The companies in this year’s 500 list slashed costs so fast and so deeply – especially labor – that even in a feeble recovery, their earnings soared.
The long-awaited recovery is now under way, but it’s a slow, painful slog that’s short on trust and confidence and long on a drumbeat of numbers that mostly shift from dreadful to less depressing. Twenty-seven months after the recession began, unemployment is stuck at 9.7%. Housing starts are dragging near half-century lows. Consumers are finally spending again, but they’re still too fearful about their jobs and homes to crowd malls and auto lots with the buoyant abandon that heralds a full-rigged revival, the kind Americans are used to.
Amazingly, as consumers struggle, U.S. corporations are staging a nearly unprecedented comeback that’s largely escaping notice. The gargantuan, dispiriting job cuts that seem to dominate the news have also been the spur for an epic resurgence in profits. For 2009, the Fortune 500 lifted earnings 335%, to $391 billion, a $301 billion jump that’s the second largest in the list’s 56-year history, approaching the increase in the robust recovery of 2003. For last year the 500 raised their return on sales from less than 1% to 4%. That’s close to the list’s 4.7% historical average.
Hence, the 500’s profits virtually returned to normal after years of extremes – bubbles in 2006 and 2007, collapse in 2008 – despite a feeble overall recovery that’s far from normal. This year’s list – reminder: the Fortune 500 ranks U.S. companies by revenue – is packed with changes that reflect and spotlight the trends reshaping corporate America. The homebuilders that occupied 14 places in 2007 and three last year, including Centex and Pulte, have all disappeared, casualties of shrinking sales. No fewer than nine newcomers from recession-resistant health care joined in 2009, among them drugmakers Genzyme (sales: $4.5 billion) and Allergan ($4.5 billion).
The fall in commodity prices removed half-a-dozen energy production, oil refining, and pipeline companies, and bumped last year’s No. 1, Exxon Mobil ($285 billion), into second place, far behind the new leader, Wal-Mart ($408 billion). The collapse in car sales pushed General Motors ($105 billion) from sixth to 15th place, the first time in the list’s history that GM didn’t make the top 10.
The rebound comes chiefly from three sectors: financial services, consumer cyclicals – items ranging from toys to furniture – and health care. In 2009 banks, securities firms, and insurance companies lowered their combined losses from a staggering $213 billion to just $20 billion. Buoyed by a government bailout, AIG swung from a loss of $99 billion in 2008 – a Fortune 500 record – to a deficit of $11 billion last year. The combined losses at Fannie Mae and Freddie Mac shrank by $15 billion to a still-huge $94 billion, as write-downs continued on subprime mortgages. By contrast, the banks and brokers, including J.P. Morgan, Wells Fargo, and Goldman Sachs, rebounded from losses of $8.7 billion to $38 billion in profits. Write-downs on toxic securities receded, and investment-banking profits jumped, helping offset losses on credit cards and mortgages. J.P. Morgan Chase doubled earnings to $12 billion, thanks chiefly to big gains in fixed-income trading.
In consumer cyclicals, a category that could be labeled “things you’d like to buy but can put off,” companies suffered losses of $42 billion in 2008. Casino operators, electronics retailers, and auto-parts suppliers saw revenues fall faster than they could slash costs. That trend reversed in 2009. Wal-Mart managed to lift revenues, on top of a big increase in 2008, by attracting bargain-hungry customers from competitors with remodeled stores and inexpensive private-label goods, offering everything from frozen pizza to patio furniture in one stop. A single trip also meant less spending on gas. Result: Earnings surged 7.0% to $14.3 billion.
The 500’s most exceptional study in ingenuity may be Mattel, the world’s largest toymaker. In late 2008, Mattel foresaw that sales would plunge in 2009 and introduced a clench-jawed cost-cutting campaign called Global Cost Leadership. Mattel pared its professional workforce by 10%, or 1,000 employees; paid down debt to lower interest costs by $10 million; and reduced overhead by $132 million. Its revenues did drop by $487 million, or 8%. But costs fell much more, by a remarkable $669 million before tax. Mattel booked a net income increase of $149 million, or 39%.
The star of 2009 is undoubtedly health care. The sector’s earnings jumped to an all-time high of $92 billion, placing it second behind tech at $94 billion. Health-care earnings rose by $23 billion, or 33%.
The Fortune 500’s remarkable response is yet another chapter in the saga of a list that’s gone from boom to bust to almost normal, all in the space of three short years. Never has getting to “almost normal” been a bigger achievement.
