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Profits: Ouch. It's Starting To Hurt


News: Analysis & Commentary: CORPORATE PROFITS

PROFITS: OUCH. IT'S STARTING TO HURT

U.S. third-quarter earnings are off 7% from last year's level

So, how bad was it? Not apocalyptic, but Wall Street's anxiety over third-quarter results was well founded. BUSINESS WEEK's flash earnings report, based on announced profits of 130 companies, is a sign of a slowing economy: Profits are down 7% from a year ago, on an anemic 2% sales increase. Worse, the weakness that emerged in the second quarter has now spread beyond manufacturing to service companies--whose earnings had risen 20% in the second quarter, only to drop 23% in the third.

Much of that pain was concentrated in financial services, as companies counted up losses from the stumbling stock market, hedge funds, and emerging-market investments. Among the banks, profits at BankAmerica Corp. (that is, the combined NationsBank Corp. and the old BankAmerica) were down 78%, on a $519 million charge for the merger. Net income at J.P. Morgan & Co. fell 61%. At the brokerages, Merrill Lynch & Co. had a $164 million loss, on a $288 million charge for eliminating 5% of its staff. Bear, Stearns & Co.'s earnings were down 60%, while Donaldson, Lufkin & Jenrette Inc. was off 79%. Take out the banks and brokerages, and quarterly profits would have broken even.

The drop isn't all the fault of financial services. A chunk of the bad news this quarter can be attributed to General Motors Corp.'s $809 million, strike-induced loss. Take out the carmaker, and earnings would have declined only 3%.

And GM wasn't the only big name on the casualty list: Gillette was off 99%, Compaq Computer fell 78%, and DuPont lost $564 million. Furthermore, Motorola Inc. was $42 million in the red. Oil companies were hit hard, too, with profits down at Exxon (-23%), Amoco (-54%), and Texaco (-56%).

On the plus side, Microsoft Corp. paced technology companies with a stunning 154% profit leap. Apple Computer Inc. roared back from a $161 million loss to a $106 million profit. Chrysler Corp. surged past rivals with a 55% hike in earnings. And SBC Communications Inc.'s 48% earnings rise boosted the utilities-and-telecom sector by 11%.

For the fourth quarter, analysts surveyed by I/B/E/S International Inc. expect profits for the S&P 500 to be up 4.7%. Then again, at the start of the year, they predicted a 14.8% jump. Stay tuned.By Frederick F. Jespersen in New YorkReturn to top

TABLE

A Look at Third-Quarter Earnings

CURRENT QTR. EST.

QTR. SALES PROFITS EPS REPORTED

(millions) % CHG.(millions) % CHG. (8/20) EPS DIFF.

