Corporate earnings will continue to slump into the first half of this year amid the first simultaneous recessions in the US, Japan and Europe since World War II, analysts said.
Earnings at Standard & Poor’s 500 companies will probably fall in the first half, marking eight straight quarters of declines. In Europe and Asia, the outlook may be even worse as the recession curbs demand for retail goods and exports.
“It’s going to be a miserable ride,” said Bruce McCain, chief investment strategist at Cleveland-based Key Private Bank, which manages about US$30 billion.
Earnings probably won’t rebound until the end of this year, he said.
“The market recovers, then the economy recovers, then finally the earnings recover,” he said.
Companies are battling falling consumer demand and dwindling cash flows after banks tightened lending to cope with billions of dollars of real-estate losses.
“We hit the peak in earnings in 2007, and in 2009 we’re going to see continued deterioration,” said Diane Garnick, who helps oversee US$500 billion as an Invesco Ltd investment strategist.
Analysts’ earnings estimates are “still way too optimistic.”
In the US, profit at Standard & Poor’s 500 companies will fall 11 percent in the first quarter, followed by a 6.2 percent drop in the following three months, data compiled by Bloomberg said.
Earnings should improve in the second half, driven by a rebounding financial industry, the data showed.
While profits will rise 4.3 percent for the full year in the US, earnings in Europe are projected to decline for all of the year and analysts predict worsening reports out of Asia because the recession hasn’t fully hit there yet.
The energy industry will lead US declines, with earnings estimated to drop 29 percent this year. At Irving, Texas-based Exxon Mobil Corp, the world’s biggest publicly traded company, earnings will probably tumble 39 percent to US$28.2 billion, the first decline since 2002, a Bloomberg survey of analysts said.
“We expect industry earnings to be down sharply, especially in exploration and production,” said Gene Pisasale, who helps manage US$13 billion at PNC Capital Advisors in Baltimore.
Earnings at US retailers will fall 20 percent this year, analysts’ estimates said. The International Council of Shopping Centers in New York predicts 73,000 US stores may shut in the first half of the year after what may have been the worst holiday-shopping season in 40 years. That’s after about 148,000 stores closed last year, the most since the 2001 recession, the trade group said.
“You’ll see department stores, specialty stores, discount stores, grocery stores, drugstores, major chains — either multi-regionally or nationally — go out,” said Burt Flickinger, managing director of Strategic Resource Group, a retail-industry consulting firm in New York.
Wal-Mart Stores Inc, the largest retailer, may report a 6 percent profit increase this year by offering lower prices to consumers seeking bargains, estimates said.
Some of the biggest US banks will probably post higher profits this year compared with last year, when finance companies wrote down more than US$720 billion of losses.
“For the large financials, it’s going to be a very difficult year,” said David Burg, a Purchase, New York-based analyst at Alpine Woods Capital Investors LLC, which manages about US$6.5 billion, including JPMorgan shares. “The story for 2009 continues to be radical transformation — companies fundamentally changing their business model.”