Earnings

Cheerful were most first quarter earning reports sent last week to stockholders. For 188 large industrials, profits were up 110% over the first quarter of 1938, for General Motors and Chrysler profits were up about 600%. But businessmen, like baseball fans, no longer care who won the last World Series. They are already figuring on second quarter earnings.

A tip-off to their anticipations is the fact that at the end of the quarter which showed this 110% increase in earnings, stock prices were unsteady and only 33% up from the same date a year ago. A further tip-off came from several companies' sharply curtailed budgets for capital investment in new plants. General Motors will invest $10,000,000 for expansion, a little more for improvement, in 1939 against $60,000,000 for expansion and improvement in 1937. U. S. Steel will invest $25,000,000 against $67,000,000 in "the major depression year" 1938 and 124,000,000 in 1937.

Motors were the quarter's most dramatic performers. Chrysler doubled sales, General Motors spurted 47%, and, with this improvement as a lever, both sextupled profits over 1938. Both companies nowadays need only a few months of fair business in any year to roll up what most of the U. S. regards as a boom year's profits. With increased volume G. M.'s quarter's earnings ($53,178.000) amounted to 14.4% of sales, compared to 3.3% a year ago. This was a clue to other earnings, for when G. M. earns only 3.3% on sales, the rest of U. S. business is usually in the red, but when it earns 14.4%, other earnings are likely to be fair.

Mail Order. Another pair of high earn ers were Sears, Roebuck and Montgomery Ward. Both mail-order houses now obtain 50 to 60% of their sales as department stores. Although department store sales in general are running barely ahead of last year, chain groceries about 5% higher, Sears and Montgomery Ward were 20% ahead of 1938 in April. On this increase in volume, Sears' Chairman Robert E. Wood (who plays along with the New Deal) estimates his company will more than double the $7,000,000 profits earned in the 1938 first quarter; Montgomery Ward's Chairman Sewell L. Avery (who will have nothing of the New Deal) counts on a 78% increase.

Steel. Far from gay, however, was the tory of U. S. Steel Corp. Big Steel has run at lower percent of capacity than the independents, has faced bitter price competition in the profitable (to others) Detroit steel market, has had much of its capacity in Pittsburgh and Chicago idle because of stagnant demand for capital goods. Last quarter it made only 18-c- a share on its preferred stock, grimly paid holders the $1.75 coming to them: the difference, $5,644,368 (nearly half the size of Chrysler's profit for the quarter), came out of a generation of accumulated fat. This followed a $32,937,131 drain in 1938, caused by a loss of $7,717,454 and preferred stock dividends of $25,219,677. Once Steel's common holders worried anxiously about their dividends; now they know, and the preferred holders are taking their turn at worrying.

Sharing Big Steel's worries, in a more modest way, is the industry's No. 4 unit--Jones & Laughlin, also frozen up in Pittsburgh, also led in the Detroit flat-steel market by National Steel and others. Owing preferred stockholders $36.75 a share of back dividends, J. & L. is certainly no happier than Big Steel.

Meanwhile, the industry's tough guys profited from production at over 50% of capacity. Bethlehem, biggest among Little Steelmakers, jumped its profit 142% over the first quarter in 1938. Steelmaster Tom Girdler's Republic Steel, No. 3 in the industry, earned $532,899 against $3,062,564 lost in the same quarter last year. National Steel, No. 5, still led the bigger fellows, however, earning more on its ingot capacity (71-c- per ton) than any of them, twice as much as in the first quarter of 1938.

Its president, Ernest Tener Weir, still gloomily sitting out Roosevelt, has meanwhile refunded $65,000,000 worth of debt to save half a million a year by lower interest rates. Saving every cent he could, getting the largest possible slice of business to be had, Weir last week denied that National is about to build another plant. Said he: "We won't invest in the Chicago area till the country gets back on its feet." Thus temporarily sparing Big Steel the headache of stiff competition in another market, E. T. Weir went off to Bermuda.

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