Fortune 500, 2010 Edition

The companies in this year's 500 list slashed costs so fast and so deeply — especially labor — that even in a feeble recovery, their earnings soared.

The long-awaited recovery is now under way, but it's a slow, painful slog that's short on trust and confidence and long on a drumbeat of numbers that mostly shift from dreadful to less depressing. Twenty-seven months after the recession began, unemployment is stuck at 9.7%. Housing starts are dragging near half-century lows. Consumers are finally spending again, but they're still too fearful about their jobs and homes to crowd malls and auto lots with the buoyant abandon that heralds a full-rigged revival, the kind Americans are used to.

More at CNNMoney.com: See the complete list of America's Biggest Companies in 2010

Amazingly, as consumers struggle, U.S. corporations are staging a nearly unprecedented comeback that's largely escaping notice. The gargantuan, dispiriting job cuts that seem to dominate the news have also been the spur for an epic resurgence in profits. For 2009, the Fortune 500 lifted earnings 335%, to $391 billion, a $301 billion jump that's the second largest in the list's 56-year history, approaching the increase in the robust recovery of 2003. For last year the 500 raised their return on sales from less than 1% to 4%. That's close to the list's 4.7% historical average.

Hence, the 500's profits virtually returned to normal after years of extremes — bubbles in 2006 and 2007, collapse in 2008 — despite a feeble overall recovery that's far from normal. This year's list — reminder: the Fortune 500 ranks U.S. companies by revenue — is packed with changes that reflect and spotlight the trends reshaping corporate America. The homebuilders that occupied 14 places in 2007 and three last year, including Centex and Pulte, have all disappeared, casualties of shrinking sales. No fewer than nine newcomers from recession-resistant health care joined in 2009, among them drugmakers Genzyme (sales: $4.5 billion) and Allergan ($4.5 billion).

The fall in commodity prices removed half-a-dozen energy production, oil refining, and pipeline companies, and bumped last year's No. 1, Exxon Mobil ($285 billion), into second place, far behind the new leader, Wal-Mart ($408 billion). The collapse in car sales pushed General Motors ($105 billion) from sixth to 15th place, the first time in the list's history that GM didn't make the top 10.

The rebound comes chiefly from three sectors: financial services, consumer cyclicals — items ranging from toys to furniture — and health care. In 2009 banks, securities firms, and insurance companies lowered their combined losses from a staggering $213 billion to just $20 billion. Buoyed by a government bailout, AIG swung from a loss of $99 billion in 2008 — a Fortune 500 record — to a deficit of $11 billion last year. The combined losses at Fannie Mae and Freddie Mac shrank by $15 billion to a still-huge $94 billion, as write-downs continued on subprime mortgages. By contrast, the banks and brokers, including J.P. Morgan, Wells Fargo, and Goldman Sachs, rebounded from losses of $8.7 billion to $38 billion in profits. Write-downs on toxic securities receded, and investment-banking profits jumped, helping offset losses on credit cards and mortgages. J.P. Morgan Chase doubled earnings to $12 billion, thanks chiefly to big gains in fixed-income trading.

In consumer cyclicals, a category that could be labeled "things you'd like to buy but can put off," companies suffered losses of $42 billion in 2008. Casino operators, electronics retailers, and auto-parts suppliers saw revenues fall faster than they could slash costs. That trend reversed in 2009. Wal-Mart managed to lift revenues, on top of a big increase in 2008, by attracting bargain-hungry customers from competitors with remodeled stores and inexpensive private-label goods, offering everything from frozen pizza to patio furniture in one stop. A single trip also meant less spending on gas. Result: Earnings surged 7.0% to $14.3 billion.

The 500's most exceptional study in ingenuity may be Mattel, the world's largest toymaker. In late 2008, Mattel foresaw that sales would plunge in 2009 and introduced a clench-jawed cost-cutting campaign called Global Cost Leadership. Mattel pared its professional workforce by 10%, or 1,000 employees; paid down debt to lower interest costs by $10 million; and reduced overhead by $132 million. Its revenues did drop by $487 million, or 8%. But costs fell much more, by a remarkable $669 million before tax. Mattel booked a net income increase of $149 million, or 39%.

