Balance

The annual spring flood of first-quarter earnings reports hit high-water mark last week. There were few washouts, but--except for the railroads-- even fewer tidal waves. The most important fact about March 1943 profits: they proved that U.S. industry, on balance, is not losing money on its struggle to survive the war. The next most important fact: the first quarter of this year may well be the best --and comparisons with last year's first quarter (the worst of the year) may be misleading.

The War Babies. For companies to whom war work was old stuff, this year's first quarter was strictly a matter of holding the line. In steel, profits were up just a little (Crucible showed $1,916,000 v. $1,676,000) or down just a little (Jones & Laughlin: $2,399,000 v. $2,492,000).

Big exception: giant U.S. Steel, whose earnings plummeted 25% to $15,407,000.

Bethlehem showed a skimpy $88,000 rise, but would have had no rise at all if its bald, bold President Eugene G. Grace had not taken a voluntary pay cut of $316,079, scaling his salary down to $221,645.

For companies to whom war conversion came hard, 1943 began much better than 1942, provided no account is taken of the fact that gross sales rose much faster than profits. Prime example: General Motors, its gross almost tripled, turned in net earnings of $33,100,000, about 30% over last year's first quarter.

The Rails. Last week's reports should dispel any lingering fears that the railroads will go broke without last year's rate rise which ICC canceled last month (TIME, April 26). Alone in all U.S. industry, the rails made a spectacular showing. Lumbering New York Central almost quadrupled its 1942 earnings, hit $16,100,000-- a 14-year high. The wobbly Rock Island did likewise, pushing its net up to $8,800,000 (v. $2,300,000 last year); Denver & Rio Grande jumped from $463,000 to $2,474,000; Great Northern turned a $92,000 deficit into a juicy $1,991,000 profit. Of 22 roads to report last week, not one showed a drop in earnings.

The Others. Peace babies and companies somewhere between peace and war work acted much like the real war babies --they were up a little or down a little. Noteworthy on the up side was General Foods ($3,600,000 v. $2,700,000) but even more so was the fact that there were almost no serious nosedives. Most consistent losers, compared to last year: the utilities, which could not counteract higher taxes with even higher gross earnings.

The Great Leveler. One factor that unsettled comparisons between different years and different companies was a wide divergence of practice on conversion-to-peace reserves. And one big if in all 1943 earnings statements was what 1943 tax rates would be. Most corporations figured that Congress could not squeeze much more out of them than in 1942. But the most interesting thing to slide-rule experts was the way 1942 tax rates tended to equalize corporate earnings. The huge earners were hard put to it to turn extra gross into extra net (in some cases tax reserves were six to seven times as big as net income). But excess-profits tax rates are already so high that a drop in gross earnings almost cancels out in the consequent drop in tax liability.

The moral is plain: last quarter's profits are just about as good (or as bad) as they will be for the duration.

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