Robust, Any Way You Slice It

Have we been up so high that this looks like down? The economy was growing in the first quarter of 1994, consumers were eager, and sales were accelerating. And earnings rose a healthy 16% for the 900 companies in BUSINESS WEEK's Corporate Scoreboard. Although that's a far cry from the 27% leaps in both the final quarter of 1993 and the first quarter a year ago, it's a pretty good showing by traditional measures--much like the results posted in the happy, prerecession years of the late 1980s.

Why didn't first-quarter profits keep up the torrid pace of 1993? Keep in mind that last year's profits looked terrific because they were measured against the lousy earnings performance of 1992. Now, the comparisons get tougher. But just as important, companies were no longer able to punch up their bottom lines quickly by downsizing as they did through much of 1993. Companies laid off thousands of workers as a way to cut labor expenses, lift productivity, and thus boost profit margins. But the temporary payoffs of restructuring have nearly played themselves out. "There was little growth in productivity" in the first quarter, says economist David H. Resler of Nomura Securities International Inc. That means profits will likely grow at a less breathless pace in the year ahead.

True, U.S. companies continued to reap some advantages from restructuring in the first quarter: Net profit margins spurted to 5.5%, up from 5.1% a year ago. But that wasn't the engine that powered the quarter's profit growth. Instead, stronger sales growth had a lot to do with stoking the bottom line as steady economic growth helped bolster consumer confidence. A healthier appetite for big-ticket items, such as cars and appliances, helped fuel the biggest increase in sales since the 10% jump in the fourth quarter of 1990. Overall sales for the 900 companies on the Scoreboard increased 7%, to more than $1 trillion, after rising by 5% in each of the past two years.

happy motoring. Sales would have been even stronger if it weren't for the severe winter, which hit retailers hard. "It wasn't a fabulous environment for retail. But for durable goods, consumer spending was up almost 10%," says Maureen F. Allyn, chief economist at Scudder, Stevens & Clark Inc. By contrast, spending increased only 2.4% for nondurable items, such as clothing.

Thanks largely to a more confident consumer, the Big Three auto makers scored impressive results in the first quarter. General Motors Corp. topped the list of BUSINESS WEEK's Top 15 earnings leaders during the first quarter. The nation's biggest carmaker saw its profits jump by 214%, to $1.6 billion, powered by booming sales in North and South America. In all, GM's sales rose by 8%, to $37 billion.

Likewise, Chrysler Corp.'s profits surged 77% from a year ago, to $938 million, thanks to strong sales of pickups, minivans, and sport-utility vehicles. Meanwhile, thanks to fewer consumer incentives and stronger truck sales, earnings at Ford Motor Co. increased 58%, to $904 million--its best results since 1989's second quarter. Sales at Chrysler and Ford were up 21% and 14%, respectively.

As a group, computer makers also scored big gains, due in large part to IBM. For the second straight quarter, Big Blue managed to turn a profit, earning $392 million, compared with a loss of $285 million a year ago. IBM's sales, however, rose by a paltry 2%, to $13.4 billion. Profits at Compaq Computer Corp. more than doubled in the first quarter, to $213 million, because of strong demand for personal computers. Compaq's sales hit $2.3 billion, up 41%. By contrast, Apple Computer Inc. had a dismal quarter, partly because of deep discounting to clear out older computers before it introduced its new line of more powerful machines this March. Apple's profits plummeted 84%, to $17.4 million, as sales climbed 5%, to $2 billion.

The quarter had other disappointments as well: The airline industry was the biggest loser after the airfare wars resumed. Passenger traffic was also unusually light during the winter months. USAir Group Inc.'s losses widened to $197 million from $61 million a year ago, as sales slipped 2%, to $1.7 billion. Still, there was one notable bright spot: Southwest Airlines Co., the only consistently profitable carrier over the past five years, saw profits increase 68%, to $41.8 million. Sales for the champion of no-frills, low-fare service rose 24%, to $619 million.

Insurers also posted big losses in the wake of January's earthquake in Southern California. At Aetna Life & Casualty Co., profits plunged 67%, to $46 billion. Hardest-hit was Allstate Corp., which went public just last June. The insurer lost $275 million, compared with a $320 million gain a year earlier. Allstate's results were so dismal that the red ink even spilled over to its parent, Sears, Roebuck & Co., which still owns 80% of the insurer. Although Sears' sales were up 9%, to $12.3 billion, the giant retailer posted a loss of almost $98 million, compared with a profit of $317 million a year ago. The Allstate losses swamped earnings at Sears' retailing group, which more than doubled, to almost $130 million.

Although Sears' core business rebounded, that wasn't the case for another big merchant: Kmart Corp. lost $615 million, while sales increased 8%, to $10.4 billion. Kmart took a $1.3 billion restructuring charge in the quarter due to mounting costs of its store renovations. Still, there was some positive news among retailers: Profits at J.C. Penney Co. rose 17%, to $439 million. And Wal-Mart Stores Inc. saw profits climb 16%, to $868 million, while sales were up 19%, to $2 billion. True, that's a bit weaker than the year-ago quarter, when Wal-Mart's sales jumped 26% and profits rose 24%. But for Wal-Mart, as for corporate profits as a whole, this slowdown still looks pretty peppy.

                                 Percentage change from
                                 1993's first quarter
      PRINTING & ADVERTISING         531%
      COMPUTERS & PERIPHERALS        367
      SPECIAL MACHINERY              228
      OTHER METALS                   174
      APPLIANCES                     116
      CARS & TRUCKS                  114
      BANKS-EAST                      65
      AUTO PARTS & EQUIPMENT          49
      ELECTRONICS                     45
      BROADCASTING                    45
      TELECOMMUNICATIONS              43
      MISCELLANEOUS LEISURE           38
      SEMICONDUCTORS                  35
                               Percentage change from
                               1993's first quarter
      AIRLINES                        LOSS
      ALUMINUM                        LOSS
      INSURANCE                       44%
      PAPER CONTAINERS                30
      APPAREL                         27
      RETAILING                       25
      DRUG DISTRIBUTION               25
      POLLUTION CONTROL               21
      BUILDING MATERIALS              15
      PAPER                           12
      TOBACCO                         10
      GAS UTILITIES                    9
      FOREST PRODUCTS                  8
      ELECTRICAL PRODUCTS              5
      TEXTILES                         4
      ALL-INDUSTRY AVERAGE:          +16%
          Millions of dollars
      GENERAL MOTORS               $1,612
      PHILIP MORRIS                 1,171
      EXXON                         1,160
      AT&T                          1,094
      GENERAL ELECTRIC              1,068
      CHRYSLER                        938
      FORD MOTOR                      904
      WAL-MART STORES*                868
      MERCK                           675
      DUPONT                          642
      INTEL                           617
      CITICORP                        609
      BELLSOUTH                       585
      BRISTOL-MYERS SQUIBB            581
      JOHNSON & JOHNSON               544
                                Millions of dollars
      KMART*                          $615
      ALLSTATE                         275
      20TH CENTURY INDUSTRIES          256
      USAIR GROUP                      197
      DIGITAL EQUIPMENT**              183
      TRANS WORLD AIRLINES             122
      WOOLWORTH*                       111
      3COM**                           103
      SEARS ROEBUCK                     98
      DELTA AIR LINES**                 78
      PITTSTON MINERALS GROUP           74
      UAL                               71
      OWENS-CORNING FIBERGLAS           67
      LAFARGE                           62
      WESTPOINT STEVENS                 55
      *Fiscal Fourth quarter     **Fiscal THIRD quarter
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