After years of flourishing, some of America’s largest public corporations have stopped growing. In several cases, this trend began years ago.
The companies that cannot grow fall into two categories. The first are those that due primarily to mismanagement have lost sales and been battered by superior competition. The second are companies that may have good management but operate in industries saturated by competition and industries that are no longer growing rapidly — sometimes even shrinking. In both cases, many of these corporations are expected to do little better in the next year or longer, at least as far as revenue growth is concerned.
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Among companies that are poorly managed is Sears Holdings. It has allowed itself to be flanked by two sets of competition. The first is big-box retailers, including Walmart. The second is online retailers, primarily Amazon.com. Sears does not have much of an excuse for its stagnant growth. It began to operate stores in 1925, giving it a decades long head start in the industry.
Among companies that are relatively well managed but boxed in by the lack of growth in their markets are defense contractors Lockheed Martin and General Dynamics. Each relies heavily on the federal government for its sales. As some projects are completed, their revenue contribution naturally falls and is sometimes replaced by new projects. That cycle is not a recipe for rapid top line growth. As Congress begins austerity measures, it is certain that defense projects will be cut, which leaves the defense contractors in a difficult position if they wish to add sales in the next several years.
Some large companies try to make up for their lack of revenue growth by offering investors other means of returns. These are primarily in the form of share buybacks or dividend increases. Among the companies analyzed here, AT&T has the highest dividend. Its current yield is nearly 5%. General Dynamics’ yield is 3.3% and Lockheed Martin’s is 4.8%.
The financial press often focuses these days on rapidly growing companies such as Google, Apple and Amazon. But there is a group of huge corporations that have not, and may not ever again, post any substantial increase in sales.
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Based on data provided by Capital IQ, 24/7 Wall St. identified the largest companies that will not grow. In order to be considered, companies had to be among the 100 largest companies by sales, based on their most recent fiscal year. To qualify, companies had to have sales growth of 3% or less over the most recent one-year, three-year and five-year periods. Additionally, all companies had consensus growth estimates of less than 3% for 2013. Companies with any significant M & A activity were excluded. Company filings submitted to the Securities and Exchange Commission and data from Morningstar were also considered.
These are the famous companies that will not get bigger.
9. General Dynamics
> LTM Revenue: $31.5 billion
> 5-yr. growth: 3.0%
> 1-yr. growth: -3.6%
> Consensus growth: 0.4%
> Industry: Aerospace/defense products and services
General Dynamics Corp. (NYSE: GD) is one of the largest defense companies in America and one of the primary arms merchants to the world. More than 60% of the company’s revenue comes from sales to government entities. The defense contractor also owns Gulfstream, one of the premier manufacturers of high-end private jets. One of General Dynamics’ biggest challenges is that government defense spending is often variable. The company’s financials for the 2010 to 2012 period show that. Revenue in the company’s mobile communications systems operations dropped from $5.1 billion in 2010 to $3.4 billion in 2012. The tank unit’s revenue dropped from $1.6 billion in 2010 to less than $800 million last year. Fortunately, sales of the aerospace division, which makes Gulfstream aircraft, rose sharply in sales last year. However, the challenge ahead for General Dynamics is simple. Almost every plan for reducing the federal budget deficit calls for deep cuts in military spending — the heart of GD’s business.
> LTM Revenue: $33.3 billion
> 5-yr. growth: -2.0%
> 1-yr. growth: 2.0%
> Consensus growth: 2.3%
> Industry: Property and casualty insurance
Allstate Corp. (NYSE: ALL) is one of the largest property and casualty insurance companies in America. It concentrates on auto, home and life insurance products. In 2012, Allstate’s revenue rose only 2% to $33.3 billion. A recent analysis by research firm Zacks pointed out that some of this growth was due to the acquisition of Esurance. Zacks further commented that in 2012, “Allstate’s top-line growth slowed due to increased competition.” That competition includes giants insurers Geico and Progressive. It is difficult for any of these to raise rates considerably as they hold one another in a competitive check to hold on to their customers. Analyst consensus growth estimates for 2013 and 2014 are barely better than they were in 2012, at 2.3% and 2.7%, respectively. This means that the relatively flat revenue the company has posted in the past eight years will continue.
