Tuesday September 15, 12:35 pm Eastern Time
US experts see weakest Q3 profit growth in 7 years
By Huw Jones
NEW YORK, Sept 15 (Reuters) - Third-quarter profits at U.S. companies will show the weakest growth in nearly seven years,
as the global financial crisis steals the wind from a welcome rebound in the battered but influential technology sector, analysts
predicted.
''Expectations are this will be the slowest quarter since the market expanded in 1991,'' said Richard Cripps, chief market
strategist at Legg Mason.
The modest upturn in technology sector profits will be largely countered by weakness in other key sectors such as financials,
where losses have resulted from emerging market turmoil, particularly in Russia and Latin America.
Next week's earnings reports from Lehman Brothers (NYSE:LEH - news), Morgan Stanley Dean Witter & Co. (NYSE:MWD - news), and A.G. Edwards Inc.
(NYSE:AGE - news) may offer some clues about the sector's performance, said Chuck Hill, director of research at First Call.
''The positive thing about the financials' problem is that it may be a one-quarter anomaly,'' Hill added.
Healthcare, retailers, domestic appliance makers and homebuilders will continue to post good earnings, analysts said.
The third-quarter earnings reporting season starts in earnest on October 12, and more companies are expected to announce profit warnings in the run-up.
Walt Disney Co. (NYSE:DIS - news) said on Friday that Asia's turmoil would dent earnings in its fiscal fourth quarter which ends September 30, but the
entertainment sector overall was expected to remain buoyant.
''Bottom line, I don't see Disney as presaging problems across the entertainment spectrum,'' said Thomas Graves, entertainment company analyst at Standard &
Poor's. ''Disney may have modestly more exposure to Asia than the other companies in the sector.''
Hilton Hotels Corp. (NYSE:HLT - news) said Monday its third quarter profits would not meet Wall Street forecasts, citing a drag from Asia's economic crisis.
First Call, which collates Wall Street's earnings forecasts, said earnings for the Standard & Poor's S&P500 stock index were expected to grow just 0.7 percent in
the third quarter, year-on-year, compared with 3.5 percent in the second quarter and 3.8 percent in the first quarter.
It would be the weakest quarter since the flat final quarter of 1991, and a far cry from the double-digit quarterly gains seen in the past few years.
Third-quarter tech earnings were expected to grow 5 percent, compared with a dip of 9 percent and 8 percent respectively in the first and second quarters.
A bullish third quarter outlook by Intel Corp. (Nasdaq:INTC - news), and better-than-expected earnings at Oracle Corp. (Nasdaq:ORCL - news) gave techs a
much needed morale boost last week, but this may be short-lived.
''My personal feeling is that we will see more warnings from tech companies as we move on,'' Hill said.
Thomas Kurlak, Merrill Lynch's closely-followed semiconductor analyst, said on Friday that a seasonal PC market pick-up, helped by a snap back from the
inventory depletion of the second quarter, was moving counter to the underlying overall trend.
''We do not expect it to be sustained,'' Kurlak said in a report. Managers of chip companies are running out of ways to cut costs and more companies are expected
to go into the red, he added.
Healthcare companies, followed by technology and consumer staples such as food and beverages, and cyclicals such as appliances, will be the best earners in the
third quarter, said Sam Stovall, chief investment strategist at Standard & Poor's.
Leading appliance maker Maytag Corp. (NYSE:MYG - news) said last week it expected third quarter sales to be up 20 percent on last year. General Electric
(NYSE:GE - news) also buoyed sentiment last week by saying its third quarter earnings would meet Wall Street's expectations.
Energy companies, utilities, basic materials and financials will be among the worst, Stovall added.
''Net net, I think the third quarter will be a little worse than the second quarter, and the fourth quarter will be worse that the third,'' Stovall said. ''That is why I am
not too optimistic on the market.''
Legg Mason's Cripps, however, expects a ''pretty good rebound'' in fourth quarter earnings due to comparisons with the relatively weak same quarter last year
becoming easier.
Cripps said some companies in the capital goods sector have not quantified their exposure to turbulent international markets, but retailers and regional banks will do
well.
In the capital goods sector, Cummins Engine Co. Inc. (NYSE:CUM - news), the world's biggest diesel engine maker, said Tuesday its third quarter revenues would
likely fall 7 to 10 percent below the second quarter because of slumping Asian sales.
This follows similar warnings two other equipment makers, Deere & Co. (NYSE:DE - news), and Case Corp. (NYSE:CSE - news) over the past week. |
