January 4, 2010

Year in review (3) Jan. 4, 1931

No Journal was published Sunday, Jan. 4, 1931. More year-in-review: some industry snapshots.

Basic industries:

Rails suffered drastic decline in traffic in 1930, with smallest revenues since 1919 (down 15.8% from 1929) and smallest net operating income since 1922 (down 30% from 1929). Industry also had largest capital outlay since 1923 (due to promise to Pres. Hoover in Nov. 1929) and lowest return on investment since 1921 (3.30%). Decline was attributed to both depression in general business and increasing competition from alternatives including trucks, buses, cars, pipelines, waterways, and airplanes. Decline was so serious that rails began to take concerted action against unregulated forms of competition and “constant whittling away of rates.” Outlook seen depending on general business conditions; positive factors include increased efficiency and recent Eastern rail consolidation agreement.

Rail equipment makers had poor year; while earnings held up well, particularly in the early part of the year, orders fell off drastically through the year, leaving many companies with bare order books and shut-down production by year-end. Attempts were made to stimulate buying later in the year by offering 75% financing to railways, but with little success. Outlook is uncertain and depends on return of spring buying.

Steel had disappointing year, with production peaking in Feb. at 84.88% and declining sharply as the year progressed, hitting a low in Dec. with production at less than half the Feb. level. Industry has tried to blunt impact on workers by distributing hours among the most possible men. Among major industrial consumers, demand from auto and rail was down, while structural, pipe, and tin plate held up better. Earnings trended down through the year, with many companies unable to cover dividends. Product prices were irregular, though down less than 15% from the 1929 peak. Outlook for 1931 seen better, though immediate improvement isn't looked for; authorities look to mid-Feb. for significant uptrend, with a spring peak of 65% hoped for. Positives seen in low inventories and recent action to set minimum product prices.

Oil industry suffered decline in product prices and earnings in 1930. Proration/conservation (controlled production) was successful in reducing huge inventories at end of 1929 to more reasonable levels, though further cooperation is needed. Profits were down an average of 30%-35%, with some companies having to cut dividends. Several mergers and acquisitions took place, with further ones awaiting court approval. Increasing foreign production has brought growing movement for domestic oil tariff. Outlook by industry authorities is conservative, but hopeful continued cooperation will bring better results in 1931; encouraged by political and judicial support for proration, better prospects for unit (cooperative) development of new fields.

Coal industry suffered poor year; home demand was only slightly affected, but industrial demand was down, leading to considerable dumping of coal on the market. Increasing use of competitors including oil, natural gas, and hydroelectric power is also noted; rapid growth in natural gas lines is causing particular concern. Coal operators have launched extensive advertising campaign highlighting advantages of coal, including low cost; have also consolidated companies and automated to reduce cost of production. Decrease in coal consumption affected rail traffic, coal being one of the largest items transported by rail.

Copper industry went through one of its worst years, though things weren't as bad as 1921 when mines had to be shut down. Prices underwent wide swings, with a high of 18 cents and a low of 9 1/2, closing the year at 10 1/2. Overproduction continued through most of the year; producers said “deceived by their statistics” and hoping for improvement in world conditions; also said afraid to undertake coordinated action due to Sherman antitrust law. Future prospects depend on curtailing output and on whether world continues to expand electrical facilities as in past 5 years.

Construction has been declining for past 3 years, with total new construction of $8.5B in 1928, $7.8B in 1929 and about $6B in 1930. However, industry figures including Col. W. Starrett and A. Dickinson, Indiana Limestone Co. pres., see a revival in 1931 based on postponed demand and huge public building programs. Also seen favorable is a large decline in building costs, including materials, labor, and mortgage rates.

Electric utilities had remarkably good year, with revenues about 3% above 1929, home usage up 14%, 550,000 new customers, and $850M of new construction; total power generated was 1.6% below 1929 and industrial use down 7.5%. About 70% of US homes are now wired, with farms making up a large percentage of the unwired. While there have been some political discussions on regulation, local customer relations are said to generally be excellent. Good outlook seen for 1931; while some areas are approaching saturation in terms of adding customers, good prospects are seen in increasing usage per customer. Also positive are lower costs and systems substantially built-up so new business can be added with little capital expenditure.

