Quick Degree Finder
By Edward Iwata, USA TODAY
While many businesses struggle during the recession, a handful of U.S. and global companies — from health care giant Abbott Laboratories (ABT) to retail king Wal-Mart (WMT) — are riding out the financial storm in good shape.
And executives aren't shy about broadcasting that fact to analysts, investors and the media.
McDonald's (MCD) CEO Jim Skinner says the hamburger giant is "recession-resistant." Hermann Waldemer, chief financial officer at Philip Morris International (PM). calls the tobacco industry "very recession-resilient." Carter Keithley, president of the Toy Industry Association, also says toy products are "recession-resistant."
There's no such creature as a "recession-proof" company or sector. But some businesses appear to be recession-hardy, warding off the downturn with strong balance sheets, long-range planning and rising global sales of products and services that people want — even in scary economic times.
While the venture-capital industry suffers through one of its worst years ever, dozens of promising clean-tech and life-sciences start-ups are enjoying billions of dollars in funding.
Consumer-products giants such as Procter & Gamble (PG). Costco Wholesale (COST) and Kraft Foods (KFT). and health care firms such as Johnson & Johnson (JNJ) and Novartis (NVS). posted decent financial figures in recent quarters.
Internet firms from Google (GOOG) to Kaboodle are seeing online searches rise as more consumers hunt for online bargains.
A few companies, such as McDonald's, have outperformed the Dow Jones industrial average during the slowdown and also have beaten Wall Street earnings estimates. Boosted by strong worldwide sales, McDonald's third-quarter earnings rose 6% from a year ago to $6.3 billion.
Cash-short consumers may hold off buying big-ticket retail items. But they still need food, clothes and medicine. And they can't seem to do without guilty pleasures such as alcohol, cigarettes and fancy foods including gourmet chocolate — the so-called sin stocks.
Research firm Mintel International predicts that the U.S. cigarette-and-tobacco market will grow 28% to $132 billion from this year to 2011.
"Even though we're hurting for money, we want to make our lives a little better with indulgences," says Marcia Mogelonsky, a Mintel senior analyst.
Keithley of the Toy Industry Association, which represents 500 toy manufacturers in the USA and abroad, says the industry has proved to be "recession-resistant" through the years.
Why? Because downturn or not, consumers will buy $19.95 toys to make their kids happy. What's more, Keithley says, toymakers are nimble manufacturers, adapting quickly to economic cycles and bringing new products to stores.
In the Consumer Spending Indicator, a survey of shoppers by The NPD Group research firm, people are cutting back on dining out and entertainment outside the home — but not on toy-buying, says toy industry analyst Anita Frazier.
Toy sales in the USA this year will stay flat at $23 billion, while worldwide toy sales — growing strongly in China, India, Brazil and Russia — are projected to surge to $85 billion in 2010, according to The NPD Group.
Parts of the medical technology market also fare well during economic busts. Patients spend less on cosmetic products such as dental implants, but they cannot postpone "life-sustaining procedures and treatment" for heart disease and other ailments, says co-President Aaron Dickson of Millennium Research Group.
The U.S. market for pacemakers and defibrillators will grow 33% to $6 billion by 2013, Millennium Research says.
How do some businesses defy the downturn? While others grow cautious, contrarian companies offset weak U.S. sales by seeking new foreign markets. They slash debt, strengthen cash flow and build financial war chests to withstand shocks or to buy rivals. They keep pouring money into R&D and long-term investments. "Some companies get healthier and stronger after weathering downturns," says Vivek Wadhwa, a global workplace expert and founder of technology start-up Relativity Technologies.
Martin Regalia, chief economist at the U.S. Chamber of Commerce, says that recession-resistant companies are more likely to thrive during short-lived recessions.
But during longer economic crashes, no one escapes the carnage.
"I don't think a whole lot of industries thought they were recession-proof during the Great Depression," Regalia says.
Of course, companies can't control the economic climate. But, for now, businesses doing relatively well include:
This online vacation-rental firm in Austin lists 300,000 private homes in the USA and Europe for travelers tired of hotel rooms.
Given the housing meltdown and high gas prices, many homeowners can't sell their vacation homes or they're not using them as much, so they're renting the properties to make extra money, CEO Brian Sharples says.
