ITT: A Mixed Machine

Can a corporation grow so huge and powerful that it becomes immune to the effects of even the most sensational scandal? If ever a company presented a test case of the answer, it is International Telephone & Telegraph Co. ITT is the biggest of all multinational conglomerates (annual revenues: $8.6 billion), and for slightly more than a year now it has been accused of making political payoffs in the U.S. and conspiring to overthrow the government of Chile. This week ITT executives will face stockholders at the annual meeting with a mixed report: profits are up, but the company's stock is way down.

Despite the barrage of bad publicity, the moneymaking machine of Chairman Harold Geneen recorded its most profitable year ever in 1972. Worldwide operating net rose 12%, to $477 million, exceeding ITT's average increase for the past dozen years. Last week ITT announced that in the first quarter of 1973 operating profits rose 11% over a year earlier, to $105.6 million. Few if any customers were moved to shun ITT's myriad businesses--which include, among many others, running the Sheraton hotels, baking Wonder Bread and operating the U.S.-Soviet hot line. Even unfavorable Government action has turned to ITT's benefit. In the first quarter, profits from sale of stock in Canteen Corp. and Avis rent-a-car, which ITT must gradually get rid of to satisfy an antitrust decree, boosted total net a towering 45% over the 1972 period, to $142.6 million.

But ITT's stock has fallen from a high of 60 3/8 in January to as low as 30% at one point last month; it closed last week at 37. Lately, ITT shares have sold for as little as eight times annual per-share earnings, a low for the Geneen era. That is a painful blow to corporate ego. ITT executives have long pointed proudly to the company's record of profit growth, thus implying that its stock should sell at a price-earnings multiple considerably higher than that of the blue chips in the Dow Jones average--which currently go for a composite 14.2 times earnings.

Since ITT frequently uses its stock to acquire new companies, low share prices also have the effect of forcing the company to shop with devalued dollars. ITT's buying opportunities in the U.S. already are restricted by an antitrust settlement that limits the size of new acquisitions, but the stock slide is restricting them further. Last week, indeed, ITT was rebuffed by a company that had previously agreed to let itself be bought. Directors of G.P. Putnam's Sons, the publishing house, asked ITT to postpone the takeover indefinitely. Since they had agreed to the buy-out in January, the block of ITT stock to be used in payment for Putnam's had declined in value from $16.5 million to $9.7 million.

No Hint. Security analysts believe that ITT stock has faltered partly because of continuing revelations about the company's political activities, including Geneen's casual admission in April that ITT had offered a "substantial" sum to finance a possible CIA effort to keep Marxist Salvador Allende from being elected President of Chile in 1970. In addition, the analysts say, institutional investors have grown extremely wary of ITT's accounting practices. For example, ITT accountants frequently list sales of real estate and securities that result in one-shot profits as normal "operating income," whereas many other companies would report them as "extraordinary" items and thus call attention to the fact that they will have no effect on future net. ITT officials have lately become somewhat more careful about identifying special income in their financial reports, but they are basically unmoved by their critics.

Geneen has taken a few other steps to mollify investor complaints. Analysts had long worried that Geneen, now 63, had no clear successor. Geneen still has given no hint of retirement plans, but in January he gave up the title of president and picked as his heir apparent Francis J. ("Tim") Dunleavy, one of three top executives who had previously shared power in ITT's inner sanctum. A genial Irishman, Dunleavy freely admits that "some of the stuff that has been in the newspapers has made us step back a bit" and has made himself more available to the press than Geneen.

Fundamentally, though, ITT's leaders consider their company underrated by investors and are otherwise unchastened by events. When ITT's insurance claim for its nationalized Chilean properties was flatly rejected by the Government-backed Overseas Private Investment Corp. last month, ITT announced that it would seek arbitration of the decision. As for the $92.5 million at stake, Geneen's always prepared accountants were ready with a way to keep from immediately writing it off as a loss. The sum now appears on ITT's balance sheets as a "noncurrent receivable," which theoretically means that the company expects to collect it in full at some future date.

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