But other companies stared into the abyss—and backed away from it on their own power. To identify notable recession survivors, I analyzed data provided by Capital IQ, a division of Standard & Poor's, on hundreds of big and mid-sized companies. I looked specifically at companies that ranked near the bottom on two key metrics over the last two years: S&P's long-term debt ratings, which estimate a company's ability to pay back what it has borrowed, and S&P's quality rankings, which grade the prospects for long-term growth and stability in a company's earnings. Then I looked for companies whose debt or quality ratings have improved recently, after bottoming out.
The improvers constitute a thin list, as you might expect during a prolonged downturn. Out of roughly 835 companies whose S&P quality rankings were lower than average at some point over the past two years, for example, only about 75—less than 10 percent—have improved to average or better. And of 323 companies with speculative or "junk" credit ratings since 2008, only 91 have become more creditworthy. The firms that made our final list still face challenges, indicated in some cases by their stock price performance over the past two years. (For comparison, the S&P 500 index has fallen about 21 percent over the same period.) But these 10 companies have begun to make notable turnarounds:
Ford Motor Co. (Change in stock price over the past two years: up 76 percent). Between 2006 and 2008, Ford lost $30 billion, limping alongside General Motors and Chrysler as a symbol of Detroit's downfall. But Ford has now pulled ahead of its crosstown rivals, which both declared bankruptcy last year and got billions in government aid. Ford, by contrast, worked through its own problems, thanks to timely debt refinancing and popular new models like the Fusion and Taurus sedans and the Flex crossover. Avoiding a bailout has helped Ford grab customers from the other domestics, driving market share up. Ford turned a $2.7 billion profit in 2009 and CEO Alan Mulally says the company is back in the black for good.
Sonic Automotive (down 47 percent). The double-whammy of $4 gas in 2008 and an automotive depression in 2009 trashed sales at this dealership chain concentrated in the South and West. With more than a dozen General Motors and Chrysler franchises, Sonic had to close several dealerships after the two automakers declared bankruptcy. A long-term strategy of expanding by buying dealerships in big cities went into reverse, as Sonic downsized to conserve cash. But Sonic turned a profit in 2009 after a big loss the year before, and a stable of strong dealerships seem likely to benefit as auto sales bounce back. And Sonic's S&P credit rating has risen a notch.
E-Trade (down 63 percent). This high-flying online brokerage slammed into a headwall in 2006, as investments in subprime lending and other risky ventures turned into a disaster. Three years of steep losses followed. The company has been selling assets and aggressively restructuring, while living off a $2.5 billion investment from a prominent hedge fund. The surgery seems to be working. The company's S&P credit rating has risen by one level, and core brokerage operations are gathering steam. The company could return to profitability late this year or early in 2011, as revamped international operations complete a turnaround.
Corning (down 38 percent). This technology company struggled after the dot-com bust, with a quality rating of "C"—the lowest for solvent firms—since 2002. Then came the recession that hammered sales of many products that use Corning components, like trucks and automobiles, TVs, and telecommunications equipment. But Corning now stands to profit from several trends, which has lifted its quality ranking out of the basement. Sales of LCD TVs, which Corning makes the glass for, should recover handsomely. Tighter pollution laws and the growing popularity of diesel automobiles should aid the company's emission-control products. Telecom spending, which usually lags a recovery, should pick up eventually. And the firm's durable "Gorilla Glass" is showing up on smart phones, tablet PCs and television sets.
Alaska Air (up 135 percent). It's been a bumpy decade for most airlines, with spikes in fuel prices and a plunge in travel adding to a chronic overcapacity problem. Alaska Air took its lumps, with losses in 2006 and 2008 and a quality rating that slid to C. Unlike some rivals, however, this West Coast carrier seems to have found a formula for profitability that doesn't require a merger. Simplifying its fleet to two kinds of aircraft—one for mainline destinations and one for regional hops—has helped cut costs, while new baggage fees helped Alaska buck the trend and turn a profit in 2009. Several bigger airlines partner with Alaska to get passengers to its appealing West Coast destinations, and a merger remains possible.
Bally Technologies (down 6 percent). The house always wins—except when a grim recession torpedoes visits to Vegas and other gambling meccas, as happened in 2008 and 2009. That sank the outlook for Bally, which makes slot machines, casino systems, and other gambling equipment (and is not related to the fitness company or the Swiss clothier.) But another trend could help Bally beat the odds: the desperate need for state and local governments to draw business and raise new revenue, often through regional casinos. That's now boosting sales of slot machines and other equipment. New high-tech computer-controlled gaming systems that allow frequent changes in the theme or rules of a game could catch on as well, and the company should benefit as the economy slowly recovers and consumers go for the dice once again.
CMS Energy (down 6 percent). Utilities are usually dull and predictable, but this Michigan power company, whose main division is Consumers Energy, has had a tumultuous decade. After venturing into overseas energy production and the trading of energy contracts (think Enron) it gradually sold off those divisions to focus on its core operations in Michigan. But then came a statewide depression and the bankruptcy of two big customers, General Motors and Chrysler. Cutting costs and focusing closer to home, however, has helped the company stabilize its earnings, raise its dividend, and invest in smart-grid systems and other futuristic technologies. And its S&P quality ranking has risen two notches over the past two years.
Interpublic Group (up 83 percent). The recession hammered this sprawling advertising and marketing firm, as big clients like General Motors, Verizon, Microsoft, and Intel slashed their ad budgets to save money. That sent Interpublic's S&P quality ranking to lowly C. Now, after streamlining and cutting its own costs, Interpublic seems poised to benefit as businesses regain confidence and beef up their ad budgets. Despite a first-quarter loss and turmoil at Chevrolet, a huge client, the firm's quality rating has risen one notch, indicating that the outlook for earnings is finally improving.
Norfolk Southern Corporation (down 15 percent). Recessions are bad news for freight railroads, which transport many of the products that businesses and consumers stop buying when money gets scarce. Such worries about earnings drove S&P's quality ranking for Norfolk Southern down to a C. But after sharp declines in 2009, revenues and sales are rebounding as the economy improves, and S&P has raised its quality ranking for the railroad by four notches—the biggest improvement for any company monitored by S&P over the past two years.
Jo-Ann Stores (up 99 percent). It wasn't the recession that left this fabric retailer in tatters—it was stale stores, excess overhead, and other problems that produced losses back when the economy was still booming. The firm's quality ranking fell to a dismal C, while new management took over and began work on a "repair plan." Since then, aggressive remodeling, the closing of underperforming stores, and several new superstores have helped patch up earnings. The chain also benefitted from thrifty do-it-yourselfers doing more of their own sewing during the recession. The quality ranking has risen a notch, and company executives now predict healthy sales in the future.