Even with the travel industry hurting, HomeAway's year-to-date sales are up 58% over 2007 and should continue to grow during the downturn, the company says. HomeAway is aiming
for annual revenue of $500 million within five years.
"Rentals are a great value compared to a hotel," Sharples says. "People want to continue to travel, but they're tightening up their budgets and looking for deals."
While venture capital for untested start-ups has dried up, HomeAway has raised $410 million — including $250 million last month from Technology Crossover Ventures, Institutional Venture Partners and Redpoint Ventures.
Sharples says investors like HomeAway's "proven and predictable business model" based on online subscriptions paid by homeowners and property managers. HomeAway also is No. 1 in the online vacation-rental sector — a $48 billion market in the USA and Europe, according to research firms PhoCusWright and Illuminas. Already established in Europe, HomeAway is looking at Brazil and Asia now.
HomeAway isn't growing recklessly, though, like start-ups during the dot-com boom and crash almost a decade ago. The firm just paid down $100 million in debt, and it will slow hiring and acquisitions if the economy keeps tanking.
"We've got a pretty strong balance sheet and warehouse of cash," Sharples says. "But if the economy worsens, we're making contingency plans."
Recession or not, the world needs drugs, baby formula and heart-disease devices. And Abbott, which sells medical and nutritional products in 130 countries, isn't slowing down.
"Our products are the kind that people rely on and need, regardless of economic conditions," CEO Miles White says.
Abbott's third-quarter sales this year soared 18% to $7.5 billion, boosted by autoimmune disorder drug Humira and drug-coated metal stents for heart-relatedsurgery. About half of Abbott's third-quarter sales were international.
Abbott's big strength: a wide range of products and geographic sales "that balances things that go well with things that aren't going so well," White says.
Abbott also takes the long view. Rather than scale back on potential products, Abbott in its third quarter spent $680 million on research and development, or 6% more than in the same time last year.
The company closely watches volatile energy and commodities prices. And it may slow hiring for its workforce of 68,000 if the economy worsens.
"In our environment, we stress anticipation, we stress planning," White says. "If there's a bad economic event, what's Plan B?"
At the same time, Abbott — which bought the vascular-device unit of medical-device maker Guidant in 2006 — is "keeping our eyes open for opportunities" during the downturn, White says.
Silicon Valley Bank
While many financial firms have seized up of late, midsize Silicon Valley Bank's prudent business style is "allowing us to weather the storm better than most," CEO Kenneth Wilcox says.
For one, the Santa Clara, Calif.-based bank has dodged the real estate debacle by focusing mainly on commercial and industrial loans backed by a company's assets. For another, Silicon Valley Bank finances venture-backed companies that are less sensitive to downturns, because they develop new technologies and life science products over five to 10 years.
Silicon Valley Bank's total loans hit a record $4 billion last year, and third-quarter deposits grew 18% to $4.8 billion from the same quarter last year.
The bank is working with customers to ensure they have enough capital and other financing to weather the recession. The bank also recently added offices in Israel, China and India. Its global sales rose 63% to $9 million in the first three quarters of 2008, from the same period last year.
"Relative to others," Wilcox says, "we're more conservative and middle-of-the-road, and that has benefited us and our clients."
Retailers from Abercrombie & Fitch to Neiman Marcus have suffered from big drops in retail spending by consumers in recent months. But millions of consumers continue to flock to Wal-Mart to buy low-price, quality goods.
During an analysts' meeting in October, CEO Lee Scott said that Wal-Mart is doing "extraordinarily well," and that founder Sam Walton built the company to thrive during downturns.
Wal-Mart executives credit the company's global brand recognition, the upgrading of existing stores and conservative financial and operational practices, such as tight inventory control. Wal-Mart also continues to open hundreds of outlets in Latin America, China and Eastern Europe.
The upshot: Wal-Mart has surged ahead of rivals, boasting strong cash flow and posting a 7% rise in third-quarter sales to $98 billion.
At the analysts' meeting, even cautious Wal-Mart executives couldn't resist a little crowing. "How many companies," said Chief Financial Officer Tom Schoewe, "could stand before you today and say that their balance sheet is stronger today than it was a year ago?"