24/7 Wall St. identified the eight largest American companies whose revenue fell the most in the past five years and analyzed the reasons behind the drops.
24/7 Wall St. used Capital IQ to screen the largest companies in America based on total revenue in 2006. We then screened for those that had the largest drops in total revenue between 2006 and 2010. Most of the eight companies on this list lost a third of their total revenue over the period, and some lost more than half. The list is ranked by total revenue loss from greatest to least.
8. The Home Depot
- Drop in sales: $6.8 billion
- 2006 revenue: $73.0 billion
- 2010 revenue: $66.2 billion
- Percent change: -9.3 percent
- Industry: big-box retail
Home Depot’s fortunes were hurt by two factors over the past five years. The first was the collapse of the housing market. A drop in home sales and a rise in unemployment smothered both home building and the ability of people to pay for repairs. There is still some question about when the housing market will rebound. In the first three quarters of 2011, Home Depot’s revenue rose only 2.9 percent to $54.4 billion.
The other reason Home Depot is smaller today than it was five years ago is that it sold its construction supply business in 2007 to concentrate on its in-store retail operations. The unit changed hands in 2007 when it was bought by private equity firms Bain Capital, Carlyle Group and Clayton, Dubilier & Rice. Home Depot built the wholesale construction-supply business through nearly 40 acquisitions totaling more than $7 billion over several years just before it was sold.
- Drop in sales: $14.3 billion
- 2006 revenue: $75.7 billion
- 2010 revenue: $61.4 billion
- Percent change: -18.9 percent
- Industry: banking
Citigroup, like AIG, reorganized its business during and after the credit crisis of 2008. The need for a bailout seemed improbable in 2006 when the company’s creator, Sandy Weill, retired. Known as the world’s financial supermarket, Citi was created by Weill through a series of mergers and buyouts that included The Travelers, Smith Barney and Salomon Brothers. But Citigroup’s holdings of mortgage-backed securities made it vulnerable to the collapse of the housing market, and its existence was threatened by huge losses on these securities.
The total rescue of Citi involved stunning sums of bailout capital. The government loaned the financial firm money in two tranches. The first was for $20 billion and the second for $25 billion. The Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. then agreed to guarantee $306 billion in portfolio losses after Cit’s first $36 billion in losses. The bank’s new CEO, Vikram Pandit, then began to cut out the portions of the company that were most in trouble, and those that could be sold to make the most money to cover losses and loan obligations to the government. At the end of 2008, Pandit said he would cut 52,000 jobs. The company got even smaller when it sold several large businesses like its student loan operations and much of its business unit in Japan.
6. Time Warner
- Drop in sales: $14.9 billion
- 2006 revenue: $41.8 billion
- 2010 revenue: $26.9 billion
- Percent change: -35.6 percent
- Industry: media
Time Warner is another company that was broken up based on a strategic plan set by its management and board. The conglomerate owned a series of cable systems, the world’s largest magazine publisher Time Inc., Warner Bros. studio, several cable networks, including HBO and CNN, and online portal AOL. First, management decided to change Time Warner’s focus to content, spinning off Time Warner Cable in the spring of 2009, about a year after its decision.
Time Warner also decided to leave the online portal business and further focus itself on print, movie and cable TV content. Internet portal AOL was spun off as a public company at the end of 2009. The results of all the divestitures was a five-year drop in revenue of more than one third.
- Drop in sales: $17.9 billion
- 2006 revenue: $34.8 billion
- 2010 revenue: $16.9 billion
- Percent change: -51.5 percent
- Industry: tobacco
Altria used to make and manufacture all of the cigarettes under the Philip Morris brands. It also held a majority interest in Kraft. The company’s board found that there were very few economies of scale in the ownership of both food and tobacco companies, although each operated in the same geographical markets and each had large manufacturing facilities. Kraft was spun off to its shareholders in 2007.
The most significant change to Altria was when it spun off its international business and created a publicly traded company called Philip Morris. Altria kept the cigarette business in the U.S. When the deal was announced in mid-2007, Philip Morris International revenues were more than double those of the U.S. unit, with 2006 revenues of $48.26 compared to Philip Morris USA’s $18.47 billion. The logic behind the decision was that the U.S. business was highly regulated and was posting only modest growth, while the overseas business had more potential to continue to expand.
4. Motorola Solutions
- Drop in sales: $27.5 billion
- 2006 revenue: $35.3 billion
- 2010 revenue: $7.8 billion
- Percent change: -77.9 percent
- Industry: telecommunications
Motorola was one of the most successful consumer electronics companies in 2005 and 2006, selling 130 million units of its RAZR handset from 2004 to 2007. By 2010 the company was broken into pieces. Motorola had been a strange conglomerate for years. It had its flagship cellphone business, but also a division that made TV set-top boxes and a unit that built infrastructure for telecom companies.
