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Profits: Suddenly, The Downpour


News: Analysis & Commentary: Corporate Profits

Profits: Suddenly, the Downpour

Oil prices and the slowdown make for a grim earnings outlook

Forget the debate over the economy. Even if Federal Reserve Chairman Alan Greenspan keeps the economy on track by cutting interest rates again, these moves won't come soon enough to head off the storm that's starting to roll across Corporate America. Thanks to the one-two punch of soaring energy costs and plunging consumer confidence, BusinessWeek's flash profits survey of 114 bellwether companies shows that fourth-quarter 2000 profits rose a mere 0.8%. Excluding energy companies and utilities, profits for the group fell 9.2%.

What's more, the fourth quarter isn't likely to be an aberration. While more Fed rate cuts could provide relief to banks, brokerages, and other rate-sensitive sectors such as housing, they won't offer any immediate help to other companies. "It takes six months for interest rates to play through for us," says James W. Anderson, head of investor relations at Caterpillar Inc. As a result, many forecasters predict that corporate profits could dip for at least the next two quarters. "This is going to be the toughest earnings period since the [1991] recession," notes Mark M. Zandi, chief economist at Economy.com Inc., a Philadelphia consulting firm.

What's most striking is how quickly profits growth slowed in the fourth quarter--particularly given the 18%-plus average earnings gain recorded by companies in the Standard & Poor's 500-stock index in each of the preceding three quarters. "The magnitude [of the slowdown] was greater than we anticipated," says W. James McNerney Jr. CEO at 3M. Profits at 3M tumbled 10% after one-time charges in the fourth quarter. And companies like Eastman Kodak Co. that are still projecting growth during 2001 aren't doing so with the same conviction as before. "We're all trying to look through the fuzziest crystal ball we've ever had," admits Kodak CEO Daniel A. Carp.SLOW BUILD. The slowdown is particularly pronounced in the technology sector. After a robust 34% rise during the third quarter, Wall Street analysts had expected tech profits to climb 29% in the fourth quarter. Now, however, the consensus is that tech profits will rise just 2%.

Without technology to propel the rest of Corporate America, Charles L. Hill, research director at First Call/Thomson Financial, believes profits could be down in both the first and second quarters--and perhaps the third quarter of 2001 as well. "We're starting to see less trimming and more slashing of third-quarter earnings estimates," notes Hill.

Despite the current gloom, many Wall Street pros remain bullish about the outlook for later this year. Among the reasons for optimism: tax relief from the Bush Administration, a decline in the dollar that helps exporters, and--not least--more rate cuts. "You can't underestimate the power of the Fed," says John Forelli, portfolio manager at Boston's Independence Investment Associates. He may be right. But if it takes until fall for Greenspan's medicine to work, it could be a long dry spell for many companies.By Dean Foust in Atlanta, with Michael Arndt in Chicago and Geoffrey Smith in BostonReturn to top

TABLE

Fourth-Quarter Flash Profits Survey

CURRENT QTR.

QTR. SALES % PROFITS %

(millions) CHG. (millions) CHG.

