Beyond Expectations

U.S. corporate chiefs, who have long complained of a profits squeeze, fared better in 1968 than they had any reason to expect. They were beset by rising labor and material costs, year-long predictions of imminent economic slow down and the 10% income tax surcharge. But the slowdown never materialized, and many companies managed to offset higher costs and taxes by increasing their prices and generating more sales. The results from early-reporting corporations indicate that after-tax prof its climbed by 6% from the $48 billion of 1967 and at least equaled the $51 billion record of 1966.

Higher totals, however, do not tell the whole story. The profit gains were in inflated dollars, which have less purchasing power when plowed back into raw materials, expanded inventories or new plants. Some companies also made their profits look better by changes in accounting methods, notably to straight-line depreciation procedures, by which equipment costs are distributed over a greater number of years. Items:

-- The auto industry sold 10,400,000 U.S.-made cars and trucks in 1968, the best year for total vehicle sales in Detroit's history. Despite slightly lower profit margins, General Motors had a $1.73 billion profit, up 6% from 1967, on record sales of $22.8 billion. Chrysler increased earnings by 45%, to $291 million. Ford, which has yet to report, will show a gain over 1967, when it was slowed by a 49-day strike. Struggling American Motors earned $11.8 million during the fiscal year ending last September, its first full-year profit since 1965. The performance was helped by tax credits and the sale of the unprofitable Kelvinator Division. Chairman Roy D. Chapin Jr. announced last week that A.M.C. will aim for annual auto sales of 500,000 by the early 1970s, nearly double the present level.

-- Steelmakers got a big lift from the auto boom, but results were still uneven as the industry continued to be hurt by competition from imports. U.S. Steel reported earnings of $253 million, seemingly much better than the $172 million of the year before. But the gain was entirely attributable to the company's switchover to straight-line depreciation; otherwise, its profit would have only been $94 million. Accounting changes also contributed to profit increases at Inland Steel (up 44%), Bethlehem (21%) and Republic Steel (4%).

-- Oil and chemical companies generally did well on the strength of greater demand and firmer prices. Standard Oil of New Jersey, the oil-industry leader, earned an alltime high of $1.275 billion, up 10% from the year before, on sales of $16 billion. Texaco also set a record with earnings of $835.5 million, while Atlantic Richfield gained 14.5% over 1967, Mobil 11% and Gulf, California Standard and U.S. Shell each about 10%. The chemical industry was cheered by the end of a slump in sales of synthetic textiles. Du Pont, which derives one-third of its business from nylon and other synthetics, increased its profits 18%, to $372 million.

-- Among other manufacturing concerns, the profit returns were mixed. Xerox Corp. ran off a new record for the 17th consecutive year, increasing profits by 16%, to $116 million. General Electric announced that 1968 earnings would decline by "no more than 2%" below 1967's record $361 million, but its leading competitor, Westinghouse, reported a 10% earnings gain, to $135 million. Alcoa earned $105 million, which was 3% less than 1967, but was still quite a feat in view of the strike that crippled the company in midyear.

The biggest moneymaker among U.S. companies last year was not General Motors, the world's largest corporation, but American Telephone & Telegraph, which earned $2.05 billion, giving it a 15% return on revenues of $14.1 billion. A. T. & T.'s 3,142,000 stockholders were happy about that performance, but the rest of the country benefited too. The company's federal tax bill came to $1.95 billion, or 1% of the Government's total budget receipts.

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