Lingering Profit Slump Forecast
Wall Street analysts now expect corporate earnings to drop in the first quarter of 2002, which would extend the current slump in corporate profits to five quarters--the worst such stretch in 30 years.
Analysts were projecting a drop of 0.2% in profits for members of Standard & Poor’s 500 index for the first quarter as of Wednesday, according to market research firm Thomson Financial/First Call. Previously, analysts were still forecasting that profits would rise by 0.2%.
The projected decline would follow shortfalls that are expected to reach 21.9% in the third quarter of this year and 11.2% in the fourth quarter after drops of 6.1% in the first quarter and 17% in the second.
The outlook for corporate profits has worsened over the year as the U.S. economy faltered and grew even dimmer after the Sept. 11 terrorist attacks. The projected five-quarter slump in year-over-year profit growth would be unmatched since a drop of the same duration that began in the last quarter of 1969.
“All we can do is cross off the quarter . . . ,” said Joe Cooper, an analyst with First Call. Analysts are “still saying the second quarter of next year will be the beginning of recovery to earnings growth . . . but with the way that reductions and estimates have been going [there might] be a sixth quarter of down earnings.”
The third-quarter earnings reporting season begins in earnest Monday. Some 748 companies have said profits will fail to meet expectations--almost the same number making the warning last quarter.
Companies that reported earnings or issued profit warnings late Tuesday and on Wednesday presented a mixed picture.
Wireless technology giant Motorola Inc. (ticker symbol: MOT) on Tuesday reported a net loss of $1.4 billion for the third quarter--its third consecutive quarterly loss--as it continued to face declining demand for its wireless telephones and semiconductors amid the global telecommunications slowdown.
Similarly, newspaper and television company E.W. Scripps Co. (SSP) said that third-quarter profit fell 36% and it ratcheted fourth-quarter expectations lower, as the terrorist attacks exacerbated what was already the worst advertising slowdown in years.
By contrast, consumer products maker Dial Corp. (DL) raised its third-quarter earnings guidance for the second time to top analyst estimates due to strong sales and improvements in gross margins. Business-to-business software company VerticalNet Inc. (VERT) said it expects to post third-quarter results that meet or exceed its previous projections. And PepsiCo Inc. (PEP) and Harley-Davidson Inc. (HDI) also had upbeat profit news.