The star of 2009 is undoubtedly health care. The sector's earnings jumped to an all-time high of $92 billion, placing it second behind tech at $94 billion. Health-care earnings rose by $23 billion, or 33%.

The Fortune 500's remarkable response is yet another chapter in the saga of a list that's gone from boom to bust to almost normal, all in the space of three short years. Never has getting to "almost normal" been a bigger achievement.

— Shawn Tully, Fortune Senior Editor at Large

Top 20 Companies

Photo: Wal-Mart

1. Wal-Mart Stores
Rank: 1 (Previous Rank: 2)
Revenues ($ millions): 408,214.0
CEO: Michael T. Duke

The mega-retailer didn't have a whole lot to complain about in fiscal 2010. Profits were up and, thanks to its sales, the company once again climbed to the top of the Fortune 500. Same-store sales were about flat for the year, but compared with Target's 2.5% decline, flat is good.

Most remarkable was Wal-Mart's image overhaul. It helped that former CEO Lee Scott beefed up health care coverage for employees, thought more about the environment and became a public presence. Certain critics will never be placated and fiscal first-quarter results weren't the greatest. But there's no denying Scott left new CEO Mike Duke a company in fighting form.

Photo: Exxon Mobil Corporation

2. Exxon Mobil
Rank: 2 (Previous Rank: 1)
Revenues ($ millions): 284,650.0
CEO: Rex W. Tillerson

The oil giant made a big bet on the domestic natural gas market late last year buying Texas-based XTO Energy for $41 billion. But refining and exploration remain its backbone. The company drilled 45 new wells last year and hit pay dirt on nearly two-thirds of them.

Other big projects: new ventures in Qatar, the Black Sea, and Kazakhstan, including the giant Kashagan field located offshore in the Caspian Sea. With operations in nearly every corner of the planet, Exxon always seems to get a seat at the table when big projects arise. Maybe size does matter. — Peter Newcomb

Photo: Chevron

3. Chevron
Rank: 3 (Previous Rank: 3)
Revenues ($ millions): 163,527.0
CEO: John S. Watson

With prices for crude oil and natural gas off sharply from their recent highs, revenue at the oil giant tumbled 37%, from $265 billion to $167 billion. The good news: Production of oil and gas jumped 7%, thanks in part to a 57% success rate on its exploratory drilling.

But another pitfall looms: Chevron has a heavy exposure to high-acid crude, particularly its deep-water projects in the U.K. If the government forces it to start processing the high-cost oil, Chevron may opt to cede its drilling rights, a move that would result in a sizeable charge against earnings. — P.N.

Photo: General Electric

4. General Electric
Rank: 4 (Previous Rank: 5)
Revenues ($ millions): 156,779.0
CEO: Jeffrey R. Immelt

The house that Jack built ended 2009 by selling a controlling stake in its NBC Universal entertainment unit to Comcast, a deal that valued the new entity at $37 billion. Investors largely shrugged off the deal, but as concerns over its finance unit begin to fade — and talk of a dividend increase start to heat up — GE stock lately has been on a tear.

GE chief Jeffrey Immelt hopes to keep the momentum going. He's investing $6 billion to develop new medical products and technologies, and is making big bets on green technologies, from fuel-efficient turbines to "thin film" solar panels. — P.N.

Photo: John R. Coughlin

5. Bank of America Corp.
Rank: 5 (Previous Rank: 11)
Revenues ($ millions): 150,450.0
CEO: Brian T. Moynihan

Say this about Bank of America chief Brian Moynihan: He certainly knows how to talk the talk. In his letter to shareholders, Moynihan went out of his way to thank U.S. taxpayers for making $45 billion in TARP funds available. He also described how he is working closely with "policy leaders" on financial reform.

Whether he can walk the walk — i.e., turn around BofA's fortunes — is another matter. While the company did repay its TARP loan in December, it is still sitting on billions of dollars of vulnerable residential and commercial mortgage debt — one reason the company spent 8,000 words discussing risk in its annual report. — P.N.

Next: #6-12 of the Fortune 500

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