Is Fortune Smiling on Apple Again?
Fortune’s annual list of the 500 largest companies in the United States reflects the fact that business activity is picking up in the United States. After several years of cautious spending and low growth following the recession, in the words of economist John Maynard Keynes, corporate America once again felt the “urge to action” in 2012.
Topping this year’s ranking was Wal-Mart (NYSE:WMT) and its $469.2 billion dollars of 2012 revenue, followed by oil companies Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX), and Phillips 66 (NYSE:PSX) in second, third and fourth, respectively. While these front-runners are fairly typically players, Apple (NASDAQ:AAPL) finally broke into the top ten and Facebook (NASDAQ:FB) made the list for the first time ever, coming at number 482.
Sitting snugly between Berkshire Hathaway (NYSE:BRKA)(NYSE:BRB)and General Motors (NYSE:GM), the iPhone maker ranked sixth on Fortune Magazine’s 500 list, representing a dramatic increase from its 17th-place finish last year. In fact, the top 50 positions were densely populated by technology companies: AT&T (NYSE:T) took 11th place, Hewlett-Packard (NYSE:HPQ) came in 15th, International Business Machines (NYSE:IBM) in 20th, Microsoft (NASDAQ:MSFT) in 35th, and Amazon (NASDAQ:AMZN) in 49th.
The shift to greater levels of business activity was evidenced by two major trends in the 500 list: an increased number of spinoffs and a resurgence of mergers and acquisitions. In recent years, companies were stockpiling cash and avoiding expansion, but that thinking has clearly been put aside; 2012 was the best year for mergers and acquisitions in more than a decade.
Spinoffs added three new companies to Fortune’s 2012 list. ConocoPhillips (NYSE:COP) spun off its refining arm last year, creating Phillips 66, which came in at number 4 while its former parent fell to number 45. Similarly, Kraft Foods split into Kraft Foods Group (NASDAQ:KRFT), number 151, and Mondelez (NASDAQ:MDLZ), number 88. M&A was also an important force in recasting 2012’s list of the largest U.S. companies. Thirteen companies — accounting for $201 billion in sales — were cut from the list, almost triple the previous year’s revenue total for departed companies and the highest figure since 2000. In ten of those 13 deals, the buyer was another Fortune 500 company, and in most cases the purchase significantly increased its ranking. With domestic energy booming and healthcare companies preparing for the implementation of the Affordable Care Act, both sectors experienced the greatest number of mergers and acquisitions.
Large profits were the prime driver of those deals. In total, the Fortune 500 earned $820 billion in 2012, falling just below the all-time record, set in 2011, by $4 billion, or 0.5 percent. That performance not only supplied the necessary cash to pursue mergers and acquisitions but also gave companies the necessary confidence to complete them despite the slowly healing economy. Now, the question that remains is whether the era of abundant profits can last. Currently, earnings amount to 6.8 percent sales, above the historical average of 5.5 percent. According to Moody’s Analytics economist Mark Zandi, the trend is coming to an end. “Margins are as wide as you’ll ever see them, because earnings have grown a lot faster than sales. That can’t continue,” he told CNNMoney. In the years following the financial crisis, companies avoided rehiring the workers they laid off in 2008 and 2009, but as the economy strengthens, they will be forced to boost hiring and pay higher salaries. Most likely, that will pull profit growth back.
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