Jobs, career information, and employment services for job candidates, employees, employers and recruiters.
Unemployment, war, SARS hamper profits By J. Kyle Foster Bloomberg
July 01, 2003
NEW YORK -- U.S. corporate profits had their smallest increase in three quarters as the war with Iraq, the outbreak of severe acute respiratory syndrome and rising unemployment led companies and consumers to curb spending.
Second-quarter earnings for Standard & Poor's 500 index companies probably grew 5.2 percent, according to Thomson Financial, which tracks analysts' profit estimates. Earnings rose 14 percent in the first quarter.
Still, many investors are hoping for a rebound for earnings and for the economy in the second half. This quarter's profit gains mark the fifth in a row after five straight declines, the longest streak of shrinking earnings since 1970. In last year's second quarter, profit for S&P 500 companies rose 1.4 percent.
Economists are expecting growth at a 3.5 percent annual rate in the third quarter and a 3.7 percent rate in the fourth, up from 1.4 percent in the first quarter, according to Blue Chip Economic Indicators.
"We see a lot of signs that things will strengthen, but they are just happening now, and you won't see them in earnings this quarter," said John Waterman, chief investment officer at Rittenhouse Asset Management Inc. in Radnor, Pa., which manages more than $13 billion. "This quarter is kind of a transition period with the Iraq war ending."
Among the 106 companies that provided forecasts in the five weeks that ended June 27, 51 reduced projections. That's up from a year earlier, when 33 of 97 companies lowered forecasts. Many of those companies are dependent on business spending.
Motorola Inc., the world's second-largest mobile telephone maker, pared its forecast and said it would break even on a per-share basis compared with a year-ago net loss of $2.32 billion, or $1.02 a share.
Even Southwest Airlines, the low-fare carrier that has defied industry trends by continuing to report quarterly profits while larger competitors struggle to avoid bankruptcy, said it would have difficulty meeting the 13-cent profit of the year-ago quarter because the war in Iraq hurt sales.
"We're going to need to see more business spending," said Bob Benson, senior market strategist for Banc of America Capital Management, which oversees $297 billion.
Companies that get much of their business from consumers tended to fare better.
Wal-Mart Stores Inc., the world's biggest retailer, will have profit of 50 cents a share in its fiscal fourth quarter ending July 31, according to Thomson Financial.
The company had net income of $2.04 billion, or 46 cents a share, a year earlier.
Investors and analysts said that something unforeseen such as the corporate accounting scandals of Enron Corp. and WorldCom Inc. or a major terrorist attack could bring economic recovery to a halt. Barring that, they said, growth will pick up speed.
"If there was some real negative event, we could tip backward again," Rittenhouse's Waterman said. "If there is nothing really to set us back, we could see (the economy) really feed on itself."
Email This Page!