For California businesses, 1984 was a vintage year. The state recorded remarkable gains, out performing the nation in overall growth and expanded employment.
While the gross national product--the sum of goods and services--increased by 6.8% last year, California's economy expanded by 9.7%. And while U.S. employment in non-farm businesses was up 4.5%, California's grew by 6%.
Companies headquartered in the state shared in the prosperity. Combined profit of the 100 top-ranked industrial firms on The Times' roster of leading companies was $9.6 billion, 23.2% higher than earnings of last year's list. The combined revenue of the top 100 industrials increased 1.3% to $189.4 billion--a healthly, if unspectacular, comeback from two previous years of decline, especially considering that revenue dropped at each of the state's four biggest companies.
Compared to the U.S. economy's growth in 1984--which was the fastest since 1951--the 9.7% growth in California was "an extraordinary gain," said Robert Parry, senior economist at Security Pacific National Bank, who added that last year "has to be considered one of the best years of expansion for the California economy."
Expects Slower Growth
Although the economy will continue to expand through the rest of this year and next, the growth will slow, economists said. Parry expects the state's economy to grow about 1 to 1.5 percentage points faster than the rest of the nation, which would mean a 4.5% increase this year, and a 4% growth in 1986.
Beth Mace, an economist at Crocker National Bank, believes that employment growth will slow to about 4%, which will create about 400,000 jobs in the non-farming sectors this year.
But even as the pace of growth slackens from 1984's hard-charging pace, the economic forces that affected this year's ranking of California largest companies continue to modify the way business is done in the state. Some of the trends illustrated in this year's roster are:
- Oil companies' fortunes continue to decline with the slippage of wholesale oil prices. Again this year, the major oil companies have a hammerlock on the top four spots on The Times' roster. But year-to-year declines in profit and revenue, combined with robust expansion by other business groups, have diluted the oil industry's contribution to the list. For this year's roster, the oil companies account for about 42% of the total revenue generated by the 100 industrials. But that figure was almost 47% last year, and 53% in 1981, when oil prices began to ease.
- As oil services and other energy-related companies slip further down the list, many firms are poised to replace them; chief among them are high-technology companies and firms in the business of aerospace and defense contracting.
- Mergers and acquisitions continue to be an important force in the state's business climate, both removing companies from the list and strengthening others. Eight of the companies from last year's top 100 list don't show up this year because they were acquired by other firms. They are Carnation, Petrolane, NI Industries, Rolm, Republic Corp., Dysan, Synergex and the Presley Cos. Another three companies--Denny's, Shapell Industries and Parsons Corp.--are absent because they were taken private.
Last year's biggest acquisition by a California company, Chevron's $13.3-billion purchase of Gulf Oil, is not reflected on this year's roster because Chevron was not allowed to include Gulf earnings and sales until after it completed the required divestiture of some assets.
- The state's high-technology companies are seeing increased profits and revenues despite tremendous volatility in the computer industry. The biggest jumps were made by two high-tech companies, Seagate Technology and Convergent Technologies.
- Service industries, such as health-care providers and leisure-time firms, slowly are elbowing out old-line manufacturing companies for a bigger share of the state's growth.
Only three companies from last year's roster dropped from the top 100 because their revenues failed to keep pace. Only 16 of the top 100 industrials had revenue declines from 1983 to 1984. The four major oil companies--Chevron, Atlantic Richfield, Occidental Petroleum and Unocal--were among them, with a 6.2% combined revenue drop, to $79.5 billion from $84.8 billion last year. That group's profit also dropped 8%, to $3.93 billion from $4.27 billion.
Among the remaining 12 companies with revenue declines were other companies either in the energy business or heavily dependent upon it: Tosco, with a 23.9% drop in revenue; Fluor, which dropped to No. 10 on a 17% revenue decline; Pauley Petroleum which dropped 6.5%, and Baker International, down 0.2%.
Biggest Sales Decline
The largest decline in sales among the industrials was recorded by Kerr Glass Manufacturing, a Los Angeles maker of canning jars and other containers, that saw its revenues plunge 39.1% and dropped 26 places on the roster to No. 84.
Revenue increases were more common, and 34 of the industrials posted sales that were higher by at least 25% from the year ago. Seagate Technology, the biggest gainer in revenues with a 211% increase to $343.9 million, also took the biggest ranking jump of any company. Seagate, a computer disk drive maker based in Scotts Valley, reported 1983 sales of $110 million--not even enough to make the state's top-100 list on last year's roster, or the supplemental list of 25 companies. This year, it plopped right into 64th place on the list. The majority of Seagate's computer drives are sold to IBM and Digital Equipment Corp., the nation's two largest computer makers.
Intermark, a diversified holding company based in La Jolla, jumped to 53rd place from 92nd last year as its revenue tripled. Intermark was one of 12 companies on the roster--mostly high tech and health care--that have had revenue increases of more than 25% for at least two years in a row. Last year, Intermark increased to nearly 50% its stake in Pier 1, a specialty imports retailer; the company partly attributed the revenue growth to Pier 1 sales. Despite its higher sales, the company lost $2 million for the year.
