America's Most Valuable CompaniesVeronica Byrd
It's the season of renewal. After almost five years of recession, anemic revivals, and a painful period of introspection that touched almost every aspect of Corporate America from the shop floor to the boardroom, the U.S. economy is finally bounding solidly back. What started out as a hopeful glimmer at the beginning of 1993 ended up in the biggest quarterly GNP growth spurt in a decade at the close of the year--a full 7.5%. And though that rate may not be repeated this year, the U.S. recovery is no longer in dispute.
Evidence of the reawakening of U.S. corporations is everywhere. The combined profits of the BUSINESS WEEK 1000 rose 23% last year, to $206 billion, while sales climbed a modest 5%, to $4.2 trillion. Scattered through the roster of America's most valuable companies that begins on page 80 are many impressive tales of revival. Companies as diverse as Mobil, Citicorp, and Bristol-Myers Squibb saw their profits climb. Nowhere was the renewal more visible than in the once-beleaguered auto industry. Thanks to cost-cutting and legions of ready consumers, Motown scored huge gains.
The turnaround was most impressive at General Motors Corp., which shook free of three straight years of losses. Last year, GM posted net earnings of $2.5 billion, compared to a loss of $2.6 billion a year earlier, as its sales rose by 5%, to $138.2 billion. And early signs point to another good year for auto makers. Indeed, January car and truck sales were running 15% ahead of last year's volume.
ROARING AHEAD. More telling is the way the market interpreted the results. After all, the BW 1000, ranked according to market value, is not just a measure of how a company has done. It offers insights into its future prospects as well. GM, for example, roared ahead in the rankings to No.7 from No.14, as its market value soared a hefty 59%, to almost $42 billion. Ford Motor Co. meanwhile climbed the list to No.14 as Chrysler Corp. made it to No.35. Last year, they were ranked 23 and 55, respectively.
Other big winners included Motorola Inc., which advanced to the No.17 spot from No.45, as its market value climbed 80%, to $28.4 billion. Strong semiconductor sales certainly helped instill confidence. But the market was also enthusiastic about the PowerPC line of computer chips. Introduced last year, the PowerPC was jointly developed by Motorola, Apple Computer, and IBM to challenge Intel's domination of the chip business.
The company formerly known as Primerica also sprinted ahead to No.67 from No.129. Its market value climbed 98%, to $12.1 billion, after it acquired Travelers, the insurance giant, and Shearson, the former brokerage unit of American Express. Now known as Travelers Inc., the company boasts a wide range of financial services. And most analysts are optimistic about its prospects.
The rising economic tide didn't lift all boats. Consider Philip Morris Cos.: In dollar terms, the tobacco giant posted the biggest decline in market value, falling $10.8 billion, or 18%, to $49.1 billion. Blame it on Marlboro Friday, when the company cut the retail price of its premiere brand in the face of sagging domestic sales. Last year, the company's profits fell 28%, to $3.6 billion, reflecting lower cigarette prices and higher marketing costs for Marlboro.
More astonishing were the setbacks suffered by former highfliers such as American Telephone & Telegraph Co. and Home Depot Inc. Blame their fading luster on the rise of more agile challengers. With AT&T feeling the competitive heat of long-distance rivals, its market value slipped 5%, to $71 billion. By contrast, MCI Communications Corp.'s market value gained 41%, to $14.8 billion, thanks to the success of its long-distance discount calling program. Likewise, Sprint Corp.'s market value advanced to $12.7 billion, up 33%. Home Depot, too, was outshone by smaller competitors, such as Lowes Corp. While Home Depot's market value dropped 12%, to nearly $18.7 billion, Lowes rang up a 135% increase in market value, to $4.9 billion.
The biggest surprise: Wal-Mart Stores Inc. The retail giant from Bentonville, Ark., has traditionally been a steady market-value gainer since the BW 1000 list first appeared in 1986. But this time around, its market value shrunk by 13%, to $65.2 billion, even though its profits advanced 17%. The culprit? Analysts blame a slowdown in sales growth at Wal-Mart stores open a year or more, as well as tougher competition for its warehouse chain, Sam's Wholesale Club.
Among industries, health-care services scored the biggest advance. Even though the debate over health-care reform has grown fierce, investors are betting that hospitals and managed-care facilities, including health maintenance organizations, are bound to benefit. Caremark International Inc., which specializes in a range of home health-care services, such as home infusion, staged one of the biggest advances in the health-care sector. The Chicago-based company's market value rose by 55%, to $1.6 billion.
