The companies that make up the Standard & Poor’s 500 are on track to post a collective quarterly loss for the first time — a sign corporate America was battered even harder than expected by the economy.
The dismal earnings reports already handed in by three-quarters of the S&P companies are compelling Wall Street analysts to tone down expectations for this year and push back predictions for when the US economy will recover.
“I don’t know of very many people who believe that there is going to be much recovery at all in 2009,” said Jennifer Ellison, a principal at investment firm Bingham, Osborn & Scarborough.
The deepest wounds are showing up on banks, weighed down by the bad debt on their books. But the pain hardly stops there. Among major industries, only consumer staples, utilities and healthcare have been able to maintain or add to profits.
“We know how bad the tail end of the third quarter got, and it really fell off a cliff through the fourth quarter,” said Bill Stone, chief investment strategist at PNC Wealth Management.
Early last fall, when the economy was already deteriorating, most investors were hoping fourth-quarter earnings would only suffer a slide. Instead, the financial meltdown in September triggered a crash.
Credit markets seized up, and companies couldn’t borrow.
Businesses cut costs and eliminated jobs, and even those Americans fortunate enough to have jobs spent less money.
It added up to alarming numbers on corporate ledgers: Sales fell 9.8 percent in the October-to-December period, S&P said.
On average, companies lost US$10.44 a share, it said.
When all the results are in, it’ll be the sixth quarter in a row that results for S&P companies have come in worse than the year before. A run that bad hasn’t happened since 1951 to 1952. S&P figures go back to 1936.
Analysts are surveying the losses and cutting their forecasts for this year — almost by the day, Stone said.
At some point, the expectations will be so meager that investors will greet even terrible numbers with relief — simply because they weren’t worse. On a report card, even a “D” can look good against an “F.”
“If you finally get the hurdle down low enough, maybe you can actually jump over it,” Stone said. “Maybe in this economy you should say trip over it.”
Plus, companies find it appealing to pencil in as many write-offs as they can now so results look shinier in future quarters.
But for now, the losses are staggering.
North Carolina bank Wachovia lost US$11 billion in the fourth quarter. ConocoPhillips, the nation’s third-largest oil company, wrote off US$33 billion in assets, partly because of the plunge in oil prices.
Ellison said analysts had forecast aggregate profits above US$10 a share for the S&P 500 in the fourth quarter.
“That is off the charts,” she said of the change in analyst expectations. “Certainly in modern economic history, this has not occurred.”
She expects analysts will have to bring down their expectations for coming quarters even further. And analyst downgrades can lead to more investors unloading their stocks.
“They are getting slashed, and I think that’s what the market is reacting to, but I still don’t think they’re low enough,” she said.
“It’s hard to find a reason why earnings would get better in the next quarter or two,” she said.