– Shawn Tully, Fortune Senior Editor at Large
Top 20 Companies
1. Wal-Mart Stores
Rank: 1 (Previous Rank: 2)
Revenues ($ millions): 408,214.0
CEO: Michael T. Duke
The mega-retailer didn’t have a whole lot to complain about in fiscal 2010. Profits were up and, thanks to its sales, the company once again climbed to the top of the Fortune 500. Same-store sales were about flat for the year, but compared with Target’s 2.5% decline, flat is good.
Most remarkable was Wal-Mart’s image overhaul. It helped that former CEO Lee Scott beefed up health care coverage for employees, thought more about the environment and became a public presence. Certain critics will never be placated and fiscal first-quarter results weren’t the greatest. But there’s no denying Scott left new CEO Mike Duke a company in fighting form.
2. Exxon Mobil
Rank: 2 (Previous Rank: 1)
Revenues ($ millions): 284,650.0
CEO: Rex W. Tillerson
The oil giant made a big bet on the domestic natural gas market late last year buying Texas-based XTO Energy for $41 billion. But refining and exploration remain its backbone. The company drilled 45 new wells last year and hit pay dirt on nearly two-thirds of them.
Other big projects: new ventures in Qatar, the Black Sea, and Kazakhstan, including the giant Kashagan field located offshore in the Caspian Sea. With operations in nearly every corner of the planet, Exxon always seems to get a seat at the table when big projects arise. Maybe size does matter. – Peter Newcomb
Rank: 3 (Previous Rank: 3)
Revenues ($ millions): 163,527.0
CEO: John S. Watson
With prices for crude oil and natural gas off sharply from their recent highs, revenue at the oil giant tumbled 37%, from $265 billion to $167 billion. The good news: Production of oil and gas jumped 7%, thanks in part to a 57% success rate on its exploratory drilling.
But another pitfall looms: Chevron has a heavy exposure to high-acid crude, particularly its deep-water projects in the U.K. If the government forces it to start processing the high-cost oil, Chevron may opt to cede its drilling rights, a move that would result in a sizeable charge against earnings. – P.N.
4. General Electric
Rank: 4 (Previous Rank: 5)
Revenues ($ millions): 156,779.0
CEO: Jeffrey R. Immelt
The house that Jack built ended 2009 by selling a controlling stake in its NBC Universal entertainment unit to Comcast, a deal that valued the new entity at $37 billion. Investors largely shrugged off the deal, but as concerns over its finance unit begin to fade – and talk of a dividend increase start to heat up – GE stock lately has been on a tear.
GE chief Jeffrey Immelt hopes to keep the momentum going. He’s investing $6 billion to develop new medical products and technologies, and is making big bets on green technologies, from fuel-efficient turbines to “thin film” solar panels. – P.N.
5. Bank of America Corp.
Rank: 5 (Previous Rank: 11)
Revenues ($ millions): 150,450.0
CEO: Brian T. Moynihan
Say this about Bank of America chief Brian Moynihan: He certainly knows how to talk the talk. In his letter to shareholders, Moynihan went out of his way to thank U.S. taxpayers for making $45 billion in TARP funds available. He also described how he is working closely with “policy leaders” on financial reform.
Whether he can walk the walk – i.e., turn around BofA’s fortunes – is another matter. While the company did repay its TARP loan in December, it is still sitting on billions of dollars of vulnerable residential and commercial mortgage debt – one reason the company spent 8,000 words discussing risk in its annual report. – P.N.
Rank: 6 (Previous Rank: 4)
Revenues ($ millions): 139,515.0
CEO: James J. Mulva
When Warren Buffett said he was “dead wrong” to invest in ConocoPhillips, Conoco chief James Mulva must have taken note. The Texas-based oil company – the nation’s third largest – has been going to great lengths trying to shore up its balance sheet by selling assets, reducing debt, and reining in capital spending.
In March, Conoco said it would sell half of its 20% stake in Lukoil, a move that could raise $5 billion. Other potential sales: the company’s 9% stake in its oil sands venture Syncrude and its 50% ownership in the Flying J truck stop chain. – P.N.
Rank: 7 (Previous Rank: 8)
Revenues ($ millions): 123,018.0
CEO: Randall L. Stephenson
Ahh, the glamorous life of AT&T: best friends with Steve Jobs, exclusive rights to the iPhone (for now) and carrier of choice on the iPad. So why, with everything going for it, did the stock miss a huge rally? In the year ending April 1, Apple soared 109% and the S&P 500 rose 41%. AT&T? Down 2%.
