Down Near the Up Sign

Earnings reports are not as complete a measure of corporate activity and efficiency as most people think they are. So said the accounting firm of Price Waterhouse & Co. last week. Reporting on the tax-accounting practices of 100 major U.S. corporations over a twelve-year period, Price Waterhouse Senior Partner Herman W. Bevis found that the 100 had tucked away $950,189,000 to cover deferred tax payments, but eventually paid out only $20 million of that amount. Thus, indicated Bevis, the true profits of the companies cited were actually about $930 million higher than reported.

As more second-quarter and half-year sales and earnings were reported last week, many a corporate executive might wish that stockholders would believe the figures did not really count. Though hopes were high that the chart lines would soon be moving up, the news in the latest batch of reports was largely negative. Profits had been caught between higher labor and material costs and lower consumer demand. The Wall Street Journal, surveying earnings of 528 companies, found that their aftertax profit for the second quarter was 8.1% lower than last year's. In a similar survey of 500 corporations, the New York Times tabulated a 5.28% half-year drop.

Among returns by industries:

sb STEEL. As U.S. Steel goes, so goes the industry, and "The Corporation's" Chairman Roger Blough glumly reported last week that the quarter had gone badly. U.S. Steel showed a 44% decline in quarterly earnings and a 34% drop for the half-year, to $84.6 million. Second-biggest Bethlehem reported a half-year profit drop of 28%, to $66 million. Third-ranked Republic was off 26% for the half-year in earnings, and Inland, Armco, Crucible, Wheeling and Jones & Laughlin came in with similar returns.

sb AUTOS. Steel's biggest customers were somewhat better off. General Motors, which suffered a disastrous first quarter as new-car sales slumped, managed a brighter second quarter as springtime customers appeared. Sales rose 1% in the second quarter, to $5.6 billion, and earnings of $522 million were only 4.4% below last year v. a first-quarter profit drop of 34%. For the half-year, profits were $911,567,400, or 20% below last year. Chrysler's Chairman Lynn Townsend reported improved second-quarter sales of $1.6 billion with earnings off 11%, to $54.4 million, from the year-ago figure but better than the first quarter's performance. Ford Motor Co. (see WORLD BUSINESS) had a second-quarter income of $146,500,000 --off 32%--on sales of $3.2 billion.

sb AEROSPACE. At recently merged McDonnell Douglas Corp., an after-tax loss of $41 million for Douglas wiped out a $28 million profit for McDonnell. North American Aviation, hit by adverse readjustment of its space contracts, including the Apollo project, following the fatal fire at Cape Kennedy, reported a 59% drop in earnings for the quarter, to $4,839,000.

sb TRANSPORTATION. Railroads, even recently lucrative ones, showed a drop for the quarter. The Pennsylvania Railroad and the New York Central, still waiting to merge, each had lower earnings for the half-year (although the Central managed to move out of the red in the second quarter), while a drop in car-loadings affected healthier lines like the Norfolk & Western, Southern Pacific, Union Pacific, and the Atchison Topeka & Santa Fe. Airlines were mixed.

United, the nation's largest, set a half-year record with revenues of $521,474,000 and earnings of $32,192,000, and Delta did so well that last week it an nounced a 3-1 stock split. But Pan American's second-quarter earnings fell 14%, to $17,459,000.

sb OIL. Led by giant Jersey Standard, and aided by increased sales and firmer gasoline prices, the oil industry did well. Jersey set a record with half-year profits of $563 million. So did Texaco, whose earnings went up an impressive 8%, to $359 million. Mobil Oil also reported a half-year record with $184 million in profits.

Reporting on U.S. Steel last week, Roger Blough calculated that "we have passed the low point. July will be the low month." Most businessmen agree that earnings should improve slightly, but there is bound to be cost cutting and perhaps price increases to help. The Government, they maintain, could help out too. Strong feeling is developing against the President's proposed surtax of 6% or higher on earnings, on the grounds that this is no time to take another bite where the fare has thinned.

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