By Douglas A. McIntyre
Some companies become so badly damaged because of changes in the competitive markets or due to poor management decisions that their employees lose hope. This may result from the belief that the corporations they work for have little future, or that they will be laid off as their employers try to save these corporations.
This loss of hope is exacerbated by the state of the economy. A person who is fired now likely will find it extremely hard to find new work. Nearly 6 million Americans have been out of a job for more than half a year, which means that work is scarce either because companies have never recovered from the recession or because firms are concerned that a new recession has started to choke the economy.
It is impossible to know whether the employees at a very badly run company have completely lost hope for their situations. However, this is highly likely in certain corporations. Layoffs have already started at many of these companies, sales have fallen, or Wall Street has passed a verdict they have faltered badly or failed.
24/7 Wall St. has compiled a list of companies that are in deep trouble. This is based on share prices, layoffs, analysts' reports about the futures of these firm, and the extent to which they have missed Wall Street predictions about earnings-per-share or are likely to in future.
1. Best Buy
Best Buy recently released earnings and they were much worse than Wall Street expected. Net income fell to $177 million, or earnings per share of $0.47, for the quarter ended Aug. 27, down from $254 million, or earnings per share of $0.60, last year. Analysts expected earnings per share of $0.52, according to a survey by FactSet. Best Buy dropped its forecast for the balance of the year. It took the action because of concerns about TV and phone sales, along with worry about the economy. Best Buy has had a string of earnings disappointments, due primarily to its failure to do well online. Best Buy recently said that its website would carry items from third-party stores to expand its attraction to shoppers. This did nothing to improve the perception that investors have of the company. Fitch downgraded Best Buy in June. The company's shares are off 30 percent in the last year. Shares of rival Amazon (NASDAQ: AMZN) are higher by 60 percent for the same period.
2. Research In Motion
Research In Motion posted earnings recently that show its sharp decline has accelerated. Several analysts now believe the RIM BlackBerry smartphone will be no more than a "niche" product in a market it controlled almost completely four years ago. The bad earnings news took shares down from $29.54 to $23.93 in one day. RIM's stock is off almost 50 percent in the past year, while shares in rival Apple (NASDAQ: AAPL) are higher by more than 40 percent. RIM shipped only 200,000 units of its PlayBook tablet PC last quarter. Expectations had been for a number more than three times that. RIM revenue fell by 10 percent in the most recent period to $4.2 billion -- a horrible situation for a company that was one of the most well-known growth stories for five years. EPS fell to $0.63 from $1.46. The consensus among the media and Wall Street is that RIM has almost no chance to recover. The company has already started to cut costs. It said in July that it would lay off 10.5 percent of its workforce.
Talbots shares traded above $17 in May a year ago. They now trade at $3 after dipping to $2.25 recently. After the company released earnings two weeks ago, research firm Sterne Agee downgraded the stock to "neutral" from "buy." And the retailer posted results that were worse than expected. The corporation's quarterly loss from continuing operations was $37.4 million, or $0.54 per share, compared to last year's income from continuing operations of half a million, or $0.01 per share. The failing retailer said that it expects to close about 110 stores in total, including 15 to 20 consolidations, through fiscal 2013. The corporation's chief creative officer, Michael Smaldone, was fired as earnings were announced. Oddly, Talbots did not have a replacement when it took this action.
Hewlett-Packard announced earnings on Aug. 18 and its shares promptly dropped to a 5-year low. HP also revised earnings forecasts down. Management said that it may spin off the firm's PC division, the largest in the world. So far, there are no takers. HP also discontinued its Palm operating system, which it bought only a year ago, and its tablet PC product. Investors believe, almost universally, that CEO Léo Apotheker does not have the strengths of his predecessor Mark V. Hurd, who was pushed out for ethical lapses. Wall Street seems certain that HP will lay off more people in addition to the sharp cuts it made in 2009 and 2010. It is generally accepted by analysts who cover the company that it has begun to lose the battles against Dell (NASDAQ: DELL), Oracle (NASDAQ: ORCL), and SAP (NYSE: SAP)
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5. The U.S. Postal Service
The U.S. Postal Service may be more troubled than any large public company in America. The organization said it may lose as much as $10 billion this year. It teeters on the brink of insolvency. Its workers' compensation liability is more than $12 billion. The USPS management has suggested that it shutter thousands of individual post offices, lay off as many as 200,000 workers, and close over 250 service centers. Another suggestion by management is that delivery be cut to five days a week. The rise of the use of e-mail and private air freight companies Fedex (NYSE: FDX) and UPS (NYSE: UPS) has doomed the old post office model. No one should expect that the suggestions of executives at USPS will go unchallenged. The American Postal Workers Union most likely will strike to fight the job cuts. Individual members of Congress will press to keep offices open in their districts.
Nintendo's once nearly insurmountable lead in the video console sector has been lost, and its sales have fallen further and further behind rivals Microsoft (NASDAQ: MSFT) and Sony (NYSE: SNE). The rise of the Google (NASDAQ: GOOG) Android operating system has also encouraged video game publishers to make more products that run on that platform. The 2010 market share of Nintendo DS fell from 70% in 2009 to 57%. Nintendo's growth has also been damaged by the rise of the iPad and iPhone. The future is even grimmer. "iSuppli predicts Nintendo will sell 70 million 3DS gaming systems by 2015, a figure that is 21 million less than the 91 million in sales racked up by the original DS at the same point in its sales cycle," according to the Unofficial Apple Weblog. Nintendo announced an unexpected quarterly loss on July 28 and its shares plunged 20 percent. The stock is down from a 52-week high of 26,780 yen to 11,850 yen. In late 2007, shares reached 80,000 yen.
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Cisco was one of the world's greatest tech companies not long ago. Long-time CEO John Chambers made a series of decisions to expand Cisco beyond its core router business then. Very few of them paid off. Part of his plan was to diversify into the consumer electronics business, which weakened Cisco's overall earnings strength. The company now makes TV set-top boxes, Linksys Wi-Fi hardware and home video-conferencing products. Chambers has been forced to reverse course, sell or cut back these operations and lay off 6,500 workers to make up for the losses caused by the diversification. Chambers' job status is still in question. He lowered Cisco's revenue forecasts recently to a growth rate of 3 percent to 5 percent for the next three years. Cisco's newer businesses are not its only challenge though. The company has barely kept pace in the router business with China-based Huawei Technologies and Juniper (NYSE: JNPR). Last April, shares in Cisco traded for $28. The number is $16.50 now.
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8. Eastman Kodak
Eastman Kodak's run as a public company may be over soon. That would put the jobs of many of its 18,000 employees in jeopardy. Analysts think Kodak's patents may be worth much more than that the company. Kodak has begun the process to find a buyer for these patents. MDB Capital Group told Bloomberg that the digital-imaging patents owned by Kodak may be valued at $3 billion in a sale. A sale of patents could mean Kodak will not keep all of its divisions. Second quarter sales at the company were down 5 percent in the past quarter to $1.5 billion. Kodak lost $179 million in the same time period. Its Film, Photofinishing and Entertainment Group sales dropped 14 percent to $369 million for the quarter. This is the area of the company's business where it would be logical to start the next in a long line of layoffs. Kodak's cash position has become desperate. It has $957 million on hand compared to $1.624 billion at the end of the second quarter a year ago.