THE GOOD TIMES FINALLY ROLL

companies

News Economy Your Money, Your America Davos

markets premarkets dow 30 After-Hours market movers fear & greed world markets investing markets now before the bell romans' numeral Quest's Profitable Moment

tech Pacific Work Transformed Living in the Future Innovate Our Driverless Future Tech Business Culture Future Startups

personal finance Money Essentials New Rules for Retirement Money Moves Calculators Finance Center

Billy Jean

SuccessBoss Files Fresh Money Entrepreneurs My American Success Story

More...SURGE Newsletters Alerts: Sign up/Manage Interactives Contact Us Closed Captioning

Search News

Symbol Matches

Symbol Starts With

Company Matches

THE GOOD TIMES FINALLY ROLL

By - Mark Alpert and Sandra L. Kirsch

April 25, 1988

(FORTUNE Magazine) – ACROSS THE Rust Belt you can hear the sound of champagne corks popping and beer cans shpritzing open: The FORTUNE 500 had its best year ever in 1987. After half a decade of sitting on the sidelines while the rest of the economy boogied, the biggest U.S. industrial corporations waltzed into the Great American Profit Party with record sales and earnings. Unfazed by the stock market crash that left many people expecting a recession, the 500's total sales climbed 9% to $1.88 trillion, up from $1.72 trillion the year before and higher than the previous record of $1.81 trillion set in 1985. But the truly impressive jump was in profits, which exploded from $64 billion to $91 billion, a 41% increase -- enough to power the 500 to its biggest share ever of U.S. industry's profits (see Managing). The glow of plants running flat out through the night may be the light at the end of the tunnel for industrial America. What broke the dam for this torrent of prosperity? The long expansion, which entered its fifth year with consumers still spending freely. Restructuring, which slimmed down bloated work forces (the 500's employment fell by 300,000 last year, to 13.1 million) and redirected corporate resources to more efficient uses. And increasingly as the year wore on, the weak dollar. Imports remain strong -- Americans hate to give up their Sonys and Toyotas, even if they are a tad more expensive. But yen and deutsche marks that buy twice as much as they did three years ago have restored the allure abroad of products bearing the imprint ''Made in the U.S.A.'' The top five rankings on the FORTUNE 500 remained unchanged from 1986, but General Motors looked like less of a leader as No. 2 Exxon and No. 3 Ford Motor gained on it. Of the top 20 companies, 16 had higher sales and 14 higher profits. Just playing in the 500 league required more sales than ever. The 500th company this year, M.A. Hanna, had sales of $459 million. The cutoff in 1986, a bad year for the group, was only $420 million; the highest previous threshold was $455 million in 1981. It was a gala year for corporate marriages, shotgun or otherwise. Twelve companies increased their revenues by acquiring other 500 companies, clearing the way for fast-growing newcomers to join the list. Chrysler, for example, advanced one notch to 10th place when it bought American Motors. Baker International merged with Hughes Tool, while Chromalloy American succumbed to Sun Chemical's blandishments; the two became Sequa. Many of the suitors were foreigners, taking advantage of the weak dollar. German-owned American Hoechst nearly tripled its sales and made its name even harder to pronounce by merging with Celanese to form Hoechst Celanese. Unilever added Chesebrough-Pond's to its string of American operations. And British Petroleum, in the biggest deal of the year, acquired what it didn't already own of Standard Oil for $8 billion. The new company, No. 22 on the list, is called BP America. A total of 19 companies on the U.S. 500, representing $78 billion in sales and $3.7 billion in profits, are now owned by companies on the International 500. The wanton coupling of corporations frightened some top executives so much they made their companies unappealing. Harcourt Brace, Newmont Mining, and Goodyear deterred suitors by taking on heavy loads of debt through leveraged recapitalizations. Other companies, such as Borg-Warner, Owens-Illinois, and Jim Walter, submitted to LBOs. Spinoffs were also popular, and the widespread restructuring of Corporate America continued to reshape the list. Among the new entrants were