Prettier Picture

Stockholders sat down last week to look over the earnings reports for the first half of 1946. Like the blind men of Indostan who went to see the elephant what they "saw" depended on what part of the animal they examined.

Volume Down, Profits Down. Reports of most companies in the steel, auto, coal and railroad industries showed the results of strikes and reconversion troubles. Gross income and net earnings were far below 1945 levels. But the effect of the strikes on earnings was cushioned by the carry-back provisions of the tax laws.

General Motors, hardest hit by strikes, showed an operating loss of $101 million before taxes. But a tax credit of $81 million brought G.M.'s net loss down to $19,804,090 v. a net profit of $110,957,383 in the first half of 1945.

Chrysler's tax credit of $8.6 million put the company into the black by $4,065,382 (Chrysler's profit in the first half of last year: $17,326,834).

Other companies managed to stay farther away from the red-black borderline but their profits were well down.

The Union Oil Co. of California showed net earnings of $3,806,117 (v. $5,374,730 for the first six months of 1945). U.S. Steel had to dip into its reserves for $28,299,808 and apply a tax credit of $7,300,000 in order to show a profit of $24,138,541 for the first half of 1946 (v. a $32,153,373 profit in the same period of last year).

Volume Up, Profits Up. Other reports did not necessarily follow this pattern. Due to increased sales, most food, textile, drug, paper, building-material and moving-picture companies had higher sales and higher profits than last year.

General Mills's gross income was up to $298,675,000 for the year ending May 31, 1946 (v. $280,839,000 for the previous fiscal year). Net profits were up to $7,146,107 from $6,474,493 the year before.

Montgomery Ward's sales for five months ending June 30, 1946 jumped 43% over the same period of 1945. Ward's profit: $23,322,369 (v. $8,401,102 for six months ending July 31, 1945).

Paramount Pictures reported a net profit of $21,792,000 for the first half of 1946, a 157% jump over 1945's earnings.

Volume Down, Profits Up. A third group of corporations was able to report higher profits despite a smaller volume of business and increased costs. Reason: they could keep a bigger percentage of their smaller profits because of the repeal of the excess profits tax.

Du Pont's net sales were down from $338,889,874 in 1945's first half to $315,324,279 this year. But earnings jumped to a peacetime high of $55,731,895.

American Woolen Co.'s net sales dropped over 15%, but its earnings soared a whopping 200% to $10,884,340.

In general, businessmen found the reports reassuring, but they well knew that a high boil of production would be necessary to maintain earnings in the face of abnormally increased unit labor costs. The bad news (strikes and reconversion troubles) seemed--repeat seemed--to be a thing of the past. The big companies had enough war-accumulated reserves and tax credits this year to keep them on their feet. And when the basic industries got back to full production, other industries would be able to get the materials they needed to increase their own production.

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