Over the next several years, profits of manufacturers of electrical equipment should rise substantially as a result of the combined effects of rising sales, increasing prices and reductions in manufacturing costs.
The demand for electrical equipment is expected to increase rapidly for the next several years. Purchases of generation, transmission and distribution equipment by utilities should rise significantly with the steady growth of the consumption of electricity and increasing number of large-scale power pools. Residential, commercial and industrial demand for electrical equipment should expand with prospects of rising housing starts and higher capital outlays for expansion, modernization and automation of factories and offices.
With the increase in volume over the last several years, prices of electrical products have strengthened from severely depressed levels, and further improvement is expected. However, because of the long lead time on heavy-duty electrical equipment, the benefits to earnings from price improvements in the past three years are only now beginning to be reflected in earnings, and therefore, the rising trend of prices since 1962 should continue to be reflected in higher margins for several years to come. During the period of severe price competition and particularly since 1960, electrical equipment manufacturers invested heavily in new plants and more efficient machinery to reduce costs in the face of substantial declines in earnings from the lower volume and prices.
For the next decade, the electric utility industry forecasts the use of electricity to rise at about 6.8% a year, nearly a doubling of power consumption by 1975. This rapid growth, which parallels the historic growth rate, is based on many factors, including greater housing needs of a larger population, continued growth of the use of electrical appliances, expanded commercial facilities, and continued heavy outlays for new manufacturing machinery and equipment. To supply this increasing market for electricity, the demand for electrical generating, transmission and distribution equipment should rise at about 5%-7% a year for the next several years. This improved operating environment will create rising earnings for the electrical equipment manufacturers.