Third-Quarter Harvest

Since June 30, eight to nine million U. S. stockholders have watched industrial production rise to boom levels, read of a flood of commercial and military orders, wondered what their take would be. Last week they were finding out: the march of third-quarter earnings reports was on. A New York Sun study of the first 59 companies to give an account showed combined profits of $38,306,000--2% under the preceding quarter but up 39% from the export-inflated September quarter of 1939. Besides higher profits, most reports showed three main trends: 1) sales at a new 1940 high, 2) increased backlogs, presaging still higher sales, 3) increased costs, especially taxes and excess-profits-tax reserves.

>> By groups, biggest profit-gainers were the steelmakers. No. 1 feast or famine industry, steelmen are now gorged, at practical capacity. No. 3 producer, bald, tough Tom Girdler's Republic cleared a record $6,184,000 in the third quarter, up from $2,815,000 in the same quarter of 1939. With preferred dividends being earned 32 times over, his conservative directors last week paid all back dividends, planned to buy the shares for cancellation, thus clearing the way for common dividends. Like many a defense industry's preferred stocks, the price of Republic's has tripled since 1935, is now near par.

>> Crucible, No. 1 maker of high-speed and tool steels and now busy on projectiles, periscope tubes, gun forgings, recently spent time and money getting a single proxy from a stockholder in unoccupied France. Reason: her vote was needed on a plan to erase $40.75 back dividends on the 7% preferred by issuing 1.4 shares of new $5 preferred for one old 7%. It went through. Last fortnight directors declared their first dividend since 1938: $1.25 on the new preferred. Third-quarter profits were $1,989,000, over 70% of total 1939 profit.

>> One of the smaller producers of billets, bars, hot and cold rolled strip steel is Sharon. But with war demand delaying deliveries from the big producers, much business has gone to the little fellows. Sharon's third-quarter profits were $366,000 ($59,000 loss last year).

>> In the seven years ended 1939, Edward G. Budd Manufacturing Co. made more stir with its streamlined trains than anyone else in the field. But it lost money in the process. Now Budd is busy making ammunition parts, body assemblies for bombs, other war materials--and money. September-quarter profits were $99,000, up from $402,000 loss last year. Full-year earnings will be the largest since 1929's $1,534,000.

>> Camped near the mouth of many an industrial bottleneck is Worthington Pump & Machinery. Making steam, gas and Diesel engines, an endless variety of pumps, compressors, rock drills and turbines, Worthington must deliver before many defense construction jobs can start. Third-quarter profits were $465,000, v. $360,000 last year. With six months' unfilled orders on the books, 1940 will be its fattest year since 1929.

>> Curious case is Douglas Aircraft, whose stock jumped from 77 to 84 last week while other air shares were mired. Reason: nearly all aircraft makers will be hard hit by the new Excess Profits Tax, since their exemptions will be based on 1936-39, poor profit years. But Douglas, unlike firms whose fiscal years follow the calendar, can count as 1939 earnings everything up to Nov. 30, 1940, a fact that speculators got hep to only last week. Douglas accountants will therefore do all they can to push current profits through the roof. Boiling along on a record $400,000,000 backlog (last year sales $27,867,000), canny Douglas has been too busy to report Aug. 31 quarter profits. But dopesters guessed $2,700,000, a new top, and $3,900,000 or more for the fourth quarter, bringing full-year earnings to $16.50 a share, v. only $4.81 for the year ended November 1939.

>> But not all stockholders were happy. Profit pacesetters in the depression were food companies, such as General Foods and Cream of Wheat. But as they resisted the depression, so are they resisting the boom. Third-quarter profits of General Foods (JellO, Maxwell House, etc.) were only $2,892,000, against $4,390,000 a year ago. The reason: increased taxes, foreign-exchange losses. Cream of Wheat earned only $235,000 in the September period, down $69,000 from last year. Its 40-c- quarterly dividend on Oct. 1 was the first break in the $2 annual rate since the present stock was issued in 1929.

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