THIS WEEK I N BUSINESS
JANUARY 6, 1969
REPORT FROM NEW YORK This week C&EN inaugurates the first of a revamped and more useful charts series. On the facing page are C&EN's exclusive Stock Price Indexes and other related data. These data will be updated and presented every week, instead of once a month as previously. The first issue of every month features C&EN's new Report from New York—an analysis of some key economic trend or issue. This week, Mike Heylin, New York Bureau Head, deals with the vexing problem of deriving meaningful profit figures from FTC-SEC data. The U.S. chemical industry, like many other domestic endeavors, is immersed in numbers. Floods of statistics, mostly generated by the Government, on chemical sales, shipments, prices, employment, and the like constantly overflow the in-boxes of datahungry industry market analysts, longrange planners, and economists. However, in spite of this surfeit of data, a really accurate fix on industry profits—the single number that counts above all others to the chemical businessman—is not available. The total after-tax profit from the chemical operations of all U.S. companies is unknown. In fact, there is no way to compute it. And even the most authoritative published government figures on industry profitability are highly unreliable. The most widely quoted source of current information on chemical and other industry profits is the "Quarterly Financial Report for Manufacturing Corporations." This is put out jointly by the Federal Trade Commission and the Securities and Exchange Commission. Although it represents the best government figures available, it suffers from two handicaps—the increasing diversity of U.S. manufacturing companies and the growing tide of company mergers. As an FTC spokesman stressed to C&EN last week, profit figures for individual industries will never be really meaningful until diversified companies have to break down their sales and profits into separate industry segments. There is some movement in this direction. Many companies already break out sales, but very few currently break out profits. As it is now, FTC-SEC lumps the total sales and earnings of a company into the industry in which that company does most of its business. This
The C&EN Indexes are weighted stock ticularly by the conglomerates. A price averages—weighted according to case in point is the recent formation the number of shares outstanding for of Squibb Beech-Nut, Inc. This move each company. In the future, the intook a former food company, Beechdexes for the Big Seven chemical Nut Lifesavers, Inc., and a part of a makers and for the "21 Other" chem- chemical company, the E. R. Squibb & ical companies will be plotted on expanded linear scales each week so that Sons subsidiary of Olin Mathieson trends in these indexes can be clearly Chemical Corp., and molded them into a brand new drug company with 1968 followed week by week. sales of about $600 million. These two indexes, and those for drugs, petroleum, and rubber, compare As the FTC-SEC quarterly financial stock prices at the close of business report never restates the figures for of the Friday ten days before date of an earlier quarter—if it tried to do so issue with opening prices of January it would open up a hard-to-control can 1954. of worms—such mergers can only be The companies in the Big Seven handled on an ad hoc basis. As a index are Allied Chemical, American loose general rule, any merger that Cyanamid, Celanese, Dow, Du Pont, means a 5 % or greater change in the Monsanto, and Union Carbide. The size of an industry is at least acknowlweekly reported dividend yield and price earnings ratio for chemicals are edged by a footnote that points out also based on the performance of that the new quarterly data are not these seven companies. The 21 Other comparable with earlier quarterly index covers 21 smaller, but still major, data. If the change is less than 5 % chemical companies. no comment is made. The FTC spokesman points out that the smaller the industry segment, the means, for instance, that the $813 more questionable the data. He adds million chemical sales of Standard Oil that the total data for all manufacturCo. (N.J.) in 1967 were not included ing corporations are still quite sound in chemical industry data. Similarly as most mergers happen between the $341 million chemical business manufacturing concerns. However, of Borden Co. and the $125 million even this remaining comfort may soon chemical sales of Sinclair Oil Corp. be taken away. Just last month Inwere also excluded—and there is a ternational Telephone and Telegraph host of other examples. On the other Corp. moved to buy an insurance firm hand, for instance, the $770 million and National Lead Co. announced 1967 nonchemical sales of FMC its intention to buy a bank. Corp. and $663 million nonchemical Some of these distortions in data sales of W. R. Grace were included are apparent in 1968 figures for the in chemical industry data. chemical and allied products industry. But the thing that really compliFor instance, FTC-SEC data have incates the FTC-SEC numbers is the curdustry profits for the first three quarrent rash of company mergers, parters of 1968 running some 1 0 % ahead of profits for the first nine months of 1967. However, a C&EN compilation for the 94 major companies in the industry—representing 8 1 % of industry sales as defined by FTC-SEC—has 1968 profits only 6 % up over the 1967 period. The major anomaly comes in the "allied products" section. Both FTCSEC and C&EN data have profits for the basic chemical industry up some 5 % in 1968 and sales up 8 % . However, the government figures have profits for the allied industries—a group that includes drug makers, soapers, paint makers, agricultural chemical producers, and specialty chemical houses—up some 1 4 % and sales up 1 2 % . This compares with a 7 % profit boost and a 9 % sales increase indicated by the C&EN data. JAN. 6, 1969 C&EN
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