U.S. PROFITABILITY : THE RICH LIST / THE FINANCIAL TIMES

Last updated: January 30, 2015 8:59 pm

US profitability: the rich list

Robert Armstrong

Sixty years of corporate history show longevity of some sectors such as oil while others have been more transient

 

 

It is stunning that Apple managed to sell 74m smartphones in the fourth quarter of last year.
The resulting profit, $18bn, is unfathomably large. At the same time, though, it is not a surprise that Apple is the most profitable company in the world. The influence of its products is immense. We live in an age of information, mobility and connectivity. Apple is the company for our times and so it seems natural that it should make the most money.

 

In that context it is striking to consider the companies that have led the US profits table over the past six decades.

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Profits table through the ages

See how the top ten US companies in terms of net profits changed since 1955
 

At one end, Apple; at the other, General Motors. Between them, a gradual transformation of the US corporate landscape. In the 1950s, the fattest profits were stamped out by manufacturers and heavy industry; the scene today is more raucous, with technology, healthcare, finance and telecoms among the biggest earners. And through the years in between, a single wide streak of continuity: huge profits at the oil groups.

Looking down a list of the 10 most profitable companies in the S&P 500 for each of the past 60 years, the continuity is astonishing. From 1955 to 1961 the list barely changes. It is topped by General Motors, its rival Ford is somewhere on it, and the rest is a mix of big oil — Exxon, Texaco, Chevron, Mobil, Gulf Oil — and industrial groups.

Then, in 1961, comes the first sign that the US and, in lockstep, the global economy is changing: International Business Machines squeaks on to the list. The company had been producing transistor-based (rather than switch- or vacuum-tube based) computers for a few years, and had already invented disc-based random-access memory. But IBM’s appearance on the list is not just a moment for technology. It is a milestone in the ascendancy of informational labour — as opposed to the physical work of manufacturing. IBM computers were being used to run airline reservation systems. Its Selectric typewriter had just been introduced.

 

The following 25 years are strikingly consistent. The motor industry, oil and industrials dominate the list with IBM. Only three companies break this pattern. In 1967, Eastman Kodak appears at number 9. In 1970, the conglomerate craze (the flip side of today’s break-up fever) shows up briefly, in the form of ITT — telecom, hotel operator, bread baker and industrial manufacturer. AT&T cracks the top 10 in 1985, after the government dismantled its monopoly in US telephony.

 

The real moment of change comes in 1986, when two pure consumer goods companies reach the top tier. Philip Morris (now Altria) and Nabisco — tobacco and biscuits — take the number seven and 10 spots. Five years later the top 10 looks dramatically different than it did in 1955.

Merck and Bristol-Myers reflect the growing importance of healthcare while Coca-Cola and Procter & Gamble join Altria and underline the strength of the consumer economy.

 

It is tempting to draw a line from the state of the economy or the world at large to the state of corporate profitability. But companies have a life of their own. Mergers, for example, have as much to do with where profits accumulate as which industries are rising or falling. It is easy to point to “the rise of the American consumer” but the US was already a consumer economy in the 1950s with household expenditures accounting for well over half of output.

That said, manufacturing accounted for almost 30 per cent of US GDP at the time. Now it is 12 per cent while finance, professional services and healthcare have gone from 7 per cent to 21 per cent. 
 

In the past 20 years there have been, three important additions to the list. First, personal computing, as represented by Intel and Microsoft (1993 and 1999 respectively). Second, Walmart (2002) — a perfect example of how industrial, alongside economic and technological changes, can influence company profits. Retail was no less important to the US economy in the 1950s than it is today; but Walmart’s cost-cutting strategy has insured that more of the industry’s profits are captured by a small number of companies.

 

Perhaps most significant was the appearance of the banks. Citigroup was the most profitable company in the US in 2002, just six years before the financial crisis.
But if there is one thing that should give us pause, it is the ubiquity of the oil companies at, or near, the top of the profitability rankings. Exxon and Chevron appeared on the 1955 list, and six decades later they remain.

As much as the world has changed over the past 60 years, it still runs on oil.