The Proof of the Pudding

As tickers tapped out their reports of year-end earnings, they proved what many a businessman has suspected: war's end and reconversion has been easy on U.S. pocketbooks.

Some companies, squeezed between high costs, price ceilings and dropping volume, skidded into the red in the last quarter of 1945. But even the red ink had a rosy tinge. In many cases it was caused, not by a catastrophic drop in business, but by a laudable desire to pay off the old mortgage, i.e., the money spent to expand facilities during the war. When the war ended, companies stopped paying for their plants in installments, charged them off in a lump sum. As most of the cash would have gone to the Government anyway in taxes, this cost them comparatively little. But it lowered profits.

Down Rails. The railroads were a prime example. Rail profits have been slipping steadily since 1942, unable to outrace rising operating costs. But in 1945, under the weight of fast amortization, the drop was breathtakingly sharp. The Association of American Railroads reported that net profits of Class-I roads dropped to $453,000,000, more than $200,000,000 under 1944.

Typical was the biggest U.S. road, the Pennsylvania. Its net profit dropped to $49,000,000, some $15,000,000 less than in 1944 (and half of 1942's). One reason: Pennsy paid off $41,000,000 on war building improvements. But few roads went as far as little Lehigh Valley. It paid off so much that it chugged far into the red, lost $7,562,000 v. a 1944 profit of $772,000.

Up & Down. Thanks to its high operating rate in the first half of 1945, the steel industry made up for its sales slump in the second half. And in steel, as in most other industries, the drop in gross was largely made up by a drop in the tax bill.

For the $300,000,000 in business which U.S. Steel lost, it got its tax bill cut in half; it also paid off $114,000,000 on war plants. Result: net profits were down only to $57,000,000 v. $61,000,000 in 1944. Bethlehem Steel did even better. C.I.O.-hating Ernest Tener Weir's National Steel came up smiling with a boost in profits, $11,117,000 v. $10,700,000.

The great mass of companies, which did not have to reconvert, went right on making money hand over foot. And retailers, who had worried about getting caught with shoddy war articles, did better than ever before.

Despite this early sun, there were clouds on the horizon. Detroit's automakers, hardest hit by reconversion and strikes, have yet to tell what they made last year. Nevertheless, industry is well heeled to stand any temporary losses. The Securities & Exchange Commission reported that last September the working capital of U.S. industry stood at a new high of 50.9 billion. More than half was in actual cash.

This file is automatically generated by a robot program, so reader's discretion is required.