The Way Down?

EARNINGS The Way Down? As the flood of year-end earnings reports tumbled from the ticker last week, the evidence piled up that U.S. industry had passed the war's profit peak.

Profits are still lush, but the percentage of profit to the astronomical volume of goods turned out is sometimes astoundingly low. The New York Sun totted up the profits of 53 companies in 1944, found that they were down 1.3% from the year before. More & more it looked as if 1943, and not the top production year of 1944, had been the high-water mark. Higher taxes, wages and operating costs had taken the profit out of volume.

Down Rails. To no one's surprise, the railroads were far in front of the downhill parade. Although the roads hauled more traffic than ever before, the Association of American Railroads sadly estimated: profits of Class-1 roads last year (those with an annual gross of more than $1,000,000) were down to $660,000,000, a big $213,000,000 under 1943.

New York Central was typical. With its gross income at a record high of $715,000,000, its net profit dropped to $36,0000,000, about 57% of the previous year's.

But the shocker was Delaware, Lackawanna & Western. Its fat profit of $4,689,000 in 1943 shrank to a picayune $87,000.

Reason: along with other Jersey roads, it lost a tax decision to Boss Hague's Jersey City, had to pay out $4,932,000 in interest on back Jersey taxes.

Down Steel. The profit trend was down in steel, too. U.S. Steel shipped about $2 billions during the year, the most ever, but its net slipped to $60,300,000 v. $62,600,000. Jones & Laughlin, Inland and Republic were down with Big Steel.

Bethlehem Steel bucked the trend, upped its net profit to $36,200,000 v. $32,100,000. But this was due chiefly to a difference of opinion on how much the retroactive wage increase to workers would cost. Beth Steel's Grace tucked away $6,500,000 for the wage reserve, while Big Steel's Fairless put away $30,000,000.

Down Meat. Another example of high volume, low profits: the packers. On sales of about $1,600,000,000, Swift netted only $15,900,000-- about i%. On nearly the same gross sales, Armour could not do even that well. Its profit of $11,300,000 was only three-quarters of 1%.

Up Oils. The oil industry alone still had the Midas touch. Wall Streeters guessed: industry profits were up about 25% in 1944 over 1943. As an example, they pointed to Atlantic Refining Co. It netted $14,700,000, up 37%. Unlike the rest of U.S. industry, the big oil companies can still increase profits with volume because refineries, for example, are largely automatic, cost little more to run at capacity than at 75% of it.

Note of Cheer. If high taxes and costs have put a ceiling on profits, businessmen may still extract one note of cheer: the same taxes may help to cushion the shock to profits when volume falls.

In normal times, a sizable drop in gross meant a sizable drop in net. This is no longer true. Example: Hercules Powder Co. had its volume trimmed by "shifts in war production" so that its gross profit was cut by $7,910,000. But its tax bill dropped also, some $6,050,000. Thus, net profits were down only $880,000.

Keeping this fact in mind, many a businessman expects that profits will hold up fairly well under the comparatively small cutbacks planned for V-E day.

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