several companies thus created in 1986: Reliance Electric, spun off from Exxon; Aristech, divested by USX; and Coca-Cola Enterprises, a $3.3 billion company that includes bottling operations unloaded by Coca-Cola. The Real Thing dropped from No. 38 to No. 54 because of an adjustment to reflect the impending spinoff of Columbia Pictures. Meanwhile, profits and sales fizzed skyward at rival PepsiCo, putting the Choice of a New Generation at No. 29. Reflecting their piddling equity bases, LBOs and spinoffs head the ranks of companies with the highest sales per dollar of stockholders' equity. But Magnetek, a producer of electrical equipment created three years ago from pieces of Litton Industries, topped them all at $61.88 per equity dollar. Its electrifying performance put it at No. 419 on the list, and also among the top in sales increases and return on equity. The most powerful engines driving the smokestack revival were basic industries such as forest products and chemicals, which got the most leverage out of the fallen dollar. Nobody did better than the purveyors of paper, with a median sales increase of 17.9% and an astounding median profit increase of 60%. Seven of the companies in the industry more than doubled their profits, showing how much green paper the makers can churn out when their plants are running at capacity. Chemical companies, with a median increase of 29% in profits, also took advantage of unprecedented foreign and domestic demand. Profits at Air Products & Chemicals, a manufacturer of industrial gases such as helium, defied gravity by climbing more than 30-fold to make the company the biggest profit gainer on the 500. The business even attracted B.F. Goodrich, which became a straight-out chemical company when it spun off its tire and rubber operations. Steel and textile companies, still fending off imports from Japan and Europe, nonetheless managed an impressive showing. As an industry, metals had the highest total return to investors, which includes both price appreciation and dividend yield. Its 51% gain was a remarkable turnaround from 1986 when the industry had the worst performance. Up until a year ago, Wall Street was . ready to throw steel company stocks into the scrapyard. But exports took off like sparks from a foundry, and the stock market responded accordingly. Lukens, a manufacturer of steel plate and a newcomer to the list at No. 478, had the highest total return to investors of any FORTUNE 500 company -- 236%. Even LTV, which lost $3.25 billion in 1986, made money. The weak dollar helped give the textile industry a 24% increase in profits, but it could not prevent foreign competitors from gaining market share. And it did nothing for return to investors, which turned negative. Petroleum refiners, who perennially dominate the top ranks of the 500, continued to struggle with depressed oil prices. Total profits for the industry barely climbed over last year's disastrous levels, though part of the blame lies with Texaco, No. 7 on the 500. Texaco had the worst loss ever incurred by a U.S. company, a walloping $4.4 billion, largely because of its $3 billion settlement with Pennzoil. No. 2 Exxon and No. 5 Mobil saw their profits dip for the second year in a row. Valero Energy, a San Antonio refiner, suffered the largest decrease in sales of any 500 company, 66.6%, after it shed its gas pipeline operations. Though General Motors remained the world's biggest industrial corporation, Ford Motor humbled it in sheer performance. Ford sales climbed 14%, while those of GM fell 1%. And Ford's earnings accelerated 41% to $4.6 billion, nearly as much as the profits of GM and Chrysler combined. The computer industry maintained its recovery in 1987 with a median increase in sales of 16% and a median rise in earnings of 27%. Compaq Computer continued to click, competing head-to-head with IBM's personal computers. The Texas company broke into the 500 in 1985, only four years after its founding, and now ranks No. 282. Better yet, it was the industry leader in total return to investors, at 187.7%. The pharmaceutical industry swept FORTUNE 500 honors in returns on sales and assets. Merck fattened its year-end earnings when it introduced the anti- cholesterol drug Mevacor. A.H. Robins, despite a $1.6 billion loss for the year because of the Dalkon Shield imbroglio, continued to lead the industry in total return to investors. In