Slice and dice the numbers any way you want, but Amgen Inc. and Microsoft Corp. continue to ring up the best profit margins among the IndustryWeek 1000. And Coca-Cola Co., whose origins go back to a pharmacist, and Merck & Co. Inc., which makes products that today's pharmacists sell, continue to stand head-and-shoulders above everyone else when it comes to producing an excellent financial performance year after year. Merck (No. 50) and Coca-Cola (No. 78) are the only companies with enough revenues to be among the 80 largest public companies in the world and also be among the top 25 in profit margins and among the top 50 in return-on-equity (ROE) for each of the last four years. Coca-Cola has now posted double-digit profit margins for the last 12 years. Even though its profit margin slid three percentage points in 1998 to 18.8%, its average profit margin the last four years still remains higher than 19%. That profitability has given the beverage giant the financial resources to set as its target a 50% market share of global soft-drink consumption by 2001. Coca-Cola's partner in financial consistency, Merck -- now refocused on its core business -- continues to put more distance between itself and Johnson & Johnson, the company it passed in 1997 to become the world's largest pharmaceutical company. Merck simply doesn't have wild swings in performance. Its profit margin each of the last four years has been between 19% and 20%. It was 19th among the IW 1000 in profit margin in 1998, its fourth straight year in the top 20. Ironically, though, Merck's profit margin wasn't even the best in its own industry. The quartet of Glaxo Wellcome PLC, Eli Lilly & Co., Schering-Plough Corp., and AB Astra were among the top 12 profit-margin leaders in the world in 1998 with margins between 20.6% and 23%. (AB Astra this April merged with Zeneca Group PLC, creating what will be one of the 100 largest companies in the world.) Second overall with a 31.8% profit margin, biotechnology leader Amgen may be a two-product wonder (92% of its sales come from Epogen and Neupogen). However, it posted $863 million in profits on revenues of just $2.7 billion. Amgen has been among the top five in profit margins the last three years and is the only company to be among the top 10 in profit margin the last four years, with an average of 29%. The only company close to Amgen in profitability the last four years: computer-software giant Microsoft Corp. Its profit margins have averaged 27.9% since 1994. And even though its year-to-year growth has slowed -- from 46% in fiscal 1996 to 31% in fiscal 1998, its margins have climbed: from 24.7% to 31% in 1998. After having the 11th-best profit margin among the IW 1000 in 1995, it has been among the top five the last three years. When it comes to ROE, no one can match the performance of cereal giant General Mills Inc. It has finished in the top eight each of the last four years with an average ROE of nearly 182%. Its ROE of 221.8% in 1998 was sixth-best in the world. The only other company that's even close: direct-sales cosmetics giant Avon Products Inc. After four straight years of ROEs over 100% and an average ROE during that time frame of 128.3%, Avon's ROE "slipped" to 94.7% in 1998. But that was still good enough to be 12th in ROE among the IW 1000. Three other companies -- Mexican cement manufacturer Cemex SA de CV, Intel Corp. and the United Kingdom's Glaxo Wellcome (along with Amgen, Microsoft, Coca-Cola, and Merck) -- also were among the top 25 profit-margin leaders each of the last four years, with Amgen, Intel, and Glaxo Wellcome in the top 10 each year. One other distinction for Glaxo: It was the only company in the top 20 of both profit margin and ROE the last two years. Its 1998 profit margin of 23% was eighth-best in the world and its ROE of 68.2% was 18th-best. The only company to join Glaxo in 1998's top 20 for both profit margin and ROE: newspaper publisher Times Mirror Co. -- tops in profit margin at 46.4% and fourth in ROE at 226%. But the major reason behind its 1998 financial success was that the sale of its legal and medical publishing units produced an after-tax gain of nearly $1.35 billion. Regardless, it was a good year for the company, now refocused again on the newspaper business -- which accounted for 76% of the revenues and 85% of the