In This Article
- Exhibit 1: All four of the most recent recessions began with falling sales and EBITA in the consumer-discretionary sector.
- Exhibit 2: The extent of the contraction of EBITA during recessions varies across sectors.
- Exhibit 3: During a recession, the share price performance of different sectors tends to be more similar the than financial performance.
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In an ideal world, every company would enter a recession led by a team of grizzled executives who could draw on their experiences of past downturns to guide it through the current one. Many companies don’t, however, and even for those that do, it can be difficult to rise above the crisis to ponder the lessons of history. Yet in a recession, developing accurate strategic plans is usually a high-stakes effort. False assumptions about the pace, scale, and timing of growth may slow progress in good times but could be fatal now.
Executives in an industry that lags behind the economy, for example, may imagine that they can avoid a downturn because at first the industry doesn’t slow down when the economy does. Other executives, failing to realize that their industries tend to revive before the overall economy, may plan too conservatively for the upturn. Decisions about acquisitions, divestitures, and even recruiting or retaining talent often hang in the balance.
To help executives sharpen their perspective, we looked at the financial performance of US companies during the four most recent recessions.1 Then we analyzed sector-level2 total returns to shareholders (TRS), revenue growth, and growth in earnings before interest,...