What CCA's Q2 Earnings Mean

Another piece from a guest author, Elaine Hirsch:

(Elaine Hirsch is a kind of jack-of-all-interests, from education and history to medicine and video games.  This makes it difficult to choose just one life path, so she is currently working as a writer for an online doctorate blog.)

A few weeks ago, Mike covered the $42.4 million in profits that CCA announced as part of its Q2 earnings report.  It doesn't take an online doctorate to figure out that profit equals revenues minus costs, and whitout any significant spike int he supply for prison needs, this article will look at how CCA reaped profits by cutting costs in the recent months.

According to the company's earnings call, headed by CEO Damon Hininger and CFO Todd Mullenfer, one of their main focuses has been on cutting costs in operations.  Citing a company-wide initiative in 2009 aimed at driving greater efficiencies, Hininger admitted that CCA gave merit increases to employees last month, causing a dent in their bottom line.  It seems counter-intuitive that a CEO would apologize for pay raises (especially merit-based ones!), because such raises are essentially investments into employees.  Given that statement, it seems as if CCA values its employees as little as the prisoners they manage, a terrible way to run a company.

Later into the conference call, Mullenger announced that a cost-cutting measure employed by CCA was to reduce average employee benefits and legal expenses.  According to Mullenger, operating expenses per man-day declined 1.4% compared to a year ago.  Apparently, CCA's CFO agrees that reducing investments in their employees in an overall positive for the company.

Mike has covered the immense profits that CCA continues to rake in in his previous posts.  Although it's quite shocking to see a company view employee benefits as a negative, in this case, it's not to suprising.