As Spending Stopped, Cash Flow Increased at Public Companies
By RAJIV VYAS
Orange County companies saw sales slip and suffered some big net losses last year. But one measure of corporate health didn’t fare as badly: cash flow.
Thirty-nine public companies analyzed for the Business Journal by Newport Beach-based First American Capital Management, part of Santa Ana’s First American Corp., saw free cash flow,or money from operations minus capital spending,rise 27% to $2.5 billion last year.
The figure is notable, particularly when looking at the top and bottom line results at the 39 companies. 2001 sales for the group fell 4% to $70 billion, while 2000’s $871 million profit was replaced by a $1.3 billion net loss last year.
There are some qualifiers. Part of the free cash flow surge stems from a cut in capital spending, which dropped 8% to $1.7 billion last year. Less spending on computers, plants and other items means more free cash flow, though less business for companies that rely on spending by other companies.
“What we are seeing in OC is that companies are cutting back on their capital expenditure just like companies across the country,” said David Willardson, director of equities and senior portfolio manager at First American Capital.
Another item to note: operating cash flow, which doesn’t include capital spending, was flat at $4.1 billion.
In all, 24 of the 39 companies generated more free cash flow last year than the year before.
Irvine-based title insurer and financial services company Fidelity National Financial Inc. saw its free cash flow surge on top of a big earnings gain. Last year, Fidelity’s cash flow more than tripled to $385 million as profits tripled to $305 million on the heels of the housing and refinancing boom.
Aliso Viejo-based Fluor Corp. also did well: the engineering and construction company had a cash inflow of $477 million vs. a cash outflow of $302 million in the year before.
Thirteen companies generated less cash or saw more cash flow out last year.
Santa Ana-based Pacific Healthcare Systems Inc. saw $38 million of cash outflow in 2001 vs. $525 million of inflow the previous year because of lower earnings and more investments during the year.
Santa Ana-based Ingram Micro Inc. saw lower cash inflow than the previous year. Last year, $200 million came into the company vs. $690 million in the previous year. Net income for the same period dropped 97% to $6.7 million.
Technology companies including Ingram Micro and Irvine’s Broadcom Corp. led the sales drop and red ink at the 39 companies with operating losses and big one-time charges.
“This mirrored the overall economy, which experienced the worst profits recession in about 20 years,” Willardson said.
Overall, though, OC companies may not have done as poorly as thought in a tough 2001.
Net income was lower by only 7% if Broadcom and its big one-time charges are ignored. The 8% capital spending drop also seems relatively mild compared to nearly double that on a national level last year.
The companies added some weight to their balance sheets last year by raising cash through debt last year. In all, debt at the companies rose 21% to $22.3 billion last year.