INDUSTRIALS 383,426.8 +8 23,172.4 +23

ABBOTT LABORATORIES 3,704.7 +7 753.4 +13

AIR PRODUCTS & CHEMICALS** 1,441.3 +14 135.6 +168

AK STEEL HOLDING 1,035.2 -5 15.5 NM

ALCOA 6,560.0 +54 392.0 +17

ARCHER DANIELS MIDLAND*** 4,941.0 +7 124.6 +22

BOEING 14,693.0 -3 481.0 -27

BOISE CASCADE 1,864.8 -4 23.4 -69

BRISTOL-MYERS SQUIBB 4,784.0 +4 1,069.0 +11

CATERPILLAR 5,114.0 +2 264.0 +10

CHEVRON 13,521.0 +23 1,494.0 +85

COCA-COLA ENTERPRISES 3,561.0 +1 16.0 NM

CONAGRA FOODS*** 7,206.2 +8 301.7 +61

CONOCO 10,393.0 +27 550.0 +70

DELPHI AUTOMOTIVE SYSTEMS 6,909.0 -5 200.0 -26

DUPONT 6,316.0 -12 261.0 NM

EASTMAN KODAK 3,560.0 -6 194.0 -59

EXXON MOBIL 64,132.0 +17 5,220.0 +129

FMC 952.3 -12 50.0 -5

FORD MOTOR 42,587.0 -3 1,077.0 -37

GENERAL ELECTRIC 34,981.0 +6 3,585.0 +16

GENERAL MILLS*** 1,895.2 +4 202.7 +5

GENERAL MOTORS 46,341.0 0 89.0 -92

HARLEY-DAVIDSON 769.1 +15 93.9 +26

INTERNATIONAL PAPER 7,228.0 +15 -321.0 NM

JOHNSON & JOHNSON 7,108.0 +3 891.0 +18

JOHNSON CONTROLS** 4,454.4 +3 102.5 +4

KB HOME 1,244.1 +2 73.4 +14

MERCK 11,467.3 +28 1,764.0 +12

NIKE*** 2,198.7 +7 119.4 +11

PARKER HANNIFIN*** 1,460.1 +18 78.3 +4

PFIZER 8,105.0 +8 1,412.0 -4

PPG INDUSTRIES 1,992.0 -3 126.0 -22

PRAXAIR 1,273.0 +6 5.0 -96

SCHLUMBERGER 2,688.5 +23 237.9 +307

TEXACO 14,431.0 +37 545.0 +71

TEXTRON 3,312.0 -2 -218.0 NM

3M 4,136.0 +2 401.0 -10

TIMKEN 631.7 0 0.9 -96

TYCO INTERNATIONAL** 8,020.3 +21 1,009.2 +33

UNITED TECHNOLOGIES 6,767.0 +4 426.0 +661

USX-U.S. STEEL GROUP 1,413.0 -6 -139.0 NM

VISTEON 4,529.0 -8 -87.0 NM

WHIRLPOOL 2,579.0 -4 67.0 -41

WILLAMETTE INDUSTRIES 1,127.0 +2 86.0 +3

SERVICES 204,077.2 +31 15,596.0 -19

AMERICAN EXPRESS 6,067.0 +6 677.0 +12

AMR 4,859.0 +8 47.0 -78

BANK OF AMERICA NA NA 1,385.0 -35

BANK ONE NA NA -512.0 NM

BEST BUY**** 3,732.1 +20 57.3 -27

BURLINGTON N. SANTA FE 2,339.0 -2 255.0 -19

CAPITAL ONE FINANCIAL 1,578.3 +11 128.3 +5

CARNIVAL 850.3 +7 193.8 -23

CIRCUIT CITY GROUP**** 2,325.6 -7 -64.4 NM

CITIGROUP 29,328.0 +21 2,840.0 -6

COSTCO WHOLESALE** 7,637.3 +10 129.5 0

DARDEN RESTAURANTS*** 932.0 +10 29.5 +21

ENRON 40,751.0 +271 347.0 +34

