Business & Finance: Earnings & Market

Profits of U. S. corporations continued last week to reflect Recovery, thus encouraging the Stock Market to reach a new 1936 high. The 1935 earnings of 21 giant utility systems, representing more than 80% of the light & power industry, were estimated at about 10% above 1934 returns. The Interstate Commerce Commission reported that Class I railroads had a 1935 net operating income of $500,000,000 against $465,000,000 in 1934. Industrials were far ahead of 1934 but not nearly so far ahead as was indicated by early results. The Chicago Journal of Commerce reported that the first 280 reports of leading industrial companies showed a 54% profit increase over 1934. These companies made $676,000,000 in 1935 compared to $439,501,000 in 1934. Three companies—General Motors, U. S. Steel and Chrysler—accounted for more than $120,000,000 of the $237,000,000 increase, and, since early reports included most of the motor, motor accessory and steel companies, a few whopping gains by early reporters were unbalancing the general earnings picture. The tobacco, retail trade and food industries showed little or no 1935 improvement.

The Market, however, bubbled vigorously onward, surmounting an unfavorable TVA decision (TIME, Feb. 24), to close the week with stock averages about $1 a share higher than they had begun it. Many market favorites were selling at prices entirely out of line with any recognized ratio of market price to 1935 earnings, but Marketeers appeared satisfied that 1936 would be a much better year.

Among earnings reported by corporations outside the steel and motor industries:

National Biscuit made $9,986,000 in 1935 compared to $11,597,000 in 1934. This was the worst year since 1923 for the world’s largest biscuit company, which also makes candy, peanut butter, macaroni, ice cream cones and Shredded Wheat. National Biscuit’s earnings have declined every year since their 1930 peak of $22,879,000. Processing taxes and increased competition from independents were major causes of last year’s profit decline. The taxes increased manufacturing costs and the competition held down biscuit prices. National Biscuit got back some $1,000,000 of impounded processing taxes and has already announced its intention of suing the U. S. Government for some $4,000,000 of processing taxes not impounded. Last week National Biscuit common, at $34.25, sold at the relatively modest ratio of about 26 times 1935 earnings.

Goodyear Tire & Rubber made $5,452,000 in 1935 against $4,287,000 in 1934. Sales were $28,000,000 ahead of 1934, but the tire companies spent the best part of the 1935 selling season in one of their chronic price-cutting battles. U. S. motorists bought about 2,500,000 fewer tires in 1935 than in 1934, partly because they were catching on to the possibilities of having tires retreaded. Goodyear, having made 12¢ a share in 1935, was last week selling at $28, about 233 times earnings.

National Distillers made $7,009,000 in 1935, a steep decline from the $11,134,000 made in 1934. That year National Distillers was still selling a large quantity of its high-priced, pre-Prohibition whiskeys, whereas in 1935 about 95% of its volume came from cheap whiskeys, aged up to 15 months. National’s 1935 sales of $52,596,000 were only some $2,000,000 more than in 1934, although the sales by cases increased 43%. Seton Porter’s big-liquor combine produced 26,214,000 gallons of whiskey, about one-seventh of the U. S. total. National Distillers’ common, at $31, sold last week at only a little more than nine times earnings.

Commonwealth & Southern made $9,406,000 in 1935 against $7,443,000 in 1934. This company is most affected by the TVA decision, since about half its operating revenue comes from customers within TVA’s reach. As Commonwealth & Southern has a funded debt of nearly $500,000,000 and a preferred dividend which comes to $9,000,000, the company has to make a lot of money before its 174,000 common stockholders get any dividends. The last common payment, in 1932, was held to 15¢ a share on no less than 33,673,000 shares. The TVA decision depressed Commonwealth & Southern common from a last week’s high of $5.50 a share to a last week’s low of $2.87, but as the company made about 1$ per common share, the stock sold at about 300 times earnings.

