Wall Street concerns regarding Corporate America’s shrinking profit margins appear to have reached the C-suite based on the earnings reports released thus far this quarter.
Several themes are becoming apparent: In are cost and employment reductions; out are spending and expansion.
Impact Of Shift On Financial Results
US conglomerates are rushing to shift from growth mode to efficiency mode out of fear of the effects of rate hikes and an impending economic slowdown, and this shift is beginning to have a significant impact on their financial results.
Even though only half of the companies in the S&P 500 Index have reported results so far, the percentage of corporate earnings calls discussing labor costs has decreased by 80 percent compared to the previous quarter.
In light of the ongoing reductions in the workforce, the falling number of such mentions is indicative of a cessation in hiring.
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Largest Reduction In Amazon’s History Through Layoffs
Mark Zuckerberg, CEO of Meta Platforms Inc., spoke extensively about efficiency during the company’s first-quarter earnings call, expanding on a theme the Facebook parent company has promoted this year alongside a decision to lay off 10,000 employees.
During last week’s conference call, Susan Li, the chief financial officer of Meta, stated, “As we move forward, including out of the layoffs we’ve been implementing and the direct restructuring work, we will continue to prioritize efficiency.”
Amazon.com Inc., a tech competitor, emphasized aggressive cost-cutting in its quarterly earnings report, which was released on Thursday. The quarterly increase in Amazon.com’s operating expenses was the lowest it has been in at least ten years.
Wednesday marked the company’s most recent round of layoffs, with a total of 27,000 positions eliminated, the largest reduction in the company’s history.
We expect Amazon to continue its efforts to reduce its cost to serve within its retail network through 2023 and 2024 as additional efficiencies are achieved, CFRA equity analyst Arun Sundaram wrote in an email.
Overall, we view the first quarter as the start of a multi-year turnaround in terms of profits and margins.
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