The income tax has made liars out of more Americans than golf.
Will Rogers
Russ Wiles, The Republic | azcentral.com 8:11 p.m. MST August 16, 2014
ARIZONA’S BIGGEST AND BADDEST COMPANIES
A couple hundred public corporations call Arizona home. They operate in a range of industries including retailing, technology, homebuilding and power generation. But only about three dozen have critical mass, with a stock-market value above $200 million. Most of these larger firms are profitable, and most have seen their stock prices recover from the bear market. Here are leaders in various categories, based on financial data over the past four quarters (through July 2014):
Consumers might be struggling, but Arizona’s largest companies are faring well, with broad profitability and rising stock prices. Giant Freeport-McMoRan leads the way, but several upstarts are hot.
Many consumers are limping along. Governments are struggling with budget pressures. But corporate America, for the most part, has fully recovered from the Great Recession.
Arizona’s biggest companies are faring relatively well, overall. Their stock prices are up, they’re making money and paying taxes, they’re offering more compensation for top executives and they’re boosting payrolls, if gradually.
In short, things generally are clicking for the biggest companies headquartered in the state, according toThe Republic‘s annual midyear check on shareholder-based companies. So, too, for many companies around the country.
READ: Report card outlines growth, profit
“Corporate America is in pretty good shape,” said Keith Wibel of Foothills Asset Management in Scottsdale. “Companies cut costs, including people, during the recession and have added them back ever so slowly. Plus, the costs to borrow have declined so much that companies have been able to issue debt at very low rates.”
Progress has been uneven, but one way to track it is by examining the rising values of Arizona’s public companies. Twenty-four corporations here are now worth $1 billion or more. That’s one more than in 2013, when the statewide list also had US Airways and Cole Real Estate Investments.
US Airways, now merged with American Airlines, has since moved its headquarters to Fort Worth, Texas, and no longer shows up in the Arizona companies’ report. Neither does Cole, which no longer trades as a public company after a merger into New York-based American Realty Capital Properties. Mergers and acquisitions over the years have pared the number of quality companies based in the state, which has been a recurring problem for Arizona.
Progress on profits
Most of Arizona’s larger companies are operating in the black. Of the state’s 36 biggest corporations, 31 are profitable. The 36 corporations collectively earned just under $7.4 billion over the past 12 months. That’s a jump of more than $800 million compared with 2013, excluding American Airlines and Cole Real Estate from the count both years.
Each of the 36 companies has a stock-market worth of $200 million or more. Arizona counts more than 150 smaller shareholder-owned companies, all valued below $100 million and most considerably smaller, that are not included in this report.
In terms of stock-market performance, 31 of the 36 Arizona companies are up over the past year, some dramatically so. Nearly all have recovered from their lows of five or six years ago. This helps to explain why average pay for Arizona CEOs in the past year hit a record $1.7 million, according to a Republic report published in June.
But some of those stock-market gains have been fueled by share buybacks rather than strong revenue improvements. Allan Flader, a financial adviser at RBC Wealth Management in Phoenix, worries that companies could be hard-pressed to keep up the recent momentum unless the economy shifts into higher gear.
“People aren’t earning more, and interest rates can’t go much lower,” he said. “I’m not seeing tons of revenue growth.”
Wibel also expects the economy to stay in a slow-growth mode. As another caution, he notes that stock-market valuations are fairly high now.
Mining giant Freeport-McMoRan Copper & Gold continues to lead the state in several key categories. It’s the most valuable company, with a stock-market worth or capitalization around $38 billion, and the $2.5 billion in profit earned by Freeport-McMoRan over the past 12 months is one-third the statewide total.
Freeport-McMoRan’s profitability has stagnated over the past year and the company continues efforts to work down long-term debt exceeding $17 billion. But a July agreement to resume operations at its key Indonesian mine, with higher royalty revenue, could be a positive catalyst. Bill Selesky, an analyst at Argus Research, recently raised his evaluation of the stock to buy from hold, based on an expectation of higher copper prices ahead and other factors.
Freeport-McMoRan has more than three times the corporate assets of trash-hauler Republic Services, the state’s second-most-valuable and second-most-profitable firm. Electronics distributor Avnet had the highest revenue, $27.5 billion over the most recent 12 months, while Microchip Technology is the third-most-valuable stock and is sitting on the most cash, nearly $1.8 billion.
