(Bloomberg News) U.S. corporations are set to report the slowest earnings gain since the recession ended as companies from Ford Motor Co. to McDonald's Corp. struggled with rising oil and commodity prices and a slowdown in consumer confidence that may continue to hamper spending this year.
Earnings per share for all Standard & Poor's 500 Index companies rose 13 percent in the second quarter, according to analysts' estimates compiled by Bloomberg. Profits gained 18 percent in the first quarter after jumping 37 percent in 2010.
"We aren't going to see the dramatic increase we've seen in some quarters," said John Carey, who helps manage $260 billion for Pioneer Investment Management Inc. in Boston. "Consumer spending got hammered a bit because of higher oil prices and we have also seen a drop in consumer confidence, which maybe hurt numbers."
While rising oil prices likely boosted profit at Exxon Mobil Corp. and Chevron Corp. to their highest levels in almost three years, they led to increasing costs at retailers such as Wal-Mart Stores Inc., airlines and carmakers worldwide.
Evidence of a slowdown is also building outside of the U.S. Earnings in the Stoxx 600 Europe Index may rise 21 percent this year, after gaining 63 percent in 2010, according to Bloomberg data. A construction slump and weaker consumer spending hurt sales at Amsterdam-based Royal Philips Electronics NV, the world's biggest maker of light bulbs, and U.K. shoppers facing government spending cuts are restraining purchases.
Oil Prices Down
Some of the factors that contributed to the slowdown last quarter have waned, including the impact of the March 11 earthquake and tsunami in Japan, which likely caused losses at Sony Corp. and Toyota Motor Corp. Gasoline prices have come down, with U.S. retail fuel costs dropping 10 percent on July 6 from $3.99 per gallon in May, the highest since July 2008, according to figures from AAA, the nation's largest auto club.
The gain in earnings at S&P companies in the second quarter was the slowest since the third quarter of 2009, according to Bloomberg data. Profits may rise 19 percent this year and 14 percent in 2012, according to the data.
"Because this recovery is slow and steady it may last longer than some in the past," Carey said.
Expectations may still be too high in the U.S. in an environment where the economy is slowing, said Jack Ablin, chief investment officer for Chicago-based Harris Private Bank, which oversees $60 billion.
"My biggest concern is that companies continue to expect wider margin expansion throughout the rest of the year," Ablin said. "I see a difficult path for margins from now to the end of the year."
Ford, based in Dearborn, Michigan, is predicted to post a 19 percent decline in profit to $2.15 billion, excluding some items, as sales dropped 8.5 percent to $32.1 billion, according to analysts' estimates compiled by Bloomberg. General Motors Co., based in Detroit, may say profit surged to $2.08 billion on revenue of $36.2 billion, a 9.2 percent gain.
The largest U.S. automakers raised prices and lowered discounts offers to a five-year low in their home market during the quarter. That may have helped offset slower growth in U.S. sales.
"We're more bullish on pricing than demand," Itay Michaeli, a New York-based analyst at Citigroup Inc., said in a phone interview. "Because the industry has been more price- disciplined and the U.S. economy has been a bit stagnant, demand could be disappointing in the second half of the year and pricing could be the source of surprise."
Alcoa, Dow Chemical
Alcoa Inc., the biggest U.S. aluminum producer, is scheduled to be the first member of the Dow Jones Industrial Average to report second-quarter earnings on July 11 after the market closes. Higher aluminum prices may have helped New York- based Alcoa increase earnings to 34 cents a share, from 13 cents a year earlier, according to the average estimate.
Dow Chemical Co., the largest U.S. chemical maker by sales, expanded second-quarter margins for plastics such as polyethylene as prices rose faster than raw-material costs, said Hassan Ahmed, a New York-based analyst at Alembic Global Advisers. Demand in China probably was better than the market expects, he said.
Net income at Midland, Michigan-based Dow advanced 52 percent to 84 cents a share, excluding some items, according to estimates compiled by Bloomberg.
Exxon Mobil, based in Irving, Texas, is predicted to report a 50 percent increase in second-quarter net income to $11.3 billion. Earnings at San Ramon, California-based Chevron may have jumped 32 percent to $7.1 billion. Such profits would be their largest since the third quarter of 2008.
Rising Fuel Demand
Worldwide demand for petroleum to make gasoline, diesel and jet fuel will continue to grow for the rest of 2011, driven by economic expansion in China and India, the International Energy Agency said in a June 16 report. The Paris-based IEA said global crude demand will rise by 1.3 million barrels a day this year, a 1.5 percent increase from 2010.
In Europe, demand for some goods was also damped by tepid consumer confidence and rising oil prices, combined with concerns about the Greek debt crisis.
U.K. retailers are anticipating little improvement in consumer spending for the remainder of the year as shoppers contend with rising fuel prices and government spending cuts.
"Consumer confidence is being affected by the state of the global economy, it's not something particular to any market," Tesco Plc Chief Executive Officer Philip Clarke told reporters at the annual general meeting in Nottingham, England, on July 1. "Confidence is lower than it was a year ago, consumers are feeling the pinch, it's rising fuel prices, it's rising taxes, it's uncertainties about employment and that inevitably means it's tough out there."
Chicago-based United released data on June 23 that showed revenue for each seat flown a mile would rise about 4 percent in June, trailing May's 15 percent gain. AMR Corp.'s American Airlines posted a unit revenue increase of about 5 percent for the quarter, lagging behind the 7.6 percent estimated by Hunter Keay, a Wolfe Trahan & Co. analyst.
There is a "weakness" in travel to and from Europe, Delta Chief Executive Officer Richard Anderson said in a June 30 interview. The Atlanta-based carrier plans to cut capacity by 4 percent after Labor Day in September and Anderson said he will "continue to look and tweak it and make changes" to the seat- reduction plan if demand doesn't strengthen.
Some U.S. companies are benefiting from demand in emerging countries. Intel Corp., the world's largest semiconductor maker, reiterated in May that its second-quarter predictions for sales and profit margins were "right on," as increasing orders for server chips used in Internet data centers offset slowing sales of consumer laptop computers.
Intel Chief Executive Officer Paul Otellini said analysts underestimated the rising demand for computers in emerging markets such as Brazil that is compensating for weaker demand in Western Europe and the U.S.