Which Quarter Is It, Anyway?
As is usual for late July, summer earnings season is in full swing. But for which quarter? Well, Facebook trounced second-quarter expectations this afternoon with revenue that increased 61 percent. On Tuesday, Apple announced its third-quarter results and Microsoft reported results for its fourth quarter. Third-quarter figures are expected from Starbucks and Visa on Thursday, along with second-quarter numbers for various U.S. airlines. Needless to say, there isn't much of a consensus.
Why can't companies agree on which quarter it is? For starters, because no one is telling them what dates to use. "Companies get to choose their year-end," Harvard Business School professor V.G. Narayanan explained via email. Their selections are often industry-specific. "Retailers typically pick January" as their end-of-year, Narayanan said. "That way, they include the Christmas sales and also the post-Christmas returns, payment of bills to suppliers, etc. It's probably the time of the year when they have the most cash on their hands." Other companies run on fiscal calendars that he describes as "historical accidents," such as a firm that started in one industry but migrated to another without tweaking its fiscal year accordingly.
Brandon Hurst, an analyst at investment research firm Morningstar, said companies like to schedule their fiscal year so that they can report their strongest quarterly results during the fourth fiscal quarter. Tying a neat bow on the last earnings report of the fiscal year sends positive signals to investors and can provide a boost to stock prices, Hurst explains. So while retailers generally opt to end their years right after the winter holidays, travel and leisure companies might choose to close out in the spring or fall to reflect peak travel seasons.
Tax considerations come into the mix as well, but across industries, the main goal is to pick dates that are strategically best for the company. So long as that means different things for different firms and industries, we'll probably be resigned to discussing earnings with a sort of Einsteinian relativity.
In Praise of Puppy-Filled Workplaces
Catching a glimpse of a wagging tail skittering around the office isn’t just cute. It may just save your life and the lives of employees.
Allowing pets in the workplace has long been seen as key employee benefit, as well as an amusement (depending on whether you’re an animal lover). But for some employers, an open door policy toward pets—particularly, man’s best friend—has a raft of other business-enhancing benefits, which include improved morale and reduced employee absenteeism and stress-related ailments like heart disease and diabetes.
In a 2012 study, employees who were around dogs in the workplace reported feeling less stressed than employees who have dogs but left them at home, according to researchers from Virginia Commonwealth University. The study also found that pets triggered workplace interactions that would not normally take place.
The Centers for Disease Control and Prevention also cited similar stress-reducing benefits.
Not all dogs are exactly St. Bernards. Naturally, some animals might hew closer to Cujo than Fido and barking—even among the sweetest puppies can get annoying.
Still, the benefits of a lower-stress workplace are too attractive for some business owners to ignore. Here are some companies throwing caution to the wind and welcoming pets into the workplace and the benefits they’ve seen as a result:
Catharsis and better communication
Replacements, a dinnerware retailer based in Greensboro, North Carolina, has been pro (well-behaved) puppies at the office for decades. The company’s pet policy started because its founder, Bob Page, didn’t want to leave his pet at home. But he always figured that having animals around was cathartic.
That suspicion was confirmed after the company participated in the VCU study. “The study proved what we always thought: Having dogs around leads to a more productive work environment, and people get to know each other through the pets,” says Lisa Conklin, Replacements’ public relations manager. “If you are in a position where something is stressful, seeing that wagging tail and puppy smile brightens the day—it can turn around the whole environment.”
The benefits of Replacements’ pet policy extend beyond employee health, says Conklin. Specifically, she reported improved interactions among staffers. “When I first took the job, I often learned the names of the pets before employees, and it helped me build a bond with everyone.” She added that some employees consider the peace of mind that comes from of having their pets within reach a key benefit. “It is a lot of fun to have dogs around the office,” says Conklin.
Exercise and convenience
We all know exercise can help reduce stress. But in lieu of going running with employees each day, Human Movement Management, a Louisville, Colorado, active entertainment company, is banking on its pet policy to amp up employees’ workouts.
“We work long days and long hours,” says Jen Chappell, a customer service representative at Human Movement. “Having dogs around the office makes it fun, and makes us get out of the office and exercise.”
HMM President Jeff Suffolk, who’s Golden Retriever’s name is Brady, adds that employees also value the convenience of being able to take their furry friends out for their midday walk themselves rather than having to hire a dog walker.