INDUSTRIALS 313,064.4 -3 18,438.8 -7 0.62 0.58 -0.04

ABBOTT LABORATORIES 3,035.8 +6 531.7 +13 0.34 0.34 --

ALCOA 4,108.9 +22 217.7 -5 1.11 1.21 +0.10

ALLIEDSIGNAL 3,741.0 +2 329.0 +13 0.59 0.58 -0.01

AMER. HOME PRODUCTS 3,224.1 -7 619.0 +42 0.47 0.46 -0.01

AMOCO 7,493.0 -17 295.0 -54 0.45 0.31 -0.14

BESTFOODS 1,983.4 -2 167.9 +15 0.56 0.56 --

BLACK & DECKER 1,107.7 -10 66.6 +14 0.68 0.72 +0.04

BRISTOL-MYERS SQUIBB4,523.0 +9 966.0 +13 0.95 0.95 --

CASE 1,534.0 +6 63.0 -19 1.20 0.82 -0.38

CATERPILLAR 5,173.0 +12 336.0 -13 0.99 0.92 -0.07

CHRYSLER 14,482.0 +16 682.0 +55 0.76 1.02 +0.26

CLOROX ** 685.9 +6 85.4 +15 0.82 0.81 -0.01

COCA-COLA 4,747.0 -4 888.0 -12 0.41 0.36 -0.05

COLGATE-PALMOLIVE 2,265.4 -1 214.9 +14 0.66 0.66 --

CONAGRA ** 6,483.4 +4 109.3 -8 0.23 0.23 --

COOPER TIRE-RUBBER 480.6 0 30.0 -4 0.45 0.39 -0.06

CROWN CORK & SEAL 2,291.0 -2 -21.1 NM 1.07 -0.20 -1.27

CUMMINS ENGINE 1,525.0 +12 -85.0 NM 1.38 -0.52* -1.90

DANA 2,962.4 +3 98.3 NM 0.85 0.82* -0.03

DOVER 1,231.2 +6 94.0 -8 0.47 0.42 -0.05

DUPONT 6,042.0 +4 -564.0 NM 0.66 0.67* +0.01

EASTMAN KODAK 3,391.0 -10 398.0 +72 1.19 1.21 +0.02

EXXON 28,779.0 -12 1,400.0 -23 0.64 0.58 -0.06

FORD MOTOR 32,640.0 -10 1,001.0 -11 0.79 0.80 +0.01

GENERAL DYNAMICS 1,172.0 +19 94.0 +15 0.72 0.74 +0.02

GENERAL ELECTRIC 24,136.0 +10 2,284.0 +13 0.69 0.69 --

GENERAL MOTORS 34,423.0 -18 -809.0 NM -0.18 -1.28 -1.10

GEORGIA-PACIFIC

GROUP 3,367.0 +1 39.0 -5 0.26 0.43 +0.17

GILLETTE 2,531.0 -6 6.0 -99 0.43 0.30* -0.13

GOODYEAR TIRE

& RUBBER 3,191.7 -3 185.0 0 1.26 1.17 -0.09

HARLEY-DAVIDSON 520.8 +16 52.4 +27 0.33 0.34 +0.01

HASBRO 945.5 +3 61.3 -21 0.62 0.45 -0.17

IBP 3,210.7 -6 65.6 +125 0.35 0.70 +0.35

INTERNATIONAL PAPER 4,900.0 -4 21.0 -79 0.30 0.25* -0.05

JOHNSON & JOHNSON 5,724.0 +2 961.0 +12 0.70 0.70 --

LEAR 1,946.5 +19 21.6 -41 0.54 0.32 -0.22

LOCKHEED MARTIN 6,349.0 -4 318.0 -4 1.71 1.67 -0.04

MERCK 6,838.3 +15 1,367.0 +14 1.12 1.12 --

MONSANTO 1,986.0 +15 -100.0 NM 0.16 0.13* -0.03

NIKE ** 2,504.8 -9 163.8 -35 0.48 0.56 +0.08

NORTHROP GRUMMAN 2,213.0 -4 116.0 +18 1.79 1.67 -0.12

OWENS CORNING 1,324.0 +7 135.0 +129 1.31 2.32 +1.01

PARKER-HANNIFIN** 1,218.7 +13 78.1 0 0.68 0.71 +0.03

PEPSICO 5,544.0 +3 761.0 +38 0.41 0.50 +0.09

PFIZER 3,330.0 +21 515.0 -12 0.57 0.39 -0.18

PHELPS DODGE 764.0 -21 28.6 -73 0.55 0.49 -0.06

