They survived the Great Recession and have the scars to prove it.
Minnesota's largest publicly traded companies posted lower sales, smaller profits and boasted fewer jobs over the past year. And their market values soared.
Having limped through the worst recession since the 1930s, the state's top 100 firms bear the scars to prove it. But hopes for recovery can be measured by their stock values, which have jumped 57 percent from a year ago.
"Markets anticipate, they look at what is likely to happen," said State Economist Tom Stinson.
A year ago, they anticipated the worst. Falling home values, failing lenders and frozen credit markets ignited a global recession. Congress and the Federal Reserve intervened to prop up the banking system, but things kept getting worse. By March 2009, the markets hit 12-year lows.
"There was a lot of uncertainty," Stinson said. "People were not sure how many more shoes were left to drop. Then it became more clear that the economy was not going to totally fail."
When all was done, sales at the Star Tribune 100 companies fell only slightly, by 0.3 percent in 2009. Profits fell further, down 1.2 percent. And employment was down more, 1.9 percent, or 25,000 jobs.
Yet the market values of the state's 100 largest companies soared, in line with other major market indexes, for the period from March 30, 2009, to April 9, 2010.
Collectively, the Star Tribune 100 companies on this year's list are worth $160.2 billion more in market value than at the start of that period. That leaves them close to recovering all the $190 billion in value shed by companies on last year's list in 2008. (Market value, also called market capitalization, is a company's stock price multiplied by the number of its shares outstanding.)
The seesaw effect
A year ago, we reported that 94 companies had lost market value. This year, 96 saw their market values rise and last year's biggest losers turned into this year's biggest winners.
Case in point: U.S. Bancorp. Amid the depths of the financial crisis a year ago, USB shed $31.7 billion in market capitalization. In the past 12 months, the Minneapolis-based bank regained nearly $27 billion in market value as the crisis eased and investors came to view the bank as a long-term survivor.
Global manufacturing giant 3M has a similar story. The Maplewood-based company shed $22.2 billion in market value in 2008. Then 3M proceeded to add $25.7 billion in market value, for a small net gain over the two-year period.
Why the turnaround? International markets, particularly China and India, recovered faster than the U.S. market, and most of 3M's sales come from overseas. Also, a weaker dollar made 3M's U.S.-made products more price-competitive in export markets.
Discount retailer Target rode the same seesaw: It shed $16.1 billion in market value last year and then gained $16.4 billion back this year as consumers finally got their legs under them again.
Despite the dramatic swings in market values, a look at the fundamentals for the Star Tribune 100 reveals the scars of the Great Recession. Consider:
•Year-over-year sales fell at 61 companies in 2009; just 39 saw increases.
•Seventy-five posted profits while 25 incurred losses.
•Fifty-six companies cut payrolls in 2009. Of those, 13 slashed 1,000 or more jobs, including Supervalu, which cut 20,000 jobs, or 10.5 percent of its workforce. Collectively the cuts meant a net loss of 25,887 positions, or about 1.9 percent. That compares with a gain of about 14,000 jobs in 2008.
•Thirty-six companies added jobs in 2009, led by Best Buy, which added 10,000 positions, and UnitedHealth Group, which added 5,000. Six companies held head count flat, including Target, St. Jude and H.B. Fuller.
The jobs reported by ST100 companies reflect their payrolls worldwide, so they do not necessarily translate into Minnesota jobs.
Job growth by industry
Only Minnesota health care and financial services firms grew payrolls in 2009 (6,199 and 306 jobs, respectively). The steepest job cuts came in information technology (-4,653), manufacturing (-11,137) and retail (-14,929) as order books dried up when both consumers and corporations slashed spending.
"This really was a very broad recession," said David Vang, chairman of the Finance Department at the University of St. Thomas Opus School of Business. "The fact that [Minnesota] is so diversified just reinforces the point that this was really bad."
Still, he noted, "Seventy-five percent of these companies were still making a profit; that correlates with the [steep] job cuts. These companies were pretty nimble in cutting as fast as they did."
The swift "when-in-doubt-cut-jobs" strategy was painful, but it positions Star Tribune 100 companies for growth, Vang said, and helps explain why their market values recovered so quickly.
The jobs question
"Markets look at how these firms have cut costs. So they don't think these firms are going to have cost problems going forward," Vang said. Investors also sense that the worst has passed. And when companies start hiring again, there will be further improvement in productivity because they "can be very picky about who they hire. And there are some well-qualified people looking for work right now."
When will hiring resume?
"There is room for optimism, but the length of this recession paints an uncertain future," said Brian Shapiro, an associate professor of accounting at the University of St. Thomas Opus School of Business. "Most people feel there's a sea change going on. But no one is sure how much will change. What everybody wants to know is the impact on employment."
Unemployment statewide reached 7.4 per- cent in March, down from 8.2 percent in March 2009. Minnesota's jobless rate remains significantly below the national rate of 9.7 percent.