“I always felt like if we had the conveniences of our homes, that we would never dread coming to the office,” Suffolk says.
Work-life balance and mental breaks
As a custom application development company, employees at Indianapolis’ Inverse-Square often work long hours. Bringing pets to work makes the time pass more happily, says Bob Baird, the company’s president and founder. “With dogs around, it is too hard to get bent out of shape.”
Tack on the benefits associated with taking breaks and the policy pays for itself, adds Baird. “Our job requires us to solve complicated problems, and it is amazing what a four block walk with a dog will do.” When someone is getting stressed, they will grab a leash and head outside with a dog. This mental break they may not have taken without a dog in tow allows employees to come back refreshed.
Comic relief and petting therapy
At the crafty marketplace Etsy, pets are welcome for a variety of reasons—not least of all for their comedic timing.
Sarah Starpoli, an employee experience manager, recalls a story when one tiny fur ball bit off more than he could chew. Once, she explains, a very small dog walked through a staff meeting dragging a stolen piece of pizza past the person who was speaking. The slice was same size as the dog, she adds.
The Brooklyn-based company has found that bringing dogs to work helps to keep employees’ spirits high and adds to the sense of community and connection. At Etsy, however, even the dogs have a community. The company keeps a doggie database, which features more than 50 nearby office dogs that are registered to come in. On any given day, about 4 to 10 pups are present.
Starpoli adds that stress levels naturally fall when pets are around. It's hard to be overwhelmed by work when a dog goes skittering by or comes over to say hello. And it’s not uncommon for folks to actively seek out their favorite pups when they need a break.
Culture benefits and setting the tone
At Huffington Post’s offices in New York City and Los Angeles, the pet policy has been in force since 2011 when AOL acquired the media company. Besides traditional stress-relieving benefits, the pro-pet policy also sets the tone for the office: comfortable, open, and flexible, says Lena Auerbuch, HuffPo’s manager of lifestyle communications and partnerships.
There's an "understanding that everyone keeps their teeth to themselves and remembers where the fire hydrant is," says senior writer Ann Brenoff.
See also: Three Questions to Test Your Trust
Hey Look, Obama Has Reduced Income Inequality (Sort Of)
Since 2009, 95 percent of all income gains have gone to the top 1 percent of U.S. earners. And yet over at the Washington Post today, Zachary Goldfarb argues that President Obama has actually managed to reduce income inequality during his time in office.
What gives? In a word, taxes. When liberals talk about inequality, they usually look at America’s income distribution before the IRS takes its cut. Through that lens, 1-percenters have grown their piece of the pie during the Obama era, as shown below.
But Goldfarb is framing the issue a little differently. Using data from the Tax Policy Center, he analyzes incomes after taxes and government spending. And instead of tracing how inequality has evolved over time, he compares the economic gap today under Obama to what it would hypothetically look like if the Bush administration's policies were still in place. It's an illuminating counterfactual. Between the partial expiration of the Bush tax cuts and the tax increases tucked into the Affordable Care Act, America's wealthiest are forking over a larger portion of their income to the feds. So, as Goldfarb shows in the graph below, the top 1 percent on average now makes 84 times the earnings of households in the bottom fifth of the income ladder. Under Bush's tax regime, they would have made 91 times as much. When it comes to the gap between the wealthiest and the middle class, Obama policies haven't had as much effect. Overall, we can call it modest progress.
Goldfarb writes that the rich-poor gap as depicted in the chart should continue to shrink as more Americans enroll in Medicaid and get health insurance subsidies thanks to Obamacare. (Whether or not one should factor in health insurance income is a somewhat complicated philosophical question, but for now, let’s do it.) Between the tax changes and health reform, Council of Economic Advisers Chairman Jason Furman argues that the administration has undone “more than a decade” of growing inequality.
And he has a point. Liberals prefer talking about pre-tax inequality in large part because it’s a raw reading of how egalitarian our economy is—it tells us how bad the income gap would be were it not for Washington’s intervention. But looking at post-tax-and-transfer inequality tells us how much more work needs to be done to even outcomes—and whether the government’s interventions are having an effect. Both sets of numbers tell us important stories. One says the rich are still pulling away from the rest of us. The other says that the administration has managed, ever so slightly, to pull them back.
This Infuriating Graph Proves That CEO Pay-for-Performance Is a Sham
CEOs are supposed to be paid for their performance, which is why the rest of us mortals are supposed to be comfortable with their astronomical compensation packages. Chief executives are made rich for making their shareholders rich, the argument goes. What’s so wrong with that?