Newfangled industries:

Electrical equipment makers maintained their business reasonably well in 1930; this was attributed to diverse operations and development of new products. The largest company in the field, GE, will show earnings down about 14% from 1929 but up 7% from 1928; the second largest, Westinghouse, will do worse, with earnings in the first 9 months down 42% from 1929 and 20.6% from 1928.

Wire (communications) companies had difficult years but generally still earned enough to cover dividends. AT&T showed increase in revenues after a large expansion program, but per-share earnings will be down about 20%; it has by far the most security holders of any corporation in the world, with 580,000 registered stockholders and probably close to a million stock and bond holders combined. Western Union and I.T.&T. suffered more severely from the downturn, but are likely to earn enough to cover dividends by a small margin. Due to recent radio telephone development, 30M of the world's 35M telephones can now be connected.

Office equipment industry looks to brighter 1931, encouraged by improving export trade and historical trend of improved earnings as business recovers from depression. [Note: The review doesn't say this, but I believe most office equipment companies remained profitable in 1930 but showed lower earnings vs. 1929, with the notable exception of IBM which had higher earnings.]

Aviation manufacturing suffered poor year, hampered by excessive inventory of planes and engines. Industry is more hopeful for 1931; inventories have been reduced due to drastic cuts in production, but remain excessive (about 2,800 planes were made in 1930, or about a fourth of industry capacity). Only Douglas Aircraft (military planes) and North Amer. Aviation (specialized instruments) showed increased earnings vs. 1929. With slump in transport and recreational plane sales, military orders are increasingly important.

Air transport continued to show mostly losses, though operations improved markedly over 1929, with number of passengers carried up sharply, mail poundage roughly stable, and an improved safety record. South America is an increasingly important area for US aeronautical companies, with Pan American Airways developing lines encircling the continent. Pan American is also negotiating with Imperial Airways of Britain for a transatlantic route via Bermuda, though this is though to be a few years away; most aviation officials believe dirigibles are the most practical way to transatlantic service, despite the R-101 disaster.

Radio industry suffered one of the worst years in its short history. A huge $300M inventory of unsold radio sets was carried over from 1929, and mostly dumped on the market in early 1930; large losses were suffered, with some companies bankrupted and almost none showing profits. Holiday sales were lower than expected and 1931 outlook is for lower sales; most companies are now keeping a very tight leash on inventories, though the radio tube situation appears unsettled. Practical television for the home is still seen many years away; however, companies hope to reach new markets with “midget” (compact) radios, automobile radios, and automatic record-changing phonograph-radio combinations.


Chain stores suffered a generally poor year in terms of earnings, though sales held up well. Many chains suffered sizeable losses on inventories due to declining commodity prices. A few chains including Woolworth, Great Atlantic & Pacific, and Grand Union Tea will show profits comparing favorably with 1929.

Mail order houses, including the two leaders Montgomery-Ward and Sears-Roebuck, have suffered a poor year, with sales and earnings both lower; Montgomery-Ward has in fact run a deficit for the first 9 months. Main factors are inventory losses and unfavorable farm situation.


Shipbuilding experienced substantial revival in 1930, helped by the Merchant Marine Act of 1928. This law allowed private operators to borrow up to 75% of the cost of new ships at low interest rates, and required new ships to qualify for mail contracts. Number of workers employed at 20 coastal shipyards was 26,000 on Jan.1, an increase of 4,000 over Jan. 1, 1930.

Tire industry had one of its worst years. Inventory depreciation was dramatic due to falls of 43%-47% in rubber and cotton prices during the year. Also hurting were excessive competition and sales below expectations; while the decline in sales to carmakers was to some degree expected as auto production fell from about 5.6M to 3.5M, replacement tire sales were surprisingly low. Industry underwent some significant consolidations and bond defaults.

General publishing held up relatively well; first half profits said about equal to 1929, but second half earnings down about 25%. Outlook for 1931 is for first half below 1929 and 1930, but second half about equal to 1929.

Cigarettes were still able to show an increase in production in 1930 of about 1%, though this was down from the 8%-12% increases seen in recent years. Production has become more concentrated in the four largest makers (Amer. Tobacco, Liggett & Myers, Lorillard, R.J. Reynolds). American Tobacco in particular, (maker of Lucky Strikes) has shown large sales gains throughout the year, though all four will show higher earnings in 1930 due to price increases. Cigar industry suffered due to lower cigar consumption and increasing popularity of the five-cent cigar; almost all companies showed lower earnings.

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