For much of Corporate America, 1994 will go down as a very good year indeed. As booming demand combined with the effects of years of earlier downsizing, 1994 offered up the strongest entry yet in the four-year upturn coursing through the U.S. economy. Although the Federal Reserve Board has doubled U.S. short-term interest rates, to 6%, over the past 12 months, gross domestic product continued to barrel ahead by 4.6% in the fourth quarter--well above the 3.3% growth seen at the start of the year. And as the combined profits of the BUSINESS WEEK 1000 rose 34% last year, to $274 billion, on sales up a healthy 9%, to $4.5 trillion, proof of continued corporate health was abundant.
But Wall Street took little time to celebrate the good news. With gross domestic product finally starting to slow--it's likely to hit 2.5% to 3% in 1995's first quarter--and perhaps one more rate hike likely, investors are worried about what lies ahead. As Fed attempts to bring the soaring economy in for a soft landing finally yield results, corporate profit growth is sure to slow.
The pages that follow offer an in-depth look at what that could mean for America's most valuable companies. The BUSINESS WEEK 1000, which ranks companies by market value, is more than a measure of how Corporate America has fared over the past year. Because market value reflects a collective judgment about a company's prospects, it's a prediction.
There are many other measures in the BW 1000, too. Interested in sales, profits, and asset performance over the past year? They're all here. And if it's investments you're scouting for, the right-hand pages provide details of dividends, yield, payout, and total return. There are also consensus estimates by analysts for 1995 earnings.
Stand back from the individual statistics, and the upheavals and transformations on the BW 1000 provide a glimpse of the outlook for specific industries and a sweeping portrait of the changing U.S. economy as a whole. The auto makers, for example, turned in their strongest year ever. At General Motors Corp., profits more than doubled to $5.7 billion on sales that rose 12%, to $155 billion. U.S. auto makers are predicting that 1995 will be at least as strong. But recent signs of slowing car sales have bolstered Wall Street's view that the Big Three can't keep it up. The result: GM's market value plummeted 23%, to $32.1 billion, as it slid from No.7 to No.18. Ford Motor Co., meanwhile, fell from No.14 to No.27; Chrysler Corp. dropped from No.35 to No.52.
BIG JUMP. Who is flying high? Continued dominance of the software industry helped Microsoft Corp. shoot up the list to the No.11 spot from No.27 as its market value soared 56%, to $36.6 billion. IBM's return to the black--it rang up $3 billion in 1994 profits--was handsomely rewarded, too. Big Blue's market value leaped 44%, to $44.3 billion, one of the biggest gains of the year. And Johnson & Johnson advanced to No.12 from No.23 as its market value climbed 41%, to $36.5 billion. The company is riding a wave of winning products such as its new Risperdal schizophrenia drug and its Acuvue disposable contact lenses.
Once-tiny biotech company Amgen Inc. also scooted up, to No.93 from No.163. Amgen's market value grew 64%, to $9.2 billion. Although earnings fell 15%, to $320 million, double-digit sales growth of its two blockbuster drugs, Epogen and Neupogen, have fed strong cash flow--and even stronger takeover speculation.
Some of the biggest leaps in rank occurred well down the list. The biggest gainer in this year's rankings was LSI Logic Corp. The custom chipmaker went from No.823 to No.319 as its market value grew 227%, to $3.1 billion. Two years into a restructuring that has slashed its dependence on the crowded PC market, LSI is booming thanks to its targeting of lucrative niche markets such as video games and networking products.
Some erstwhile highfliers had their wings clipped by an unforgiving market. Although profits at Toys `R' Us Inc. jumped 11%, to $497.5 million, on a 13% sales leap, its market value tumbled 27%, to $7.7 billion. Blame it on increased price competition from discounters such as Wal-Mart Stores Inc. and Kmart Corp., which has led to stagnating sales in existing stores and forced the toy retailer to hike marketing spending .
A DIVE. Southwest Airlines Co. was another big loser. The low-cost carrier sank to No.384 from No.208 as its market cap plummeted 48%, to $2.5 billion. It faced far sharper price competition on its short-haul routes from the new United Shuttle. It also spent much of 1994 digesting Morris Air.
Among industries, computer software and services scored the largest advance, while makers of computers, peripherals, and semiconductors also hit it big. Strong computer sales--led by the booming PC market--helped, and many companies are also benefiting from a broad industry move to
networks of smaller computers. Hewlett-Packard Co. climbed the ranks to No.23 from No.29 as its market cap leaped 28%, to $29.3 billion. Booming orders for its PCs, minicomputers, and engineering workstations swelled profits 43%, to $1.8 billion, on a 24% sales increase.
Even the flap over Intel Corp.'s flawed Pentium chip, which led to a $475 million charge and flattened earnings, couldn't dim its luster: Intel's market value soared 15%, to $33 billion. Strong demand for PCs should boost sales around 30% in 1995.
