US corporate earnings probably fell for a sixth-straight quarter, the longest streak in at least 20 years, as consumer spending on automobiles, homes and retailers collapsed.
Fourth-quarter profit at companies in the Standard & Poor’s 500 Index may have dropped an average of 11.9 per cent from a year earlier, according to data compiled by Bloomberg.
The slump would be the longest since at least 1988 when the index began compiling the data, said Standard & Poor’s senior analyst Howard Silverblatt. Weyerhaeuser Co, the largest North American lumber producer, said fourth-quarter earnings will be “significantly” lower than it expected. General Motors Corp, which is receiving a $9.4 billion government bailout, may report a loss of $6.61 a share, according to analysts’ estimates.
“The earnings weakness has spread beyond the financial sector,” said John Praveen, the Newark, New Jersey-based chief investment strategist at Prudential International Investments Advisers LLC, a unit of Prudential Financial Inc, which manages about $602 billion. “I don’t think this is the bottom.”
Analysts are predicting the streak will reach eight quarters with a 10.3 per cent decline in the first three months of 2009 and a drop of 5.8 per cent in the second quarter. Analysts currently expect a 12.6 per cent increase in earnings in the third quarter next year.
The S&P 500 Index has fallen 25 per cent in the fourth quarter through December 26, the biggest drop since the third quarter of 1974. For the year, the index has plummeted 41 per cent, the worst annual performance since a 47 per cent drop in 1931, according to data compiled by Bloomberg.
Earnings slid 23 per cent in the second quarter, the most since at least 1998, according to Bloomberg data, and 18 per cent in the third quarter. Profit declined 22 per cent in the fourth quarter of 2007.
In prior years, the declining value of the dollar meant overseas earnings boosted profit of US companies, Praveen said. Now with the dollar gaining against currencies in Europe and Japan, profit from overseas doesn’t help the bottom line as much, he said. Of 10 industry groups in the S&P 500, seven will see earnings decline, analysts estimated.
Raw-materials producers will be hit hardest, with profit falling about 63 per cent, according to analysts.
Weyerhaeuser cut its dividend by more than half on December 19. Analysts on average expect a loss of 50 cents a share compared with a profit of 51 cents a share in the same period a year earlier.
The next biggest group affected is consumer discretionary, which includes the auto industry. Earnings for these companies may be down 47 per cent. Consumer spending, which accounts for more than two- thirds of the US economy, fell at a revised 3.8 per cent annual rate, according to the US government. It’s the first decline since 1991 and the biggest since 1980. The unemployment rate has climbed to 6.7 per cent, the highest level since 1993.
Among retailers, Office Depot Inc may report a loss of 5 cents a share compared with a 10-cent profit a year earlier, according to analysts’ estimates. The world’s second-largest office-supplies retailer said it will close almost 10 per cent of its North American stores and cut 2,200 jobs as the US recession saps demand for business furniture.
Financial services companies, which have been weighed down by $1 trillion in losses and writedowns from the collapse of the subprime mortgage market, should be able to stop a run of five straight quarters of declining profit.
In finance, earnings are expected to rise 68 per cent, led by Bank of America Corp where a per-share profit of 25 cents is predicted, up from 7 cents a share a year earlier, according to the average of 21 analysts’ estimates in a Bloomberg survey.
“We are turning the corner,” said Thomas Sowanick, chief investment officer of Princeton, New Jersey-based Clearbrook Financial LLC, which manages $20 billion. “If we do enter into a period where credit quality stabilises, you could get a huge jolt to earnings.”
Others aren’t as optimistic. The banks and real estate sub- groups may fall 31 per cent and 21 per cent, respectively, on average, according to analyst estimates.
“My gut feeling says analysts are too optimistic in terms of the magnitude of the write offs,” said Frederic Dickson, who helps oversee about $19 billion as chief market strategist at DA Davidson & Co in Lake Oswego, Oregon. “It probably won’t be as bad as we saw a year ago, but there could be some shock value.”
