Cost of oil leading to some leaner companies

Many have cut product lines and passed along higher prices to customers

	Because of high resin costs, Rubbermaid is going to simply quit making some of it's products — excluding the Sharpie pen.
Bill Waugh / AP

updated 2:49 p.m. ET Sept. 4, 2008

NEW YORK - Conventional wisdom had long held that some industries would collapse if oil topped $100 a barrel. As oil neared $150, sending costs higher for everything from jet fuel to plastic jars, the question was how many companies would succumb.

The surprising answer: Not many. Some have even thrived.

Companies have culled unprofitable products, cut production costs and passed along price increases. Airlines have laid off thousands of employees, dropped routes, sold planes and raised fares 20 percent in the last year — the fastest rate of increase in 15 years. Consumer product makers have shrunk everything from tubs of Smart Balance Buttery Spread to jugs of laundry detergent. Retailers from The Yankee Candle Co. Inc. to Target Corp. have passed on higher prices to consumers.

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"We are squeezing every dollar out of our working capital," said James Craigie, chairman and chief executive of Church & Dwight Co., on the company's second-quarter earnings call in August. Sales have increased 50 percent over the last four years at the company, which makes detergent, toothpaste and Arm & Hammer baking soda, but the number of employees has stayed flat, at 3,700, Craigie said.

With oil prices roughly twice what they were in January 2007, many companies have simply adjusted. Now that oil's daily price swings are moving down as well as up, that preparation has put them in a strong position — leaner than they've been in years, with customers paying higher prices.

Of course, the adjustment hasn't been smooth.

Consumer inflation is the highest in 17 years, up 5.6 percent this year and unemployment is at a four-year high. Workers are doing more, without earning more: Productivity, the output for every hour of work, jumped 4.3 percent at an annual rate in the April-June quarter, while labor costs fell.

The auto industry has been hammered as gasoline prices climbed roughly $1.30 a gallon since the beginning of 2007. Higher prices for gas and food crimped consumer spending and slammed department stores and restaurants. Every penny increase for a gallon of gas equals more than $1 billion in consumer spending over a year, according to Citigroup Inc. Business bankruptcies are higher than they were a year ago, soaring in industries like trucking, which have excess capacity and are unable to pass on higher costs.

But many businesses have proved resilient. A surge in exports thanks to the weak dollar helped, but so have price increases and cost-cutting.

Underwear company Maidenform Brands Inc. said on its second-quarter earnings call in August that it had been able to offset all the fuel surcharges it received in 2008.

"In 2009, we're going to have to work harder," said Chris Vieth, the company's chief operating officer and chief financial officer.

To that end, Vieth said the company had a team looking for new factories to work with in Vietnam and Thailand. It's also finding lower cost materials.

Craigie at Church & Dwight reminded investors on the company's quarterly earnings call in early August that management had made a promise, when oil was less than $100 a barrel, to add 1 percent to gross margins.

"We will still deliver on our objective despite higher oil prices," he said.