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NEWS ANALYSIS : Mixed Bag for U.S. Firms Holds One Clear Loss: Jobs


As corporate America takes stock of its performance in the first half of 1993, a picture is emerging of a fickle and uneven economic recovery that rewards the thrifty and punishes the profligate, creating a strange mix of winners and losers while offering little promise for the unemployed.

The contrasts are striking. Behemoth IBM on Tuesday reported a staggering $8-billion loss, but corporate profits overall are strong, growing in the second quarter at an annual rate of 17%, according to the WEFA Group, an economic consulting firm in Bala Cynwyd, Pa.

American Airlines, the nation's largest carrier, has notched its first profit in two years, while earnings at other airlines are up even as the global airline industry remains troubled.

And banks like Wells Fargo and First Interstate, having finally wrung the bad loans out of their portfolios, reported strong profit growth, while normally rock-solid thrifts like Home Savings of America sustained record losses due to Southern California's depressed real estate market.

Despite major trouble spots, economists say that American firms overall are reaping the benefits of years of bloody and painful cost-cutting and restructuring, even as the economy remains sluggish. "For the most part, the profits are a statement of our much improved competitive position here and around the globe," said Joseph Carson, chief economist at Dean Witter Reynolds in New York.

What is now apparent is that corporations generally are beginning to prosper while creating few permanent jobs. It is a recovery that pays handsome dividends for prudence even as wary consumers hold tight to their purses. It also is a recovery that so far has bypassed Southern California.

In such an economy, the winners and losers can be surprising:

* Most computer manufacturers are crashing, as price-slashing competition cuts into earnings. Computer giant IBM's worst loss ever reflected the cost of cutting its work force by 50,000 jobs since December.

The price war has bloodied firms from Apple Computer Inc., which reported a record loss, to Dell Computer Corp., which reported its first ever quarterly loss.

At the same time, however, Digital Equipment Corp., which faced many of the same problems as IBM, is expected today to announce its first quarterly profit since 1991.

Another exception to the trend: Compaq Computer Corp., whose quarterly profits more than tripled, the result of cost-cutting last year.

* Hard-hit defense and aerospace firms have reported some surprisingly strong profits in the quarter, as efforts to slim down operations finally paid dividends: Rockwell International Corp., McDonnell Douglas Corp. and Lockheed Corp. all reported higher-than-expected earnings.

* Retailers' profits are expected to be soft as consumer confidence remains slack. But beleaguered Sears, Roebuck & Co. is an exception, saying its profits tripled in the quarter, owing in part to its own restructuring and improved sales of durable goods, such as washing machines.

Companies are seeing better profits, even if sales are growing at a slower rate. Manufacturers have slashed work forces, tightened costs and shrunk plant capacity. And companies have refinanced long-term debt to take advantage of low interest rates.

One measure of the success of restructuring: Labor costs in the second quarter grew at a slower rate, the Labor Department reported Tuesday. Such costs rose a seasonally adjusted 0.9%, compared with 1.0% in the previous quarter.

Individual results were as varied as the companies reporting them.

Coca-Cola Co. said its profits spurted 20%, the result of robust international sales in heretofore untapped markets of northeastern Europe and the Middle East.

Higher natural gas prices and cost-cutting contributed to higher profits at oil companies. But media conglomerate Time Warner Inc. lost $80 million as interest payments ate up the improved operating profits from its five major units--interest on debt incurred in the 1989 merger of Time Inc. with Warner Communications.

In the commercial banking industry, firms "have made a remarkable comeback since the dark days of 1990 and seem to be poised for a rather extended earnings recovery," said Arthur Soter, a managing director of Morgan Stanley in New York.

On the one hand, banks have cleared many problem loans off their books. Moreover, "there are sort of spotty signs of a pickup in loan demand . . . which would confirm that at least a moderate economic recovery is under way," he said. At the same time, interest rate margins remain good.

But savings and loans dependent on California's soft real estate market can expect continuing problems.

At the airlines, fewer people are traveling, but returns are up as prices strengthen, analysts say. Airlines have put the brakes on steep price discounts of a year ago.

"Compared with last year's dismal results, things are better," said Glenn D. Engel, an industry analyst at Goldman Sachs in New York. "But they need a lot more help from the economy to be what I call good."

On the retail side, consumer confidence bodes ill. A key measure of spending patterns, the Conference Board's consumer confidence index, edged lower in July for the third month in a row, the board reported Tuesday. Still, Cynthia Latta, senior financial economist at DRI/McGraw Hill forecasters in Lexington, Mass, said: "Consumers aren't going back into the closet and not spending."

Meanwhile, at IBM, there was some bright news. The company's mainframe computer business may be on the mend, and, IBM says, its personal computer unit actually made money.

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