Well, That Certainly Felt Better

The year could hardly have ended on a better note for much of Corporate America. The economy grew by 4.8% in the last three months--the fastest rate since the end of 1987. A new and younger Administration in the White House created a mood of optimism among consumers. On top of that, corporate management continued to whack away at costs.

All in all, the bottom lines at most corporations looked a lot more impressive at the close of 1992 than in some time. Fourth-quarter corporate profits soared by a hefty 51%. Sales rose by only 5%, but that's still a good deal better than the 1% drop of a year ago. For the full year, earnings for the 900 companies in BUSINESS WEEK's Corporate Scoreboard rose by an average 20%. Again, sales were up 5%, compared with a meager 1% gain in 1991. The results would have been even more impressive but for the steep losses at IBM. Without Big Blue's drag, fourth-quarter earnings would have leapt 65%. For the entire year, profits would have been up 25%.

True, there's not much evidence of the kind of corporate exultation that followed the end of the 1982 recession. The profit gains in 1992 are benchmarked against the poor results of recession-plagued 1991, when earnings fell 19%. Moreover, most of 1992's profits came from cost-cutting, as companies continued to trim payrolls and inventories.

Even so, there's reason to be encouraged by the results. Last year marked the first annual gain in earnings since 1988. And 1992's productivity improvements set the stage for greater earnings gains this year, as the economy picks up. "Profits in 1993 are likely to be a little more volume-driven," says Morgan Stanley & Co. economist Stephen S. Roach, "a little less productivity-driven."

Still, with companies already having reaped most of the benefits possible from restructuring, projected overall corporate performance in 1993 may not seem as strong as in 1992. But many economists are betting that earnings could rise as much as 14% this year, as sales gradually gain momentum. A possible glitch that could depress the outcome is President Clinton's proposal for a higher corporate tax rate as part of a broad program to help trim the budget deficit. "That is what worries me the most," says Roach, "[Clinton] levying a host of increases which will increase corporate costs."

The 1992 results brought some big shifts in the rankings of BUSINESS WEEK's Top 25 earnings leaders. Philip Morris Cos., last year's third-position holder, stepped up to No.1. The company notched an overall earnings increase of 26% for the year, largely because of improved productivity and higher prices in a number of its key cigarette categories. On the other hand, DuPont Co. fell off the list under the continued weight of a depressed chemicals market.

Among industries, the fourth quarter and full year brought a windfall for the banking sector. Earnings for banks rose a record 273% in the fourth quarter, thanks largely to lower interest rates. BayBanks Inc. led the pack with a profit gain of 427%. Even big banks, such as Citicorp, fared better in 1992. Citi earned $722 million for the year, compared with a loss of $914 million a year earlier.

TROUBLE SPOTS. Oil company profits also surged, aided by substantial gains in U.S. natural-gas prices and improved refining and marketing results. Retailers had a bell-ringing quarter, too, thanks to the best Christmas sales they have had in years. Wal-Mart Stores led the retail winners, with a 24% profit increase, to $750 million, in the fourth quarter. Still, results for the industry as a whole were hurt by disappointments at a handfulof companies--particularly Sears, Roebuck, which lost $2.6 billion in 1992.

The contrasts were even sharper among auto makers. Chrysler Corp. reported its best annual earnings since 1988, thanks to aggressive cost-cutting and some hot high-margin products, such as the new LH midsize sedan. Ford Motor Co. and General Motors Corp., however, took big hits in 1992 because of accounting changes to reflect retiree health-care costs. GM took a $20.9 billion charge, which resulted in a $23.5 billion loss for the full year, the largest in U.S. corporate history. Before extraordinary items, GM's annual loss was $2.6 billion. Computer industry results were equally dismal, largely because of IBM. The company lost $6.9 billion in 1992, excluding the effects of changes in accounting principles. The loss capped a year in which the computer giant seemed to stagger from crisis to crisis as its sales steadily slipped.

Still, thanks to restructuring and an uptick in the economy, most companies had reason to celebrate at the close of 1992. And if sales finally show some life this year, corporations may have a lot more to cheer about next December.

THE LEADERS IN 1992 SALES AND PROFITS
      
      THE TOP 25 IN SALES
                            1992 sales   Percent change 1991
                        Millions of dollars  from 1991  rank
       1 GENERAL MOTORS       $132,429          8%        1
       2 EXXON                 104,111          0         2
       3 FORD MOTOR            100,132         13         3
       4 AT&T                   64,904          3         9*
       5 IBM                    64,523          0         4
       6 GENERAL ELECTRIC       62,200          3         5
       7 MOBIL                  57,217          1         7
       8 WAL-MART STORES**      55,484         26        10
       9 SEARS ROEBUCK          52,345          3         6
      10 PHILIP MORRIS          50,095          4         8
      11 CHEVRON                42,900          5        11
      12 DUPONT                 37,799          2        12
      13 KMART**                37,724          9        14
      14 TEXACO                 37,663          2        13
      15 CHRYSLER               36,900         26        16
      16 CITICORP               31,948          0        15
      17 PROCTER & GAMBLE       30,368          8         8
      18 BOEING                 30,184          3        17
      19 AMOCO                  28,223          0        20
      20 AMERICAN EXPRESS       26,962          4        19
      21 KROGER                 22,145          4        21
      22 UNITED TECHNOLOGIES    22,032          4        22
      23 PEPSICO                21,970         14        27
      24 ITT                    21,645          6        25
      25 CONAGRA                21,503          3        24
      
      THE TOP 25 IN EARNINGS
                          1992 profits    Percent change 1991
                        Millions of dollars from 1991    rank
       1 PHILIP MORRIS          $4,939         26%        3
       2 EXXON                   4,810         14         1
       3 GENERAL ELECTRIC        4,725          5         2
       4 AT&T                    3,807        629        80
       5 MERCK                   2,447         15         4
       6 CHEVRON                 2,210         71        21
       7 WAL-MART STORES**       1,995         24         9
       8 COCA-COLA               1,884         16         8
       9 PROCTER & GAMBLE        1,834          3         7
      10 GTE                     1,787         17        12
      11 BELLSOUTH               1,658         10        13
      12 FANNIE MAE              1,649         13        15
      13 BOEING                  1,635          4        10
      14 AMERICAN INTL. GROUP    1,625          5        11
      15 JOHNSON & JOHNSON       1,625         11        14
      16 BRISTOL-MYERS SQUIBB    1,538         23         5
      17 BANKAMERICA             1,492         33        27
      18 BELL ATLANTIC           1,382         12        18
      19 MORGAN (J.P.)           1,382         24        28
      20 AMERITECH               1,346         15        23
      21 NYNEX                   1,311        118        60
      22 MOBIL                   1,309         32         6
      23 PEPSICO                 1,302         21        30
      24 SOUTHWESTERN BELL       1,302         13        24
      25 ABBOTT LABORATORIES     1,239         14        29
      
      * 1991 sales ranking based on results prior to accounting change
      ** Fiscal year ended January, 1993
      
      DATA: STANDARD & POOR'S COMPUSTAT SERVICES INC.
      
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