Few Firms Show Symptoms of a Recession : Survey: With 24 of 34 companies posting higher profits than in the same quarter a year ago, worry about a downturn is still just that.
If a recession is on the way, typically one of the first hints of a slowing economy is when quarterly corporate earnings begin to sag. And while nationally many major corporations have begun to report disappointing results, most local companies in their most recent quarter showed no evidence of sliding into a recession as they posted remarkably strong profits.
Based on a survey of 34 publicly held companies, with headquarters from Camarillo to Glendale, 30 of them, or 88%, reported profits in quarters that ended between October and December.
Profits alone, though, aren’t a true gauge of economic momentum. Financial analysts like to focus on whether a company’s earnings have improved compared to the same period a year earlier. But most local companies passed this yardstick as well, with 24 companies reporting larger profits than a year earlier. Indeed, 21 companies posted earnings gains of better than 20% for the quarter.
Big jumps in profits were enjoyed by companies in a wide variety of industries, including biotechnology, banking, entertainment, computers and medical concerns. Only four local companies reported losses in their latest quarters, led by aerospace giant Lockheed.
The biggest quarterly profit was turned in by Walt Disney Co., the Burbank-based entertainment conglomerate, whose profits climbed a healthy 18% to $174.4 million. The company’s theme park division was an especially strong performer, boosted by last spring’s opening of the Disney-MGM Studios at its complex near Orlando, Fla., which helped drive up operating profits in Disney’s theme park division by 35% in the most recent quarter.
Another major entertainment concern, MCA, reported a 5% earnings decline in its latest quarter to $71.5 million. The Universal City-based company continued to do well at the box office with “Back to the Future II,” but its LJN Toys unit, which MCA intends to sell, has been struggling. In recent months the toy business has been losing money and in the latest quarter MCA took charges of $30 million against earnings to prepare for its sale.
The biggest percentage gain in quarterly profits, meanwhile, was turned in by Amgen, the Thousand Oaks biotechnology concern whose profits climbed by a factor of 45 to $7.98 million. The profit surge was due to Amgen’s first commercial product, an anti-anemia drug for patients suffering from kidney disease that has become a hot seller since its introduction last June. In the company’s latest quarter Amgen sold about $50 million worth of the drug.
Another fast-growing concern is Software Toolworks, a Chatsworth maker of games and other software for personal computers, whose earnings soared by 163% to $1.67 million in its latest quarter. The company, run by former TV talk show host Les Crane, has best-selling software for everything from chess games to typing courses.
ATI Medical, which rents more than 400 types of medical equipment to hospitals, saw its latest profit nearly quadruple from a year earlier to $792,364. The company’s growth has been fueled in part by broadening its sales territory to include the Midwest, Pacific Northwest and South.
Zenith National Insurance, based in Woodland Hills, saw its net income sink by 43% to $5.3 million in the latest quarter, in part because of insurance payouts after the earthquake last October in Northern California.
The slowdown in defense spending has many investors worried about a ripple effect within the defense industry and one local company, TransTechnology, saw its profits sink 87% to $348,000 in its latest quarter. The Sherman Oaks concern makes a dizzying variety of products, including fasteners, hoists and computer work stations, it also makes flares used by jet fighters to throw off heat-seeking missiles.
But in recent quarters the company has been hurt by losses on fixed-price government contracts, quality control problems and the costs of developing new products. TransTechnology has been trying to right its ship, and has written down the value of some of its inventory.
The latest quarter wasn’t good news, either, for Lockheed, one of the nation’s biggest defense contractors. Lockheed, based in Calabasas, reported a $109-million loss, by far the biggest loss of any local company in our survey, compared to a $104-million profit in the year-earlier quarter.
Last year was a bad one for Lockheed, primarily because of its inability to meet on budget some fixed-price military contracts, most notably for the P-7A, a new plane it is developing for the U.S. Navy. Lockheed took a $300-million write-off in the quarter after unexpected design changes on the plane. As a result of its production problems, Lockheed has said it will no longer bid on fixed-price military contracts.
For all of 1989, Lockheed was only marginally profitable, earning $2 million as its sales dipped 5% to $9.89 billion.
Another company suffering through a bad quarter was Nu-Med, an Encino operator of hospitals and other medical facilities, which lost $2.89 million compared to a $703,000 profit a year earlier. The company endured higher operating costs in part because its occupancy rates were lower than expected, and due to rising interest expenses on its debt because the interest is a variable-rate loan.
But if a recession is indeed on the way, most local companies don’t show any of the early warning symptoms.
QUARTERLY PROFITS
Profit Company Industry (loss) % Change* Amgen biotechnology $7.98 million +4,508% ATI Medical medical equip- $792,364 +383% ment Walt Disney entertainment $174.4 million +18% Lockheed aerospace ($109 million) N/A MCA entertainment $71.5 million -5% Nu-Med hospital ($2.89 million) N/A Santa Clarita banking $1.2 million +54% National Bank Software software $1.67 million +163% Toolworks Syncor pharmacy $1.0 million +1,693% TransTechnology defense $348,000 -87% Zenith Natl. Insurance insurance $5.3 million -43%
N/A: Not applicable
* Compared to the year-earlier quarter