Consolidated Gas made $33,528,000 in 1935, a decline from the $35,480,000 made in 1934. Selling gas and electricity to some 8,000,000 residents of New York City and Westchester County,* Consolidated showed a 1935 sales increase of a little less than $5,000,000 but paid a little more than $5,000,000 in increased taxes and is going to court about a further city tax increase for 1936. Consolidated Gas also plans to change its name to Consolidated Edison, since about 75% of its revenue now comes from Electric Power & Light. On a $2 per share earning, the common last week sold at $34.50, a little more than 17 times earnings.

U. S. Gypsum made $3,491,000 in 1935 against $2,155,000 in 1934. As the U. S. Steel of its industry—it supplies 50% of the gypsum wall board, 50% of the gypsum plaster and 25% of the metal lath used in U. S. buildings—U. S. Gypsum is a No. 1 beneficiary of the prospective 1936 building boom. Marketeers, aware of Gypsum’s bright prospects, last week valued the common at $108, about 43 times earnings.

American Can made $17,310,000 in 1935, slipping from the $19,522,000 profit of 1934. President Henry Willis Phelps said that a “large amount” of 1935 income had been spent on beer cans and fibre containers, expected ample results on this investment (TIME, Feb. 10). American Can common sold off recently in anticipation of reduced earnings. Last week, at $117, it stood at a moderate 20 times earnings.

Continental Can made $11,223,000 in 1935, compared to $10,707,000 in 1934, a new high in Continental profits. Last November Continental was selling 750,000 beer cans a day, predicted 3,000,000 a day by the spring of 1936. Continental’s common slumped sympathetically with American’s. Last week’s quotation of $78 was about 19 times per share earnings of $4.21.

United Aircraft made $434,635 in 1935. No comparison with 1934 is possible since United Aircraft is a chunk of old United Aircraft & Transport Corp. The chunk was broken off in the summer of 1934 after the U. S. Government objected to combination of air transport companies with makers of planes and engines. United Aircraft makes Pratt & Whitney engines, Hamilton propellers, Corsair military planes, Sikorsky amphibians. Good customer is Pan American Airways, for whom United Aircraft built the Sikorsky China Clipper flying the new transpacific route (TIME, Dec. 2). Earning 21¢ a share United Aircraft sold last week at $30, about 143 times earnings.

Kroger Grocery & Baking made $4,110,000 in 1935, a little less than the $4,198,000 made in 1934. Kroger complained that its 4% dollar increase in 1935 sales was smaller than the 11.5%, increase in retail food prices, concluded, logically, that “a decline in total tonnage is indicated.” The “average” Kroger store had sales of about $1,000 a week, profit of about $1,000 a year. President Albert H. Morrill said that 1935 taxes were about 10% of 1935 sales, which would make taxes equal to a little more than five times profits. Kroger made $2.25 a common share and, at $26.50, sold at a conservative eleven times earnings.

Standard Brands made $12,746,000 in 1935 against a $13,888,000 profit in 1934. Built around Fleischmann yeast, Royal baking powder and Chase & Sanborn coffee, Standard Brands made some $87,750,000 in its six full years of business life. But the “Standard” brands have, in effect, standard prices which both competition and custom make difficult to raise. Consequently Recovery, with higher costs, has brought lower profit margins and a decreased profit. The common closed last week at $17.62, about 18 times 1935 earnings of 97¢ a share.

United Carbon made $1,872,000 in 1935, against $1,452,000 in 1934. The 1935 profit was best since the company’s organization in 1925. Earnings had a distinctly automotive complexion, since this company, along with Columbian Carbon Co., produces about two-thirds of the U. S. supply of carbon black for which the main use is in automobile tires. United Carbon has no preferred stock, last year made $4.70 a common share, sold last week at about 16 times earnings.

Western Union made $5,258,000 in 1935 against $2,243,000 in 1934. The telegraph company did not get much additional business in 1935 but succeeded in making a $3,000,000 increase in profit out of a $2,600,000 increase in income, chiefly by handling the extra business with a $300,000 decrease in operating expenses. Western Union earned $5.03 a share, closed last week at $91, about 18 times earnings.

*Also steam, though New York Steam Corp., 74% owned.