profits from its continuing operations. Its operating income in 1998 from continuing operations was nearly 15% higher than in 1997. Credit circulation gains at six of its seven papers and double-digit growth in operating profits at the Baltimore Sun and Newsday. A dozen companies were among the top 50 in both profit margin and ROE: Coca-Cola, Merck, Eli Lilly, Schering-Plough, Grupo Carso SA de CV, Computer Associates International Inc., Pearson PLC, Bristol-Myers Squibb Co., Abbott Laboratories, GKN PLC, and Ford Motor Co. Ford, with an auto-industry-best ROE of 93.8% (13th overall) in 1998 and a 15% profit margin (second-best among auto companies), is reaping the benefit of a restructuring that eliminated $3 billion in costs in 1997 and its switch to a global operating structure that lets its auto and truck model lines share platforms and components. Ford's profit margin was the best among the 35 largest auto companies worldwide; only the much-smaller GKN PLC, a drivetrain supplier to the auto, construction-equipment, and agricultural-equipment industries, had a higher profit margin. GKN posted a profit margin of 19.1% and a ROE of 56.2% in 1998. GKN's earnings were bolstered by its 1997 midyear acquisition of Sinter Metals Inc., a leader in powdered-metal components. What's more, Ford and GKN were the only two companies in the auto industry -- which this year reclaimed the title of the largest industry with $1.27 trillion in revenues -- with profit margins higher than 6.5%. By contrast, the pharmaceutical industry had 11 companies among the top 33 profit-margin leaders in 1998, all of them with margins higher than 17%. What's more, 20 -- or 55% -- of the 36 pharmaceutical companies had profit margins over 10%. The only other industries with more than 10 companies with profit margins over 10% -- each with 11 -- were chemicals and food (and eight of those were beer or alcohol firms). Electronics, suffering from the economic problems in Asia, had nine. Oil had only three companies with profit margins above 10%, as the price of oil, adjusted for inflation, tumbled to 1973 levels. That reduced the revenues of oil companies among the IW 1000 by an average of 27%, as the industry dropped from first to third in overall revenues. In electronics, Intel had a 23.1% profit margin, its 12th straight year in double-digits and its sixth straight year above 20%. But Intel was toppled from its two-year reign as profit leader in electronics by Tellabs Inc., a Lisle, Ill., firm with $1.7 billion in revenue compared with Intel's $26.3 billion. Tellabs, which barely made the IW 1000 at No. 996, had a profit margin in 1998 of 24%. It had a 38% increase in sales for its flagship digital switch that directs traffic over telephone networks. Tellabs sells the switches at a gross margin of nearly 60%. Since 1996 the company has almost doubled its revenues and more than tripled its earnings per share. High margins and 31 consecutive quarters of record sales also have given Tellabs an average ROE of 31.4% for the last four years. And its 1999 first-quarter revenues nearly equaled the company's 1994 revenues. One other electronics company worth mentioning: General Electric Co., which has had an average profit margin of 8.45% over the last 11 years and posted a 9.3% profit margin in 1998 when none of the 10 largest electronic companies had a profit margin higher than 4.2%. Its net income is up 27.7% in just the last two years. Both the chemical and food industries also had "new" companies as their profit-margin leaders. Du Pont & Co., which divested itself of Conoco Inc. last October, regained from Dow Chemical Co. the title of largest U.S. chemical company and also posted a "deceiving" 18.1% profit margin, an industry best. Why was it deceiving? About 54% of Du Pont's net income came from revenues derived in the last three months of 1998 from the Conoco sale. Otherwise, its profit margin would have been about 6.7%. Ironically, Pioneer Hi-Bred International Inc., the chemical company that had the next best profit margin, 14.2%, was acquired in March by Du Pont. The only chemical company among the 10 largest worldwide with a profit margin over 10% was Procter & Gamble, at 10.1%. That was 11th-best among the 103 chemical companies. P&G has increased its net income 67% in the last four years