Too Much?

As the first batch of year-end earnings reports came out last week, many a businessman began to worry about profits. It was not that they were too low. The question was: Were they--at least in some companies--going to turn out to be too high?

Despite soaring scrap prices, the steel industry had seldom been fatter. In 1947, U.S. Steel reported, it had netted $126.7 million, the biggest since 1929 ($197.6 million), and 43% above 1946. Three other steel companies (Republic, Youngstown, and Jones & Laughlin) made just about twice as much in 1947 as they had in 1946. Bethlehem Steel turned in a whopping profit of $51 million, the greatest in its history. For the first time in peace, its sales had also passed $1 billion.

Pleased. Beth Steel's Eugene Grace was pleased. But he was also worried. He knew as well as anyone that fat profits would heat up labor's demands for another round of wage boosts. It is better to cut prices, Grace said: "Lower prices would be beneficial to industry and the country as a whole." But Steelman Grace said nothing about cutting his prices, and neither did any other leaders of his industry.

Steelmen were not the only businessmen thinking about profits, and prices. Procter & Gamble's Richard R. Deupree reported that P. & G. had rolled up record profits. P. & G. reported net profits of $20.2 million in six months v. $17.1 million in the corresponding period a year ago. But P. & G. had also set aside $28.5 million, which came out of profits, as a cushion against a possible loss on inventories. That was double what it set aside for the same purpose for the whole preceding year. In explaining this enormous set-aside, Soapmaker Deupree pointed out that in the 1920-21 recession "the decline in the raw material market actually wiped out the equivalent of a very large part of the firm's invested capital in less than twelve months."

Displeased. Nevertheless, many a consumer was beginning to look askance at the profits which P. & G. and many another company were reporting. They seemed to mean that prices had been raised too high in the first place. After looking over P. & G.'s report, the New York World-Telegram's conservative financial editor, Ralph Hendershot, summed up:

"Had it not been for the inventory charge-off, the company would have had net earnings of $48.8 million. . . The company . . . passed all oil, fat and other cost increases along to the public in the form of higher prices [and] tacked on more. The housewives who saved fat and turned it in to the soap manufacturers for little or nothing may find this a little difficult to understand. . . "

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