(Bloomberg News) This year's rebound in corporate earnings is losing steam as slower economic growth and greater strain on consumers threaten sales and profit margins at companies from Texas Instruments Inc. to Google Inc.
Earnings per share for the Standard & Poor's 500, excluding financial companies, rose 14 percent in the third quarter, the smallest gain since the end of 2009, analysts' estimates compiled by Bloomberg show. That compares with 19 percent in the second quarter and 20 percent in the first. Analysts have begun reducing forecasts for the current quarter and beyond.
Chipmaker Texas Instruments and air conditioner maker Ingersoll Rand Plc are among companies that have lowered their guidance because of faltering demand. With U.S. unemployment stuck above 9 percent, political squabbling about the government debt ceiling and a downgrade of the nation's credit rating, confidence has been sapped, said Matt McCormick, who helps manage $4 billion with Bahl & Gaynor Inc. in Cincinnati.
"What started in August as a crisis of confidence hasn't been resolved," McCormick said. "This is a grind-it-out economy. We're in a situation where it's still going to take several years to rebuild our economic house."
S&P 500 earnings excluding financials are forecast to slow to 12 percent growth in the fourth quarter and 9 percent in the first quarter. The U.S. economy will expand 1.6 percent this year after growing 3 percent in 2010, according to the average of 66 economist forecasts. Consumer spending slowed in August to 0.2 percent as incomes dropped for the first time since October 2009, and the Bloomberg Consumer Comfort Index showed the worst quarterly performance in more than two years.
Global equities have lost about $6 trillion in value since Aug. 5, when S&P stripped the U.S. of its top AAA credit rating. The S&P 500 tumbled 14 percent in the three months ended in September, the Stoxx Europe 600 Index fell 17 percent and the MSCI Asia Pacific Index plunged 16 percent, their biggest quarterly drops since the peak of the financial crisis in 2008.
The S&P 500 last week rose from the threshold of a bear market on optimism Europe will tame its debt crisis and after U.S. economic data improved. The index rose 2.4 percent to 1,182.70 at 9:57 a.m. today.
Alcoa Inc., the biggest U.S. aluminum producer, will report earnings tomorrow after U.S. markets close, the first company in the Dow Jones Industrial Average to do so for the third quarter. While aluminum has declined from 2011 peaks, average prices rose in the past year, helping drive profit to what analysts say will be 23 cents a share, from 9 cents a year earlier.
"Good corporate earnings or surprisingly better-than- expected earnings would really be a win in this market, which seems to be selling at a level that has at least built in a low- grade recession," said Mark Luschini, chief investment strategist for Philadelphia-based Janney Montgomery Scott LLC, which manages $54 billion.
Existing earnings estimates may not provide much use to investors, said Gary Flam, who helps manage $6.5 billion for Bel Air Investment Advisors LLC in Los Angeles. Expectations for S&P 500 profit growth had been ratcheted down from 16 percent at the end of July, making it easier for companies to meet or beat estimates even as demand cools, Flam said.