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2009-04-26 BACK
Texarkana Industrial Index Update
Texarkana Industrial Index Update This article originally appeared in the Texarkana Gazette on April 26, 2009 Dr. Ed Bashaw, Dean, Texas A&M-Texarkana College of Business When we launched the Texarkana Industrial Index (TII) over a year ago as a weekly feature published in the Texarkana Gazette, we promised periodic updates to offer additional analysis as to what the number may indicate. In this week's column, we'll give an annual report that show the underlying performance of our seven firms comprising the TII (AEP - Swepco, Alcoa, Centerpoint Energy, Cooper Tire, Domtar, Flowers Foods, and International Paper), look at the first quarter performance of these national and international corporations, and take a deeper look into Alcoa. Recall that the TII consists of two pieces of data to create a weighted average; the number of employees employed by these companies that we update each quarter and the current market capitalization for that company each week. The number of employees, weighted more heavily, represents the most important aspect of the TII. This is because it ties most closely with local economic activity and benefits the Texarkana MSA by providing spending power to our market. The current market capitalization is the market-based value of the firm and is calculated as the firm's stock price times the number of outstanding company shares. It represents the capability and potential of these companies to invest resources into Texarkana. With the exception of Flowers Foods, each firm in the TII suffered mightily in 2008. Flowers produces and markets bakery products throughout the U.S. For 2008, Flowers stock price was up 6.3% from $22.76 at the beginning of the year to a year-end price of $24.20. There market capitalization gained $128 million to $2.2 billion. So much for the good news. The next numbers are pretty staggering. Collectively, the seven corporations lost over 50% of their market value (50.93% to be precise). They went from $72 billion to $35 billion in 2008. Compared with the Dow Jones Industrial Average, which lost 33.8% in 2008, the TII firms performance was worse. As you might expect, profits for the TII firms was negative as well. Four of the seven firms showed profit losses (Cooper, Domtar, Alcoa, and IP). Collectively, the TII lost $203 million. Remarkably, 2008 TII revenues were positive - $89 billion in 2008, up from $86 billion in 2007. A rise in energy and other prices, particularly gasoline and other petroleum based products, had a disastrous impact on each of the four firms with negative profits. Additionally, Alcoa suffered from a decline in the commodity price of aluminum. For the first quarter of 2009, TII employment numbers held strong. At the end of the quarter, these firms employed 3899 employees, up from 3888 at the beginning of the quarter. This is particular impressive when considering the well publicized layoff of 60 employees at Alcoa in December. No wonder our latest unemployment rate stays a relatively strong 5.7% (this number is the latest available, February 2009, from the Bureau of Labor Statistics) compared to our current national rate of 8.5%, an Arkansas unemployment rate of 6.5% and a Texas unemployment rate of 6.7%. Stock prices of our seven TII firms reflect a U.S. economy in recession. Each firm had a loss, over the quarter, in stock values (and, in turn, market capitalization). The total market capitalization for the TII firms at the beginning of the quarter was $35.6 billion compared to $26.1 billion at the end of the quarter. That is a total loss in value for the TII companies of 26.2%. As a comparison, the Dow Jones Industrial Average lost 13.3% over the same time period. My guess is that the second quarter numbers will be better for our TII companies. The Texarkana company I'll be watching most closely over the next few months is Alcoa. They have had a tough year and a tough quarter. For 2008, they had a loss of revenue from 2007 of about $3 billion ($30.4 billion in revenue in 2007 versus $26.9 billion in 2008). The company had a profit loss of $74 million. The stock price declined over the same time period from $34.75 to $11.06. That translates to a market capitalization loss of nearly $20 billion. They topped off the year with an announced layoff of 60 employees at our local plant. Ouch! Unfortunately, the first quarter of this year has not been kind. The stock price has slipped to $7.04 resulting in another $3 billion market capitalization loss for the first quarter. They recently reported a first quarter loss of $497 million. What's behind all of this? Alcoa has suffered a "double whammy" - aluminum commodity prices are down 26% since the start of the year plus national economic conditions driving demand down. The commodity-based characteristic of their product lines translates to lower margins. When aluminum prices fall, even if profit margins and demand stay static, the company loses dollar profits on the same volumes. Unfortunately, demand did not stay static. Alcoa lost 41% in sales to airplane, automobile, and other product producers. What do I see for them for the future? My guess is that their stock price will improve slightly over the 2nd quarter. This optimism is due to the Obama's stimulus dollars having a positive impact on consumer demand for aluminum products. I'm hopeful that demand will improve such that local employment levels will improve by the 4th quarter of this year or the 1st quarter of 2010. Let's keep our fingers crossed. As always, please email me at Edward.Bashaw@tamut.edu with your thoughts and comments. (Dr. Bashaw is the Dean of the College of Business at Texas A&M University-Texarkana)
