Tough Times for the Exxon Tiger

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As profits plummet, the biggest oil company cuts back

Exxon Corp. announced last week that its second-quarter profits totaled $885 million. At almost any other company, such a performance would be cause for frenzied backslapping and fat bonuses. But at the world's largest industrial corporation, which earned $1.8 billion during the same period last year, there were no celebrations. In fact, the plunge in profits has forcecd Exxon to conserve cash by slashing its work force, cutting back on advertising and reducing executive perks. Hurt by sluggish demand for petroleum products and a string of troublesome investments, Exxon is preparing for a bout of hard times.

The retrenchment marks a substantial reversal for a company that politicians and the public have regularly reviled for making "obscene" profits. Between 1978 and 1980, Exxon more than doubled its annual earnings, to $5.7 billion. This incredible surge, caused by an unprecedented jump in oil prices, could not continue for long. Profits dipped slightly in 1981, and oil industry analysts predict that the company's income will fall this year to as low as $4 billion. Though that sum still looks enormous, it will not be enough to meet Exxon's burgeoning cash needs. The company had hoped to boost its budget for exploration and other capital investment this year by 22%, but is now scaling back those plans.

To shore up profits, Exxon is slimming down its work force, which has swelled 28% since 1972, to 180,000. Within the past few weeks, some 30,000 employees in the U.S. have received letters from management offering them cash incentives to quit their jobs. The company will not reveal the exact terms of the golden handshake deals, but range from a few months' pay for relatively new workers to full pension benefits and generous bonuses for those nearing retirement. Insiders say that management's goal is to trim the staff by 15%. Supervisors have warned their workers that unless enough of them resign, layoffs may follow. Says one junior executive fearful of losing her job: "We assume they won't get enough people to go voluntarily."

Exxon's top officers are making some symbolic sacrifices. Managers who had been traveling first class on overseas flights now settle for business class. The pastries and soft drinks that used to be served during all-morning meetings of the investment advisory committee have been dropped (estimated annual saving: $5,000).

Exxon is cutting its corporate advertising budget, insiders say. Already gone is the campaign featuring the theme "We're Exxon. We're more than 100,000 people working on energy." The company is still keeping up its product ads that encourage drivers to fill up with Exxon.

To some degree, Exxon's profit problems are shared by the entire oil industry. The recession has dampened demand for crude and brought an end, at least temporarily, to sharp increases in petroleum prices. As a result, other major oil companies, including Mobil and Phillips, are streamlining their operations to cut costs.