Special Circumstances

What kind of third-quarter profits could a company expect if it sold Piels Beer in Newark and Schmidt Beer in Detroit during the riot-racked period from July to September? The answer came last week, when the Associated Brewing Co. of Detroit, which was in exactly that unfortunate sales position, announced that it will have to report "a very substantial decrease" in third-quarter earnings v. last year's profit of $539,143. Associated's explanation: special circumstances.

Third-quarter reports include many such circumstances. Total corporate profits for the quarter will reach about $80.5 billion before taxes on an annual basis, or slightly better than second-quarter earnings of $78.9 billion but far less than the record $84 billion in third-quarter 1966. The results are a mix of good and bad and circumstantial sales and earnings. Instances:

> B. F. Goodrich Co. reported that sales for the quarter dropped 6% to $243,372,000 and earnings increased a bare 2.9% to $11,642,000, even including the gain from sale of some British holdings. Goodrich's trouble was an 86-day strike that hit major rubber companies earlier this year. The strike held up deliveries to customers and resulted in wage increases that have so far not been compensated for by the price increases that Goodrich and other companies in the industry instituted after the strike was settled.

> General Electric President Fred J. Borch, reporting an 18% drop in third-quarter earnings to $80,689,000, blamed part of the decline on higher wages, part on a general softening in the demand for the kind of consumer appliances in which General Electric dominates its markets.

> Most chemical companies reported a disappointing quarter. Du Pont, with a 1% decrease in sales to $763 million and an 18% decline in earnings to $74,330,000, blamed the downturn primarily on "sluggishness in the civilian sector of the economy." Union Carbide, anticipating lower sales and earnings also, attributed the drop to a major expansion program now under way.

> Airline earnings were up or down depending on whether airlines had been hit by last year's third-quarter machinists' strike. TWA and National, both of which had been grounded by the strike, reported higher revenues this year because quarterly passenger loadings were back to normal. American Airlines, which was not affected by the strike, reported a profit drop from $25,035,000 to $22,280,000 because passenger business was not abnormally high, as it was during last year's third quarter.

> Cigarette companies had special circumstances going for them that were as pretty as bright-leaf tobacco: their cigarette business is holding up despite recurring cancer scares, and they are making money on diversification projects. R. J. Reynolds reported record sales of $495 million and record earnings of $43,139,000 from Chinese foods, fruit punch, and aluminum foil as well as tobacco products. P. Lorillard's diversified operation accounted for record quarterly sales of $147 million and earnings of $8,290,000.

> Banks, because of currently high interest rates and steady demand for loans, were for the most part unusually good third-quarter performers. Bank of America, the nation's largest financial institution, reported a 10.4% increase in earnings to $33,442,000 as both deposits and loans went up. Second biggest Chase Manhattan had a 9% increase in earnings to $26,478,000.

> Computer makers and office-equipment companies, feeding on a resurgence in business activity after the "mini-recession" of the first quarter, generally did well. IBM, which has been setting balance-sheet records for 14 consecutive years, set another one: sales of $1.36 billion and earnings of $169,400,000 each represented another quarterly high. Xerox also set records with revenues of $172 million and income of $21,966,000.

Whatever gloom the quarter brought is balanced by a prospective rise in the economy for the fourth quarter and an even faster lift next year. Sears Roebuck, the nation's biggest merchandiser, said that depending on the auto-strike settlement, the quarter could be its best in history. At a meeting of the Business Council at Hot Springs, Va., Federated Department Stores Chairman Ralph Lazarus forecast 1968 corporate profits back up to the levels of 1966 and a 4% rise in the G.N.P. The Commercial Credit Co., introducing a new kind of quarterly forecast of consumer spending, foresaw a 4% rise in sales of household durables and a 10% increase during the next six months in new-car purchases. And Chrysler Corp. said that the new-car sales potential may have been underestimated by the industry, could match 1965's 9,300,000 units rather than the 8,800,000 that Detroit expected only two months ago.

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