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Texarkana Industrial Index Update
Texarkana Industrial Index Update This article originally appeared in the Texarkana Gazette on April 26, 2009 Dr. Ed Bashaw, Dean, Texas A&M-Texarkana College of Business When we launched the Texarkana Industrial Index (TII) over a year ago as a weekly feature published in the Texarkana Gazette, we promised periodic updates to offer additional analysis as to what the number may indicate. In this week's column, we'll give an annual report that show the underlying performance of our seven firms comprising the TII (AEP - Swepco, Alcoa, Centerpoint Energy, Cooper Tire, Domtar, Flowers Foods, and International Paper), look at the first quarter performance of these national and international corporations, and take a deeper look into Alcoa. Recall that the TII consists of two pieces of data to create a weighted average; the number of employees employed by these companies that we update each quarter and the current market capitalization for that company each week. The number of employees, weighted more heavily, represents the most important aspect of the TII. This is because it ties most closely with local economic activity and benefits the Texarkana MSA by providing spending power to our market. The current market capitalization is the market-based value of the firm and is calculated as the firm's stock price times the number of outstanding company shares. It represents the capability and potential of these companies to invest resources into Texarkana. With the exception of Flowers Foods, each firm in the TII suffered mightily in 2008. Flowers produces and markets bakery products throughout the U.S. For 2008, Flowers stock price was up 6.3% from $22.76 at the beginning of the year to a year-end price of $24.20. There market capitalization gained $128 million to $2.2 billion. So much for the good news. The next numbers are pretty staggering. Collectively, the seven corporations lost over 50% of their market value (50.93% to be precise). They went from $72 billion to $35 billion in 2008. Compared with the Dow Jones Industrial Average, which lost 33.8% in 2008, the TII firms performance was worse. As you might expect, profits for the TII firms was negative as well. Four of the seven firms showed profit losses (Cooper, Domtar, Alcoa, and IP). Collectively, the TII lost $203 million. Remarkably, 2008 TII revenues were positive - $89 billion in 2008, up from $86 billion in 2007. A rise in energy and other prices, particularly gasoline and other petroleum based products, had a disastrous impact on each of the four firms with negative profits. Additionally, Alcoa suffered from a decline in the commodity price of aluminum. For the first quarter of 2009, TII employment numbers held strong. At the end of the quarter, these firms employed 3899 employees, up from 3888 at the beginning of the quarter. This is particular impressive when considering the well publicized layoff of 60 employees at Alcoa in December. No wonder our latest unemployment rate stays a relatively strong 5.7% (this number is the latest available, February 2009, from the Bureau of Labor Statistics) compared to our current national rate of 8.5%, an Arkansas unemployment rate of 6.5% and a Texas unemployment rate of 6.7%. Stock prices of our seven TII firms reflect a U.S. economy in recession. Each firm had a loss, over the quarter, in stock values (and, in turn, market capitalization). The total market capitalization for the TII firms at the beginning of the quarter was $35.6 billion compared to $26.1 billion at the end of the quarter. That is a total loss in value for the TII companies of 26.2%. As a comparison, the Dow Jones Industrial Average lost 13.3% over the same time period. My guess is that the second quarter numbers will be better for our TII companies. The Texarkana company I'll be watching most closely over the next few months is Alcoa. They have had a tough year and a tough quarter. For 2008, they had a loss of revenue from 2007 of about $3 billion ($30.4 billion in revenue in 2007 versus $26.9 billion in 2008). The company had a profit loss of $74 million. The stock price declined over the same time period from $34.75 to $11.06. That translates to a market capitalization loss of nearly $20 billion. They topped off the year with an announced layoff of 60 employees at our local plant. Ouch! Unfortunately, the first quarter of this year has not been kind. The stock price has slipped to $7.04 resulting in another $3 billion market capitalization loss for the first quarter. They recently reported a first quarter loss of $497 million. What's behind all of this? Alcoa has suffered a "double whammy" - aluminum commodity prices are down 26% since the start of the year plus national economic conditions driving demand down. The commodity-based characteristic of their product lines translates to lower margins. When aluminum prices fall, even if profit margins and demand stay static, the company loses dollar profits on the same volumes. Unfortunately, demand did not stay static. Alcoa lost 41% in sales to airplane, automobile, and other product producers. What do I see for them for the future? My guess is that their stock price will improve slightly over the 2nd quarter. This optimism is due to the Obama's stimulus dollars having a positive impact on consumer demand for aluminum products. I'm hopeful that demand will improve such that local employment levels will improve by the 4th quarter of this year or the 1st quarter of 2010. Let's keep our fingers crossed. As always, please email me at Edward.Bashaw@tamut.edu with your thoughts and comments. (Dr. Bashaw is the Dean of the College of Business at Texas A&M University-Texarkana)
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