
DATE: Sunday, August 3, 1997                TAG: 9708020669

SECTION: BUSINESS                PAGE: D1   EDITION: FINAL 

SOURCE: BY TOM SHEAN, STAFF WRITER 

                                            LENGTH:  142 lines

COST-CUTTING, RESTRUCTURING BOOST RESULTS FOR VA. FIRMS

It might seem that business conditions couldn't get much better.

The economy has been expanding without overheating. Inflation remains subdued. Financing is readily available from banks and investors.

For many of Virginia's publicly traded companies, these added up to hefty increases in second-quarter earnings.

In a survey of financial results at 40 publicly traded companies in Virginia, 26 reported higher net income from the year-earlier quarter.

Ten others reported declines in their earnings, and four said they lost money during the quarter.

The improvements were spread across all sectors, from banking to retailing, wholesaling and manufacturing.

But beneath the surface of the latest financial reports is evidence of continued cost-cutting and corporate efforts to bolster efficiency.

``The predominant theme of corporate culture during the 1990s has been cost-cutting,'' said David Orr, chief economist with the Charlotte-based banking company First Union Corp.

``During the 1980s, the leveraged-buyout kings were the corporate heroes. In the 1970s, it was the guys who brought in sales. Today, it's the cost-cutter.''

Owens & Minor Inc., a nationwide distributor of medical and surgical supplies, said its second-quarter earnings doubled while sales rose less than 4 percent. What helped its profits were savings in personnel costs and lower borrowing costs.

``There's no question that all companies are doing more with less,'' said George F. Shipp, an analyst with the securities firm Scott & Stringfellow Inc.

In addition to feeling pressure from their competitors, corporate managers have to contend with investors' expectations. If the performance of a publicly traded company falters, it risks being taken over by someone else, Shipp said.

Partly because of global competition, ``the pressure to produce is relentless,'' he said.

Much of the rise in stock prices has been fueled by expectations of continued growth in corporate earnings. And those companies whose quarterly results disappointed investors have seen their stock prices wither.

Corporate earnings also are important because they generate capital for companies to expand and to pay dividends to shareholders.

Under pressure from shareholders, those companies that cannot find attractive ways to put their earnings to work frequently use the money to buy back shares. That, in turn, raises the value of remaining shares.

The improvements in quarterly earnings haven't been universal. Several Virginia companies reported losses or sharply reduced profits after having to pay for major restructuring efforts.

Signet Banking Corp., for example, attributed a $2 million net loss to a pre-tax charge of $58.7 million. The parent of Signet Bank was in the process of reducing its workforce and closing several branches as part of a plan to sell more of its services nationwide.

Shortly after reporting its results for the June 30 quarter, Signet accepted a merger offer from First Union Corp.

With the nation's economic expansion beginning to age, how much longer can corporations continue reporting improved profits?

Russel Deemer, an economist at Crestar Bank in Richmond, said he sees no immediate threat to earnings growth. What will help many companies are the gains they are reaping on investments in computers and information technology.

``The only real concern I see would be if consumer demand falls off,'' said Deemer. ``Consumers have gone on a fairly lengthy spending binge during this expansion.''

Still, some companies in the Southeast have had a tougher time generating the sales gains they achieved in the early 1990s, said Orr of First Union.

In addition, the scarcity of labor in some Southeastern states is putting pressure on companies' profit margins, he said.

In his conversations with managers of small- and medium-sized businesses over the years, high taxes and government regulation have always topped the list of complaints, Orr said. Not today.

``What they are talking about now is that they can't find the labor they need,'' he said.

``So far, all of the reported data indicates that people are making up for labor-cost increases with increases in productivity.''

Here are some highlights from the recent earnings reports of Virginia companies:

MANUFACTURING

Despite stronger profits for several manufacturers, earnings at others were reduced by the costs of selling, closing or restructuring less productive operations. The giant aluminum producer and fabricator Reynolds Metals Co. reported lower net income because of expenses related to a major reorganization.

The sharp rise in earnings of paper manufacturer Chesapeake Corp. included a $49 million gain on the sale of it West Point paper mill and four other manufacturing facilities.

TRANSPORTATION

Results for Virginia-based railroads Norfolk Southern Corp. and CSX Corp. were clouded by their purchase of Conrail, the northeastern freight railroad. Norfolk Southern, which was helped by the increased traffic in highway trailers on its rail lines and flat rail operating expenses, reported a 6 percent increase in operating income.

WHOLESALING

While medical and surgical supplier Owens & Minor reported a rebound in earnings, wholesaler Noland Co. suffered a 69 percent slump in second-quarter net income. Noland, which distributes heating, cooling, electrical and industrial equipment, attributed the decline to sluggish sales of air-conditioning equipment and poor performance of new branches.

RETAILING

Dollar Tree Stores Inc., which reported a 62 percent increase in earnings, said it benefited from the improved cost of its merchandise and reduced interest expense. But Circuit City Stores Inc. witnessed a 26 percent drop in net income, partly because of weak sales of personal computers and air conditioners during the quarter.

UTILITIES

Dominion Resources Inc. blamed a 16 percent drop in its second-quarter earnings on mild weather and reduced demand for electricity from its utility subsidiary Virginia Power. Dominion said part of the decline was offset by improved earnings at subsidiaries that produce unregulated power and provide financial services. ILLUSTRATION: Graphic

UPS & DOWNS

Some Virginia companies that posted significant increases or

losses in earnings during the second quarter:

INCREASES

Dollar Tree Stores Inc. (Norfolk): The chain of discount variety

stores said net income climbed 62% to $6 million because of higher

sales and a more favorable cost of its merchandise.

Owens & Minor Inc. (Richmond): The medical-supplies distributor

said its net income doubled to $5.8 million partly because of

savings in personnel and costs and lower interest expenses.

AES Corp. (Arlington): The operator of non-utility power plants

reported net income of $42 million, a 50 percent increase, due