Evening star., 1942-07-05
Heavy Taxes 10 Cut
Earnings Of Rail
Equipment Firms
Declines Anticipated
Despite Best Sales
Volume in History
anecial nisnatch To The Star.

Special Dispatch to The Star.
NEW YORK, July 4.-As a result
of heavy excess profits taxes, earn
ings of most railroad equipment
makers will decline this year in the
face of the largest sales volume in
their history, according to the cur
rent survey of the railroad equip
ment and supply industries released
by Standard g. Poor's today.
With taxes holding an effective
ceiling over earnings. the war will
not mean so much for these COM
panies as had been expected" the
survey declared But at the same
time, military demand will continue
to support earnings and dividends
for the duration of the war at levels
well in excess of those reported in
pre-war years.
while adverse implications of the
WPB's order curtailing rolling stock
production cannot be denied, it is
not the major factor. in the railroad
equipment industry's outlook. A few
companies that had not participated
in the armament program to any
great extent will be drastically
affected, but by and large, the in
dustry's huge backlog of military
business and the final shape of tax
legislation will be the important
determinants of financial results.
Effect to Be Slight.
Moreover, the effect of the order
on 1912 equipment production will
be less severe than would appear at
first glance. Issued in April, it was
designed to limit domestic output
this year to $1,000 freight cars and
1925 locomotives. This would COM
pare with 10000 freight cars and
Loaf locomotives built for domestic
use in 1941.
Locomotive builders were thus
assured of larger shipments than in
1941. and a volume about as large
as the railroads might have been
expected to order in any case under
then existing conditions. The large
volume of lend-lease business al
ready shipped or on the books OF
these companies will swell their
total output.
Car builders will be less fortu-
nate, though their production may
not be far under the 194l total.
Last year, contract builders deliv-
cred $4,000 freight cars for domestic
use (the balance were built in rail-
road shops. and 1890 for export.
In the first five months of 1912 they
already had shipped $1,000 cars of
all kinds. Should they maintain
their proportion of total shipments,
deliveries, including export business.
might reach $4,000 units, or about
IS per cent of l941 volume.
Traffic Needs Grow.
while this indicates a sorry
comparison with the second half of
1941, when contract shops completed
nearly 10000 cars, the calculation
makes no allowance for possible or
ders in connection with 1943 traffic
With the average
length of haul steadily increasing
and still larger traffic volume in
prospect, early initiation of new
building program would seem i'm
perative.
Makers of special car parts and
accessories are in a similar position
one concern was practically forced
to suspend operations early in May
as result of that part of the WPB
order curbing boxcar production.
However, current traffic is creating
an unusually large demand for re-
placement parts, not only for rolling
stock, but for signaling and other
equipment as well.
Sales Mount, but Taxes Reduce Net.
From the standpoint of aggregate
sales volume, the loss Of business
due to Government restrictions will
be dwarfed by the increase in mill
tary deliveries. 1t is probable that
the arms backlog on March / of one
car manufacturer alone exceeded
the business lost by the entire in
dustry as a result of the WPB's
order on freight cars.
War Shipments Mount.
Military shipments are steadily
with at least several
companies running we'll ahead of
production schedules. The indus
try's capacity for this work will be
further increased when new facili-
ties under construction are brought
into use later this year. Moreover,
those companies which were hit
hardest by the car production ruling
have taken steps to acquire arma-
ment business.
With Government work predom-
lnant and labor costs higher, profit
will be narrow, particu-
larly where business in normal lines
has been curtailed, despite the huge
increase in volume to be shown this
year, In the aggregate, of course,
income will be much
larger; gains ranging from so to 100
per cent and more are confidently
with locomotive builders
likely to make the best showing
Increased income taxes will null
lify these gains, in most cases. Thir-
teen companies included in the sur
vey reported for the first quarter of
1912 combined income, after tax
accruals, of $l0,151,000, against
SO ,208,0 900 a year earlier, represent
ing an improvement of 10.2 per cent.
Tax allowances, however, were in
general much less liberal than cur
rent proposals would appear to
warrant. and these results will
doubtless be revised downward when
second-quarter reports are released
Long Outlook Obscure.
In spite of high taxes, railroad
equipment companies will continue
to enjoy better earnings than in re-
cent years as long as the war lasts.
How they fare thereafter will de-
pend upon their ability to diversity
outside of the railroad field.
Present rolling stock inventories
of the railroads are more than suffi-
cient for normal traffic require
ments. What is more, under the
stress of wartime traffic, the rail-
roads are leaning new lessons in
efficiency.
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