Al Jazeera has called 2023 “the year of the layoffs.” As the news organization pointed out recently, it started badly in 2023, when Salesforce (NYSE:CRM) cut 10% of its global staff. CEO Marc Benioff might be a big believer in stakeholder capitalism, but 2023 proved that even he wouldn’t stand for an excessive work force.
Perhaps the problem was that the U.S. created too many jobs in 2022. Approximately 4.5 million were added, the second-highest in 40 years. An increase like that may have been the deciding factor forcing firms like Salesforce to dial back on operating expenses.
In mid-February 2024, Nike (NYSE:NKE) announced it was cutting 1,700 people from its workforce, 2% overall. “The actions that we’re taking put us in the position to right-size our organization to get after our biggest growth opportunities,” CNN Business reported Nike’s comments in a company statement.
It appears 2024 will be no different than 2023: full of job cuts and rightsizing. In other words, corporations admitting they overhired. Who will be the big job cutters in 2024? All three of these names could take an axe to their employee footprints with layoffs this year. But on the plus side for investors, that could be good news for stock prices.
Fidelity National Information Services (FIS)
Fidelity National Information Services (NYSE:FIS) hasn’t delivered for shareholders over the past five years. Its shares are down 40% over this period, while the S&P 500 is up 79% in that same timeframe. The organization is a fintech company that helps banks operate more efficiently.
On Feb. 1, the company announced that it completed the sale of a 55% stake in Worldpay, its payment processing business, for over $12 billion in net cash. Fidelity National Information Services will retain a 45% interest. FIS plans to use the proceeds to pay down debt and buyback $3 billion of its stock in 2024.
The sale gave Worldpay an enterprise value of $18.5 billion, less than half the $43 billion it paid for it in 2019. While the sale enables FIS to focus on what it does best, that’s a bitter pill to swallow for investors holding since 2019.
The debt repayment will strengthen the balance sheet. As of Sept. 30, 2023, it had $12.74 billion in long-term debt, or about 30% of its market capitalization. Excluding its discontinued Worldpay operations, its adjusted earnings in Q3 2023 were $560 million, 9% lower than a year earlier, on $2.49 billion in revenue.
Why do I think Fidelity National Information Services will cut employees and have layoffs in 2024? Around this time last year, the company cut 2,600 workers (2% of total headcount) as part of CEO Stephanie Ferris’s $1.25 billion cost-savings plan. In 2022, it spent $4.1 billion on its selling, general and administrative (SG&A) costs. Through the first nine months of 2023, its SG&A for its continuing operations was down 4% to $1.56 billion, so it’s on track for more than $2 billion for the entire year.
In an effort to help boost its operating margin higher than the 15.5% it saw in Q3 2023, more job cuts could be around the corner at Fidelity National Information Services.
Moderna (MRNA)
Moderna (NASDAQ:MRNA) is transitioning from Covid superstar to regular drug company. That requires fewer people. How few is the big question.
In November, the company admitted that its 2024 revenues would fall to $4 billion, $2 billion shy of the analyst estimate, and nearly 80% less than the $19.3 billion it generated in 2022. The company’s SG&A expenses in 2022 were $1.13 billion, double what they were in 2021.
Through the first nine months of 2023, its SG&A expenses were $1.08 billion, 43% higher than a year earlier. Moderna has definitely reduced its operating expenses, but given it’s only expected to generate $4 billion in revenue for all of 2024, the cash burn will be many billions.
CEO Stéphane Bancel said in a November interview that the company didn’t do internal job cuts because it was able to end the contract manufacturing agreements it had in place. It took a $500 million hit for ending contract manufacturing.
My suspicion is that Moderna is waiting to see how the first half of 2024 goes before it looks to make any headcount reductions or layoffs. It might have more than $7.5 billion in cash and short-term investments on its balance sheet, but that will disappear very quickly if it keeps losing $2 billion per quarter.
Mohawk Industries (MHK)
Mohawk Industries (NYSE:MHK) is a Georgia-based company and the world’s largest manufacturer of both residential and commercial flooring. It’s another one of those stocks like FIS that’s done nothing for shareholders over the past five years as its shares are down 17%. That’s especially surprising for Mohawk because, until 2023, suppliers to the housing construction industry were doing well.
The company reported its Q4 2023 results on Feb. 8. Revenues fell 4.1% to $2.6 billion. In 2023, they were $11.1 billion, 5.1% lower than in 2022. Its adjusted net earnings in 2023 were $587 million, down from $823.1 million in 2022.
Over the past two years, Mohawk Industries has taken more than $1.5 billion in impairment charges for goodwill and indefinite-lived intangible assets. These impairments are across all three of its operating segments.
In 2023, its SG&A expenses increased by 5.8%, to $2.1 billion, or 19% of its net sales. As long as it’s not generating profitable revenue, Mohawk has got to look at staffing cuts to deliver cost savings at a time when it’s not making money.
The company’s Altman Z-score, which assess the financial strength of a company and the likelihood it will go bankrupt in the next 24 months, is 1.72. This suggests that if Mohawk doesn’t get its act together soon, it won’t just be looking at layoffs, it could find itself in bankruptcy court.
On the date of publication, Will Ashworth did not hold (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.