PHILIP MORRIS 18,587.0 +3 1,980.0 +41 0.84 0.81 -0.03

PPG INDUSTRIES 1,804.0 0 248.0 +45 1.01 0.93* -0.08

REYNOLDS METALS 1,368.0 -20 262.0 +376 0.85 0.89* +0.04

SCHERING-PLOUGH 1,986.0 +16 432.0 +22 0.57 0.58 +0.01

SHERWIN-WILLIAMS 1,341.4 0 100.7 +2 0.62 0.58 -0.04

TEXACO 7,707.0 -31 215.0 -56 0.53 0.38 -0.15

TRW 2,836.7 +13 104.2 -4 0.88 0.85 -0.03

UNION CAMP 1,107.3 -2 -21.8 NM 0.26 0.20* -0.06

UNITED TECHNOLOGIES 6,422.0 +7 348.0 +16 1.36 1.41 +0.05

WARNER-LAMBERT 2,560.2 +21 295.5 +49 0.34 0.35 +0.01

WEYERHAEUSER 2,736.0 -3 110.0 -4 0.37 0.56 +0.19

WHIRLPOOL 2,539.0 +24 78.0 NM 1.03 1.02 -0.01

SERVICES 102,850.9 +9 8,956.6 -23 0.80 0.69 -0.11

ADP ** 1,210.3 +17 123.2 +17 0.41 0.40 -0.01

AMR 5,046.0 +7 431.0 +34 2.19 2.48 +0.29

ASSOCIATES

1st CAPITAL 2,304.7 +9 317.6 +17 0.92 0.91 -0.01

AVIS RENT A CAR 652.4 +12 30.1 +117 0.75 0.83 +0.08

BANK OF NEW YORK NA NA 301.0 +10 0.39 0.39 --

BANKAMERICA NA NA 374.0 -78 1.18 0.21 -0.97

BEAR STEARNS ** 1,723.6 -5 64.1 -60 1.25 0.40 -0.85

BOISE CASCADE

OFFICE PRODS. 760.4 +12 11.8 -6 0.25 0.18 -0.07

CHASE MANHATTAN NA NA 837.0 -15 1.21 0.94 -0.27

CITICORP NA NA 530.0 +4 NA NA NA

CNF TRANSPORTATION 1,282.5 +14 44.0 +11 0.76 0.78 +0.02

DLJ 1,069.8 -16 25.7 -79 0.76 0.15 -0.61

DOW JONES 443.6 -30 25.9 -4 0.40 0.27 -0.13

ENRON 11,320.0 +95 168.0 +25 0.44 0.47 +0.03

FDX ** 4,082.0 +6 149.0 -10 0.98 1.00 +0.02

FIRST UNION 4,239.0 +53 995.0 +33 0.97 1.01 +0.04

GANNETT 1,226.1 +7 176.5 +16 0.62 0.62 --

GOLDEN WEST FINAN. 775.3 +5 108.0 +20 1.78 1.85 +0.07

GRAINGER (W. W.) 1,120.0 +5 56.1 -1 0.61 0.57 -0.04

HBO & CO. 399.6 +30 83.7 +57 0.18 0.19 +0.01

HERTZ 1,225.1 +11 118.7 +27 1.05 1.09 +0.04

HILTON HOTELS 1,333.0 +1 79.0 -16 0.38 0.30 -0.08

KROGER 8,023.9 +4 124.4 +29 0.44 0.47 +0.03

MARRIOTT INT'L 2,263.0 +9 86.0 +16 0.33 0.32 -0.01

MBNA NA NA 216.6 +26 0.27 0.27 --

McDONALD'S 3,215.0 +7 482.2 +7 0.69 0.69 --

McGRAW-HILL 1,206.4 +5 169.4 +18 1.57 1.71 +0.14

MERRILL LYNCH 8,712.0 +4 -164.0 NM 1.23 0.32* -0.91

MORGAN (J.P.) NA NA 156.0 -61 2.01 0.75 -1.26

MORGAN STANLEY

DEAN WITTER 7,498.0 +3 645.0 -5 1.20 1.05 -0.15

NATIONAL CITY NA NA 344.5 +22 1.01 1.03 +0.02

NEW YORK TIMES 682.7 0 55.0 +19 0.28 0.29 +0.01

PAINEWEBBER GROUP 1,809.1 +3 82.9 -27 0.74 0.51 -0.23

ROADWAY EXPRESS 617.1 -4 4.3 -58 0.40 0.22 -0.18

SAFEWAY 5,589.0 +4 193.7 +29 0.37 0.38 +0.01

