Sales up, profits mixed for control users, suppliers
As the U.S. economy enters its eighth year of expansion, some forecasters predict a slowdown is sure to come. These sages said the same thing about 1997, and though the economy faltered a little at year end, a slowdown just didn't happen. Even with slower earnings in 4Q97, the economy chalked up a formidable 4.
As the U.S. economy enters its eighth year of expansion, some forecasters predict a slowdown is sure to come. These sages said the same thing about 1997, and though the economy faltered a little at year end, a slowdown just didn’t happen. Even with slower earnings in 4Q97, the economy chalked up a formidable 4.5% annual growth rate. The expansion has already continued this year and promises to become the second longest on record, exceeded only by the Vietnam War-era expansion of the 1960s.
Industrial control users and producers didn’t do quite as well as the overall economy, but they came through pretty good. Measured in terms of sales, these industries performed very well. Most exceeded the all-industry composite’s 9% sales in-crease in 1997, according to Business Week magazine’s wrap-up of 900 companies. However, this was a significant drop from the composite’s 14% growth in earnings during 1996.
The profits picture for 1997 is a jumbled one. The all-industry composite posted a not-too-bad 9% profit increase for the year, but it was greatly affected by several factors. For instance, 1997 was a record year for mergers and acquisitions; these combined with increased restructuring to depress net income. Higher labor costs that couldn’t be passed on also lessened revenues.
Productivity creates profits
One note of encouragement comes from the U.S. Bureau of Labor Statistics, which reports many productivity surges in the past 20 years. Though these surges usually follow recessions, last year was the first time a two-year, back-to-back productivity boom of nearly 2% took place well into an extended economic expansion. More important to the industrial controls field, manufacturing productivity accelerated from 3.2% in 1995 and 3.7% in 1996 to 4% last year.
Users and producers of industrial controls all earned profits in 1997, though the amounts compared to the previous year were good for half the industry groups and poor for the rest.
Despite increased sales in 1997, utilities and machinery had lower profits than in previous years. Metals and mining had respectable sales growth and increased profits due mainly to an exceptionally profitable year for Alcoa, the group’s largest company.
The paper industry continued its usual violent swings of ups and downs in both sales and profits. Last year, however, sales were flatter and profits dropped significantly compared to 1996, largely because 13 of the group’s 16 companies had less profits or more losses in 1997.
The instruments group had less profits last year than in 1996 due mainly to poor performance by the group’s third- and fourth-largest companies. The two largest firms, Emerson and Honeywell, supported the group by bringing in more profits (10% and 17% respectively) than in 1996.
The electrical products group experienced satisfactory performance with a 4% sales increase and a 20% profit increase. This can be attributed to the good, but not really great, performance of the two largest companies in the group, Eaton and Rockwell.
Still, if the nation’s economic expansion continues as expected, the industrial controls segment should have a banner year in 1998.