| BUSINESSWEEK ONLINE : AUGUST 16, 1999 ISSUE | ||||||||
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| CORPORATE SCOREBOARD
Big Spenders Are Keeping This Party Going Consumer and corporate outlays crush any thoughts of a slowdown Led by tech companies, Corporate America's profits are cruising at warp speed. The double-digit growth rate in U.S. earnings has rendered the unpleasantness of 1998--when second-quarter profits dropped 2%--a distant memory. Profits for the 900 companies on BUSINESS WEEK's Corporate Scoreboard rose a merry 28% during this year's second quarter, the best performance since 1996's final period. Operating income, which removes special charges and other one-time events, was up a healthy 12%. Revenue growth, meanwhile, clocked a solid 10%. The biggest boost to the bottom line has come from home. Although exports remain sluggish, low inflation and high employment in the U.S. have led to a simple, undeniable fact: Consumers and businesses are spending tons of money. It also helps that companies continue to make efficiency gains. The nation's annual productivity growth rate has doubled, to 2%, over the past four years. These days, there's little to deter consumers from flocking to the checkout line. The Conference Board's index of consumer confidence hit a 30-year high in June. Why? Pockets are full of folding green. Real wages during the quarter climbed 2%, while employment growth was up 2% as well. ''Goods have been flying off the shelf--almost too fast to restock,'' says Credit Suisse First Boston economist Rosanne M. Cahn. Corporations have been avid shoppers, too, shelling out cash for new plant and equipment, but particularly for computers. That shopping spree pushed capital spending up 10.8%, after a rise of 8.5% in the first quarter. One of the biggest capital spenders is General Electric Co. (GE) And why not? Its wide array of businesses, ranging from aircraft engines to financial services to the NBC television network, gave it the highest profit pile: $2.8 billion, up a strong 15%. Still, nowhere are flush times better reflected than in the tech world. ''Computers and telecommunications are the very backbone of this growth,'' says John Ryding, senior economist at Bear, Stearns & Co. IBM's (IBM) boffo 65% gain over the year-earlier period, to $2.4 billion, came from across-the-board increases in hardware, software, and services. Big Blue signed nearly $9.5 billion in new service contracts during the quarter. Meanwhile, Microsoft Corp.'s dominance in software continues. Paced by its hot-selling Office and BackOffice systems, profits surged 62%, letting Microsoft shrug off its ongoing antitrust challenges. The $80 million charge it took for legal expenses was a pittance compared to its $2.2 billion in net earnings. At the same time, profits at Microsoft's semiconductor ally, Intel Corp. (INTC), climbed 49%, to $1.7 billion. Thanks to aggressive cost-cutting, Intel racked up that hike while trimming prices of its chips to grab more market share. Many companies that were hurting last year have rebounded nicely. In 1998's second quarter, Motorola Inc. (MOT) booked a $1.3 billion loss after it took a large and painful write-off for restructuring largely due to sagging chip demand abroad. Lately, though, the chip business has revived worldwide. That has helped the electronics giant to score gains in a host of thriving areas, like digital cellular phones, letting it post a tidy $206 million profit. BURNING RUBBER. The good news extends well beyond tech. General Motors Corp. (GM), hobbled by a strike last year, roared back with a 467% profit increase, to $1.7 billion. Consumers are snapping up big-ticket, high-profit minivans, sport-utility vehicles, and trucks. ''The North American market is red-hot,'' says GM President G. Richard Wagoner Jr. Ford Motor Co. enjoyed an impressive 13% sales gain, even though earnings dipped 2%, to $2.3 billion, due to a $146 million charge related to its March acquisition of Volvo. One of the strongest sectors was publishing, which enjoyed fat advertising sales and overall scored a stellar 183% profits boost, vs. a so-so 8% in the year-before quarter. Time Warner Inc. (TWX), the world's largest media company, enjoyed a spectacular 487% earnings jump, to $593 million, partly from selling some of its cable systems but also from robust cable-channel and magazine-ad revenue. Cash flow, a common measure for highly leveraged companies like Time Warner, jumped 15%, to $1.25 billion. Financial services, damaged by problems overseas in 1998's second half, were back in the sweet spot. Banks, reveling in heavy loan demand for products from mortgages to credit cards, were up 17% overall. Chase Manhattan Corp. (CMB) saw profits rise 30%, to $1.4 billion. On Wall Street, stock trading and deal underwriting let Merrill Lynch & Co. deliver a 23% earnings hike, to $673 million, while rival Morgan Stanley Dean Witter (MWD) rose 35%, to hit $1.2 billion. At the same time, rising interest rates did little to cool off the boom in housing. Homebuilders' profits were up 37%, led by the likes of Lennar, Centex Homes, and Kaufman & Broad. NICKS AND CUTS. Amid the euphoria, disappointments did pop up, however, especially where commodities were involved. Grain prices are in the cellar, so farm-equipment makers are smarting. Deere & Co.'s earnings were down 59%, to $150 million. And energy companies were down 24%, with Exxon, Sunoco, and Texaco all suffering profit plunges. Plus, a rally in oil prices failed to offset persisting weakness in chemical prices. Plus, there were individual lemons in otherwise thriving industries. Compaq Computer Corp. (CPQ) had a $184 million loss as more nimble direct sellers, such as Dell Computer Corp., took away business. But some companies had poor numbers because of charges, not operational problems. Genentech Inc. recorded a $923 million loss after taking a charge to cover parent Roche Holding Ltd.'s cost of buying the one-third of the biotech company it didn't already own. Genentech's (DNA) operating profits rose 81%. Fortune Brands Inc. had a similar situation. Its operating profits rose 14%, thanks to strong sales in its golf and home-products lines. Fortune's $1.2 billion in red ink stems from restructuring costs and an accounting change related to recent acquisitions, which include Cobra golf gear and Whyte & Mackay whiskey. What's next? First Call Corp.'s survey of analysts projects operating profits climbing to 21% for the balance of 1999. Says Charles L. Hill, First Call's director of research: ''Near term, we don't see a cloud in the sky.'' Those may be famous last words, but for now, the outlook is bright indeed. By Larry Light in New York, with Kathleen Kerwin in Detroit, Andy Reinhardt in San Mateo, Calif., and bureau reports _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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RELATED ITEMS Big Spenders Are Keeping This Party Going CHART: A Spotlight on Second-Quarter Profits TABLE: Winners and Losers in Quarterly Profits Overseas Economies Aren't Chipping in Yet CHART: Just Starting to Pick Up Steam TABLE: The Second Quarter Corporate Scoreboard (.pdf) INTERACT E-Mail to Business Week Online | |||
