Local Profit Growth Defies U.S. Recession Fears : Earnings: A survey of publicly traded companies in the Valley shows that most reported increased profits in their most recent quarters.
While weak earnings reports and dim outlooks at some major companies have Wall Street worried about a recession, most local companies showed scant evidence of any coming slump by announcing higher earnings for the quarters that ended in April, May and June.
A survey of 54 publicly held companies with headquarters in the region stretching from Ventura to Burbank showed that 46 of them, or 85%, reported profits. About two-thirds of the companies, or 37 of the 54, saw their earnings increase from a year earlier, some of them by wide margins. Meanwhile, only eight companies saw their profits fall, and another seven had losses in their most recent period.
Walt Disney Co., the Burbank entertainment conglomerate, had the largest net income among companies in the region, reporting a profit of $238 million in the quarter that ended June 30, a healthy increase of 23% from $193 million a year before.
Walt Disney’s growth was spearheaded by its film division, the operating income of which jumped 35% to $73 million from $54 million last year, thanks mainly to the theatrical release of “Pretty Woman” and video sales of “The Little Mermaid.”
MCA Inc., another large entertainment company, saw its net income grow 7% to $44.8 million in the quarter that ended June 30, from $42 million a year earlier. Operating profits rose 14% at MCA’s broadcasting and cable operations, and by 2% at its film division, which released “Back to the Future III” and “Bird on a Wire.”
Improving its performance--but just barely--Lockheed Corp., the Calabasas defense contractor, reported a profit of $81 million for the quarter that ended June 30, up 1% from $80 million a year ago.
Lockheed said the results “are in line with the corporation’s expectations.” But there has been much bad news at Lockheed recently.
In May, the defense contractor announced that it would lay off 2,750 salaried and hourly workers. The company blamed the shrinking defense budget for the layoffs at its Lockheed Aeronautical Systems Co. Lockheed also recently completed or was near completing such major projects as the contract to build the F-117A Stealth fighter.
Then last month, after the end of the second quarter, the Navy announced that it was canceling Lockheed’s $600-million contract to develop the P-7A anti-submarine patrol aircraft, saying that the company hadn’t made enough progress on the project. Lockheed said it would appeal the government’s decision.
Had Lockheed gone ahead to build the plane in large numbers, it could have been worth up to $5 billion to the company. Lockheed has already written off $300 million in connection with cost overruns on the P-7A, but it is not certain whether the writeoffs would cover the costs of terminating the contract.
Zenith National Insurance Corp., a Woodland Hills-based insurance concern, said its second-quarter profit fell 20% from a year earlier to $10.3 million from $12.9 million. Zenith blamed some of the decline on a $1.7-million after-tax loss related to storm-damage claims in Europe. The company also had $2.1 million in after-tax losses related to its investments in the quarter, compared with a $154,000 capital gain a year earlier.
Much of Zenith National’s investments are in high-yield, high-risk junk bonds, which fell sharply in price last year. But the bonds have recovered somewhat, and Zenith National said the cost of all bonds it holds exceeded their market value by $38.6 million as of June 30, compared with a $47.7-million shortfall on March 31.
Amgen Inc., a Thousand Oaks biotechnology company, performed best among local companies in the rate of earnings growth, reporting a 13-fold increase in profits. Amgen gained federal approval to sell its anti-anemia drug Epogen a year ago, and sales of the drug boosted its net income for the quarter that ended June 30 to $11.1 million from $835,000 a year before. The company’s sales more than doubled, reaching $71.7 in the recent quarter from $28.5 million for the same period in 1989.
Amgen has sold Epogen, the brand name for the drug erythropoieten (EPO), to 65,000 patients on dialysis who suffer from anemia caused by kidney disease.
Another impressive performance was turned in by Newhall Land & Farming, a Valencia real estate development and agriculture concern that more than doubled its profit in the quarter that ended June 30 to $6.5 million from $3.1 million a year ago.
Newhall, which is developing the huge Valencia community in the Santa Clarita Valley, attributed the strong results to escrow closings on 151 houses and condominiums there.
But despite the good results, Newhall’s chief executive, Thomas L. Lee, said in a statement that “the outlook for residential home sales has deteriorated.” And the company predicted that because it does not expect to sell any vacant residential lots--as it did last year--revenues and earnings for all of 1990 will be lower than the year-earlier levels.
Micropolis Corp. turned in a notable improvement after a string of losses that plagued the Chatsworth maker of disk drives, which are devices that store computer data. The company reported a profit of $2.35 million in the quarter that ended June 29, compared to a much larger loss of $10.6 million a year earlier.
Micropolis attributed some of the improvement to higher demand for its more expensive disk drives--after years of being battered by plummeting prices for many disk drive models.
Just as important for the company, however, was a round of cost-cutting and the indulgence of some of its lenders, who gave Micropolis time to restructure its debt after missing a payment last October.
Among companies that lost money, Foothill Group Inc., a financial services concern, suffered from writedowns in its portfolio of junk bonds. Foothill, which has offices in Agoura Hills and Los Angeles, lost $3.97 million in the quarter ended June 30, compared to a profit of $3.24 million a year earlier.
Pinkerton’s Inc., a Van Nuys-based security company, said it lost $574,000 in the quarter that ended June 15, due to a $2.8-million one-time charge stemming from its repayment of debt. That compares to a net income of $1.34 million a year before. Without the charge, however, Pinkerton’s earnings would have climbed to $2.22 million for the quarter. Pinkerton’s was acquired in a highly leveraged buyout in 1988. It then sold stock to the public in April to pay off some of its debts.
QUARTERLY PROFITS
Profit Company Industry (Loss) %Change* Amgen Inc. biotechnology $11.1 million +1229% Foothill Group financial ($3.97 million) N/A Lockheed Corp. aerospace $81 million +1% MCA Inc. entertainment $44.8 million +7% Micropolis Corp. disk drives $2.35 million N/A Newhall Land real estate $6.5 million +110% & Farming Pinkerton’s Inc. security ($574,000) N/A Walt Disney Co. entertainment $238 million +23% Zenith Nat’l insurance $10.3 million -20% Insurance Corp.
* Compared to the year-earlier quarter.
N/A: Not applicable, due to current or year-earlier loss.