second place was Marion Laboratories, a newcomer to the 500 that produces drugs for treating heart disease, with profit margins that would make any investor's heart skip a beat. Aerospace companies stalled last year in a defense-spending downdraft. The industry eked out a median 4% profit gain on a slender 5% sales increase. Food companies produced considerably more palatable results, with a median profit increase of 20%. ConAgra, which sells everything from Chun King Chinese food to Country Skillet catfish, jumped from No. 59 to No. 41 after acquiring Monfort of Colorado. Swift Independent also lost its independence to ConAgra, which swallowed 50% of the meatpacker's holding company. The weak dollar provided some long overdue help to companies selling industrial and farm equipment. This industry was the fourth-highest profit gainer behind forest products, metals, and rubber products, with a median earnings increase of 42.4%. No one benefited more than Caterpillar, which sends shiploads of its tractors and backhoes overseas. Cat suffered big losses for three consecutive years when the dollar was strong and Japan's Komatsu dug into its market share. But as the dollar faltered, Cat was able to raise prices more slowly than its competitors. It went into the black in 1985; last year profits rose 361% and total return to investors hit 56%. Things didn't go as smoothly for machine tool companies, which faced grinding competition from the Germans and Japanese. An $80 million loss drilled a hole into Cincinnati Milacron's income statement. High-tech firms usually dominate the ranks of newcomers joining the 500 each year, but in 1987 fast-growing chemical, motor vehicle, and publishing companies also shoved their way onto the list. M.A. Hanna, the new No. 500, was on until 1976 as the venerable Hanna Mining. After the iron ore market caved in during the early 1980s, Hanna all but folded. Then it made specialty chemicals its core business. Hanna's 252.4% sales growth last year, compounded by four acquisitions in 1987, made it the second-largest revenue gainer on the 500. Avery, the largest, was spun out of Triangle Industries and acquired the chemical business of Uniroyal; it is No. 426. Great Lakes Chemical, No. 481, with an increase of 67% in revenues and 107% in net income, is the world's largest producer of bromine and pulled in over $100 million from export sales. Also cruising into the FORTUNE 500 pack at No. 398 is motorcycle manufacturer Harley-Davidson. The 1986 acquisition of Holiday Rambler, a maker of motor homes and RVs, helped. But Harley popped some wheelies of its own. Harley executives like to say that their company is the only one with customers so loyal they tattoo the company's logo on their biceps. Behind a ^ tariff imposed on competing imported bikes, it modernized its factories and adopted Japanese-style production methods during the mid-1980s. Last year, the overhaul complete, Harley asked that the tariff be rescinded. President Reagan visited a Harley plant in York, Pennsylvania, to honor the company's return to competitiveness. Said Reagan: ''We're on the road to unprecedented prosperity in this country, and we'll get there on a Harley.'' Sun Microsystems, a California computer company founded in 1982 by four 27- year-olds, logged on to the 500 at No. 463 after a 156% increase in sales and a tripling of profits. Affiliated Publications, owner of the Boston Globe, jumped on at No. 486 with a phenomenal profit performance: $201 million in earnings out of $490 million in sales. Although newspaper profits were healthy, Affiliated made most of that money when a cellular telephone company it has a minority stake in went public. America's industrial giants still have a tough fight ahead in the ever more competitive global marketplace. But last year's record sales and profits provided badly needed reassurance to the managers and workers who survived the pain of cost cutting and restructuring that their efforts were not in vain. For the FORTUNE 500, 1987 was the year the promises came true.

CHART: NOT AVAILABLE CREDIT: NO CREDIT CAPTION: -- In a comeback year, sales of the 500 got back on track, and profit gains were the steepest since the recovery from the 1982 recession. The number of people employed by the 500 continued to decline. DESCRIPTION: Sales, net income, number of employees of FORTUNE 500 companies, 1954-1987.