SCHWAB (CHARLES) 872.0 +16 97.8 +28 0.31 0.35 +0.04

SERVICE MERCHANDISE 605.0 -8 -38.1 NM -0.24 -0.38 -0.14

STATE STREET 981.0 +26 110.9 +10 0.69 0.68 -0.01

SUNTRUST BANKS 1,218.2 +6 188.8 +12 0.89 0.91 +0.02

TIME WARNER 3,578.0 +11 39.0 NM -0.04 -0.06 -0.02

TRAVELERS GROUP 8,221.9 -17 199.2 -81 NA NA NA

TRICON GLOBAL

RESTAURANTS 2,017.0 -12 128.0 +62 0.62 0.82 +0.20

UAL 4,783.0 +3 425.0 -27 3.99 3.71 -0.28

WELLS FARGO NA NA 347.0 +20 3.93 3.99 +0.06

YELLOW 744.9 -2 13.5 -29 0.66 0.52 -0.14

TECHNOLOGY 57,934.9 +11 5,092.9 +7 0.47 0.57 +0.10

ADVANCED MICRO

DEVICES 685.9 +15 1.0 NM -0.20 0.01 +0.21

APPLE COMPUTER *** 1,556.0 -4 106.0 NM 0.49 0.68 +0.19

COMPAQ COMPUTER 8,791.0 +36 115.0 -78 0.06 0.07 +0.01

GENENTECH 289.9 +25 63.4 +97 0.36 0.49 +0.13

HUGHES ELECTRONICS 1,513.3 +20 37.6 -20 0.14 NA NA

IBM 20,095.0 +8 1,494.0 +10 1.54 1.56 +0.02

INTEL 6,731.0 +9 1,559.0 -1 0.73 0.89 +0.16

IOMEGA 391.8 -9 -14.8 NM -0.05 -0.06 -0.01

LSI LOGIC 390.4 +19 -282.8 NM 0.19 0.14* -0.05

MICROSOFT ** 3,953.0 +26 1,683.0 +154 0.49 0.62 +0.13

MOTOROLA 7,152.0 -3 -42.0 NM 0.01 -0.07 -0.08

SUN MICROSYSTEMS ** 2,491.2 +19 113.9 +5 0.49 0.50* +0.01

TEXAS INSTRUMENTS 2,113.0 -15 164.0 -31 0.29 .41 +0.12

UNISYS 1,781.4 +10 95.6 +88 0.25 0.26 +0.01

UTILITIES & TELECOM 50,848.5 +12 5,144.0 +11 0.68 0.74 +0.06

AMERITECH 4,290.0 +7 645.0 +5 0.58 0.58 --

BELL ATLANTIC 7,909.9 +7 -7.2 NM 0.68 0.69* +0.01

BELLSOUTH 5,865.0 +13 814.0 -31 0.81 0.82 +0.01

COLUMBIA ENERGY

GROUP 1,458.1 +47 11.2 NM 0.12 0.13 +0.01

EDISON INT'L 3,440.8 +26 226.2 -21 0.70 0.60 -0.10

ENTERGY 4,587.4 +64 262.6 +181 0.98 1.02 +0.04

FPL GROUP 1,999.0 +8 290.0 +8 1.59 1.66 +0.07

PECO ENERGY 1,794.0 +40 274.0 +73 0.71 1.20 +0.49

SBC COMMUNICATIONS 6,776.0 +7 1,207.0 +48 0.53 0.65 +0.12

SOUTHERN 3,458.0 -15 523.4 +36 0.76 0.74 -0.02

SPRINT 4,062.2 +7 239.3 +13 0.43 0.54 +0.11

UNICOM 2,096.0 -1 279.5 -1 1.11 1.22 +0.11

US WEST 3,112.0 +5 379.0 -10 0.75 0.75 --

*EPS adjusted for special items

** Second-quarter results

*** Third-quarter results

NM = not meaningful

NA = not available

DATA: STANDARD & POOR'S COMPUSTAT, A DIVISION OF McGRAW-HILL INC. EARNINGS

ESTIMATE DATA PROVIDED BY I/B/E/S INTERNATIONAL INC., NEW YORK, NY. I/B/E/S IS

A REGISTERED TRADEMARK OF I/B/E/S INTERNATIONAL INC.

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