Because of the loss of wealth from retirement accounts, home values and wages, people's spending isn't likely to increase as it did after the 1980s recession.
"There is an adjustment of expectations going on," Stinson said. "People took home 4 percent less in 2009 than in 2008. Not just from job losses, but from wage cuts, fewer bonuses and loss of overtime pay. We have not seen such a year-over-year wage drop since World War II -- 2009 was just a really bad year."
Shapiro agrees: "There's a ripple effect. Profits drive the stock market, [but] what it doesn't measure is the long-term effects. Now people don't expect to be making as much money."
Stinson forecasts a slow, slogging recovery.
"People will start adding workers right about now, but not in hundreds of thousands," he said. He predicts 3 percent GDP growth in both 2010 and 2011 and jobs getting back to their pre-recession level in mid-2012.
Dan Laufenberg, an economist with Stonebridge Capitol Advisors in St. Paul, is more bullish. He expects GDP growth of 4 percent in 2010.
"If you take the two years 2008 and 2009 together, it looks flat. What 2009 represents is a bottoming process. And there is evidence that things have started to improve."
The government's latest GDP report shows "real final sales" (which exclude inventories) rose 1.7 percent in the fourth quarter and 1.5 percent in the third quarter. Laufenberg expects that number to be 3 percent when the next report comes out at the end of April.
That upward momentum will continue, he predicts. First profits will return, then jobs.
"If business is uncertain, that delays hiring," he said. The antidote? "Several quarters of solid sales."
Signs of moderation
Our annual assessment of Minnesota's largest companies reveals a diverse corporate landscape that remains strong in financial services, retail, manufacturing and health care. Minnesota is home to 21 Fortune 500 companies, the highest concentration of headquarters firms per capita in the nation. Those big firms, and their high-paying headquarters jobs, have long been significant contributors to the local economy and the state's cultural climate.
Among Minnesota's 100 biggest public firms, health care firms contributed the most profit in 2009, followed by manufacturing, retail/service and financial services. Retail and service firms accounted for the biggest portion of sales and the most jobs. The state's most valuable firms, as measured by market capitalization, are in manufacturing.
Retail / service
Target struggled with tightfisted consumers yet managed to grow sales slightly, profits solidly and market value nicely while holding headcount flat. Best Buy's sales jumped 10 percent as demand for computers and cell phones rose despite the recession. Profits jumped 31 percent. Best Buy was the only one in this group to add jobs last year.
Meanwhile, Supervalu continued to have trouble coping with the recession and digesting its big merger with Albertson's. Both sales and profits fell and the grocery chain shed 10.5 percent of its workforce. Global logistics and transportation provider C.H. Robinson felt the global downturn as weak demand for transport sliced its revenue nearly 12 percent.
The health care sector remained largely immune from recession as sales grew in the mid-single digits at Minnesota's four big players. UnitedHealth Group's government-related accounts more than made up for the loss of commercial health insurance coverage from clients who cut their workforces. Sales and profits rose at medical-device giants Medtronic and St. Jude. Patterson Cos., which markets dental and veterinary products, saw the most modest revenue increase.
Minnesota's biggest manufacturing firms took a beating last year. Sales fell 8.5 percent at 3M as global demand weakened. Revenue dropped nearly 50 percent at Mosaic, in part because of falling commodity prices; Mosaic is a global provider of fertilizers. Profits dropped 7.7 percent at 3M and nearly 82 percent at Mosaic. For foodmakers, though, things were a bit brighter. General Mills grew sales 2.7 percent and both Big G and Spam-maker Hormel delivered 20 percent profit gains for the year.
Financial services companies led the economy into recession in 2008 and appeared to be leading it out in 2009. U.S. Bancorp's 2009 profits fell 25 percent short of 2008's, but its market value more than doubled as investors saw the Minneapolis bank as a survivor of the financial crisis. It was much the same story at Ameriprise and TCF Financial. OneBeacon Insurance, a Minnetonka-based specialty and home, auto insurance company, is a newcomer to the Star Tribune 100.
Utilities / telecom
The Great Recession and a cool summer dampened demand for energy last year, which in part explains weaker 2009 sales at electric utilities Xcel, Otter Tail and Allete. Multiband, which wires apartment units for DirecTV and also provides of voice, data and video networking services, grew by acquisition last year. The company said sales also were boosted by the conversion to digital broadcasting that was mandated by federal regulators last year.
Selling hardware or software to cash-strapped business customers in a recession is a challenge. And a look at revenue for Minnesota's four big information technology companies underscores the point.
Sales at digital memory maker Imation, telecom hardware maker ADC and business software maker Lawson all dropped in double digits. Digital River, which sells e-commerce applications, fared somewhat better. Three of these four cut head count; Lawson held staffing flat.