Quarterly earnings season is always fun, sort of. Last quarter the Informer noted the strange parallel world in which massive profits can still be greeted with hysterical despair if they should happen to fall short of market expectations.
Sometimes, however, the numbers really are dramatically bad. Things have been going Pete Tong at Tesco – the UK’s largest supermarket chain – for some time now, but few expected it to report an annual pre-tax loss of £6.4 billion (around $10 billion) earlier this week.
“It has been a very difficult year for Tesco,” said Tesco Chief Exec Dave Lewis. “The results we have published today reflect a deterioration in the market and, more significantly, an erosion of our competitiveness over recent years. We have faced into this reality, sought to draw a line under the past and begun to rebuild, and already we are beginning to see early encouraging signs from what we’ve done so far.”
In the name of drawing a line under the past Tesco wrote down the value of property it owns (i.e. the supermarkets themselves) to the tune of £4.7 billion, which is effectively an admission that supermarkets are just less valuable than they once were as people find other places to buy their groceries, such as online and through discount retailers.
Massive losses generally arise from such write-downs or from exceptional economic events such as the 2007 banking crisis. While Tesco’s numbers were pretty far from ideal, they still don’t make it anywhere near the top 18 recorded by Wikipedia up to June 2011.
As you can see from the table below, shamelessly lifted from the Wikipedia piece, the record holder remains AOL Time Warner, which was the biggest casualty of the dotcom bubble bursting. The two companies merged at the height of the speculative exuberance and a couple of years later had to write down the value of the combined company dramatically.
Any other listings around 2002 were also caused by a combination of the dotcom bubble and the accompanying telecoms speculation, including one of Vodafone’s nightmare years. The Vodafone 2006 loss was also indirectly a result of the dotcom bubble as it was caused by the mega write-down of the value of its acquisition of Mannesmann in 2000.
Then, apart from a couple of US transport industry SNAFUs and an over-optimistic Middle Eastern property developer, everything else is down to the 2007/8 financial crisis from which we’re still recovering. Most of them are US financial services companies, including the government-backed mortgage providers Fannie Mae and Freddie Mac, which fell foul of the fashion for lending money to people who couldn’t afford to pay it back.
|1||AOL Time Warner||Media conglomerate||USA||2002||$98.7|
|3||Fannie Mae||Government-sponsored enterprise||USA||2009||$74.4|
|4||JDS Uniphase||Optical products and broadband||USA||2001||$56.1|
|5||Fannie Mae||Government-sponsored enterprise||USA||2008||$59.8|
|6||Freddie Mac||Credit services||USA||2008||$50.8|
|9||RBS||Finance and insurance||UK||2008||£24.10|
|14||Freddie Mac||Credit services||USA||2009||$25.7|
|17||Nakheel||Real Estate Developer||UAE||2009||$20.85|
There have been no such dramas from the tech/telecoms sector so far this quarter, with Amazon, AT&T, Google and Microsoft all reporting steady numbers. But Ericsson required currency fluctuations to register growth and Qualcomm seems to be reeling from the loss of Samsung as a chip customer. As ever in the corporate world, you’re only as good as your last quarter and no company can consider itself safe.