The Better Half

For months Wall Street has been talking about a "profit squeeze" as if it were an indisputable fact for industry as a whole. Last week, as a flood of first-quarter-earnings reports poured out, the profit squeeze proved to be more fiction than fact. The firms that could not offset rising costs with increased business were far outnumbered by those that showed profits still on the upgrade. The profit squeeze did show up in the sense that earnings often failed to keep pace with the increase in sales. But overall corporate profits for 1957's first quarter were expected to tie, or even exceed, the $18.8 billion profit total reported in 1956's first quarter. Yet such is the psychology of the boom that many businessmen, accustomed to record after record, wanted nothing less than a zoom on top of the boom.

Sales & Bonanzas. Some of the profit increases were sensational enough to please even the zoomers. In the auto industry, fast-moving Chrysler Corp. reported a 327% profit rise on record sales, to $5.34 a share--the highest in its history. Ford Motor Co. also had record sales, reported quarterly earnings of $1.85 a share, a 36% rise over last year. General Motors profit was down, but the drop was moderate (93-c- v. 1956's $1.01), considering the company's 9.4% drop in sales of cars and trucks in the first quarter.

Reflecting the oil-industry bonanza caused by the Suez Canal's closing, Gulf Oil Corp. reported profits up from $2.43 to $3.20 a share, Texas Co. up from $1.27 to $1.57, Shell Co. up from $1.16 to $1.37, Standard Oil Co. (New Jersey) up from $1.04 to $1.20. And in the steel industry, where there have been some production cuts, several big companies came in with substantial profit gains. Republic Steel Corp. had the highest first-quarter sales and earnings ($1.81 a share v. 1956's $1.62) in its history. Profits were also up for Bethlehem Steel Corp. ($1.24 v. $1.04) and Inland Steel Co. ($2.59 v. $2.54)--both on record first-quarter sales.

Leaders in other industries made equally good showings. Westinghouse Electric Corp. reported profits of 82-c- a share on record first-quarter sales after suffering a loss in the strike-idled first quarter of 1956. General Dynamics Corp. showed a profit rise of 103% (from 56-c- to $1.13 a share) on a sales increase of 93%. The Union Pacific Railroad Co. increased its profits from 67-c- a share to 73-c-, and Northern Pacific Railway profits rose from 54-c- to 73-c-. Earnings of Mack Trucks, Inc. rose 33% above the 1956 first-quarter level (from 89-c- to $1.18 a share).

Spiraling Costs. Not all companies were spared the profit squeeze. Earnings of Eastern Air Lines, Inc. and National Airlines, Inc. were down, reflecting the spiraling costs that have hit many airlines.

The paper and packaging industry, which had been booming along, showed the toll of lessened demand. Both sales and earnings drops were reported by St. Regis Paper Co. and Union Bag-Camp Paper Corp.; profits were also down for Crown Zellerbach Corp. (66-c- a share v. 1956's 86-c-), Scott Paper Co. (66-c- v. 72-c-) and Allied Paper Corp. (90-c- v. $2.30). High costs of labor and materials hurt Crane Co., Borg-Warner Corp., Carborundum Co., and Owens-Corning Fiberglas Corp.

Optimistic Predictions. The reason for the generally good performance in the first quarter is that many companies, fully expecting a profit squeeze, worked so hard to increase sales and reduce production costs that they averted the squeeze. Now that first-quarter reports have lessened the fear of an overall profit cut, most businessmen--including many whose firms showed first-quarter profit declines--are making optimistic predictions for 1957 as a whole. At General Electric's annual meeting, where he greeted stockholders and their families (see cut), President Ralph Cordiner reported that G.E. sales, which rose 11% to a record total in the first quarter, should increase 15% for the year.

In its quarterly survey the Chase Manhattan Bank predicted a rise because "excluding inventory changes, purchases by consumers, business and Government have been running at an annual rate of 5% above the fourth quarter." Added Harvard University Economist Sumner Slichter, who has a notable record for accuracy in forecasting: "The position of the consumer is improving. Pay raises negotiated last year go into effect this year, many of them concentrated in May, June, July (steel) and September. Business too is strengthening itself. The surveys of new plant and investment plans indicate that expenditures will go up a little more in the second half than in the first." But, he added, there will be a limit to the second-half expansion since "We have been bumping along the top for a long time now, and there is no room for much expansion."

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