U.S. Firms Post Biggest Quarterly Growth in 2 Years
U.S. corporate profits grew at the fastest pace in more than two years this quarter, as consumers spent more on cars and household goods and companies reduced expenses by firing workers.
Earnings for companies in the Standard & Poor’s 500 index rose an average of 13% in the fourth quarter, according to a report Friday by Thomson First Call, which compiles analysts’ earnings forecasts. Profits had not risen that much since the third quarter of 2000.
Mortgage rates at the lowest levels in three decades helped consumers refinance homes, giving them more to spend and lifting earnings at General Motors Corp. and Wal-Mart Stores Inc. Cost cutting, much of it from firing workers, contributed to higher profits at Cisco Systems Inc. and Merrill Lynch & Co. The gains may slow next year as businesses postpone replacing computer systems and other equipment.
“It’s certainly not off to the races, but it’s a marked improvement,” said Barbara Marcin, who helps manage $22 billion at Gabelli Asset Management Inc. “The only thing we haven’t had is capital spending.”
Profit increases may be stymied should the United States go to war with Iraq or North Korea, analysts have said.
Crude oil prices, which rose to about $28 a barrel this quarter from $20.53 in the year-ago period, also threaten earnings growth.
This quarter’s rise in profits stems in part from the comparison with last year’s fourth quarter, when the U.S. economy was just starting to climb out of recession.
The forecasts First Call gathers don’t always compare net income, and estimates may exclude certain costs.
The prospect of rising profits helped lift the Nasdaq composite index 17% since Sept. 30, the Dow Jones industrial average 11% and the S&P; 500 by 9.1%.
Industrial companies will be among those reporting profit gains or shrinking losses, according to First Call’s data.
Alcoa Inc. will earn 26 cents a share, according to analysts surveyed by First Call, contrasted with a loss of $142 million, or 17 cents a share, a year earlier.
Other companies are wringing out higher profits by reducing expenses at a time when sales are rising little or even falling.
Cisco, the biggest maker of computer networking equipment, is forecast to earn 13 cents a share, excluding certain expenses, compared with a profit of $664 million, or 9 cents, on the same basis in the year-earlier period.
Merrill Lynch, the world’s biggest securities firm by capital, will have profit of 65 cents a share, contrasted with a year-ago net loss of $1.26 billion, or $1.51 a share. The company has eliminated 18,600 jobs since the end of 2000.
