Corporate profits likely to be lower without turnaround in economic outlook

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NEW YORK — Prospects for corporate earnings are dimmer in the coming quarters – even though reports so far this quarter have been relatively bright.

Third-quarter reports among the big names have been reasonably solid, with Google, McDonald’s and others reporting strong results.

But unless there is a turnaround in the outlook for the U.S. economy, the next few quarters may be less rosy.

Currently, the market is focused on Europe. Hope for a series of summits designed to find a way to solve the growing euro zone debt crisis buoyed the Standard & Poor’s 500 index to a 1.1 percent gain for last week and put the index at the top of a recent range it has struggled to break through.

With so much focus on Europe, earnings – even with most companies beating expectations – have been given less of the spotlight.

At the same time, S&P 500 earnings forecasts for the fourth and first quarters have come down since the start of October, especially in the materials, energy and financial sectors, according to Thomson Reuters data.

“That’s part of this fear factor that has gripped not only the marketplace but corporate America as well,” said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.

Much of what’s driving worries about earnings is related to expectations for less demand from Europe and other parts of the world, including China, where indicators show growth is slowing.

The sovereign debt crisis in Europe has plagued markets for months, and the U.S. economy has been a worry, too, with the nation’s high unemployment rate among the chief problems.

Much of the third-quarter profit strength stems from still-strong international revenue growth, according to a report from Thomson Reuters earnings analyst Jharonne Martis.

On this week’s earnings agenda are results from more top S&P 500 names: Caterpillar, Coach, Boeing and Procter & Gamble Co among others.

Projections for the fourth quarter are for growth of 12.5 percent – down from an Oct. 3 estimate of 15 percent – and forecasts for the first quarter of 2012 are for growth of 7.6 percent – down from an Oct. 3 estimate of 10.2 percent.


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