Annual Profits Hit A High Note In 2010 | Success for local public cos. not necessarily a positive sign for overall economy
Annual profits for Hopkinton-data storage giant EMC increased 75 percent last year to $1.9 billion in what company CEO Joseph Tucci called “the best (year) in company history.”
There was similar good news at other Central Massachusetts-based corporate headquarters, including Framingham-based Staples, where profits shot up 19 percent to $881 million last year.
TJX Cos., the discount retailer also headquartered in Framingham, saw profits climb 10 percent in 2010 to $1.3 billion.
So are last year’s profits for companies a sign of the national economy fully recovered from the recession?
Jeffrey Fuhrer, executive vice president and senior economist at the Federal Reserve Bank in Boston isn’t quite ready to go that far, yet.
“It may be,” he said. “But I hesitate a little … it’s really too early to tell.”
Supply & Demand
Healthy company profits are obviously a positive sign for the economy. But a truly sustained economic recovery is about more than just companies making money; it’s about the unemployment rate dropping, consumer spending rising and the housing market recovering, among other factors, Fuhrer said.
For companies that are reporting strong earnings in the first months of 2011, it may be more about the individual markets where they operate in than the national economy, analysts who follow the company say.
EMC, for example, has had a profitable history and was making money even in the depths of the recession, although its profits did dip from 2008 to 2009. In recent quarters, earnings have begun to climb back toward pre-recession levels.
“Part of the story for EMC is that the company is well exposed to positive changes in the market,” said Jayson Noland, an analyst with investment firm Robert W. Baird & Co., who tracks EMC and the technology sector. While the PC market has struggled during the recession, the areas that EMC specializes in — data storage and virtualization — have remained strong.
At the same time, Noland said EMC may be benefiting from some pent-up demand in the market as companies are forced to invest IT after putting such initiatives off for several years.
“Companies can put off costs for a while, but as you come out of the recession, you have stronger financial footing and you have real need,” Noland said. “That’s a double benefit for companies like EMC and others in the tech field.”
Record earnings for other companies may have very little to do with a recovering domestic economy. That’s the case at American Superconductor Corp. in Devens. The company posted $16-million profit for the fiscal year that ended March 31, 2010, reversing several years of losses. The company continued to report strong quarterly results through the year, with profits up at the quarter ended Dec. 31 by more than 200 percent.
But little of that success has come from demand in the United States, according to Jason Fredette, a spokesman for the company. Approximately 97 percent of the company’s more than $114 million in revenues in the quarter came from overseas.
Ben Schuman, an analyst with Pacific Crest Securities in Oregon, said growth by many companies in the clean energy sector has been fueled by government incentives around the world.
AMSC is taking advantage of incentives in China, where some of the world’s top wind turbine-producing companies are located and are receiving government subsidies to add capacity.
Fuhrer, the Federal Reserve economist, said 2011 will be an interesting year to watch for all government subsidies, not just those in the green sector.
For the first time in a few years, the economy will be less propped up by the government, which will be a test to see the strength of the economy free from government stabilization.
“We’re really at the hand-off point right now,” Fuhrer said.
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