Bouncing Back : Corporate Giants GM, IBM Post Big Earnings--for Now

America’s corporate giants, which seemed a bumbling lot just a few years ago, appear to be back in command, as underlined by the record first-quarter profits reported Thursday by the world’s biggest car maker and the largest computer company.

General Motors Corp. said its profit more than doubled, helped by a turnaround in its U.S. car business and solid improvement in its foreign operations. International Business Machines Corp. said first-quarter profit roughly tripled as demand for its products improved across the board, furthering its recovery.

Another giant thought to be endangered, Sears, also gained, posting net income of $559 million, contrasted with a loss of $98 million in the same quarter of 1994.

A few years ago, these big companies and others like them were considered nearly dead--too big and bureaucratic to compete with their much nimbler smaller rivals. But all have endured huge cutbacks, enjoyed the balm of a growing economy and emerged healthier.

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Too bad it probably won’t last, economists said.

That’s because the hefty profit increases of many companies were aided by outside factors such as the weak dollar, which gives U.S. corporations definite advantages in the global marketplace. And despite their leaner-and-meaner demeanor, most companies will find their first-quarter gains difficult to maintain as the U.S. economy slows.

During the first three months of the year, more than 150 companies in the Standard & Poor’s 500 index rolled up better-than-expected earnings.

“It’s a good story,” said David Hale, chief economist with Kemper Financial Services in Chicago. “It means the U.S. economy is not as weak as some people were saying. You can’t have strong corporate profits and a tanking economy.”

The earnings increases reflect improved productivity, which was achieved largely through layoffs, as well as stronger balance sheets, Hale said.

But the Federal Reserve Board’s continuing efforts to cool economic growth will show up very soon in corporate financial performances, economists said.

“I know the numbers look really good for the first quarter, but I don’t think those kinds of figures can last,” said David Blitzer, vice president and chief economist for Standard & Poor’s. “I think the economy is slowing and the earnings will pay the price in the second half of this year.”

For the year, Blitzer predicts a 5% to 10% increase in earnings per share for the S&P; 500. That compares to a 40% increase in 1994 and a 15% increase in 1993, he said.

General Motors Corp. earned $2.2 billion from January through March, a strong performance that demonstrates that the long-awaited turnaround of its North American operations is taking hold.

GM, the world’s largest auto maker, said all of its business sectors contributed to the increased earnings but that the biggest gains were made in its domestic auto operations due to continuing cost savings.

“Overall, we’re pleased with our first-quarter results, but we know that we’re not finished yet,” said President and Chief Executive John F. Smith.

The company’s quarterly net income of $2.51 a share compares to net earnings of 81 cents a share a year ago, when GM earned $854 million. Year-ago profit was reduced by a one-time $758-million accounting charge related to GM’s extended-disability benefit program.

On the New York Stock Exchange, GM’s stock closed at $43.875, off 12.5 cents but up from $37.25 earlier this year. It gained $1 a share Wednesday when three GM subsidiaries reported earnings.

“We are starting to see the earnings potential that GM has,” said Joseph Phillippi, analyst for Lehman Bros. “And they aren’t running on all eight cylinders yet.”

At IBM, the turnaround is far from complete. Chairman Louis Gerstner sounded a cautious note in a prepared statement announcing first-quarter earnings. “We believe that the transformation of IBM is gathering momentum,” Gerstner said.

Although the company posted a profit of $1.3 billion, or $2.12 cents per share, on revenue of $15.7 billion--healthy results by almost any barometer--Gerstner warned: “It is important to put our first-quarter results into perspective. The first quarter of last year was relatively weak, which makes this year’s first-quarter performance look especially strong.”

For the first quarter of last year, IBM reported net earnings of $392 million on revenue of $13.3 billion. Its stock jumped $1.875 to $89 on Thursday, the highest closing price since August, 1992.

Gerstner noted areas of weakness, including the personal computer business. “A lot of work remains to be done before we’re satisfied with our performance in this part of the company,” he noted.

IBM benefited from a late-in-life growth spurt for its venerable mainframe computers, the giant machines that store large corporate records such as payroll and customer accounts. Part of the re-engineering of corporate America has involved consolidating data-processing operations. In many cases, that requires the purchase of a mainframe capable of holding the data formerly handled by half a dozen machines.

But IBM cannot count on mainframe sales indefinitely. Even so, industry watchers have been impressed by Gerstner’s performance, which has featured laying off employees, consolidating operations and weeding out longtime executives who helped create the problems at IBM.

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Big Quarter for Big Blue

IBM quarterly earnings, in billions of dollars:

1993: -$8.9

1995: $1.3

* Source: Times reports.

* Researched by JENNIFER OLDHAM / Los Angeles Times

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Driving Ahead

A turnaround in car sales contributed to a recent first quarter profit of $2.1 billion for America’s No. 1 auto maker. Net income was more than double that recorded by General Motors Corp. a year earlier, the company said.

Earnings in billions of dollars:

1995: $2.1

* Source: Times reposrts

* Researched by JENNIFER OLDHAM / Los Angeles Times