Third-quarter profits and sales for the Standard & Poor’s 500 Index (SPX) probably fell in unison for the first time in three years, according to analysts’ estimates compiled by Bloomberg. Per-share earnings may have dropped 1.7 percent on average after they were little changed in the second quarter. Sales may have slipped 0.6 percent, the data show.
While most companies plan to keep a lid on spending, lower expenses aren’t leading to the same kinds of increases they reported earlier this year. Hewlett-Packard Co., the world’s largest personal-computer maker, already forecast full-year profit that trailed analysts’ estimates, FedEx Corp. (FDX) cut its annual earnings forecast and Intel Corp. (INTC) projected lower third- quarter sales, with all three citing softening demand.
“A lot of the earnings growth that we’ve seen has been related to cost reductions,” said Peter Jankovskis, co-chief investment officer for Oakbrook Investments in Lisle, Illinois, which manages more than $3 billion. “Now many of those cost reduction efforts have run their course. Without revenue growth, there is no room for profit to expand further.”
Alcoa Inc. (AA), the largest U.S. aluminum maker, kicks off the third-quarter earnings season tomorrow and is projected by analysts to report a 13 percent drop in sales, the biggest drop in three years, on plunging prices for the commodity. That may wipe out per-share earnings, according to estimates.
The earnings season “may be rather ugly,” based on early reports so far, according to Gina Martin Adams, a New York-based strategist at Wells Fargo & Co.
“While recession in the U.S. is not necessarily imminent, earnings are weakening fairly quickly,” Adams wrote today in a note. For the fourth quarter, companies may struggle to match analysts’ estimates as data indicates U.S. growth is stabilizing at a “depressed” pace, she said.
The U.S. economic slowdown, coupled with a worsening environment abroad, is leading more companies to consider further job and spending cuts. A Business Roundtable survey last month showed 34 percent of U.S. chief executive officers anticipate they will have fewer domestic employees in the next six months. That’s up from 20 percent when the survey was conducted last quarter.
The gloomier outlook reflects “global demand flattening out, particularly in Europe and China,” Jim McNerney, CEO of Boeing Co. (BA) and Business Roundtable chairman, said on a Sept. 26 conference call.
Another words we're at peek jobs cuts...
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