Fortune 500: The year of living profitably

May 7, 2012, 8:00 PM UTC

FORTUNE — Given the sluggish recovery and a strapped consumer, you’d expect to see corporate America trudging along, not racing for glory. In fact, the Fortune 500 are thriving as a group. Unlike the U.S. economy, they’ve shown quicksilver agility, rapidly shifting their product mix and producing more goods at little new cost. This nimbleness belies the immense size of these companies and, frequently, their advanced age. For example, banking giant Wells Fargo (No. 26) celebrated its 160th anniversary with profits of $15.9 billion, up 28% over 2010. “We’ve been able to prosper in these difficult times by innovating, whether promoting banking on mobile devices or growing our mortgage business when others are leaving,” says Wells Fargo CFO Timothy Sloan.

Wells Fargo’s (WFC) fat profits are impressive but by no means unusual. The Fortune 500 generated a total of $824.5 billion in earnings last year, up 16.4% over 2010. That beats the previous record of $785 billion, set in 2006 during a roaring economy. The 2011 profits are outsize based on two key historical metrics. They represent 7% of total sales, vs. an average of 5.14% over the 58-year history of the Fortune 500. Companies are also garnering exceptional returns on their capital. The 500 achieved a return-on-equity of 14.3%, far above the historical norm of 12%.

These big numbers can’t last. The gravitational pull of the business cycle will eventually end the profit bonanza, in part because many companies carried out brutal layoffs during the recession and will now be forced to hire more workers to maintain their growth. So let’s enjoy it as a heroic but fleeting moment, not a durable new age.

How did the 500 mine huge profits in a harsh environment? Two ways: productivity gains and globalization. The 500 companies kept costs low even as their sales grew in the early stages of a slow recovery. The 500 are also doing more business in developing economies that are growing faster than the U.S. Together, these two factors created a powerful earnings engine called “operating leverage.” Starting with the financial crisis of late 2008, companies slashed costs, especially labor, as if a depression were looming. Since the economy began expanding again in late 2009, they’ve been reluctant to hire more workers, who account for almost 70% of their total costs. Today the Fortune 500 employs 25.8 million people worldwide, up by less than 1% since 2007. And U.S. companies are simply keeping wages even with inflation, granting average raises of 2% in 2011.

The result has been an explosion in labor productivity. In 2005 the 500 generated $369,000 in sales per employee. Last year that figure reached $455,000, an increase of 23%. Profits per worker hit a record of $32,000, 50% above the level in the early 2000s. The 500 also reaped major rewards from lowering interest payments, both by tapping bigger earnings to reduce debt and by issuing new bonds at bargain rates. Wells Fargo, for example, used both strategies to pare its interest cost by $1.4 billion from 2010 to 2011.

Size was a big advantage last year. “The big companies consistently did better than the small players, chiefly because they have far more global reach,” says Mark Zandi, chief economist at Moody’s Analytics. The 500 pull almost 40% of their sales from foreign markets. Despite Europe’s economic travails, growth outside the United States reached 3.1% in 2011, dwarfing the U.S. figure of 1.7%.

Honeywell International (No. 77), the aerospace and industrial controls colossus, raised revenues by $1.2 billion, or 20%, last year in high-growth markets such as China and India. That accounted for almost one-third of Honeywell’s (HON) total sales growth. “We expect about half of our revenue growth to come in emerging markets over the next five years,” says CFO David Anderson.

Three sectors — consumer cyclicals, energy, and financial services — generated 73% of last year’s $116 billion earnings gain. Consumer cyclicals is a diverse category dominated by motor vehicles and auto parts, businesses that produced a $21 billion rise in earnings last year. Profits at GM (No. 5) rose by 49%, to $9.2 billion. GM has introduced a fleet of briskly selling models since late 2010, led by the compact Chevy Cruze and the subcompact Sonic.

Since emerging from bankruptcy in 2009, GM (GM) has also curbed costs to the point where it makes money when the U.S. car market reaches 10.5 million units (last year’s figure: 12.8 million). That’s a remarkable 5 million units below GM’s old profitability threshold.

