As the party already winding down? Buoyed by election euphoria and holiday cheer, the country finished off last year with a bang. With the U.S. economy finally heating up, corporate profits shot up 51% in the fourth quarter. That torrid growth, however, was bound to be unsustainable--as BUSINESS WEEK's latest Corporate Scoreboard reveals. First-quarter profits for the 900 companies on the Scoreboard jumped by 27%. That's certainly still a robust performance, especially compared with the 7% profit gain of a year ago. The worry is that profit growth may contract in the next few quarters, with the recovery slowing down, sales growth remaining anemic, and productivity gains increasingly hard to come by.

The economic revelry was clearly muted in the first quarter, when gross domestic product grew by an annual rate of just 1.8%, compared with 4.7% in the fourth quarter of 1992. Says economist Lacy H. Hunt at HSBC Holdings PLC: "It's an economy growing at a crawl." Revenues also continue to grow at a sluggish pace. First-quarter sales crept up by a modest 5%, to $985.2 billion. So where did the hefty profit gain come from? Mostly cost-cutting, as companies further trimmed overhead, notably payrolls. "The reason we're getting the profits is that companies are holding the line on labor costs. They're taking the productivity gains and reaping the income growth from that," says Goldman, Sachs & Co. Senior Economist Edward F. McKelvey.

The weak sales numbers don't bode well for the rest of 1993. Many economists fear companies have already realized most of the benefits of restructuring. That means profits will have little room for growth if the economy doesn't pick up. For all of 1993, earnings are expected to rise 17%, and by a mere 11% in 1994, McKelvey estimates, compared with a 20% gain in 1992.

One first-quarter profit standout that may be facing future pressure is cigarette and food giant Philip Morris Cos. The company managed to hold on to its No.1 position in BUSINESS WEEK's rankings of the top 15 profit performers. Earnings climbed 11%, to $1.2 billion, thanks to surging sales abroad of everything from cigarettes to Oscar Mayer meats. But whether Philip Morris will remain in first place for long is another matter. In April, it announced plans to cut prices on its premium-brand smokes such as Marlboro in an attempt to stop defections to discount brands.

GAINING SPEED. Retailers as a group posted the strongest profit growth of any industry for the first quarter--up 287%, to $4.4 billion, on an 11% increase in sales. But that figure largely represents the happier days of late last year: The last quarter for most retailers ended in January and includes holiday sales from November and December. The profit advance also has to be weighed against the poor results of a year ago. That is especially true of J.C. Penney Co. Its profits jumped a stunning 914% compared with the same period of 1992, when the retailer earned just $37 million after a $264 million restructuring charge. Carter Hawley Hale Stores, Federated Department Stores, R.H. Macy, and Woolworth all also chalked up substantial profit gains when compared with their sluggish earnings last year.

The auto industry likewise scored impressive results. Detroit's Big Three, which have been steadily downsizing in recent years, all made money in the first quarter--the first time that has happened since the second quarter of 1990. Their bottom-line performance also earned each a place among the 15 top profit makers of the first quarter. "It shows the power of cost-cutting when they finally get around to it," notes economic consultant A. Gary Schilling. "It took them a long time."

Still, most of the credit for profit gains at General Motors Corp. and Ford Motor Co. goes to nonauto operations. GM's Hughes Aircraft Co., Electronic Data Systems Corp., and its finance unit generated much of the company's earnings. GM made $513.2 million in the first quarter, compared with a loss of $166.7 million in the first quarter of 1992. Similarly, Ford's finance unit chipped in a large portion of the auto maker's 157% profit gain, to $572 million.

By contrast, Chrysler Corp.'s improved profits, analysts say, have a lot to do with continued cost-cutting and well-received new models, such as the LH sedans and the Jeep Grand Cherokee. Chrysler's first-quarter sales rose by 33%, to $10.9 billion. Profits soared to $530 million, compared with a loss of $231 million in 1992's first quarter.

CUTBACKS. Even with a tepid rebound in housing starts, forest-product profits surged 236% after lumber prices doubled in October. The shrinking timber supply, following logging cutbacks to protect the spotted owl, was behind the price surge. The big winners: owners of private timberland such as Louisiana-Pacific Corp., whose profits jumped 144%, to $87.7 million, and Weyerhaeuser Co., up 105%, to $177.4 million.