Many of the companies in the health-care category are appearing for the first time, reflecting the industry's new dynamics. For example, Columbia/HCA Healthcare, which operates 190 hospitals nationwide, is ranked No.51, with a market value of $14.5 billion. The company, based in Louisville, Ky., was created in February with the merger of the two largest U.S. hospital chains, Columbia Healthcare Corp. and Hospital Corporation of America.
The banking industry posted healthy returns, too, helped by lower interest rates. An uptick in consumer borrowing, especially by way of home mortgages and credit cards, also propelled bank earnings. The market value of Citicorp, the nation's largest banking company, which had been hobbled by bad real estate loans, rose 65%, to $16 billion. San Francisco-based Wells Fargo & Co. climbed to No.116 in the ranking from No.158 as its market value increased 39%, to $7.7 billion.
NO SNAP. Some of the biggest leaps in market rank occurred well down the list. Among the biggest gainers in this year's rankings was Navistar International Corp. The truck manufacturer went from No.887 to No.506, as its market value increased 145%, to $1.8 billion. Successful cost-cutting and improved sales powered the surge.
Then there's the other side of the market-value ledger. The biggest loser this year was U.S. Surgical Corp., which sank to No.809 from No. 279 as its market capitalization plummeted 71%, to $982 million. How come? Sales of the company, which supplies high-tech surgical gear, were pounded as increasingly cost-conscious hospitals tightened up their inventory controls.
As a group, electric utilities were the biggest losers. Fear of higher interest rates soured investors on many of these companies, which traditionally borrow heavily in the bond market. Scecorp's market value fell 26%, to $8.1 billion. Pacific Gas & Electric Co. was down 10%, to $13.5 billion. Eight other utilities, including Wisconsin Public Service, Central Maine Power, and Ogden Projects, dropped off this year's list.
There was also no snap, little crackle, and less pop in the market values of the leading cereal makers. As cereal prices increased, these marketers felt a consumer backlash, and sales grew only modestly. Kellogg Co.'s market value dropped 24%, to $11.5 billion. General Mills Inc. lost 22%, to $8.9 billion. Other food giants suffered, too. H.J. Heinz Co. plunged 27%, to $8.2 billion. Heinz was adversely affected by the strengthening U.S. dollar, which reduced its foreign earnings.
As the economy chugs through the year ahead, there will undoubtedly be other disappointments as well as plenty of triumphs. For the moment, however, the market has spoken.
MARKET VALUE: Share price on Feb. 28, 1994, multiplied by latest available common shares outstanding
PROFITS: Net income from continuing operations before extraordinary items
MARGINS: 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
ASSETS: Total assets as reported at end of company's
latest available 1993 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, 1994
HIGH/LOW PRICE: Trading range for company's common stock, Feb-
ruary, 1993 to February, 1994
BOOK VALUE PER SHARE: Sum of common stock, capital surplus, and retained earnings divided by most recently available common shares outstanding
P-E RATIO: Price-earnings ratio based on 1993 earnings and Feb. 28 stock price
YIELD: Annual dividend rate as a percent of Feb. 28 stock price
PAYOUT: Latest annualized dividend rate as a percent
of the company's most recent
annual earnings per share
TOTAL RETURN: Annual dividend per share plus latest available month-end price, as a percent of year-ago month-end price per share
INSTITUTIONAL HOLDINGS: Percent of outstanding shares of stock held by banks, colleges, pension funds, insurance companies, and investment companies as calculated by Vickers Stock Research Corp.
SHARES OUTSTANDING: Millions of common shares outstanding as of the company's latest available financial report
TURNOVER: 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 1994 compiled as of Feb. 24 by I/B/E/S Inc., New York
(I/B/E/S is a registered trademark of I/B/E/S Inc.)
VARIATION: Percentage by which two-thirds of the 1994 earnings estimates are above or below the average estimate as calculated by I/B/E/S
FY: Number of the month in which company's fiscal year ends
DATA: Unless otherwise indicated, all data in the following Top 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. (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 Top 1000 in 1993. NEG=negative book value per share. DEF=earnings deficit in dividend payout. Because BUSINESS WEEK is owned by McGraw-Hill, the Top 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, Vickers Stock Research Corp.