Over at Ford (No. 9), profits jumped 208%, to $20.2 billion. Ford generated healthy operating earnings, raising unit sales 9% in the U.S. last year with a strong lineup that includes the midsize Fusion, a worthy competitor to the Toyota Camry. However, much of the swing came from an accounting change that increased the value of Ford’s past tax losses. For years those losses looked worthless because Ford (F) had no earnings. Now that Ford is making money again, those deferred benefits will decrease its future cash taxes.

High prices at the pump translated into great results for energy companies like Exxon Mobil, which topped the Fortune 500 with $453 billion in revenues, edging out last year’s winner Wal-Mart. It’s the 13th time that Exxon has taken first place, and the sixth time that Exxon and Wal-Mart have traded the top two positions during the past decade. Exxon (XOM) also led the 500 with $41.1 billion in earnings, up 35% over the previous year. Because most of Exxon Mobil’s costs are relatively fixed, last year’s surge in oil prices fell heavily to the bottom line. (It’s been a mixed year for last year’s No. 1: Wal-Mart’s (WMT) low-end consumer base has been hit hard by the slow recovery, and the stock recently plunged on news of a massive bribery scandal involving its operations in Mexico, first reported by the New York Times.)

Your friends on Wall Street may be complaining about smaller bonuses, but financial services are experiencing a comeback of sorts. For 2011, the sector posted $150 billion in earnings, up 19% over 2010. That’s far from its peak in the mid-2000s, but a big stride from the $213 billion loss that the industry suffered in the crisis year of 2008. One tarnished name, AIG (No. 33), is enjoying a remarkable revival. AIG earned $17.8 billion in 2011, up $10 billion over the previous year. Most of that gain came, like Ford’s, from a write-up in the value of its tax losses. But AIG (AIG) has also shed assets and sold stock to lower its long-term debt from $178 billion to $75 billion, while growing its core insurance franchises under CEO Robert Benmosche. Meanwhile, commodities broker INTL FCStone (No. 30) rode a global surge in commodity prices, topping the list in revenues per employee, revenues per dollar of assets, and revenues per dollar of equity.

The financial sector also saw a revival in the fortunes of the big commercial banks. Bank of America (No. 13) swung from a $2.2 billion loss to a $1.4 billion profit last year. BofA (BAC) benefited from selling assets, including part of its stake in China Construction Bank, and from a sharp drop in its credit costs, a gift from the improving economy.

Technology wasn’t quite the profit machine that it’s been in past years. Sector earnings rose by just $5 billion, although tech remains the largest profit-maker at $156 billion, narrowly edging the resurgent financials. The overall picture masks the giant contributions of two trophy names, Apple (No. 17) and Microsoft (No. 37). Apple (AAPL) boosted earnings by 85%, to $25.9 billion, helped by two of the bestselling consumer products in history, the iPhone and the iPad, which together generated $67 billion in sales, more than double the figure in 2010.

Microsoft (MSFT) also enjoyed a banner year, lifting earnings by 23%, to $23.2 billion. Swelling its results were a 48% gain in sales on its Xbox 360, the bestselling videogame console, and a 23% jump in its profits from business software and services. One soft spot in tech: AT&T (No. 11). The telco’s 2010 profits were artificially swollen by asset sales. By contrast, AT&T’s (T) 2011 earnings were hit by a $4.2 billion breakup fee for failing to complete the T-Mobile deal, and a $6.3 billion charge for a change in its pension accounting.

Although our biggest companies may appear monolithic, they’re subject to the logic of creative destruction. Unlike 2010, there are no homebuilders or education companies on the Fortune 500. By contrast, mining, metals, and energy production contributed seven of the 26 additions to the list. Good times come and go across the 500. What’s remarkable is how well most companies have fared by pushing workers to create more value with fewer resources. In coming years, look for the tide to shift in the workers’ favor. It always does. That’s the Fortune 500 for you.

This story is from the May 21, 2012 issue of Fortune.