FEDEX*** 4,894.9 +7 193.8 +13

FIRST UNION NA NA 645.0 -23

FLEETBOSTON FINANCIAL NA NA 774.0 NM

GOLDMAN SACHS GROUP 7,989.0 +19 601.0 -17

HERTZ 1,211.2 +3 55.6 -8

J.P. MORGAN CHASE NA NA 708.0 -68

LEHMAN BROS. HOLDINGS 6,414.0 +36 399.0 +33

MBNA NA NA 423.8 +33

MCDONALD'S 3,589.6 +6 452.0 -7

MCKESSON HBOC**** 11,029.1 +12 7.3 -95

MERRILL LYNCH 11,663.0 +24 877.0 +11

MORGAN STANLEY 10,444.0 +17 1,208.0 -26

DEAN WITTER

NATIONAL CITY NA NA 308.0 -10

SAFECO 1,705.8 +2 10.2 -77

SCHWAB (CHARLES) 1,692.6 +10 138.7 -27

SEARS, ROEBUCK 12,374.0 +2 442.0 -40

SOUTHWEST AIRLINES 1,467.4 +22 154.7 +65

ST. PAUL 2,219.1 +14 201.6 -11

SUNTRUST BANKS NA NA 330.4 +45

SUPERVALU**** 5,420.2 +1 47.5 -19

SYSCO*** 5,290.5 +14 139.4 +37

TENET HEALTHCARE*** 2,915.0 +5 175.0 +30

U.S. BANCORP NA NA 418.6 +13

UAL 4,792.0 +7 -71.0 NM

UNION PACIFIC 2,952.0 +3 157.0 -35

WALGREEN** 5,614.2 +16 158.4 +24

WELLS FARGO NA NA 1,128.0 +9

TECHNOLOGY 97,350.5 +11 9,472.9 -7

ADVANCED MICRO DEVICES 1,175.2 +21 178.0 +174

APPLE COMPUTER** 1,007.0 -57 -207.0 NM

COMPAQ 11,526.0 +10 -672.0 NM

COMPUTER ASSOCIATES 783.0 -53 -342.0 NM

INTL.****

EBAY 134.0 +81 23.9 +528

EMC 2,621.3 +40 562.9 +172

GATEWAY 2,373.4 -7 -94.3 NM

GENENTECH 464.4 +37 14.3 NM

IBM 25,616.0 +6 2,670.0 +28

INTEL 8,702.0 +6 2,193.0 +4

LEXMARK INTERNATIONAL 1,095.7 +9 55.0 -45

MICRON TECHNOLOGY** 1,832.3 +16 352.2 +3

MICROSOFT*** 6,585.0 +8 2,624.0 +8

MOTOROLA 10,064.0 +11 135.0 -58

ORACLE*** 2,659.5 +15 622.8 +62

SABRE HOLDINGS 643.4 +19 -29.4 NM

SANMINA** 1,390.3 +82 110.7 +159

SCI SYSTEMS*** 2,595.4 +20 56.0 +14

SOLECTRON** 5,695.5 +101 190.6 +68

SUN MICROSYSTEMS*** 5,115.0 +44 423.0 +19

TEXAS INSTRUMENTS 3,033.0 +15 665.0 +49

UNISYS 1,928.3 -2 39.1 -73

YAHOO 310.9 +53 -97.8 NM

UTILITIES & TELECOM 36,795.2 +94 2,035.6 +41

BELLSOUTH 6,160.0 -8 1,119.0 +6

CONSOLIDATED EDISON 2,276.5 +21 68.3 -45

DUKE ENERGY 15,411.0 +148 284.0 NM

KINDER MORGAN 931.7 +93 86.6 -23

SCIENTIFIC-ATLANTA*** 631.4 +69 70.8 +112

SOUTHERN 10,226.0 +291 112.0 -9

TELLABS 1,158.6 +62 295.0 +59

EST. EPS REPORTED

(11/16) EPS DIFF.