COMPOSITES MARKET VALUE (BILLIONS) $4,149 CHANGE FROM A YEAR AGO 8% RETURN ON COMMON EQUITY 12.8% YEAR AGO 10.4% RETURN ON INVESTED CAPITAL 9.3% YEAR AGO 9.1% SALES (BILLIONS) $4,173 CHANGE FROM 1992 +5% PROFITS (BILLIONS) $206 CHANGE FROM 1992 +23% ASSETS (BILLIONS) $9,400 CHANGE FROM 1992 +10% 1993 PROFIT MARGINS 4.9% 1992 PROFIT MARGINS 4.2%AVERAGES SHARES OUTSTANDING 107 MILLION YEAR AGO 96 MILLION TURNOVER 95.6% YEAR AGO 85.2% YIELD 2.13% YEAR AGO 2.13% PRICE $54 YEAR AGO $51 PRICE-TO-BOOK 317% YEAR AGO 100% 1993 EARNINGS PER SHARE $2.19 1992 EARNINGS PER SHARE $1.82 1994 EARNINGS ESTIMATE $2.87 VARIATION 11.4% HELD BY INSTITUTIONS 56% YEAR AGO 53% PAYOUT 40% YEAR AGO 22% PRICE-EARNINGS RATIO 22 YEAR AGO 22 DATA: STANDARD & POOR'S COMPUSTAT, I/B/E/S INC., VICKERS STOCK RESEARCH CORP.LOOKING AT THE RECORD Like the economy, corporate fortunes change. The composition of the BUSINESS WEEK 1000 shifts constantly in response to market forces. Here's a quick way to gauge how the shifting winds of growth, renewal, and decline have reshaped the list over the past 12 months. WHO CAME ON THE LIST... Industries with the most newcomers on the list this year INDUSTRY NO. HEALTH-CARE SERVICES 6 TELECOMMUNICATIONS SERVICES 3 COMPUTER SOFTWARE & SERVICES 3 SEMICONDUCTORS 3 SPECIAL MACHINERY 3 BUILDING MATERIALS 3 MISCELLANEOUS SERVICES 3 INSURANCE 2 BROADCASTING 2 ENTERTAINMENT 2 PAPER 2 AUTO PARTS & EQUIPMENT 2 REAL ESTATE 2 ...AND WHO FELL OFF Industries with the most companies disappearing from the list this year INDUSTRY NO. ELECTRIC UTILITIES -8 PERSONAL CARE -4 PUBLISHING -4 COAL, OIL & GAS -3 DRUGS & RESEARCH -3 FINANCIAL SERVICES -3 CONGLOMERATES -3 DISCOUNT & FASHION RETAILING -2 COMPUTERS & PERIPHERALS -2 GAS & PIPELINE UTILITIES -2 BANKS-WEST & SOUTHWEST -2 FOOD RETAILING -2 STEEL -2 TEXTILES -2 CHEMICALS -1 WINNERS... The market value of these industry groups grew the most from last year MARKET VALUE DIFFERENCE INDUSTRY (MILLIONS OF DOLLARS) HEALTH-CARE SERVICES $32,581 CARS & TRUCKS 29,203 CONGLOMERATES 27,386 FINANCIAL SERVICES 24,826 COMPUTER SOFTWARE & SERVICES 23,809 TELECOMMUNICATIONS SERVICES 22,285 ELECTRONICS 20,575 CHEMICALS 18,482 SPECIAL MACHINERY 17,655 SEMICONDUCTORS 16,600 AEROSPACE & DEFENSE 11,358 TELEPHONE COMPANIES 10,762 ENTERTAINMENT 10,620 COMPUTERS & PERIPHERALS 10,080 RAILROADS 9,658 EATING PLACES 9,125 BROADCASTING 9,037 INSURANCE 8,874 MISCELLANEOUS SERVICES 6,882 COAL, OIL & GAS 6,777 NONFERROUS METALS 6,298 AUTO PARTS & EQUIPMENT 5,602 BUILDING MATERIALS 5,521 BANKS-MIDWEST 5,441 HOTEL & MOTEL 5,262 ...AND LOSERS The market value of these industry groups dropped the most MARKET VALUE DIFFERENCE INDUSTRY (MILLIONS OF DOLLARS) ELECTRIC UTILITIES -$28,588 FOOD PROCESSING -17,119 TOBACCO -12,144 DISCOUNT & FASHION RETAILING -8,084 POLLUTION CONTROL -6,975 DRUGS & RESEARCH -4,491 APPAREL -2,869 MEDICAL PRODUCTS -2,635 TEXTILES -2,446 DRUG DISTRIBUTION -1,578 BANKS-WEST & SOUTHWEST -1,106 DATA: STANDARD & POOR'S COMPUSTAT
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