Show t tt t r rI rt BUSINESS t I I EQUIPMENT PROSPECTS In 1976 railway car deliveries a common measure of activity in the railroad equipment industry declined to the lowest level since 1972 Unaided by the sizable order backlogs of recent years 1976 sales totaled units off 27 percent from the units shipped in 1975 Although production is likely to expand about 10 percent during the current year the industry will continue to operate Well below its estimated estimated estimated es es- es- es capacity of f over cars For the balance of the decade however production activity should favorably reflect a number of recent economic and political developments GIU GREATER USAGE AHEAD AD Since railroads provide shippers with a means of transportation that is far more efficient in terms of energy than most alternative methods the growing emphasis on fuel conservation should ultimately translate into heightened use of the nations nation's railroads While the replacement sector of the equipment market would be the first to feel the benefits of such an occurrence subsequent growth in railroad industry profits would unquestionably bring about a surge in new-car new orders that would be more than welcome In addition the favorable tax treatment and financial assistance for the Consolidated Rail Hail Corporation Conrail and other rail lines associated with the Railroad Revitalization and Regulatory Act of of 1976 1976 could couldwell couldwell couldwell well infuse substantial strength into the budding upturn in related orders for new equip equip- ment Furthermore a continued continued continued con con- increase in the demand for coal should bring about a afresh afresh afresh fresh spate of orders for coal- coal hauling equipment CONTRASTING PROFITS PROFITS' In spite of a m marked slump in railroad qu pin nf pr production most large manufacturers rs reported record or record near-record earnings in 1976 wide Industry-wide diversification is the single item that perhaps best explains this apparent inconsistency Because of the dependency of equipment orders on the spending programs of the railroad industry the leading companies have sought to lessen the volatility of their heir profits by moving out into unrelated lines They have also engaged in leasing operations and entered into various areas of the environmental improvement improvement improvement im im- im- im provement field Leasing has in fact become the most popular form of diversification where equipment equipment equipment equip equip- ment is produced with borrowed funds and leased leased- before being for built a long enough time period to assure repayment as well as profit In a number of instances the extent to which these new activities activities activities ac ac- ac- ac have remained tied lied to capital equipment markets is evidenced by the continued presence of a cyclical pattern in sales as well as earnings In other cases however companies companies companies com com- have successfully expanded expanded ex ex- ex their operations to such sucha a degree that recent additions in unrelated fields field have become the primary source of ongoing grow growth th I INVESTMENT N ISTl T E OUTLOOK Reflecting recent in in in- profit advances and accompanying dividend hikes the stocks of leading railroad equipment manufacturers have collectively outpaced the general market for the past year and a half Viewing this performance as asan asan asan an indication that investors are clearly focusing on that part of company operations not directly related to railroad equipment the Research Department of Babson's Reports considers this group of equities to be he fairly valued at present Citing expected earnings growth plus satisfactory dividend yields Babson's recommends that investors holding the stocks of Industries Industries In In- Corporation and Pullman maintain their ownership positions For tor those seeking term long appreciation the common stock of Trans Union Corp may be purchased Investors who would like to receive a free detailed report on this concern may write to w Babson's Reports Inc Wellesley Hills UiUs Mass |