INDUSTRIALS 0.61 0.60 -0.01

ABBOTT LABORATORIES 0.48 0.48 --

AIR PRODUCTS & CHEMICALS** 0.61 0.62 +0.01

AK STEEL HOLDING 0.32 0.14 -0.18

ALCOA 0.48 0.45 -0.03

ARCHER DANIELS MIDLAND*** 0.18 0.20 +0.02

BOEING 0.88 1.01* +0.13

BOISE CASCADE 0.46 0.34 -0.12

BRISTOL-MYERS SQUIBB 0.58 0.54 -0.04

CATERPILLAR 0.66 0.76 +0.10

CHEVRON 1.91 2.39* +0.48

COCA-COLA ENTERPRISES 0.01 0.04 +0.03

CONAGRA FOODS*** 0.58 0.58 --

CONOCO 0.73 0.87 +0.14

DELPHI AUTOMOTIVE SYSTEMS 0.50 0.36 -0.14

DUPONT 0.54 0.25 -0.29

EASTMAN KODAK 1.08 0.66 -0.42

EXXON MOBIL 1.20 1.46* +0.26

FMC 1.56 1.57 +0.01

FORD MOTOR 0.86 0.57 -0.29

GENERAL ELECTRIC 0.36 0.36 --

GENERAL MILLS*** 0.68 0.70 +0.02

GENERAL MOTORS 1.83 1.15* -0.68

HARLEY-DAVIDSON 0.28 0.31 +0.03

INTERNATIONAL PAPER 0.53 0.28* -0.25

JOHNSON & JOHNSON 0.64 0.63 -0.01

JOHNSON CONTROLS** 1.19 1.10 -0.09

KB HOME 1.85 2.00 +0.15

MERCK 0.75 0.75 --

NIKE*** 0.44 0.44 --

PARKER HANNIFIN*** 0.75 0.68 -0.07

PFIZER 0.27 0.23 -0.04

PPG INDUSTRIES 0.90 0.75 -0.15

PRAXAIR 0.76 0.76* --

SCHLUMBERGER 0.40 0.41 +0.01

TEXACO 1.23 1.55* +0.32

TEXTRON 1.29 1.28* -0.01

3M 1.20 1.00 -0.20

TIMKEN 0.17 0.02 -0.15

TYCO INTERNATIONAL** 0.57 0.57 --

UNITED TECHNOLOGIES 0.83 0.84 +0.01

USX-U.S. STEEL GROUP 0.12 -0.67* -0.79

VISTEON 0.77 -0.67 -1.44

WHIRLPOOL 1.44 1.00 -0.44

WILLAMETTE INDUSTRIES 0.78 0.78 --

SERVICES 0.65 0.54 -0.11

AMERICAN EXPRESS 0.49 0.50 +0.01

AMR 0.71 0.34* -0.37

BANK OF AMERICA 1.14 0.85 -0.29

BANK ONE 0.51 -0.44 -0.95

BEST BUY**** 0.27 0.27 --

BURLINGTON N. SANTA FE 0.71 0.65 -0.06

CAPITAL ONE FINANCIAL 0.62 0.61 -0.01

CARNIVAL 0.38 0.33 -0.05

CIRCUIT CITY GROUP**** 0.00 -0.32 -0.32

CITIGROUP 0.67 0.55 -0.12

COSTCO WHOLESALE** 0.29 0.28 -0.01

DARDEN RESTAURANTS*** 0.23 0.24 +0.01

ENRON 0.35 0.41* +0.06

FEDEX*** 0.63 0.67 +0.04

FIRST UNION 0.69 0.65 -0.04

FLEETBOSTON FINANCIAL 0.86 0.84 -0.02

GOLDMAN SACHS GROUP 1.55 1.50* -0.05

HERTZ 0.51 0.52 +0.01

J.P. MORGAN CHASE 0.83 0.37* -0.46

LEHMAN BROS. HOLDINGS 1.39 1.46 +0.07

MBNA 0.47 0.48 +0.01

MCDONALD'S 0.37 0.34 -0.03

MCKESSON HBOC**** 0.25 0.24* -0.01

MERRILL LYNCH 0.93 0.93 --

MORGAN STANLEY 1.34 1.06 -0.28

DEAN WITTER

NATIONAL CITY 0.56 0.50 -0.06

SAFECO 0.21 0.08 -0.13

SCHWAB (CHARLES) 0.15 0.10 -0.05

SEARS, ROEBUCK 1.97 1.91* -0.06

SOUTHWEST AIRLINES 0.26 0.29 +0.03

ST. PAUL 0.74 0.86 +0.12

SUNTRUST BANKS 1.13 1.11 -0.02

SUPERVALU**** 0.52 0.36 -0.16

SYSCO*** 0.18 0.21 +0.03

TENET HEALTHCARE*** 0.50 0.54 +0.04

U.S. BANCORP 0.57 0.56 -0.01

UAL -2.19 -2.41* -0.22

UNION PACIFIC 1.03 0.90* -0.13

WALGREEN** 0.15 0.15 --

WELLS FARGO 0.65 0.65 --

TECHNOLOGY 0.38 0.32 -0.06

ADVANCED MICRO DEVICES 0.69 0.53 -0.16

APPLE COMPUTER** 0.03 -0.61 -0.64

COMPAQ 0.37 0.30* -0.07

COMPUTER ASSOCIATES 0.56 -0.59 -1.15

INTL.****

EBAY 0.07 0.09 +0.02

EMC 0.23 0.25 +0.02

GATEWAY 0.62 0.12* -0.50

GENENTECH 0.16 0.03 -0.13

IBM 1.46 1.48 +0.02

INTEL 0.43 0.32 -0.11

LEXMARK INTERNATIONAL 0.61 0.42 -0.19

MICRON TECHNOLOGY** 0.86 0.58 -0.28

MICROSOFT*** 0.49 0.47 -0.02

MOTOROLA 0.27 0.15* -0.12

ORACLE*** 0.10 0.11 +0.01

SABRE HOLDINGS 0.24 0.25* +0.01

SANMINA** 0.32 0.34 +0.02

SCI SYSTEMS*** 0.43 0.37 -0.06

SOLECTRON** 0.28 0.29 +0.01

SUN MICROSYSTEMS*** 0.16 0.12 -0.04

TEXAS INSTRUMENTS 0.34 0.37 +0.03

UNISYS 0.41 0.41* --

YAHOO 0.13 -0.17 -0.30

UTILITIES & TELECOM 0.53 0.52 -0.01

BELLSOUTH 0.59 0.59 --

CONSOLIDATED EDISON 0.52 0.30 -0.22

DUKE ENERGY 0.87 0.76 -0.11

KINDER MORGAN 0.39 0.43* +0.04

SCIENTIFIC-ATLANTA*** 0.38 0.42 +0.04

SOUTHERN 0.23 0.16 -0.07

TELLABS 0.56 0.71 +0.15

* EPS adjusted for special items

** First-quarter results

*** Second-quarter results

**** Third-quarter results

NM = not meaningful

NA = not available

Data: Compustat, Provided by Standard & Poor's Institutional Market Services

Earnings Estimate Data Provided By I/B/E/S International Inc., a division of

Thomson Financial

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