An oldtime Broadway producer is 73-year-old William Augustin Brady, father of Actress Alice Brady, husband of Actress Grace George. In a Saturday Evening Post reminiscence last spring, Mr. Brady remarked, apropos topical productions: “A showman often has to stick pretty close to the news to get the most out of his public.” While summering at Lakewood, Maine, Showman Brady has lately been sticking close to the financial news—so close that last week he was in it. On this occasion he was concerned with getting the most out of his stock rather than his public.
To the common stockholders’ committee of Philadelphia’s great Baldwin Locomotive Works Showman Brady sent a letter on behalf of “William A. Brady & Brady Enterprises,” refusing assent to the re-organization plan for which, since last spring, Baldwin has been soliciting stockholders’ approval. Owner of 2,300 shares of common (currently worth $3.50 a share), Oldster Brady announced that his lawyers would ask the Philadelphia District Court for a rehearing on the plan, that if nobody else would fight it he would alone. Brady’s objections to Baldwin’s plan were two: 1) it would “virtually wipe out common stockholders”; 2) if reorganization had been necessary in 1935, when the plan was sanctioned by a special master, it did not follow that reorganization was still necessary in 1936. Mr. Brady’s second objection made particularly good sense in the light of recent business statistics.
Among the dozen or so big U. S. companies in the business of forging, casting, hammering, machining & building out of wood, iron and steel the strong and powerful implements of railroading, Baldwin Locomotive has a big place. Of the three big U. S. makers of that essential giant, the locomotive, it is by far the oldest (founded 1831). In 1929 it outsold American Locomotive, its big competitor. But long before 1929, Baldwin, in common with makers of cars, couplings, air brakes, signals and other railroad necessities, had felt the effects of the peculiar industrial dependence under which they operate. Good or bad, the railroad equipment business varies as the square of the railroad business. When U. S. railroading lapsed into a quiet period of consolidation after the War, the business of equipping railroads became not merely quiet, but definitely dull. After 1929 it almost ceased to exist.
The classic Depression statistic is preserved by the railroad equipment industry; in 1932 not one U. S. railroad ordered a single steam locomotive from any of the big three U. S. builders. Most of the equipment companies were well-heeled, and most of them, Baldwin included, had already started keeping a few eggs out of the railroad basket by diversifying products. They knew also that year by year more locomotives and rolling stock were becoming obsolete. They hoped for the day when Recovery would come to the railroads and the railroads, in a hurry, would come to them.
For Baldwin, however, ebb tide seemed overlong. From 1930, its last profitable year, to 1935, the company’s annual losses piled up to $19,700,000. In 1935 business began to improve a little, but Baldwin’s management, despite the fact that the company still had an apparent surplus of $37,000,000 in assets over liabilities, petitioned for a 776 reorganization. Reason was that Baldwin’s $712,000 cash on hand was less than half what would be necessary to meet obligations of $1,438,000 due in 1935. Baldwin’s tall, impassive President George Harrison Houston said conditions were not likely to improve enough to make the reorganization unnecessary. The plan was declared “fair & equitable” by a special master last December.
In the eight months since then financial pages have carried in increasing abundance the news which by last week had apparently convinced Mr. Brady that Mr. Houston was wrong. What this news indicates is nothing less than a boom in the railroad equipment industry. The operating income of Class 1 U. S. railroads during the first seven months of 1936 jumped 26% over 1935. The instant use to which a large part of this income was put was precisely what equipment makers had expected. During the first half of 1936 U. S. railroads ordered more freight cars and more steam locomotives than during the entire twelve months of any year since 1930. Orders for the six months totalled 104 steam locomotives, compared to 28 in the twelve months of 1935; 26,560 freight cars compared to 18,699; 107 passenger cars compared to 63. At the same time occurred what Railway Age called “the most spectacular increase since the beginning of the Depression” in buying of materials & supplies.
Biggest splash of all was made by Southern Pacific on the way out of the deep red of 1935, when it lost $3,323,000 in the first six months, into the shallow but significant black of $113,912 earned this year in the same period. Southern Pacific placed equipment orders totalling $21,000,000—$2,700,000 for locomotives, $8,000,000 for freight & baggage cars, $10,500,000 for refrigerator cars. The Van Sweringen line, Chesapeake & Ohio, placed orders of $11,000,000.
Irate Showman Brady was at pains to point out last week that Baldwin’s orders had increased nearly 100% over 1935. Its bookings for the first seven months of 1936 were valued at $19,528,000, compared to $10,562,000 in the same period last year. Baldwin does not make a half yearly report but most of the other big railroad equipment companies do. Reports from twelve of them for the first half of this year showed aggregate earnings of $9,334,000, compared to an aggregate loss of $219,000 in the first half of 1935. Of the eight companies paying dividends, four increased their rates, three maintained them, only one made a reduction.
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