Jumped 40 Places
Convergent Technologies, a Santa Clara computer maker, jumped 40 spots to No. 62 this year with a 121% increase in revenues to $361.8 million.
In fact, overall the high-technology companies on The Times' Roster seemed to perform well, despite continued gloomy reports in the industry. Combined revenues of those companies on the roster were up almost 30% and profits jumped nearly 50%.
Economist Parry said there have been many casualties among the small, entrepreneurial high-technology companies. "But, if you look beyond the ups and downs and turmoil in the industry," he said, "the entire industry is a growth industry."
Many of last year's stellar performers, however, may not fare so well next year. Analysts' estimates compiled by the Lynch, Jones & Ryan investment firm indicate that several of those same companies may be headed for steep profit declines this year. Seagate Technology, for instance, is expected to have an 89% plunge in per-share earnings, to 11 cents from 95 cents, according to the firm's Institutional Brokers Estimate System (IBES).
Larry Kimbell, director of the business forecasting project at UCLA, predicted that there will be more consolidation in the coming year among companies that make computers and disk drives. "Consolidation--without recession--will prune that list" of high-technology firms in the state, Kimbell said.
Won't Continue Pace
Gains will be more difficult to achieve in the aerospace and defense industries, Kimbell said. Spurred by continued high defense spending, revenues of aerospace companies and defense contractors included in the roster rose nearly 23% and profits were up 58% from last year. But, Kimbell said, congressional cutbacks in the Defense Department's budget may begin showing up in the state's economy by late in the year.
Analysts estimate that per-share earnings this year will increase 20% for Northrop, 21% for Lockheed, and 13% for Lear-Siegler, according to the IBES service.
Crocker's Mace believes that, despite the cutbacks, employment in the aerospace industry will expand by 6%--matching 1984's pace.
Two other groups that performed well are the housing industry and related businesses, such as forestry and cement products, where profits rose 47% on a 21.6% climb in revenue, and health care, with earnings of the roster's five health services firms up 26.7% on an 18.5% increase in revenue.
The housing industry is expected to have another good year. "Most people will be content if housing does just as well as it did last year," said Steven Levy, senior economist at the Center for the Continuing Study of the California Economy, in Palo Alto. Most economists said the industry's growth already is slowing.
S&L; Profits Surged
The housing industry's good health benefited the savings and loan associations, which as a group saw net income increase 25.5%--despite the huge losses posted by American Savings & Loan, the state's largest S&L.; The 15 largest S&Ls; saw assets rise 7% and deposits increase 9.5% to more than $132 billion.
The state's banks, however, didn't fare as well. Continuing problems with soured loans at some of the bigger banks contributed to a 13.7% drop in total earnings for the 15 largest banks. Overall, deposits were up less than 1% and assets declined about 1%.
The restaurant and food companies among the top 100 companies earned 16% more last year than the year before, on revenues that rose almost 20%. Although revenues of the state's biggest entertainment and leisure-time companies rose about 16%, their profits increased slightly less than 10%.
The five largest life insurance companies remained in the same ranking as last year. Overall, those companies reported a 10% rise in profits, despite significant declines of the two largest companies' net income: Executive Life Insurance Co. said its income dropped 43% to $85.7 million from $151.5 million; at Pacific Mutual Life Insurance, income was down about 18% to $25.3 million from $30.8 million.
450% Earnings Gain
Among the top five general life insurance companies, total income was up more than 450%, and Transamerica Insurance, although it posted a loss last year, edged out Argonaut Insurance for the No. 4 spot on the list because of an increase in assets.
Utility companies produced an overall 14% increase in net income on revenues that were only 6% higher than the year before; merchandising companies posted a total 62% increase in profits on 9.4% higher sales; and profits shot up 89% for the state's 10 largest transportation companies as revenues increased 16.8%
Despite the good performance last year, all is not well with the state's economy.
"There is no question," said Security Pacific's Parry, "that California and California's companies have felt the adverse effects" of problems in agriculture, the strong dollar and stiff foreign competition. That combination, he said, has made it difficult for companies to raise prices. As a result, profit increases will have to be achieved largely by cutting costs, he said.
UCLA's Kimbell also sees some problems ahead. "The expansion is about 30 months old," he said, and although, by historic standards, still has probably several more months to run, "it is aging. Things are getting harder to come by."
"There is a strangely troubled undercurrent in the economy, and many more people fear for their jobs," especially, Kimbell said, in the banking and S&L; industry. "It's going to be tougher for gains to be coming in the next years than they have been. 1984 is going to be hard to top."
Compilation and analysis for the 1985 Roster were provided by Margaret Wetzel, Maureen Perry and Gladys Duschane with technical support from Pat LoVerme, marketing research manager, of The Los Angeles Times marketing research department.
To be included in The Times Roster, companies must have their principal headquarters in California and their stock must be publicly held. Those requirements eliminate many companies in the state generating billions of dollars in sales and profits, because their head offices are located outside California or because they are privately owned.