Firms Could Miss Profit Estimates by 50%
U.S. companies are slashing profit estimates, and investors and analysts say third-quarter earnings may be as much as 50% worse than expected after last week’s terrorist attacks.
The domestic slump is being aggravated by a slowdown overseas, hurting U.S. businesses such as Viacom Inc., Eastman Kodak Co. and Charles Schwab Corp. Those companies and others reduced their profit forecasts Wednesday.
“Corporate profits are going to be hammered harder than we thought,” said Louis Navellier, money manager with Navellier & Associates.
Analysts had forecast a 14.8% decline in third-quarter earnings for Standard & Poor’s 500 index companies before the Sept. 11 attacks, according to Chuck Hill, research director at Thomson Financial/First Call, which tracks earnings estimates.
He now expects analysts to revise their collective forecasts to show a 21% decline in S&P; 500 earnings, compared with a year ago.
Almost 10% of the members of the S&P; 500 index--47 companies --are forecast to report losses for the third-quarter, First Call said, up from 20 companies in the year-earlier period.
“We’ve only begun to see a whole lot of downgrading,” Hill said. “Analysts are just starting to calculate how much business was disrupted.”
Fourth-quarter results also will be far worse than expected. Before the attacks, analysts had forecast an earnings decline of 2.7% from a year earlier, Hill said. The forecasted decline now could reach 15%, he said.
“Consumer confidence is bound to tumble over the rest of the month,” said economist Edward Yardeni of Deutsche Banc Alex. Brown Inc.
“Retail sales are bound to suffer. Industrial production has been severely disrupted by parts shortages caused by the halt in air transport. Job losses are likely to mount quickly,” he said.
On Wednesday, Charles Schwab, the biggest discount broker, and Ameritrade Holding Corp., a major online brokerage, issued profit warnings. Financial firms are beginning to tally the costs of the four-day trading halt after terrorists destroyed the World Trade Center.
Tribune Co., which publishes the Los Angeles Times, said it will miss third-quarter and full-year profit estimates, and Media General Inc., publisher of the Tampa Tribune, said its results might fall short of expectations. Late Wednesday, newspaper publisher Knight Ridder Inc. said per-share quarterly earnings would be down 25% from a year ago.
Other media companies--including USA Networks Inc. and Dow Jones & Co., and on Wednesday, Viacom--have said results will be lower than expected because of declining ad sales. Viacom said 2001 operating earnings will be only “slightly higher” than 2000 results. It had expected double-digit growth.
Kodak, the biggest photography company, said its results will come in about 36% below expectations this quarter. Kodak said its sales have been hurt by an economic slowdown now spreading overseas.
Analysts expect the airline industry to be the hardest-hit sector. U.S. carriers, already on track for the biggest deficit in a decade, lost as much as $400 million a day last week after all commercial flights were grounded, according to Continental Airlines Inc. Chief Executive Gordon Bethune. The industry has asked the federal government for as much as $24 billion in aid to avert bankruptcies.
Tuesday, Boeing Co., the biggest maker of commercial jetliners, said it would fire as many as 30,000 employees, or 15% of its work force, by the end of next year.
In the trucking business, CNF Inc., the largest regional trucker, on Wednesday said it will have a third-quarter loss because of fewer shipments and the grounding of its Emery Worldwide air cargo unit.
Manufacturers also have shaved profit estimates.
Ford Motor Co. last week cut its third-quarter earnings forecast of 10 cents a share before one-time items, citing parts shortages after shipments were disrupted after the terrorist attacks. General Motors Corp. and DaimlerChrysler also have lost production because of parts delays.
A further drop in consumer confidence, already in a downward trend, would hurt retail sales. Consumer spending has been one of the consistent bright spots during this year’s economic slowdown.
Retailers’ earnings are expected to rise 6% in the third quarter and 21.7% in the fourth, according to analyst estimates for 136 chains tracked by First Call.
But “we’ll see both numbers trend lower,” First Call analyst Ken Perkins said.
