Earnings Perform Like 2009; Boos Then, Boos Now
Nobody in Corporate America wants to go back to 2009, but by one measure companies are there right now.
Based on the 291 companies in the Standard & Poor's 500 that have reported earnings so far â along with estimates for the rest â S&P Capital IQ expects overall profits to decline by half a percent from the same period a year ago. That would be the first time that profits have shrunk since the third quarter of 2009, just after the Great Recession. Analysts are predicting that earnings will shrink 0.3 percent for the third quarter, too.
Revenue for those 291 companies has increased just 2.3 percent, compared with a 10-year average of 7.1 percent, according to S&P Capital IQ.
Worse, companies are getting more pessimistic about the rest of the year.
Companies that should benefit from a recovery are instead getting ready for a slowdown. UPS, the world's largest package delivery company, said it expects the global economy to get worse before it gets better. It lowered its profit forecast for 2012. Cisco Systems said it will lay off 1,300 people and warned that revenue for the current quarter will grow much less than expected. Chemical maker DuPont said this year's profits will be at the low end of its expectations because of uncertainty about the economic outlook.
The last recession ended in June 2009, but the U.S. economy remains unusually sluggish this far into the recovery. It grew at an annual rate of just 1.5 percent from April through June. Unemployment remains above 8 percent.
"The economy is bordering on stall speed," said Kurt Reiman, a strategist at UBS.
To be sure, some companies are reporting profit growth. Caterpillar's quarterly profit jumped 67 percent, and the maker of big construction equipment boosted its outlook for the year. Boeing reported a better-than-expected 3 percent increase in profits as it delivers more planes.
But outlooks overall are very cautious. In a survey by data provider FactSet, 47 out of 60 companies lowered the earnings guidance they gave investors for the third quarter. And investors often trade more on outlooks than on the last quarter's results.
Shares of online game-maker Zynga plummeted nearly 40 percent on Thursday after it slashed its profit guidance for the year to between 4 cents and 9 cents per share, from 23 cents to 29 cents previously. UPS lost 5 percent of its value the day after cutting its full-year earnings forecast by 25 cents per share, to a range of $4.50 to $4.70. Its stock regained some of that loss later in the week.