Cycles & Slumps

Year 1967 worked some uneven effects on corporate balance sheets. While the overall total of after-tax profits is expected to show a decline of almost 5% (to about $47 billion) from the year before, results from early-reporting U.S. corporations suggest that a number of industries registered sizable gains.

At first glance, that would seem to bolster the case for conglomerates, since such acquisition-minded companies argue that their diversification activities are the best hedge against cyclical swings in a single industry. But conglomerates can have slumps of their own. Litton Industries, a pioneer that chalked up an impressive round of sales and earnings records during fiscal 1967, has announced that its latest quarterly profits (for the three-month period ending Jan. 31) will be "substantially lower" than expected. Much of the blame was laid on management "deficiencies," and Litton said that the problem has now been corrected.

Ambition v. Talent. Despite that assurance, the news stoked fresh doubts about conglomerates; some of them, warned American Bankers Association President Howard Laeri, "may turn out to have more ambition than talent." Such fears were quickly reflected on the stock market. Last week Litton's common stock, which sold for over $120 a share last October, closed at $73.37. Other conglomerate stocks, including Teledyne and Ling-Temco-Vought, also dropped sharply.

At the same time, other companies were showing wide variations in their year-end reports. Items:

>The auto industry, plagued by lower consumer demand during the first part of 1967 and strikes later on, showed signs of rebounding at year's end. General Motors increased profits during the fourth quarter by 2% to pare its decline for the year to 9%. The company reported* total earnings of $1.63 billion on sales of $20 billion. Though the industry hopes for record car sales in 1968, the momentum of G.M., for one, is threatened by continued labor woes. With local walkouts curtailing production at company plants, some 84,000 G.M. workers were off the job at the end of last week.

>Steelmakers stand to benefit from any upturn in Detroit, and they sorely need some such boost. Hurt by competition from foreign imports and the cost of new equipment, most steel companies suffered sharp earnings declines in 1967. Net income of U.S. Steel, the industry leader, dropped 31%, to $172,499,331 on sales of $4.07 billion. While that decline was a year-long affair, several rival steelmakers--including Bethlehem, Republic and Inland--showed fourth-quarter profit increases as customers started stockpiling in anticipation of a possible steel strike next summer. Other metals companies, among them Kaiser Aluminum and Reynolds Metals, also skidded in 1967; Alcoa managed a 1.2% profit increase, but that reflected receipts from the sale of two of its subsidiaries.

>Oil companies fared remarkably well, despite the Middle East war in June. Increased reliance on supertankers and Western Hemisphere oil spared most producers any serious dislocations. Advances ranged from 9% to 18% for such companies as Continental Oil, Atlantic Richfield, Phillips Petroleum, Jersey Standard, Shell and Texaco. In keeping with the industry's buoyant mood, Atlantic Richfield Chairman Robert O. Anderson pointed to expected benefits from recent refinery modernization and predicted "continued earnings improvement during 1968" for his company.

>Several airlines were shut down by a costly machinists' strike in 1966, and as a result, their 1967 performances looked good by comparison. At TWA, net income climbed from $33,371,000 to $40,658,000 on sales of $1.02 billion. Eastern's profits went from $14,713,000 to $24,114,000. Despite the apparent improvement, though, most airlines are suffering because of huge outlays for new planes, rising labor costs and the low profitability of their myriad fare-discount plans.

* G.M. also announced the resignation of Executive Vice President Semon E. ("Bunky") Knudsen, 55, the man credited with reviving Pontiac's fortunes when he headed that division from 1956 to 1961. Though the official line was that Knudsen wanted "to pursue personal interests," he was known to be disappointed by G.M.'s decision last fall to give the corporate presidency to Edward N. Cole.

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