Fortune Global 500
Powered by banking and oil, revenues of the Global 500 companies, a third of the world's GDP, rose 13% last year. Is a slowdown ahead?
(Fortune Magazine) -- One look at the largest corporations in the world and a single conclusion jumps out: Natural resources are driving the global economy as never before. Five of the top ten companies on FORTUNE's 2006 Global 500 are oil companies, one more than last year. Another four are automakers, whose customers pump plenty of gasoline. The outlier in the top ten is Wal-Mart Stores, which was unseated by Exxon Mobil from its four-year reign at No. 1. And, hey, in most places you have to reign at No. 1. And, hey, in most places you have to drive to get to a Wal-Mart.
Big Oil's domination is the product of a decade of industry consolidation combined with sky-high crude prices and a surge in global demand. Exxon's 2005 revenues jumped 26%, and its profits hit $36 billion--the biggest payday in the history of the Global 500. (The previous record holder was--you guessed it--Exxon.) And two other American oil companies--Chevron (Charts) (No. 6), which acquired Unocal last year, and ConocoPhillips (Charts) (No. 10)--moved into the top ten, pushing GE (Charts) (No. 11) out of the uppermost tier for the first time since 1997. "These companies have never had it so good," says Oppenheimer's Fadel Gheit, an oil industry analyst. "It's globalization. You have this wave of economic growth, and it's almost unstoppable."
Oil companies aren't the only ones prospering; 2005 was a banner year for most Global 500 companies. It took $13.7 billion in revenue just to make this year's list--up from $12.4 billion last year. And profits for the 500 companies jumped 30%. Total revenues for the Global 500 in 2006 add up to $18.9 trillion, a third of the world's GDP.
Companies of the old economy--commodities and oil--racked up the biggest gains. The mining and crude-oil sector, which excludes major oil companies that have large refining segments, enjoyed a 77% increase in profits. Add refiners to that group, and it accounted for $2.8 trillion in combined revenue, up 27% over the previous year. The only sector to perform as well was finance: It had the largest industry group revenue increase with 47%.
J.P. Morgan Global Equities strategist Abhijit Chakrabortti says the current trend is a shift from the 1990s, when software, media, health-care, and retail industries led economic growth. Now emerging markets are driving the fastest expansion, and they have a huge appetite for materials and resources. "If I'd predicted you'd see BHP Billiton (Charts) [the Australian mining giant that boosted profits by 89% last year] become a larger company by market cap than Intel, you would have laughed," he says. "But that's exactly what has happened."
The title of largest company outside the U.S. went to yet another oil producer. Royal Dutch Shell (No. 3) displaced BP (No. 4 this year and No. 2 last year), but that switch was due less to Shell's relatively modest 14% revenue growth than to a change in BP's accounting. The company has stopped reporting income from commodity trades because it was offset by expenses. In case you're thinking that's just a detail, the change amounts to roughly $105 billion, which, if counted, would have made BP No. 1. Still, its profits were up 45%. Rosneft Oil (No. 367), the Russian state-owned firm that holds some of the world's largest reserves and is gearing up for a highly anticipated public offering this month, quadrupled its revenues and quintupled its profits in 2005.
While GM had a miserable year in 2005, losing $10.6 billion, it remained the world's largest automaker and captured the No. 5 spot on the list. Following are DaimlerChrysler, Toyota, and Ford (Nos. 7, 8, and 9, respectively). It's not that the auto industry is growing much--revenue for these four increased just 4%--but they are very large companies that average $185 billion apiece in revenues. The pecking order in the auto world could change very soon. At its current rate of growth, Toyota will eclipse both GM and DaimlerChrysler to become the largest carmaker in the world in 2006 as measured by revenue.
Banks account for one in nine companies on the list, and they are another beacon of hot performance. From New York to Mumbai, revenues were up across the board, boosting the group as a whole by 24%. Thomas McManus, chief investment strategist for Banc of America Securities, says bank growth comes from the surge in metals and energy plus lots of borrowing that "clearly has favored international markets. You start getting a multiplier effect." At European financial institutions, which now recognize gains or losses from derivatives and hedging strategies, results were particularly impressive. UBS's profits rose 73% last year, thanks in large part to a boom in wealth-asset management; France's Crédit Agricole saw an 88% jump in revenue; Fortis, based in Brussels, climbed 49%; Deutsche Bank rose 37%; and Belgian bank Dexia jumped 236 spots on the list to No. 55, with a 259% increase in revenues.
Bank profits extended beyond Europe. Citigroup, which opened more than 100 branches in places like Mexico, Brazil, and Russia, rang up the third-highest profits of any company on the list. Bank of America, which integrated its 2004 acquisition of FleetBoston Financial in 2005, was in close pursuit with the fifth-highest profits. In South Korea, Kookmin Bank more than quadrupled profits on $18 billion in revenue. The State Bank of India (No. 498) made it onto the list for the first time--joining five other Indian companies. And in China four banks, including the Industrial & Commercial Bank of China, which skyrocketed with a 15-fold increase in profits, had combined revenues of $93 billion, up from $76 billion the year before.
China's banking boom points to that country's fasten-your-seatbelts growth trajectory. Four new Chinese companies--China Railway Engineering, Shanghai Automotive Industry Corp., China Railway Construction, and China State Construction--made it onto the Global 500 this year, more additions than any other country, bringing China's total to 20.
Mexico added three companies: América Telecom and two that have been on the list before, Carso Global Telecom and CEMEX. Producing cement from the Persian Gulf to Central America, CEMEX acquired Britain's RMC Group last year and posted a 60% gain in profits, to just over $2 billion. And Austria joined the Global 500 for the first time with oil producer OMV hitting the list at No. 334.
Out of companies in 50-odd industries representing 32 countries, a few other shuffles warrant mention. Japan lost 11 companies, including Yamaha Motor and Central Japan Railway. Heineken Holding fell off the list, as did American companies OfficeMax, American Electric Power, and Texas Instruments. Notable additions include U.S. homebuilder D.R. Horton and, at No. 500, Nike. And in a comeback, Apple Computer (No. 492) has returned to the Global 500 this year after a nine-year hiatus, with profits up 384%, to $1.3 billion.
Whether consumer goods companies like Apple maintain their momentum this year, though, remains a question. The world's voracious appetite for energy is threatening to ignite inflation around the globe. How ironic that the very factors that helped produce outsized profits in 2005 may be the ones that squeeze growth in 2006.
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From the July 24, 2006 issue