But it doesn’t always work that way in practice, as Bloomberg Businessweek illustrates in this bookmark-worthy graphic. Using data from executive compensation firm Equilar, it ranks the pay of 200 highly compensated CEOs and plots it against their company’s stock performance. The resulting pattern is almost completely random, as if someone fired bird shot at a wall. “The comparison makes it look as if there is zero relationship between pay and performance,” note writers Eric Chemi and Ariana Giorgi. (Bold is theirs. Check out the Businessweek post for an interactive version of the chart.)
As Danielle Kurtzleben at Vox notes, many economists have studied the question of whether CEOs are actually paid based on their successes and reached different conclusions. Critics have argued that clubby corporate boards, often made up of former executives, simply fail to police CEO pay. A 2008 paper by Xavier Gabaix and Augustin Landier concluded that the entire “six-fold increase of U.S. CEO pay between 1980 and 2003 can be fully attributed to the six-fold increase in market capitalization of large companies during that period.” In 2009, however, researchers from Purdue and the University of Utah found that companies in the top 10 percent of CEO pay tend to underperform the stock market—giant pay packages correlated with worse performance. And some have found that CEOs basically benefit from dumb luck; for instance, oil executives are paid more when crude prices jump. Equilar’s own research, meanwhile, shows that linking CEO pay to certain metrics, like earnings-per-share based on generally accepted accounting principles, leads to better stock performance than others do.
In short, sometimes CEOs are paid for the value they add. Businessweek has given us another reminder that sometimes—upsettingly often, in fact—they're not.
Chrysler Recalls Vehicles for Ignition Switch Defect
Ignition switch defects are back, but this time at Chrysler instead of General Motors. Chrysler said on Tuesday that it would recall an undisclosed number of older Jeep Commander and Jeep Grand Cherokee SUVs "out of an abundance of caution" to investigate their ignition switch performance. The company estimated that the total vehicles affected could total up to 792,000 worldwide.
The concern for Chrysler, as with GM, is that unexpected impact on the keychain—a driver jiggling it by accident or the car hitting a bump on the road—could slide the ignition out of the "on" position and cause the vehicle to stall suddenly and the airbags to be disabled. But unlike GM, whose ignition switch troubles have been linked to at least 13 deaths and 54 crashes, Chrysler said it knows of only one reported accident and no related injuries from its own defect.
This isn't the first time that Chrysler has issued a recall for ignition switch–related problems. In 2011, it recalled nearly 200,000 minivans for a defect that led to stalling, and earlier this month it expanded that to 700,000 additional vehicles. So why hasn't Chrysler taken the same heat as GM? "Perhaps Chrysler was more willing to do the recalls," says Clarence Ditlow, executive director of the Center for Auto Safety. "Chrysler already did one recall on the ignition switch and did it voluntarily three years ago. It's not like they've been sitting on it for 10 years like GM." The most obvious explanation, of course, is that there haven't yet been any deaths associated with the Chrysler recalls.
If Apple Products Were Their Own Companies, They’d Be as Big as ...
Apple's earnings, as expected, were a bit boring today. The company isn't debuting any major new products until later in 2014, so investors had to make do with news that the company hauled in a slightly larger boatload of cash than it did this time last year, mostly thanks to growing iPhone sales. Total revenue rose 6 percent to a gaudy $37.43 billion.
Some argue that, without a big new hit, Apple risks turning into just another tech dinosaur. But lumbering or not, sometimes it's worth reflecting on what an enormous beast the company Steve Jobs built truly is. Last year, Eric Chemi of Bloomberg Businessweek pointed out the amazing fact that Apple's iPhone sales alone were larger than the revenues at 474 of the companies in the S&P 500 stock index. So I thought I'd ask: If Apple's product lines were their own companies now, which corporations would they stack up against?
First, about the iPhone. Apple moved 35.2 million of the devices this quarter, generating $19.75 billion in sales—a sum larger than Amazon's last reported quarterly revenue. It's also (as Derek Thompson has noted) more than the revenues at Coca-Cola and McDonald's combined. Stack Google and eBay on top of one another, and they barely beat out the little hand-computer. (To be clear, since not every company has reported earnings from April through June yet, I'm using their most recent public results.)