The computer industry included many big winners, as Compaq Computer and Cray Research enjoyed strong comebacks and clonemaker Dell Computer maintained its momentum. All had triple-digit profit hikes and healthy sales gains. Yet that didn't offset Big Blue's blues: The industry posted a 71% decline in profits, largely because of IBM's $285 million loss. Chase Manhattan Corp. beat out IBM to log the greatest loss for the quarter. Excluding accounting adjustments that pushed it back into the black, the bank lost $347 million because of a special provision to further mark down $2 billion in troubled real estate assets.

The booby prize for industry performance, though, goes to the airlines. The seven publicly traded carriers lost a staggering $345.1 million in the first quarter, little better than the year-ago quarter's $394 million in red ink. The industry is still plagued by excess capacity that may take another year to remedy. The biggest loser was UAL Corp., parent of United Airlines Inc., which lost $138 million, compared with a $108 million loss in the same period of 1992.

This quarter's results make many economists nervous. Corporate America thought it was seeing a real turnaround in the fourth quarter of 1992 and started amassing inventory to meet expected sales growth early this year. Inventory levels haven't been this high since the beginning of 1989, notes HSBC's Hunt. If sales remain lax, he believes the economy might grow at roughly the same 1.8% pace in the coming year. If so, the sluggish first quarter will have been more than just a groggy morning after.

WINNERS AND LOSERS IN FIRST-QUARTER PROFITS
      THE INDUSTRIES
      THE SHARPEST GAINS
      
                        Percent change from
                       1992's first quarter
      RETAILING                  287%
      FOREST PRODUCTS            236
      BROADCASTING               161
      AUTO PARTS                 138
      SEMICONDUCTORS             103
      CONSTRUCTION & REAL ESTATE  69
      MACHINE & HAND TOOLS        62
      OIL & GAS                   47
      COMPUTER SOFTWARE           46
      BANKS-WEST & SOUTHWEST      44
      GAS UTILITIES               41
      BANKS-MIDWEST               39
      TEXTILES                    37
      DRUG DISTRIBUTION           34
      ELECTRONICS                 33
      
      THE DEEPEST DROPS
                            Percent change from
                            1992's first quarter
      AIRLINES                   LOSS
      STEEL                      LOSS
      BUILDING MATERIALS         LOSS
      ALUMINUM                   LOSS
      PAPER CONTAINERS            81%
      COMPUTERS & PERIPHERALS     71
      PRINTING & ADVERTISING      69
      OTHER METALS                49
      COAL                        37
      INSTRUMENTS                 32
      FOOD DISTRIBUTION           17
      TRUCKING & SHIPPING         13
      PAPER                       12
      PETROLEUM SERVICES          10
      FOOD PROCESSING              9
      
      ALL-INDUSTRY AVERAGE: +27%
      
      WHO MADE THE MOST
                                Millions
                               of dollars
      PHILIP MORRIS              $1,218
      EXXON                      $1,185
      GENERAL ELECTRIC            1,085
      AT&T                          996
      WAL-MART STORES***            750
      MERCK                         614
      BRISTOL-MYERS SQUIBB          575
      FORD MOTOR                    572
      INTEL                         548
      KMART***                      535
      CHRYSLER                      530
      PROCTER & GAMBLE              516
      GENERAL MOTORS                513
      JOHNSON & JOHNSON             503
      CHEVRON                       501
      
      WHO LOST THE MOST
                                 Millions
                                of dollars
      CHASE MANHATTAN              $347
      IBM                           285
      AMDAHL                        240
      UAL                           138
      DELTA AIR LINES**             134
      USG                           129
      CAMPBELL SOUP*                116
      IMC FERTILIZER**              114
      LAFARGE                        73
      SALOMON                        65
      STONE CONTAINER                63
      USAIR                          61
      NATIONAL STEEL                 54
      JAMESWAY***                    43
      BETHLEHEM STEEL                41
      *Fiscal second quarter **Fiscal third quarter ***Fiscal fourth quarter
      DATA: STANDARD & POOR'S COMPUSTAT SERVICES INC.
      
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