Corporate cash hoard could fuel recovery

Like many U.S. companies, Micros Systems cut costs last year and boosted profits this year.

The Columbia-based maker of computerized sales systems for restaurants and hotels earned $32 million last quarter. That was nearly a third more than its profit for the same period in 2009, thanks partly to overseas growth and a nascent U.S. recovery.

With about $600 million in cash and short-term investments, Micros has added more to its cash hoard in the last year than all but five other publicly trade Maryland companies, some of them substantially larger. With half of its assets in cash or near-cash, its balance sheet looks like that of a technology startup fresh from a stock offering, not a company founded in 1977.

So what will it do with the stash?

That's a question not just for Micros, which has 850 employees in Maryland, but for the U.S. If cash-happy employers began hiring and investing in capital projects, the so-called recovery could live up to its name. Unemployment would fall. Hired workers would boost consumer spending. A virtuous cycle would ensue.

But that's not happening. This, the third "jobless recovery" since that term was coined in the mid-1990s, is the worst of the bunch.

The economy as measured by production of goods and services began growing again in June 2009. But in most months since then, employers continued laying off more people than they hired. The country has the same number of jobs as in early 2004, even though the population and the number of people who want to work have grown by millions.

It's not as if corporations don't have the wherewithal to hire.

As of June 30, the nonbank members of Standard & Poor's index of 500 big U.S. companies were sitting on $842 billion in cash, according to Howard Silverblatt, senior analyst at S&P. Count all U.S. companies, and it's well over $1 trillion, according to the Federal Reserve.

That was the seventh quarterly record in a row for S&P cash. The cash pile was also very high on a relative basis, making up nearly 12 percent of the market value of those companies. A decade ago, corporate cash was less than 3 percent of the S&P 500's stock market value.

All the numbers for the Sept. 30 quarter aren't in yet. Silverblatt estimates cash levels will be down slightly from June but still gargantuan. That's another way of saying that companies still aren't hiring, building or investing.

"The cash is high, and we're not seeing a lot of expansion yet," Silverblatt said. "From what we've seen, the companies aren't spending much. When they start spending it, that's where you want to be."

For a company whose clients have been plastered by the slump, Micros' profitability is perhaps surprising. Micros sells computerized cash registers and handheld ordering devices to restaurants, hotels and other retail companies that get hurt first and worst when the economy shrinks.

Micros was wise to hire cautiously as the housing bubble passed its peak.

"We got concerned that the market was looking a bit overextended" in 2007, said Peter J. Rogers Jr., Micros' executive vice president of business development. "So we really just started slowing our hiring and looking at every position in the company" to ensure it was necessary.

When things collapsed in 2008, Micros thought about layoffs but ultimately avoided them, Rogers said. Instead the company shrank through attrition, keeping vacancies open or combining jobs. Worldwide employment fell by about 100 to 4,646 from summer 2009 to summer 2010.

Meanwhile, Micros' customers kept buying. While the hospitality industry as a whole has struggled, Micros has been gaining a greater share of restaurant and hotel customers.

At the same time, restaurants found Micros' products even more essential in a slump than in a boom. By reducing waiters' trips and by tracking inventory and orders like a bloodhound, Micros' wares make eatery staffs more efficient and reduce theft and spoiled inventory.

As the federally required minimum wage kept rising and sales kept falling, technology-driven efficiency gains became a matter of survival for some restaurants. Hence Micros' 10 percent year-over-year increase in revenue and even bigger gains in profits and cash.

The good news is that Micros has begun hiring again — a software developer here, an installer there. The company expects to add from 150 to 200 people worldwide in the next year, including perhaps a couple dozen in Maryland. Micros management expects revenue to exceed $1 billion this fiscal year.

But such employment growth — 5 percent or less — won't put much of a hole in Micros' cash stack. Like many employers, the company has been using cash to buy back and make acquisitions — which it intends to continue.

That's not going to bring unemployment down from the 9 percent range, however.

Micros' business would really take off if consumer spending recovered for restaurants, hotels and everything else. But consumers need jobs to start spending again.

If corporations devoted more of their cash to hiring them, it might work out great for everybody.

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