The problem is growth, or lack thereof: little in its saturated wireless business and a decline in landlines, which still accounts for 25% of sales. Unless its high-speed Internet business takes off or the iPad drives new wireless growth, the beatings by Wall Street will continue. – Michael Copeland
8. Ford Motor
Rank: 8 (Previous Rank: 7)
Revenues ($ millions): 118,308.0
CEO: Alan R. Mulally
In March, Ford completed its exit from the luxury car market by selling Volvo to China’s Geely Automobile for $1.6 billion. Although the sale represents a sharp loss – the company paid $6 billion for the Swedish automaker eleven years ago – Ford posted an annual profit of $2.7 billion in 2009, its first profitable year since 2005.
Assisted by the “Cash for Clunkers” program (not to mention Toyota’s accelerator woes), Ford recaptured its position as the nation’s largest carmaker in February. Which is why Ford’s CEO Alan Mulally can now look abroad, including big markets like India, where it recently introduced the compact Figo. – P.N.
9. J.P. Morgan Chase &Â Co.
Rank: 9 (Previous Rank: 16)
Revenues ($ millions): 115,632.0
CEO: James Dimon
CEO Jamie Dimon, who’s been hailed as one of the banking industry’s top leaders, called J.P. Morgan’s annual results “mediocre.” The industry must beg to differ. J.P. Morgan’s revenue jumped in 2009 and profits more than doubled.
It’s the latest proof that J.P. Morgan was the country’s strongest bank through the financial crisis. Last year it raised capital for businesses when others couldn’t; it was the top merger and acquisitions advisor; and it never posted a quarterly loss. – Scott Cendrowski
Rank: 10 (Previous Rank: 9)
Revenues ($ millions): 114,552.0
CEO: Mark V. Hurd
As the biggest technology company by sales, HP now competes with every other IT shop that offers one-stop shopping for corporate buyers and consumers alike. IBM remains HP’s biggest foe on the services front, while Oracle’s purchase of server-maker Sun challenged HP on corporate hardware.
The company’s pending acquisition of networking-gear manufacturer 3Com puts this Silicon Valley pioneer in the crosshairs of Cisco. Printers once accounted for the biggest chunk of HP’s profits, but with size comes diversity: Services, software and computers are all making healthy bottom-line contributions now too. – Adam Lashinsky
11. Berkshire Hathaway
Rank: 11 (Previous Rank: 13)
Revenues ($ millions): 112,493.0
CEO: Warren E. Buffett
If Warren Buffett has lost a step, it didn’t show in 2009. Berkshire rolled up its gaudiest net-worth gain ever and arranged its biggest deal, a $26 billion purchase of railroad Burlington Northern that was completed in 2010. The company also announced a stock split that brings Berkshire ownership within reach for those reluctant to plunk down thousands of dollars for a single share.
Skeptics complain Buffett has drifted from his value-seeking discipline, but the stock is up 23% this year. Maybe that’s why fans spend so much time debating who might eventually fill his rather large shoes. – Colin Barr
Still, a $25 billion bounce from last year’s losses couldn’t move Citi into the black. It lost $1.6 billion during the year because of consumer credit losses and costs to repay TARP. – S.C.
Rank: 12 (Previous Rank: 12)
Revenues ($ millions): 108,785.0
CEO: Vikram S. Pandit
The sickest of the major banks is finally getting healthier. In 2009, Citigroup split itself in two – a good bank and a bad bank – in its effort to sell off more than $500 billion in toxic assets. After passing a government stress test, Citi officially paid back TARP funds to the U.S. Government in 2009.
Still, a $25 billion bounce from last year’s losses couldn’t move Citi into the black. It lost $1.6 billion during the year because of consumer credit losses and costs to repay TARP. – S.C.
13. Verizon Communications
Rank: 13 (Previous Rank: 17)
Revenues ($ millions): 107,808.0
CEO: Ivan G. Seidenberg
Like chief rival, AT&T, Verizon also missed this year’s stock market rally. In the year period ending April 1, Verizon’s stock was down almost 4% while the S&P 500 rose 41%. In the same period, Verizon partner Motorola came back from the dead with Droid and was up 52%.
Not even the chorus of rumors saying Verizon will get an iPhone has helped. For all the nifty devices Verizon is stocking, what it can’t buy is growth. Analysts project an average annual earnings growth rate of just 5% over the next few years. That’s nothing to phone home about. – M.C.
Rank: 14 (Previous Rank: 15)
Revenues ($ millions): 106,632.0
CEO: John H. Hammergren
In March, McKesson finally washed its hands of a decade-old accounting scandal when former CEO Charles McCall was sentenced to 10 years in prison. Maybe that will help people refocus on the company’s impressive fundamentals.
