Four companies, four companies with slowing growth, four different ways to handle the problem. I am talking about the problems that are bedeviling IBM (IBM), SanDisk (SNDK), Wal-Mart (WMT) and Yum! Brands (YUM) and the disparate courses the respective CEOs have taken to address them.
First, there's IBM. Here's a company that's got two businesses, a fast-growing buzzword business filled with cloud chatter, cognitive machine thought and big data manipulation, and a slow-growing old software and technology business. The hope had been that the fast-mover portion of the company would be able to accelerate to the point where you would dismiss the legacy business. At the same time, the company's making niche acquisitions to augment the speedy portion and trying to cut costs in the old business to eliminate losses while maintaining a bountiful buyback and dividend to please its shareholder base, particularly Warren Buffett.
It doesn't seem to be working as the good part's not growing fast enough and the bad part's accelerating its decline. The buyback and dividend aren't supporting the stock. Everybody loses.
SanDisk's in low-end flash and it just hasn't been working. After years of aggressive growth the company's hit a wall. So it apparently has decided to sell itself, perhaps to Western Digital (WDC). That's admirable to reward shareholders when you have failed to deliver because the category of commodity flash memory's just gotten too darned hard.
Wal-Mart, the world's largest retailer and another once-fabulous consistent grower, has recognized that it starved both its infrastructure and its workforce, cutting bone in order to keep low prices. CEO Doug McMillon has decided to throw money at the problem, fixing infrastructure to make the company competitive with arch-nemesis Amazon (AMZN) while raising the pay and the pride of the workforce. The gutsy move could end the death-by-a-thousand-cuts narrative that has hurt the company so badly and apparently has the long-term support of the Walton family.
I think Wal-Mart's plan is necessary to preserve its long-term viability, as it will attempt to regain growth at the cost of profitability -- which is very Amazon-like -- and the strategy appears to have the support of the Walton family. Let's put it this way: If Buffett weren't the biggest shareholder at IBM, and he is so pro dividend and buyback, I wonder if IBM would be as bold as Wal-Mart. I salute the management even though I am not sure it can pull off the change because of the DNA of this quintessential brick and mortar company.
Finally, there's Yum! It's got a high-growth business in China that's faltering and low-growth businesses around the world that are decent and stable. The company is choosing to spin off China, which has the prospect for accelerating growth but has lately fallen on harder times. Here's a strategy that could reward people, but the condition of the current Chinese business is far from ideal. I am not sure it's worth speculating ahead of what could be a long road to the spin.
Four companies all dealing with slowing growth. All with credible strategies but only one with a quick payoff, if it tries, in SanDisk. The rest are for the patient, and, perhaps, the unrequited.
In many ways it's just better to go with the stocks of the companies that never got to this point. They, not these four, will give you both short- and long-term performance as long as they keep staying the course, keep reinventing themselves and execute well enough to get the job done in better-than-expected fashion.