Embarrassment of Riches

With industrial production at the peak, most Wall Streeters had only one question about first-quarter earnings: How big would they be? Last week, as the first big batch of reports came in, happy anticipation fell short of the reality. In general, earnings were so good that, amid the clamor over high prices, they were well-nigh embarrassing.

Of the 262 companies reporting, 196 made more money this year than in last year's first quarter. For many companies, the two quarters were not comparable, due to the strikes and material shortages in 1946. Nevertheless, this year's earnings shone golden even against the shining records of last year's comparatively strike-free and prosperous final quarter. Basically, the golden flow was due to high production. Actual profit margins were hard to gauge because of cash put aside for inventory losses, "contingencies," etc. But generally, the net return on gross business of many companies was far higher than last year.

A notable example was Bethlehem Steel, which reported a profit of $16,090,426, some 35% better than in the preceding quarter and the best first quarter in its history. Beth Steel's shipments in the first quarter were $237,525,443, up only about 5% over last year's fourth quarter. But net profit in the first quarter was up about 33%. (Beth Steel's percentage of return on gross operating income was still below 1940.)

In the oil industry, where the margin of profit increases magically as production is supercharged, results were even more spectacular. Prime example: Socony-Vacuum's domestic sales rose 16% over those in the same period last year, but its profits soared 73% to an estimated $19,000,000.

In some instances the margin was high enough to make up for declining sales. In the textile industry, now feeling the first pains of a slump (TIME, April 14), American Woolen Co. had a net of $4,634,000 v. $3,937,000 in the first quarter last year. In the liquor industry, hard hit by buyers' resistance, National Distillers Products earned $11,770,885, up 15%.

Squeezed Profits. But in retailing, something seemed to have happened to the boom. Though sales were up, Marshall Field's profits declined some 20% to $2,562,000. Montgomery Ward estimated that sales would probably be up 24% to $250,000,000, but the net of $12,500,000 was down 7%.

In the first batch of reports, there were not many such cases. But the squeeze which had pinched them--pressure by consumers to lower prices and by labor to raise wages--was already worrying many companies.

One such company was General Foods, which showed a net of $5,446,075 v. $4,644,274 in the first quarter last year. With his report, Chairman Clarence Francis, who chooses his words with care, issued a sharp warning. "Food prices generally have reached or passed their peak," said he, while four-fifths of company costs have become "things over which we have little or no control. . . . Therefore we are now working on the smallest overall gross margins in our history." The whole food industry, said he, is in for stiff competition, no matter how things appear at the moment.

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