on just a 22% rise in revenues. Coca-Cola, the profit-margin leader among food companies the last three years, was pushed out of the top spot in that industry by a Philippine beverage company, San Miguel Corp., which owns a commanding 84% of the beer market in its own country. San Miguel had a 31.2% profit margin, partly because of one-time gains from the sales of Coca-Cola Beverages and Nestl Philippines Inc. But even after excluding those gains, San Miguel's earnings were up a healthy 21% from 1997. Two other food companies worth noting: William Wrigley Jr. Co., which had a 15.2% profit margin, its 10th straight year in double digits, and Campbell Soup Co., which, at 10.3%, had its fifth straight year of double-digit profit margins since selling off its noncore businesses in 1994. The best profit margins in the troubled oil industry were posted -- for the third straight year -- by South Africa's Sasol Ltd., Argentina's YPF SA, and one newcomer to the list, India's Oil & Natural Gas Corp. Ltd. (ONGC). ONGC, which monopolizes the domestic oil supply in India with a 90% share, had an industry-best 17.6% profit margin. Sasol -- which had the industry's best profit margin in 1996, was second for the second straight year, at 12.5%. YPF, with a profit margin of 10.5% in 1998, was third -- its third straight year among the top four profit-margin leaders in the oil industry. Since being privatized in 1991 YPF has had nothing but double-digit profit margins. By country, for the second straight year the UK had the highest percentage of its companies -- 19% (12 of 63) -- with profit margins above 10%. The U.S. was next with 52 -- or 15.6% -- of its 334 companies. By contrast, just seven of the 256 Japanese companies and three of the 48 French companies posted profit margins above 10%. None of the 56 German companies on the IW 1000 lost money. But only one -- enterprise-resource-planning software giant SAP AG -- had a profit margin (12.4%) of more than 10%. SAP has had almost a five-fold increase in revenues since 1994 and hit its target of 40% more revenues in 1998. Its global share of ERP software is 33% -- more than the combined share of its four next-largest competitors combined. The Japanese profit-margin leaders: telecommunications giant Rohm Co. Ltd. at 18.2% -- almost double its 1994 profit margin of 9.4%; semiconductor test-systems and measuring-instruments manufacturer Advantest Corp., 16.9%; world robotics leader Fanuc Ltd., 15.9%; and video-game company Nintendo Co. Ltd., 15.7%. Among French companies, telecommunications giant Alcatel, which lost money in fiscal 1995, had a profit margin of 11% in 1998; STMicroelectronics NV, a 10.2% profit margin in its most recent fiscal year; and pharmaceutical firm Synthelabo, 10.1%. In the UK, industrial giant Hanson PLC's profit margin of 22.3% was just behind that country's leader, Glaxo Wellcome, while Pearson PLC, the world's fourth-largest publishing firm, was third with a 19.4% profit margin, edging out auto firm GKN. Four other companies of interest:
- After losing $56 million in 1996, Computer Associates had the fourth-best profit margin among the IW 1000 in 1998, at 24.8%. It has doubled revenues since 1994, thanks to its strong client/server products. Recently it initiated a tender offer for long-time software rival Platinum Technology.
- EMC Corp., which has increased its earnings by an average of 50% each of the last five years and which has outperformed every stock -- except for Dell Computer Corp. -- on the Standard & Poor's 500 index in the 1990s, had the 15th-best profit margin in 1998, at 20%. EMC, the world's largest seller of corporate stand-alone storage devices, has now grown earnings and revenues by more than 30% for nine straight quarters.
- Finland's Nokia Corp. is a rising global electronics star. Its 12.6% profit margin was fourth among all electronic firms in 1998, as its profits rose 70% behind a 74% increase in cellular-phone sales. Nokia, now the largest mobile-phone company in the world, has quadrupled its sales during the last five years to $15.5 billion.
- Unisys Corp. resuscitated a long-stagnant corporate name with a 289% ROE -- second-best among the IW 1000 -- as its decision to concentrate on computer services and outsource much of its PC and low-end server manufacturing began to pay off.