The menagerie of divisions became unwieldy when handset sales dropped precipitously when Motorola failed to follow the RAZR’s success with another product. The set-top boxes and infrastructure businesses had no synergy with handsets. The company’s management and board therefore decided to break the parent into two publicly traded companies and sell off the smallest division. Nokia Siemens Networks bought the wireless-network equipment division of Motorola in June 2010 for $1.2 billion. In the final separation of the parent company, Motorola Solutions kept the enterprise and infrastructure operations, while Motorola Mobility took the cellphone operations. Motorola Mobility recently agreed to be sold to Google for $12.5 billion. The deal is expected to close early this year, pending regulatory approval.
- Drop in sales: $31.3 billion
- 2006 revenue: $108.9 billion (2005)
- 2010 revenue: $77.6 billion
- Percent change: -28.7 percent
- Industry: insurance
AIG was caught on the wrong side of the mortgage-backed securities collapse more than any other financial firm. U.S. taxpayers had to commit $182 billion to keep the massive insurance company afloat. Part of the decision to salvage AIG was because of its financial relationships with large banks, including Goldman Sachs and Bank of America. The rescue was to protect against the destruction of a number of such firms as the credit crisis crested. The U.S. government took effective control of AIG in September 2008. It was the start of a process that led Congress to create the $700 billion Troubled Asset Relief Program, meant to aid a number of other Wall Street firms that were on the brink of collapse.
AIG was able to pay the government back by issuing stock, much of which the Treasury sold, and by selling off a number of divisions. The largest sales included the sale of American Life InsuranceCompany to MetLife in early 2010 for $15.5 billion, the sale of AIG Star and AIG Edison to Prudential Financial for $4.2 billion in late 2010, and the sale of AIG Credit and 21st Century Insurance to Farmers Insurance Group of Los Angeles in mid-2009. Because all of these sales, as well as drops in revenue among its core divisions, AIG’s revenue fell 28.7 percent over five years.
- Drop in sales: $47.9 billion
- 2006 revenue: $176.9 billion (2005)
- 2010 revenue: $129.0 billion
- Percent change: -27.1 percent
- Industry: automotive
Ford’s story is not that different from GM’s, with one notable exception — Ford never filed for Chapter 11. CEO Alan Mulally, hired in September 2006, was able to borrow $23 billion as he pledged most of Ford’s assets for the capital. Prior to Mulally’s arrival, Ford had already sold two of its troubled divisions, Jaguar and Range Rover, to Tata Motors for $2.3 billion. That transaction took place in 2008. Ford also was badly hurt by the incentives it had to pay to customers so they would buy its vehicles.
What is interesting about the rapid demise of Ford was that the company thought it was prepared for a drop in sales. In 2005, then CEO Bill Ford created a plan called “The Way Forward.” The program called for a reduction in the number of salaried workers Ford employed. It also called for a move away from heavy, fuel inefficient SUVs and a rapid move into hybrid vehicles. But Bill Ford did not do enough to anticipate what was probably an unforeseeable downturn in U.S. car sales and an inability to stop increases in labor costs. Ford was nearly destroyed by the recession’s downturn. Bill Ford lost his job as CEO, though he remains executive chairman.
1. General Motors
- Drop in sales: $59.5 billion
- 2006 revenue: $195.0 billion
- 2010 revenue: $135.5 billion
- Percent change: -30.5 percent
- Industry: automotive
The near-death experience of GM has been well-chronicled. The automaker had a whopping 50 percent share of the domestic market in the 1960s. That began to erode when gas prices rose and the number one U.S. car company was slow to move to four-cylinder engines. Japanese imports took market share away from GM because of their quality and fuel efficiency. By the start of the last decade, GM had to fight a two-front war against both the UAW and competition from Asia and Europe. The start of the Great Recession, which began in December 2007, was too much for GM to handle. U.S. car and light truck sales dropped from almost 17 million in 2005 to 10.4 million in 2009. GM declared Chapter 11, with government financing, on June 1, 2009.
The reasons for GM’s revenue drop are largely twofold. The first is simply the decline in its sales in both the U.S. and Europe. The other is that GM decided to shed units that were not profitable. It shuttered Saturn in the summer of 2009. Pontiac had been closed two months earlier. Hummer was shut down in early 2010. These closures may have contributed to higher profitability, but they cut GM’s overall revenue. Lately, GM has begun to grow again. In its most recently announced quarterly results — the third quarter of 2011 — revenue increased to $36.7 billion from $34.1 billion in the same quarter of 2010.