Corporate Profit Worries: Done, or Just Warming Up?

Many analysts lay the blame for the stock market’s slide in recent weeks on a higher-than-normal number of corporate earnings warnings. Indeed, the number of such warnings regarding third-quarter results totaled 278 as of Thursday, versus 207 at this time a year ago, according to earnings tracker First Call/Thomson Financial.

Higher energy prices, softer demand and the weak euro currency all have clipped sales and earnings at many U.S. companies in recent months.

But Chuck Hill, research chief at First Call, says Wall Street analysts still are estimating that third-quarter earnings for the blue-chip Standard & Poor’s 500 companies will rise 16% from a year earlier. Given that most companies manage to beat official estimates, actual growth is likely to be in the 19% range, Hill said.

That would be down from the 20%-plus growth of the first half of the year, but hardly a profit disaster.

However, fourth-quarter growth is likely to be significantly less, Hill said--perhaps in the 15% range, if analysts’ estimates are on the mark. And growth in 2001 remains the bigger worry: If average profit gains are forced back to the single-digit percentage range by a slower economy and higher energy prices, are stocks already pricing that in--or are investors’ expectations still too high?