Earnings Slump

Feeling the recession's sting

The severity of the current recession was written in red across scores of first-quarter corporate earnings reports last week. Beset by sagging sales and oppressive interest rates, companies in a broad array of industries, from autos and airlines to steel and even oil, posted sharp profit declines or outright losses.

With auto production at its lowest level in 30 years. Detroit is still mired in a depression. Ford revealed a January through March loss of $355 million, which was encouraging only when compared with a $440 million deficit during the same period last year. American Motors reported a $51 million shortfall, its eighth consecutive quarterly loss. Even at dominant General Motors, profits were down 33% to $128 million. Most of GM's modest income came from selling auto insurance and financing loans to car buyers. Actual U.S. sales of GM autos were off 20%.

The auto slump has devastated the steel industry, which relies heavily on shipments to Detroit. National Steel lost $40 million last quarter, and Republic dropped $67 million. At U.S. Steel profits were down 71%, to $80 million. The firm would have had almost no profit without the earnings of Marathon Oil, which U S Steel acquired in January. Company Chairman David Roderick said last week that steel shipments had reached their lowest level in 40 years.

Declining passenger traffic and fierce price-cutting competition have sent the airlines into a dangerous tailspin. United Airlines reported a quarterly loss of $130 million, the worst in its 56-year history Eastern Air Lines also posted a record deficit of $51 million. Delta, the strongest air carrier, reported a shortfall of $18 million, its first quarterly loss in 25 years.

As the ailing airlines have scaled back orders for new jets, business has gone bad tor Boeing, the world's largest producer of commercial aircraft. Its first-quarter earnings plunged 58%, to $61 million Malcolm Stamper, the company's president, told shocked shareholders at the Boeing annual meeting that he may have 3 trim his Seattle work force by 10,000.

Perhaps the most stunning drop in profits was suffered by the big oil companies. Only two years ago, when petroleum prices were spiraling, the oil giants posted quarterly profit gains of 100% or more Now that the recession and the worldwide oil glut have caused prices to start falling the gusher of petroprofits is over, at least temporarily. Exxon's first-quarter earnings dipped 23%, Mobil's were down 49% and Standard of California's dropped a sharp 66%.

With lower earnings, Big Oil has been forced into some uncharacteristic penny pinching. Exxon, for example, has halted its image-boosting advertising campaign featuring that familiar theme: "We're Exxon. We're more than 100,000 people working on energy." In many cases, the cutbacks are more than cosmetic. Texaco has closed one refinery and plans to shut down two more, eliminating a total of 1,250 jobs. Worse, several companies are trimming their exploration budgets The number of drilling rigs in operation has dropped 27% since December.

The recession has slowed the torrid growth of young high-technology firms, but many are still doing relatively well. Apple Computer, for example, reported a first-quarter earnings gain of 51%. Several glamour companies of the past, however, have faltered. Xerox's profits were down 23%, and Kodak's were off 27%.

The industries best able to weather the recession are those that sell such items as food, drink, medicine and household supplies that consumers are unlikely to scrimp on. Some of the best-performing companies are Procter & Gamble, with a profit gain of 15%; Anheuser-Busch, up 55%; and the Squibb drug firm, plus 69%.

Economists generally expect another poor profit performance this quarter, but look for a recovery by midsummer, when the second installment of President Reagan's tax cut will give consumers more spending money. The danger to this forecast is that concern in the financial markets about the impasse between Congress and the President on reducing the federal deficit will keep interest rates high If that happens, most families will still have trouble buying autos and other major items.

Corporate executives, many of whom had to face their shareholders at annual meetings last week, tried to put a good face on the bad news. General Motors Chairman Roger Smith and President James McDonald said in a joint statement that "the recession appears to have about run its course." Bethlehem Steel Chairman Donald Trautlein was more guarded When asked whether his company would lose as much money in the second quarter as it did in the first, he replied: "I hope not, but I can't promise that." qed

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