Record phase of loss for US firms

By Peter J. Brennan  |   2008-12-30  |     NEWSPAPER EDITION

UNITED States 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 percent from a year earlier, according to data compiled by Bloomberg News.

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 US$9.4-billion government bailout, may report a loss of US$6.61 a share, according to analysts.

"The earnings weakness has spread beyond the financial sector," said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC. "I don't think this is the bottom."

Analysts say the streak will extend until 2009 with a 10.3-percent drop in the first three months. The second quarter will see a drop of 5.8 percent, analysts said, predicting a rise in earnings of 12.6 percent in the third quarter of 2009.

The S&P 500 Index has fallen 25 percent in the fourth quarter through December 26, the biggest drop since the third quarter of 1974.

All downhill

For the year, the index has plummeted 41 percent, the worst annual performance since a 47-percent drop in 1931.

Earnings slid 23 percent in the second quarter, the most since at least 1998 and 18 percent in the third quarter.

In previous 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, 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 percent, analysts say.

The next biggest group affected is consumer discretionary, which includes the auto industry. Earnings for these companies may be down 47 percent.

Consumer spending, which accounts for more than two-thirds of the US economy, fell at a 3.8-percent annual rate, according to the government. It's the first decline since 1991 and the biggest since 1980. The unemployment rate has climbed to 6.7 percent, the highest since 1993.