldman Sachs. Revenue, it’s down. So, what’s keeping earnings up? Margins. That’s the focus of today’s Upshot column:
More than two years after the recession put corporate America on a cost-cutting binge, companies are still finding ways to squeeze more profit out of smaller operations.
Second-quarter margins are looking great for companies reporting thus far, and the higher margins are keeping the three-quarter-long rebound in profitability running.
Toy maker Hasbro Inc. on Monday posted a surprising 11% jump in earnings, even as revenue fell 7%. The Pawtucket, R.I., company’s operating margin, or profit from ongoing operations, increased to 10.8% from 9.2% a year ago as royalty payments including for its Transformers and GI Joe toys were down 32% and advertising costs fell 12%.
The only problem with this, is that right now magins are running ahead of historic norms, and history suggests they will eventually come back down to those levels. If sales don’t rise over the next couple of quarters, margins will come under pressure. It’s amazing, actually, that companies can still find places to trim, more than two years after the recession started. That, of course, doesn’t say much for prospects in the jobs market, incidentally.