Sales of iPads might be declining slightly, but at almost $5.9 billion they're still a massive business in their own right, generating more revenue than Facebook, Twitter, Yahoo, Groupon, and Tesla combined. That said, those five companies would slightly outweigh Mac computers, which garnered a mere $5.5 billion in sales.
Other fun comparisons: Apple's hardware accessories business (think headphones), generated $1.3 billion, larger than Chipotle's $1.05 billion top line. Weighing in at $4.5 billion, Apple's iTunes, software, and services businesses are a little larger than eBay. And while sales of the dowdy old iPod line may be dwindling, the $442 million Apple made off it this quarter is still 77 percent larger Twitter's $250 million quarterly revenue.
If You’re Cheap, It’s a Great Time to Be a Vegetarian
If you've ever wanted to try the whole vegetarian thing, now is the time, as the Wall Street Journal pointed out earlier today. Meat prices continued to rise in June and drastically outpaced other types of food. While grocery prices on the whole were essentially flat last month, the index for meats, poultry, fish, and eggs spiked 7.5 percent. The biggest increases came in pork products: Pork chops jumped 14.3 percent while bacon, breakfast sausage, and related food stuffs climbed 12.2 percent. Beef and veal prices rose 10.4 percent from May.
Soaring meat prices are, of course, nothing new. As we've written before, a deadly pig virus is decimating the pork supply and the domestic cattle herd is the smallest it's been since 1951. Ongoing conflict in Ukraine—a major exporter of corn and wheat—has left farmers facing higher feed prices for what livestock they do have. Only poultry has not been terribly affected, with prices up a modest 1.5 percent since last month. Then again, that could change if fertility problems recently discovered in fat roosters seriously disrupt the supply of chickens raised for slaughter.
Back in the produce aisle, the cost of fruits and vegetables rose moderately—up 3 percent—while the price of processed fruits and vegetables actually declined by 0.3 percent. Dairy was a little more expensive, adding 3.9 percent overall and more in subsets such as cheese and milk. Which is all to say that the truly cost-conscious shopper might not just want to try the vegetarian route right now, but even test out eating vegan. The only real financial danger there is citrus fruits, which gained a whopping 12.2 percent month over month.
This New Plane Seat Looks Horrifying. It’s Also a Great Idea.
At first glance, it would seem that Airbus is busy conjuring new ways to torment coach-class airline passengers. The aircraft manufacturer recently filed a patent application that would further reduce the amount of space between seats on an airplane, allowing airlines to cram more passengers than ever into economy class. The new “seating device,” which looks like a cross between a bicycle seat and an office chair, is mercifully designed for use in short-haul flights; as the Los Angeles Times pointed out, “it has no tray table, no headrest, and very little legroom.” Brian Fung of the Washington Post jokingly described it as a “medieval torture device.” Many commenters expressed similar revulsion, swapping horror stories from various flights gone wrong.
But not everything about the Airbus proposal is bad. In its patent application, Airbus helpfully acknowledges that “it is no longer possible to further reduce the seating width, particularly in economy class.” In other words, your terrible seatmate digging his elbow into your ribcage will not be enabled to dig any harder by his new bicycle seat. But passenger width isn’t the only conundrum that airlines face today. Airbus also addresses the pesky issue of legroom, stating, “it is difficult to further reduce [the] distance between the seats because of the increase in the average size of the passengers.” Tall people, that means you.
Current seating configurations are particularly painful for long-legged individuals, who shockingly don’t quite fit into a space designed to provide the bare minimum wriggle room possible for a person of average leg length. Even if you do fit, chances are the passenger in front of you will fully recline into the already-bruised flesh of your knees, igniting a murderous rage. At 6’4’’, I speak from experience: Shorter people have it easy when it comes to some forms of mass transit. What exactly are taller individuals (in this case meaning anyone above the average U.S. male height of 5’9’’) supposed to do with their knees? Put them in overhead bins? For many of us, the only answer is shelling out extra cash for exit-row or economy-plus seats, which are harder to come by.
Even in an exit-row seat, the foam-and-metal slabs we are accustomed to today are horrible: a 31-inch seat-pitch (a normal allotment for a seated person, butt-to-knee) is an insult to the vertically gifted passenger. In contrast, Airbus’ new seating “makes it possible to raise the seating further by comparison with the aircraft seats with a parallelepipedal seating.” Parallelepipedal refers to the three-dimensional parallelogram of despair in which today’s economy class passengers are confined. (It’s also satisfying to say aloud.) In turn, the patent explains how the height-adjustable seat “enables each passenger to adapt the seating height to his or her morphology, and this avoids providing an excessive necessary distance for passengers of large size by avoiding having them seated too low.” Much as bicycle seats and office chairs may be adjusted for height, seating that allows for height adjustment might spare tall passengers the indignity of clown-car situations.