Scottsdale’s Spirit Realty Capital pays the state’s highest dividend yield, recently around 5.5 percent, and is the only large firm on the list with fewer than 100 employees. Office manager Healthcare Trust of America and electric-utility parent Pinnacle West Capital also pay dividends above 4 percent.
Standout performers
Solar-panel maker First Solar also has rebounded nicely in recent months, rising from Arizona’s ninth-most-valuable stock last year to fourth currently. Despite tough competition from Chinese rivals, the Tempe-based company still could have the brightest future in its business, helped by superior technology and a cost-reduction plan, said Stephen Simko, an analyst at researcher Morningstar.
But Arizona’s most impressive company, pound for pound, just might be Amerco, parent of Phoenix-based truck-rental firm U-Haul International. Among Arizona corporations, Amerco has the highest stock price ($263 a share as of our Aug. 10 measuring period) and the best stock-market performance over the past 10 years, returning a blistering 28.8 percent annualized over the decade. It has emerged as one of the state’s steadiest corporations.
Amerco also generated more than $18 a share in profit over the past four quarters and holds a hefty cash balance, yet it trades at one of the lowest price/earnings ratios of any Arizona stocks.
Three Arizona stocks doubled in price over the past year. One was Amkor Technology, a Chandler firm that provides assembly and testing services for the semiconductor industry. Its profitability has bounced back after a prior stumble, with a new CEO in place.
The other two are smaller companies — Insys Therapeutics and Accelerate Diagnostics. The latter firm makes instruments to identify and test infectious pathogens. It moved to Tucson from Colorado more than a year ago. Its stock price actually tripled, in both calendar 2012 and 2013, despite little or no revenue during that period.
Insys, by contrast, has shown sharply rising revenue of late. The company this month submitted a new-drug application to the Food and Drug Administration. Michael Babich, the company’s president and CEO, described it as “an important new option for patients suffering from the devastating effects of chemotherapy-induced nausea and vomiting, as well as those fighting anorexia associated with AIDS.”
In a report, Jeffrey Loo, an analyst with S&P Capital IQ, said companies such as Insys could benefit from both a more accommodative environment for FDA approvals and from a favorable mergers and acquisitions climate, in which smaller, fast-growing firms are taken over by pharmaceutical giants.
Most of the data for this report was gleaned from company financial statements and summaries available at morningstar.com.
Impact of jobs, taxes
The headquarters of all 36 larger Arizona companies are clustered in just five cities. Phoenix leads with 16, followed by Scottsdale with nine and Tempe with five. Three companies are based in Tucson, and three call Chandler home.
Arizona companies employ roughly 347,000 workers worldwide, with most located outside the state and tens of thousands outside the country. Retailer PetSmart is the largest employer, followed by Apollo Education Group, Freeport-McMoRan and Republic Services.
Excluding American Airlines and Cole Real Estate, the number of workers at the 36 largest corporations rose more than 2 percent over the past year. With nearly $11 billion in collective cash on hand, along with other assets, Arizona companies have the wherewithal to boost hiring if they perceive more demand for their products and services. But as with bigger corporations generally, that hasn’t happened yet in a significant way during the current economic-expansion phase.
The 36 larger Arizona companies paid or budgeted about $3.8 billion in cumulative income-tax disbursements to federal, state and, in some cases, foreign jurisdictions, over their four most recent quarters. About half the companies paid taxes at overall rates of 30 percent or more.
But that means roughly half paid less, sometimes much less. Real-estate investment trusts such as Healthcare Trust of America or Spirit Realty Capital generally pay little if anything in income taxes. Also, companies that have lost money recently can shave their liabilities.
In addition, several tech companies with foreign manufacturing operations have benefited from generous tax provisions in other nations, including Microchip Technology, one of Arizona’s most profitable firms. Over the past year, it paid or made provisions for taxes at a rate equal to about 9 percent of its income from continuing operations. Of that, more than half was earmarked to foreign governments. Microchip cited tax holidays in Thailand, where it has manufacturing operations, as a major benefit.
Meanwhile, Freeport-McMoran, Arizona’s most profitable corporation, paid or budgeted nearly $1.7 billion in income taxes over its four most recent quarters, an effective rate around 34 percent. Of every $1 in taxes paid by Arizona’s 36 largest companies over the past year, Freeport-McMoRan paid about 45 cents.
Reach the reporter at russ.wiles@arizonarepublic.com or 602-444-8616.
http://www.azcentral.com/story/money/business/2014/08/16/arizona-companies-strong-profits/14185507/
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