TAKEOVER RUMORS. Drug companies and medical-products makers also posted healthy gains as the fading prospect of health-care reform appeared to raise prospects for price increases. Pfizer Inc. was among the industry's best performers; its market value soared 40%, to $26.1 billion, thanks to successful new drugs including the antidepressant Zoloft. The rising industry tide was enough to lift even the laggards: Although Bristol-Myers Squibb Co.'s profits slumped 6%, to $1.8 billion, its market value jumped 11%, to $31.4 billion. While its top-seller, the cardiovascular drug Capoten, shows lackluster growth and it has few hot new drugs, takeover speculation has boosted shares.
On the other side of the coin, discount and fashion retailers were last year's biggest losers. Slumping women's apparel sales hurt, and warm Christmas weather offered little yearend cheer. That helped cut J.C. Penney Co.'s market value 25%, to $9.7 billion, while The Limited's market value fell 10%, to $6.3 billion. And troubled discounter Kmart's market value fell 25%, to $5.8 billion.
Telephone companies also got hit because of uncertainty over telecommunications-reform legislation pending in Congress. Analysts are also worried about the prospect of price wars in the long-distance sector. AT&T saw profits up 27%, to $4.7 billion, though its market value remained flat at $81 billion, while BellSouth Corp., the biggest of the Baby Bells, saw its 109% earnings increase rewarded with a tiny 6% gain in market value, to $29.2 billion. Meanwhile, Sprint Corp.'s value decreased 20%, to $10.2 billion, because of additional uncertainty over whether plans will be authorized for France Telecom and Deutsche Telekom to buy into Sprint.
For the winners and losers alike on this year's roster, the market's relentless logic was clear. It's like that old disclaimer you see in all the investment ads: Past performance is no guarantee of future results.
Share price on Feb. 28, 1995, multiplied by latest available common shares outstanding
Net income from continuing operations before extraordinary items
Profits as a percent of sales
RETURN ON INVESTED CAPITAL
Profits plus minority interest and interest expense (adjusted by tax rate) as a percent of debt and equity funds
RETURN ON COMMON EQUITY
Net income available for common shareholders divided by common equity
Total assets as reported at end of company's latest available 1994 quarter
RECENT SHARE PRICE
Price for a single share of a company's most widely traded issue of common stock as of the close of trading Feb. 28, 1995
Trading range for company's common stock, February, 1994, to February, 1995
BOOK VALUE PER SHARE
Sum of common stock, capital surplus, and retained earnings divided by most recently available common shares
Price-earnings ratio based on 1994 earnings and Feb. 28 stock price
Annual dividend rate as a percent of Feb. 28 stock price
Latest annualized dividend rate as a percent of the company's most recent annual earnings
Annual dividend per share plus latest available month-end price, as a percent of year-ago month-end price per share
Percent of outstanding shares of stock held by banks, colleges, pension funds, insurance companies, and investment companies as calculated by Vickers Stock Research Corp.
Millions of common shares outstanding as of the company's latest available financial report
Percent of outstanding common shares changing hands in the latest year
EARNINGS PER SHARE
Primary earnings per share, excluding extraordinary profit or
loss, divided by number of
common and common equivalent shares
EARNINGS PER SHARE ESTIMATES
Analysts' consensus estimates for 1995 compiled as of Feb. 23 by I/B/E/S International Inc., New York (I/B/E/S is a registered trademark of I/B/E/S International Inc.)
Percentage by which two-thirds of the 1995 earnings estimates are above or below the average estimate as calculated by I/B/E/S
Number of the month in which company's fiscal year ends
Unless otherwise indicated, all data in the following BW 1000 tables have been provided by Standard & Poor's Compustat, a division of McGraw-Hill Inc.
(a) Latest available data. (b) Actual and estimated figures are fully diluted. (c) Estimated earnings data. (d) Earnings data from I/B/E/S. (e) Earnings data from S&P ACE. (x) Sales include excise taxes. (y) Sales include other income. (z) Sales include excise taxes and other income. NA=not available. NM=not meaningful. NR=not ranked in BUSINESS WEEK 1000 in 1994. NEG=negative book value per share. DEF=earnings deficit in dividend payout. ******* Because BUSINESS WEEK is owned by McGraw-Hill, the BUSINESS WEEK 1000 does not include a forecast of the company's earnings. ************** Data do not include full 12 months' results. Note: Data compiled by Standard & Poor's Compustat from sources such as statistical services, registration statements, and company reports that SPC believes to be reliable but that are not guaranteed by SPC or BUSINESS WEEK as to correctness or completeness. This material is not an offer to buy or sell any security. Additional data: I/B/E/S, I/B/E/S International, Vickers Stock Research Corp.