Tags: Profit | Margin | Outlook | US

Economist: Profit-Margin Outlook for US Is ‘Extremely Bad’

By    |   Tuesday, 22 Jun 2010 08:23 AM

Profit margins for U.S. companies reportedly ver dismal because they are poised to tumble from last quarter’s record, a decline that will lead to lower earnings than Wall Street forecasts, economist Andrew Smithers says.

“The corporate sector’s outlook is extremely bad,” Smithers, founder and chairman of the investment-advisory firm of Smithers & Co., recently told Bloomberg. “I can’t see any way out of it.”

Profit before interest, taxes and depreciation — accounting adjustments for use of buildings and equipment — amounted to 36.4 percent of U.S. corporate output in the first quarter, Bloomberg reported, basing calculations on data compiled by the Commerce Department. The percentage was the highest since the department’s quarterly data started in 1947

Margins “are likely to fall a lot” as governments restrain deficit spending next year, reducing cash flow elsewhere in the economy, Bloomberg quoted a  report by Smithers as saying.

Most companies won't announce second-quarter earnings for a few weeks. With investors on edge from bad economic news, the market is riding more than ever on these upcoming reports, the Associated Press reports.

"It's too early to tell if growth is tapering off," but people are concerned, Mark Luschini, chief market strategist at Janney Montgomery Scott, told the AP.

"If companies disappoint, stocks could retrace their recent lows."

Stock analysts expect companies in the Standard & Poor's 500 stock index to post $184 billion in profits in the second quarter, up 27 percent from the year-ago period, then continue to rocket higher. Under their bullish scenario, profits will peak next year.

If recent history is any guide, analysts may be right to be bullish. Last quarter, corporate earnings rose 31 percent, the biggest increase since 1984. Those profits came from selling more goods, not just from cutting expenses. With people spending again, the recovery looked like it was gaining steam.

Now that's not so clear.

The Commerce Department reported last week that construction of homes and apartments slumped 10 percent in May from the month earlier. Adding to the gloom, mortgage applications for new homes have fallen 40 percent in the past five weeks, a 13-week low.

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Profit margins for U.S. companies reportedly ver dismal because they are poised to tumble from last quarter s record, a decline that will lead to lower earnings than Wall Street forecasts, economist Andrew Smithers says. The corporate sector s outlook is extremely bad, ...
Profit,Margin,Outlook,US
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2010-23-22
Tuesday, 22 Jun 2010 08:23 AM
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