And parallelepipedal seating isn’t exactly good for anyone’s posture, anyway. A flat rectangle of foam may look comfier than a saddle seat, but it does a number on your lower back. While the new seating looks Spartan, it simply provides support where it is most needed: the lumbar region. Similarly, the “motorcycle-saddle” style seat better supports the buttocks, even swiveling to provide rotational mobility in the lower back.
In order to reassure anxious travelers desperately clinging to what little space they have, a company spokeswoman emphasized the conceptual nature of the patent. A patent merely establishes the idea as Airbus’ intellectual property: something to build upon, tinker with, and improve before eventual implementation. (Seatbelts, for example, are probably a necessary step.) The new seats aren’t perfect, but they’re on the right path. And for the airlines, fitting more economy-class passengers on each flight helps keep prices down while still protecting the significant revenue stream from business and first-class tickets. For those of us who happen to be tall, the simple concept of a height-adjustable seat offers sweet relief in the skies.
Why Comcast Sees Losing 144,000 Cable Subscribers as a Win
Comcast rose modestly this morning after reporting better-than-expected results for the second quarter. It was a pleasant about-face for the cable operator, which spent the past week taking flack for what might have been the worst customer service call of all time. Net income beat analysts' forecasts at nearly $2 billion, and Comcast also added 203,000 users to its high-speed Internet service in Q2, more than the 161,000 additions that analysts expected.
More interesting is this line from Comcast's quarterly report: "Video Customer Net Losses Declined to 144,000; The Best Second Quarter Result in Six Years." Best second-quarter result in six years? Comcast must have seen some pretty brutal second quarters. To some extent, that's seasonal: Comcast customers include students who cancel their TV subscriptions at the end of a school year and summer vacationers who terminate their service before hitting the road.
At the same time, households cutting the cord on cable services is an industrywide problem. The number of Americans paying for TV through cable, satellite, or fiber services slid by more than 250,000 in 2013, according to data from research firm SNL Kagan. Though people have seen this coming for quite some time, the pay-TV industry had never suffered a quarterly subscriber decline before 2010.
Comcast might have lost 144,000 cable customers this time around, but that was better than the 162,000 it dropped a year ago, and followed two consecutive quarters of actually growing its TV subscribers. From Comcast's perspective, stemming the flow in the latest quarter might be enough of a win. Maybe those horrid policies it has for "retention" specialists are doing the trick after all.
The Ruling That Would Gut Obamacare Is an Amazing Advertisement for Obamacare
The fate of the Affordable Care Act is once again in question, now that a federal appeals court in Washington, D.C., has ruled that the government can’t subsidize private coverage for residents in states that refused to set up their own insurance exchanges. Without those subsidies, the law pretty much falls apart. Slate will have a bunch of coverage on the decision today (here's Dave Weigel), but for the time being, it's worth pointing out a glaring irony about this whole lawsuit: It’s actually an amazing advertisement for Obamacare.
Much of the case rests on the complaints of one David Klemencic, a West Virginia man who says he doesn’t want to buy health insurance, and that were it not for the government's generous subsidies, he wouldn't have to. Below is how the court describes his predicament:
The district court determined that at least one of the appellants, David Klemencic, has standing. Klemencic resides in West Virginia, a state that did not establish its own Exchange, and expects to earn approximately $20,000 this year. He avers that he does not wish to purchase health insurance and that, but for federal credits, he would be exempt from the individual mandate because the unsubsidized cost of coverage would exceed eight percent of his income. The availability of credits on West Virginia’s federal Exchange therefore confronts Klemencic with a choice he’d rather avoid: purchase health insurance at a subsidized cost of less than $21 per year or pay a somewhat greater tax penalty.
Let’s spell that out: This lawsuit has been brought by a man who, thanks to Obamacare’s subsidies, could purchase health insurance for $21 per year. That's about the cost of a 750 of Jack Daniel’s or a hardcover novel. I guess you can't accuse Klemencic of putting self-interest ahead of his principles.