7. Sears Holding
> LTM Revenue: $39.9 billion
> 5-yr. growth: -4.7%
> 1-yr. growth: -4.1%
> Consensus growth: -10.7%
> Industry: Department stores
Like many of the huge retailers, Sears Holding Corp. (NASDAQ: SHLD) has suffered from intense competition in recent years. It had to increasingly compete with Amazon.com on the one side and with big-box retailers, such as Walmart, Target and Costco, on the other. The combination of Kmart and Sears made in 2005 has also never done well. Although share price is not always a perfect measure of a company’s long-term growth against competitors, it is telling that the price of Sears Holdings stock is down more than 50% since the start of 2005, while Walmart’s is up more than 40% during the same period.
The Sears and Kmart track records for same-store sales, an important measure of success at large retailers, has been poor for some time. Sears Holdings has admitted some level of defeat through its decision to close stores in 2011. As retail analyst Brian Sozzi told Reuters at the end of 2011 when results were particularly grim, “They’ve neglected this business for so long. They are letting Kmart and Sears die on the vine.” The observation still holds true. Sears’ most recent quarterly numbers showed no recovery from the negative long-term trend.
> LTM Revenue: $44.2 billion
> 5-yr. growth: 0.9%
> 1-yr. growth: 1.3%
> Consensus growth: 1.7%
> Industry: Grocery stores
Traditional grocery store chains are in trouble. A Morningstar analyst put it well when describing Safeway Inc.’s (NYSE: SWY) figures: “Safeway and other traditional grocery store operators continue to face secular challenges that make it difficult to improve their competitive position in food retailing.” Those challenges particularly include competition from large retailers that offer broader sets of products and services to customers in addition to groceries. Target is at the top of this list of competitors after it has aggressively expanded food offerings. Safeway is not alone in its predicament.
Rival Supervalu recently agreed to a radical restructuring in which it sold many of its stores to private equity firm Cerberus. Despite the bump in the company’s share price following the announcement, its stock remains 80% below what it was five years ago. Safeway’s shares have done better — down only 15% over that same period, but that is against an increase of almost 14% in the S&P 500. Results from the latest quarter reflect the longer term trend for Safeway. Same-store sales, excluding the sales of fuel, were up only 0.8%. Revenue up just 1% to $13.8 billion.
5. Lockheed Martin
> LTM Revenue: $47.2 billion
> 5-yr. growth: 2.4%
> 1-yr. growth: 1.5%
> Consensus growth: -4.2%
> Industry: Aerospace/defense products and services
Lockheed Martin Corp. (NYSE: LMT) shares a great deal in common with its defense industry peer General Dynamics. It is a huge supplier of arms to both the U.S. military and countries overseas. Going forward, defense cuts will limit the company’s ability to grow. As Forbes recently reported, “In 2012, the company received 82% of its revenues from the U.S. government, including 61% from Department of Defense. The impact will likely be the highest on the company’s information systems segment, which gets around 95% of its revenues from U.S. government agencies.” Lockheed has been unable to improve its top line much in recent years, and 2012 is a prime example. Revenue only rose from $46.5 billion in 2011 to $47.2 billion in 2012. One of Lockheed’s major challenges is that its information systems business has contracted two years in a row to $8.8 billion in 2012. The unit completed several projects last year. In other cases, unit sales for some products fell. In addition, sales at its missiles and fire control unit were flat at $7.5 billion mostly because of lower sales volume of some of the missile related products.
> LTM Revenue: $56.9 billion
> 5-yr. growth: -1.4%
> 1-yr. growth: -8.3%
> Consensus growth:-2.2%
> Industry: Personal computers
Michael Dell is trying to take the company he founded private, and investors may hope that he will be successful. He and competing bidders have set buyout prices that are around $14 a share. Just a little over a year ago, the stock was above $18. Dell’s case to shareholders is that the price will not go back there. The stock trades at $14.30 today. Part of Michael Dell’s argument is based on his assertion that the PC maker is in deep trouble. These problems date back to when the overall industry began to falter in the face of the popularity of smartphones and tablets. In a filing with the SEC, a special committee of the company’s board explained why a buyout would favor shareholders. “The Company lowered its fiscal year 2013 earnings per share guidance from $2.13 to $1.70 and attributed the lowered outlook to the uncertain economic environment, competitive dynamics and the decline in demand in the EUC (end-user computing) business.” Dell Inc. (NASDAQ: DELL) has not just been battered by a worldwide drop in PC sales. The company’s market share of the shrinking PC sector has also been falling rapidly.
