Weak earnings are strong enough to please market

PHILIP MOELLER

August 07, 1991|By PHILIP MOELLER | PHILIP MOELLER,SUN BUSINESS EDITOR

Although the worst seems to be over for the region's economy, a look at second-quarter earnings reports of the area's major companies supports the notion that any recovery is modest at best. With a few exceptions, Maryland's corporate mainstays didn't do much differently in the second quarter than in the first, which was not exactly a stellar period, either.

Area firms apparently have lots of company, too. Although Wall Street has reportedly liked second-quarter results, a Wall Street Journal review of corporate performance nationally found profits off 25 percent from last year. And that's consistent with the report that the nation's output of goods and services, or gross national product, rose by only 0.4 percent during the second quarter.

Three important regional companies -- Bethlehem Steel Corp., USAir Group and USF&G Corp. -- continued to lose money. A fourth, MNC Financial Inc., posted a loss after showing a large, non-recurring gain in the first quarter from the sale of its Delaware credit-card subsidiary.

(Speaking of Delaware, two of Wilmington's most stable corporate citizens have been anything but that of late, with Du Pont undertaking a billion-dollar cost-saving program and Columbia Gas filing for bankruptcy.)

Here's a look at recent quarterly results of most of our major companies. The earnings figures are in millions of dollars, and the "%" provides the percentage change between this year and last year.

Company .. .. .. Earnings .. .. ..%

Alex. Brown .. ..14.2 .. .. .. ..213

Balt. Bancorp .. 3.0 .. .. .. .. -44

Balt. Gas & Elec .59.2 .. .. .. .. 52

Black & Decker .. 7.3 .. .. .. .. -55

Crown Central .. ..8.4 .. .. .. ..-45

Environ. Ele. .. ..1.9 .. .. .. ..34

Giant Foods .. .. 29.3 .. .. .. .. 3

Legg Mason .. .. 4.1 .. .. .. .. 34

MNC Financial .. -82.3 .. .. .. .. ..

Manor Care .. .. 9.1 .. .. .. .. 22

Martin Marietta .. 97.9 .. .. .. ..4

McCormick .. .. .. 14.9 .. .. .. .. -7

Mercantile Bank .. 17.7 .. .. .. .. 1

Merry-Go-Round .. 8.7 .. .. .. .. 32

Nova Pharma. .. ..-3.8 .. .. .. .. --

PHH Corp. .. .. .. 12.7 .. .. .. .. 835

Preston Corp. .. .. 1.9 .. .. .. .. 52

Price (T. Rowe) .. 7.7 .. .. .. .. 129

Rouse Co .. .. .. 10.7 .. .. .. .. -2

Ryland .. .. .. .. 5.3 .. .. .. .. -8

USF&G .. .. .. .. .-56.0 .. .. .. --

Waverly .. .. .. .. 0.7 .. .. .. .. -37

Nearly every company has important information needed to properly interpret its earnings, so don't rush to your broker based solely on these percentages.

McCormick, for example, posted healthy gains in operating profits but had some special charges that made net income comparisons less favorable. PHH Corp. was just the opposite; its operating profits were off 20 percent but it posted a big gain in net income because of a large, non-recurring charge last year. The Rouse figures reflect its real-estate holdings and thus represent operating results before depreciation and deferred taxes.

The list could go on. Although banks, insurers and real-estate companies have been hit hard in the financial sector, the three investment companies on our local list -- Alex. Brown, Legg Mason and T. Rowe Price -- have shared in Wall Street's recovery.

Corporate profits, or losses, don't tell the whole story. A recovering company that's still engaged in staff cuts and other cost controls could be posting better results that are good for it but don't provide short-term benefits to the economy. An expanding company that's hiring could help lower area unemployment rates while incurring short-term costs that reduce its profits.

Bethlehem Steel, for example, is just finishing up a $200 million capital improvement program at its Sparrows Point mill that will allow the plant to turn out better-quality rolls of sheet steel for customers. Those funds have helped the local economy, despite the parent company's losses.

Over time, of course, profits have a very meaningful story to tell. Bethlehem, as well as the rest of the domestic steel industry, is poorly positioned to absorb many more balance-sheet hits.

Having lamented weak earnings, these lackluster reports have hardly dampened the stock market's enthusiasm. Now, it may be that interest-bearing investments have carried such unattractive yields that stocks look positively alluring even with poor earnings. But whatever the reason, the market's rise of recent weeks has not been based on a foundation of solid corporate performance.

Last winter, I looked at the market value of major Maryland-based companies between late 1989 and late 1990. The market value of the common stocks of 17 companies had plummeted by more than $5 billion during that period, to $8.2 billion.

Since then, the market has fared better, and so have local companies. Despite two quarters of modest earnings performance, the market value of an expanded list of 22 area companies is up by more than 37 percent from November through last Friday.

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.