Beating the Cost Bulge

On Wall Street, the Berlin boom was on. Rushing to buy common stocks, partly as a hedge against inflation, investors early in the week drove the Dow-Jones industrial average to a record 713.94 (previous record: 705.96 in May). The averages were jolted back next day by an inadvertent Antitrust Division haymaker at giant American Telephone & Telegraph Co. (see Personal File), but the momentum was too great: by week's end the market had moved on to still another new high of 720.69.

Not all the market's new ebullience was crisis-inspired. As encouraging to investors as the impact of increased defense spending were second-quarter earnings reports that erased all doubts about the progress of the recovery. A study of 692 firms by New York's First National City Bank showed that their average second-quarter earnings, though off 2% from a year ago, were up 19% from 1961's first quarter.

What brought on the increased earnings? The First National City Bank concluded that most of the improvement came from increased sales rather than any victory over rising costs--a state of affairs that convinces some businessmen that the "soaring 60s" will be an era of "profitless prosperity." But in last week's reports, a number of companies that had improved their earnings even over the second quarter of 1960, showed that this need not be the case. Among the pace setters:

Jones & Laughlin Steel Corp.'s second-quarter net jumped to $1.13 per share, v. $1.02 last year, despite a 9% drop in sales and operating revenues. The secret: cost-reducing new production methods.

Ford Motor Co.'s vigorous development of burgeoning auto markets in Europe and Australia helped boost its second-quarter earnings to $2.42 per share, v. $2.22 last year.

Olin Mathieson Chemical Corp., after reorganizing to eliminate duplication of facilities, was able to increase profits to 72-c- per share from 64-c- last year.

Socony Mobil Oil Co.'s earnings rose 35% to $1.01 per share because of increased operating efficiencies and larger sales overseas.

Goodyear Tire & Rubber Co.'s modernization program lifted its earnings from 61-c- to 68-c- per share, despite an 8% sales drop. Goodyear has also developed a new process for making "natural" synthetic rubber that should soon free the company from the fluctuating price of natural rubber.

Such performances were still the exception rather than the rule. But they suggest that for astute managements that ride expenses hard, modernize in the right places, and move quickly into new markets, prosperity can be profitable even in the cost-ridden '60s.

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