3. Procter & Gamble
> LTM Revenue: $83.3 billion
> 5-yr. growth: 1.1%
> 1-yr. growth: -0.4%
> Consensus growth: 1.2%
> Industry: Personal products
Procter & Gamble Co. (NYSE: PG) describes itself as the largest consumer products company in the world. Founded in 1837, it is certainly one of the oldest. The company has a massive global footprint and says it sells its products in more than 180 countries. But it appears that P&G’s large size has worked against it. In the most recently reported quarter, revenue rose only 2% to $22.2 billion. Of the company’s seven divisions, not one grew at more than 4%. Net sales in its grooming business dropped 4% to $2.1 billion. Sales in its beauty division grew only 1% to $5.4 billion.
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Less than a year ago, Wall St., and probably P&G’s board, became disenchanted with the ability of CEO Robert McDonald after three years on the job. It may be that P&G’s stagnant top-line growth is because the task of increasing revenue rapidly is nearly impossible. Aside from its size, many of its product lines are also boxed in by competition from Johnson & Johnson, Unilever and Nestle. P&G recently sent one of the signals big companies send when they have top line trouble. It laid off 5,700 people
> LTM Revenue: $118.7 billion
> 5-yr. growth: 2.0%
> 1-yr. growth:-5.0%
> Consensus growth:-5.8%
> Industry: Diversified computer systems
Over the past two years, Hewlett-Packard Co. (NYSE: HPQ) has struggled as much as any other very large U.S. company to reverse an astonishing drop in its prospects. HP has been through three CEOs since its longtime leader Mark Hurd resigned after an investigation into a sexual harassment claim revealed violations of business standards. HP has tried to prop up a drop in its core printing and PC sales with several M&A deals. However, as major transactions such its purchase of IT consulting firm EDS have faltered, HP has had to resort to layoffs, which number in the thousands. HP’s latest attempt to grow through acquisitions backfired when the company wrote down $8.8 billion for overpaying for U.K.-based Autonomy.
HP’s latest quarterly results offer a great deal of insight into the problems of the past few quarters — problems that likely will remain. Revenue fell from $30 billion in the year ago period to $28.4 billion. Revenue in its legacy printing operations fell from $6.3 billion to $5.9 billion, and revenue from personal systems, made up largely of PC sales, dropped from $8.9 billion to $8.2 billion. The trends in each of these two sectors of tech continue to be negative across the entire industry.
> LTM Revenue: $127.4 billion
> 5-yr. growth:1.4%
> 1-yr. growth:0.6%
> Consensus growth:2.0%
> Industry: Telecommunications
AT&T Inc. (NYSE: T) has been caught between two trends recently, each of which has worked against the company’s growth prospects. The first, and the most long-term one, is the attrition of home use of landline telephones. More and more residential customers use cell phones and VoIP products sold primarily by cable companies. The landline trend continues to move relentlessly against AT&T and its rivals. A recent CDC study reported: “In the first 6 months of 2012, more than one of every three households (35.8%) did not have a landline telephone but did have at least one wireless telephone.” The second trend is that the U.S. cellphone market is saturated after years of growth. The CTIA recently released a study that showed the number of wireless connections in America as of mid 2012 was more than 321 million, for a population penetration figure of 101%. (AT&T had 107 million wireless subscribers at the end of 2012.) Ten years earlier, that national penetration number was 47.4%. Wireless subscription sales have become a game of market share attrition, particularly among AT&T, Verizon Wireless and Sprint.
AT&T tacitly acknowledged through its recent plans that organic growth would not be part of its revenue expansion as it offered $39 billion to buy number four mobile company T-Mobile. The deal fell apart in late 2011 because of regulatory issues. Now, AT&T probably will have to face a newly created wireless company — the product of a likely marriage between T-Mobile and another carrier, MetroPCS. Nothing tells the story of AT&T’s problems better than its own financial statements. Last year, wireless revenue grew by only 5.6% to $66.8 billion. Wireline voice revenue dropped 10% to $22.6 billion. AT&T has entered other businesses, including fiber to the home television and broadband services. None of these have offset the company’s stagnated revenue.
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