With revenues of more than $100 billion, McKesson generates far more top line than its cooler corporate neighbors in Silicon Valley. The company’s strong performance during the recession recently prompted Standard & Poor’s to upgrade the company’s rating.
Best known as the nation’s largest distributor of pharmaceuticals – the company processes some 4.5 million items a day – McKesson is making inroads on other fronts, digitizing patient records and developing after-hours prescription machines. – P.N.
15. General Motors
Rank: 15 (Previous Rank: 6)
Revenues ($ millions): 104,589.0
CEO: Edward E. Whitacre Jr.
2009 was a tornado for the 101-year-old automaker. There were three CEOs, four divested car brands, and a bankruptcy reorganization that left American taxpayers as its largest shareholders. Don’t forget 2,300 eliminated dealers, 10 closed plants, and 21,000 layoffs.
The world’s second-largest automaker is now run by CEO Ed Whitacre and CFO Christopher P. Liddell, neither of whom have previous auto experience. Liddell says GM has a “reasonable chance” of making a profit in 2010, expects to pay back the remaining $5.6 billion in government loans by June, and plans a public stock offering “as soon as it makes sense.”– Alex Taylor III
16. American International Group
Rank: 16 (Previous Rank: 245)
Revenues ($ millions): 103,189.0
CEO: Robert Benmosche
The good news: AIG chief Robert Benmosche is making good on his promise to repay $180 billion in government bailout money. The company sold two insurance operations earlier this year for $50 billion, most of which will go to repaying its debt to the government.
The bad news: AIG lost $11 billion last year. Then there’s the company’s ugly balance sheet – $140 billion in debt, $150 billion worth of credit default swaps – its numerous legal entanglements, government investigations, and inability to hold onto key executives. It all makes AIG stock, which has gyrated wildly in the past year, better to ogle than own. – P.N.
17. Cardinal Health
Rank: 17 (Previous Rank: 18)
Revenues ($ millions): 99,612.9
CEO: George S. Barrett
Even a company with ultra-slim margins can churn out a billion-dollar profit – if it sells nearly $1 billion worth of stuff, that is.
Drug distributor Cardinal Health simplified itself in 2009 by spinning off its higher-end clinical and medical products group, now CareFusion. As a result, the company boosted its stock price and narrowed its focus. It also has a new CEO, drug-industry veteran George Barrett, who helped Cardinal move beyond embarrassing earnings re-statements in past years. – Adam Lashinsky
18. CVS Caremark
Rank: 18 (Previous Rank: 19)
Revenues ($ millions): 98,729.0
CEO: Thomas M. Ryan
If you picked up a prescription last year, chances are you interacted with at least one of the two sides of CVS Caremark, the drugstore chain cum pharmacy benefits manager (PBM).
The company’s retail side operates 7,000 stores, and its PBM handled 660 million prescriptions in 2009. CVS Caremark increased sales and profits last year – but its growth, while steady, wasn’t uniform. Caremark has struggled since the 2007 merger, losing $4.8 billion worth of 2010 contracts last year.
Investors will be watching to see whether the PBM’s new president, Per Lofberg, can execute a turnaround – and whether investigations by the FTC and a multistate task force cause trouble for the health-care giant. – Mina Kimes
19. Wells Fargo
Rank: 19 (Previous Rank: 41)
Revenues ($ millions): 98,636.0
CEO: John G. Stumpf
Wells Fargo sold more mortgages than any other bank in 2009. As consumers reacted to record-low interest rates, earnings rose more than four-fold as sales doubled. The bank posted a profit in all four quarters.
But analysts were most excited about Wells Fargo’s purchase of Wachovia. The deal was expected to burden Wells with a huge portfolio of shaky adjustable-rate mortgages, but Wachovia proved to be a shrewd pickup. Wells Fargo gained 15 million customers, and after writing down Wachovia’s bad loans, merger costs will be a third less than expected. – S.C.
20. International Business Machines
Rank: 20 (Previous Rank: 14)
Revenues ($ millions): 95,758.0
CEO: Samuel J. Palmisano
Sales at Big Blue were down — as was its Fortune 500 ranking — but that doesn’t mean it was an entirely bad year. Earnings and cash flow were stronger than ever despite the recession, thanks to a continued focus on selling high-margin software and services that are designed to help businesses save money and find customers.
Another sign of a solid 2009: Two of the most powerful enterprise technology companies in Silicon Valley, Hewlett-Packard and Oracle, regularly singled out IBM as a chief rival. Imitation might be the sincerest form of flattery, but vilification is a close second. – Jon Fortt