Profitability Improvement – Methods And Potency

Last week, the Wall Street Journal published an article on October 13 titled “GM to Open Stamping Plant in Texas.”  The byline is “Large Cost Savings Expected as It Cuts Down on Transporting Parts.” The article discusses GM’s cutting of its logistics costs through co-locating its parts-making and assembly plants.

An excerpt:

The new plant, is part of a broader rethinking of logistics by GM Chief Executive Dan Akerson, who is anxious to close the company’s profit margin gap with rival Ford Motor Co.

His aim is to lift GM’s North American margins to 10% from about 8% now, a feat that would generate hundreds of million of dollars in new profit.

“We spend billions a year on logistics,” Mr. Akerson said. “Think about that, billions. Any savings I can get by cutting my logistics bill goes right to my bottom line and makes us more competitive. I’ve told our teams that we need to make this a priority to look across the organization and take the steps to cut the costs.”

The article also cites GM’s and Ford’s profit per vehicle, operating margins and operating profits.

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In any business there are potential opportunities for profitability improvement.  The GM example cited above is one way to increase operating profits via cost reduction.

As stated in the “Profitability Improvement” page,

There are many ways to improve profitability, ranging from those relatively straightforward to complex.  This topic is especially critical now, for a variety of reasons, including overall low economic growth and substantial ongoing economic uncertainty.

While “cost-cutting” (i.e. expense reduction) has been commonplace for years, and often is relatively straightforward, there are often overlooked opportunities that are significantly more impactful.  These other revenue and profitability improvements can be found in a variety of areas, including improvements in strategy, (new) products, operations, leadership, revenue management and pricing.  In many cases, improvements in profitability derived through these other areas are not only larger than those derived via “cost-cutting,” but they often have other added benefits, such as strengthening of the competitive position.

Changes in pricing and pricing strategy, while it can be complex, is often a potent “lever” for revenue and profitability improvement.  Deloitte has compiled, based upon the average Fortune 1000 company, pricing’s impact on profitability vs. that of other improvements, as seen in the chart on that page.

Of course, the potential “leverage” of pricing depends upon many factors and varies among firms.  Estimates can, and should, be calculated on a firm-specific basis.  As well, being a potent “lever” can also mean that poor pricing decisions also have the potential to be (very) detrimental.

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StratX, LLC (stratxllc.com) is a management consulting firm and strategic advisory that focuses on the analysis of current and future business conditions, and given these conditions, offers corporations and businesses advice, strategies, and actionable methods on how to optimally increase revenues and profitability.

S&P500 Earnings Estimates Trends

S&P500 earnings trends and estimates are a notably important topic, for a variety of reasons, at this point in time.

FactSet publishes a report titled “Earnings Insight” that contains a variety of information including the trends and expectations of S&P500 earnings.

For reference purposes, here are two charts as seen in the “Earnings Insight” (pdf) report of October 18, 2013:

from page 18:

(click on charts to enlarge images)

CY Bottom-Up EPS vs. Top-Down Mean EPS (Trailing 26-Weeks) 

FactSet Earnings Insight 10-18-13 CY2013 and CY2014

from page 19:

Calendar Year Bottom-Up EPS Actuals & Estimates

FactSet Earnings Insight 10-18-13 CY2000-CY2014

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StratX, LLC offers the above data and projections for informational purposes only, and does not necessarily agree with information provided by these outside parties.

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StratX, LLC (stratxllc.com) is a management consulting firm and strategic advisory that focuses on the analysis of current and future business conditions, and given these conditions, offers corporations and businesses advice, strategies, and actionable methods on how to optimally increase revenues and profitability.

Earnings Forecasts For The S&P500

As many are aware, Thomson Reuters publishes earnings estimates for the S&P500.

The following estimates are from Exhibit 12 of “The Director’s Report” of October 22, 2013, and represent an aggregation of individual S&P500 component “bottom up” analyst forecasts:

Year 2013 estimate:

$109.28/share

Year 2014 estimate:

$122.11/share

Year 2015 estimate:

$135.49/share

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StratX, LLC offers the above data and projections for informational purposes only, and does not necessarily agree with information provided by these outside parties.

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StratX, LLC (stratxllc.com) is a management consulting firm and strategic advisory that focuses on the analysis of current and future business conditions, and given these conditions, offers corporations and businesses advice, strategies, and actionable methods on how to optimally increase revenues and profitability.

S&P Estimates For 2013 & 2014 S&P500 EPS

As many are aware, Standard & Poor’s publishes earnings estimates for the S&P500.

For reference purposes, the most current estimates are reflected below, and are as of October 17, 2013:

Year 2013 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $107.52/share

-From a “top down” perspective, operating earnings of N/A

-From a “top down” perspective, “as reported” earnings of $98.28/share

Year 2014 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $121.46/share

-From a “top down” perspective, operating earnings of $113.76/share

-From a “top down” perspective, “as reported” earnings of $108.29/share

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StratX, LLC offers the above data and projections for informational purposes only, and does not necessarily agree with information provided by these outside parties.

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StratX, LLC (stratxllc.com) is a management consulting firm and strategic advisory that focuses on the analysis of current and future business conditions, and given these conditions, offers corporations and businesses advice, strategies, and actionable methods on how to optimally increase revenues and profitability.

Q3 2013 Projected S&P500 Revenue Growth Rates

The Thomson Reuters “This Week In Earnings” report dated October 18, 2013 contains information concerning projected S&P500 revenue growth for the 3rd quarter.

An excerpt from page 5 of the report:

The estimated revenue growth rate for the S&P 500 for Q3 2013 is 2.1%. The S&P 500 is expected to earn revenues of $2,559.2B in Q3 2013 compared to $2,506.1B in Q3 2012.

Nine of the ten sectors anticipate revenue growth for the quarter. The Utilities sector is expected to have the highest revenue growth rate for the quarter, while the Energy sector is expected to have the lowest revenue growth rate.

The report also contains a table that shows projected revenue growth by S&P500 sector.

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StratX, LLC offers the above data and projections for informational purposes only, and does not necessarily agree with information provided by these outside parties.

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StratX, LLC (stratxllc.com) is a management consulting firm and strategic advisory that focuses on the analysis of current and future business conditions, and given these conditions, offers corporations and businesses advice, strategies, and actionable methods on how to optimally increase revenues and profitability.