The rubber hit the road on April 15 as Tesla (NASDAQ:TSLA) announced it was cutting more than 10% of its global headcount to reduce costs and increase productivity.
“As we prepare the company for our next phase of growth, it is extremely important to look at every aspect of the company for cost reductions and increasing productivity,” Investor’s Business Daily reported Elon Musk’s comments from his memo sent to employees.
“We are developing some of the most revolutionary technologies in auto, energy and artificial intelligence.”
Of course, with all the executive departures, he might need someone to help him achieve all these amazing things he has in store for the world.
One thing that rings true in Musk’s comments is the CEO’s suggestion that the company’s rapid growth has led to the duplication of some jobs and functions in certain parts. What, specifically, are these areas of overlap and redundancy? We won’t know until the cuts are made.
In the meantime, plenty of other companies in the S&P 500 could use a little downsizing.
While I’ve never been a fan of overhiring or overfiring, sometimes you overshoot, requiring a rightsizing to balance expenses with growth.
Here are three that stand out for me.
Expeditors International of Washington (EXPD)
Expeditors International of Washington (NYSE:EXPD) isn’t an obvious candidate for job cuts. It makes money, and its shares have been up 45% for the past five years. While that doesn’t compare to the 70% gain for the index, at least it’s in positive territory.
The big issue for the Seattle-based logistics company is that its revenues and profits are cratering.
In Q4 2023, its revenues dropped 34% to $2.3 billion, while its operating income fell 40% to $199 million, an operating margin of 8.7%. That’s 140 basis points less than TFI International (NYSE:TFII), a Canadian logistics and transportation company.
Expeditors finished 2023 with 18,000 employees. Five years ago, it had the same number of employees and about the same revenue and operating income as this past year.
All its growth vanished in 2023.
No wonder none of the 17 analysts covering its stock have a Buy rating, while nine believe it’s a Sell, with a target price of $108.50, below where it’s currently trading.
As for TFII, 16 of the 20 analysts rate it a Buy. The cream always rises to the top.
Illinois Tool Works (ITW)
Illinois Tool Works (NYSE:ITW), like Expeditors, isn’t an obvious candidate for job cuts.
Although its revenue has fallen by 10% over the past decade, its operating profits and margins have improved dramatically. As a result, its earnings per share of $9.74 in 2023 is 3x higher than in 2012, a compound annual growth rate of 16.8%.
What’s the problem, you might ask? If you compare its stock’s performance over the past five years, it’s underperformed by 150 percentage points relative to GE Aerospace (NYSE:GE). Kudos to GE CEO Larry Culp for turning something awful into something valuable. It wasn’t easy.
According to the Liberated Stock Trader, ITW has 46,000 employees in 2024. The company’s 10-K doesn’t say how many. However, the proxy says it was 45,000 at the end of December, with two-thirds outside the U.S. In 2019, it was also 45,000.
The board will note that margins have improved significantly over the past decade and that ITW has a 10-year annualized total return of 13.02%. However, the majority of the gains came between 2012 and 2017 (up 269% through January 2018), compared to 45% from January 2018 through April 2024.
If you’re not increasing your employee headcount, you’re really not growing. It’s better to sell off the least-performing businesses, as GE did, and become less of a conglomerate. Investors will pay up for that.
Walgreens Boots Alliance (WBA)
In the introduction, I said I would only include companies from the S&P 500. And even though Walgreens Boots Alliance (NASDAQ:WBA) was booted from the index in February—Amazon (NASDAQ:AMZN) replaced it—it has become bloated with way too much overhead beyond any reasonable justification.
According to the Liberated Stock Trader, Walgreens had 325,000 employees at the beginning of January. The company’s 10-K (Aug. 31, 2023, is the latest fiscal year) put the number at 331,000, with 38% part-time working 30 hours or less weekly.
Well, the company is doing layoffs — InvestorPlace’s William White reported on April 18 that the company was cutting staff from its Chicago facility and reducing the hours for employees in the stores by 4-7% — and has been for months, it can’t cut deep enough to deliver shareholder value.
I was a fan of the former CEO, Roz Brewer, who joined the company in March 2021 but stepped down last September. The company’s move into healthcare wasn’t where Brewer wanted to go with the company. She and the board appear to have agreed to disagree. That’s merely my speculation on the matter.
At the time of her departure, I suggested three possible candidates to replace her–the former CEO of pharmacy benefits management company Express Scripts.
While it’s a decent hire, WBA needs to cut more fat from the top down. I guess we’ll see.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.