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Global Corporate Profits to Drop in â09; More Bankruptcies Loom
By Katie Hoffmann and Joseph Galante
Jan. 5 (Bloomberg) -- Corporate earnings will continue to slump into the first half of 2009 amid the first simultaneous recessions in the U.S., Japan and Europe since World War II.
Earnings at Standard & Poorâs 500 companies will probably fall in the first half, marking eight straight quarters of declines. In Europe and Asia, the outlook may be even worse as the recession curbs demand for retail goods and exports.
âItâs going to be a miserable ride,â said Bruce McCain, chief investment strategist at Cleveland-based Key Private Bank, which manages about $30 billion. Earnings probably wonât rebound until the end of 2009, he said. âThe market recovers, then the economy recovers, then finally the earnings recover.â
Companies are battling falling consumer demand and dwindling cash flows after banks tightened lending to cope with billions of dollars of real-estate losses. The U.S. Federal Reserve has cut interest rates to as low as zero percent, while governments worldwide have taken stakes in banks and companies to prevent a collapse of the global financial system.
âWe hit the peak in earnings in 2007, and in 2009 weâre going to see continued deterioration,â said Diane Garnick, who helps oversee $500 billion as an investment strategist at Invesco Ltd. in New York. Analystsâ earnings estimates are âstill way too optimistic.â
In the U.S., profit at Standard & Poorâs 500 companies will fall 11 percent in the first quarter, followed by a 6.2 percent drop in the following three months, according to data compiled by Bloomberg. Earnings should improve in the second half, driven by a rebounding financial industry, the data show.
Europe, Asia
While profits will rise 4.3 percent for the full year in the U.S., earnings in Europe are projected to decline for all of 2009 and analysts predict worsening reports out of Asia because the recession hasnât fully hit there yet.
The energy industry will lead U.S. declines, with earnings estimated to drop 29 percent in 2009. Profit at Exxon Mobil Corp., Chevron Corp. and ConocoPhillips, the largest U.S. oil companies, will probably fall after the recession sapping fuel demand, spurring a 78 percent drop in crude-oil prices from Julyâs record.
At Irving, Texas-based Exxon Mobil, the worldâs biggest publicly traded company, earnings will probably tumble 39 percent to $28.2 billion, the first decline since 2002, according to a Bloomberg survey of analysts.
âWe expect industry earnings to be down sharply, especially in exploration and production,â said Gene Pisasale, who helps manage $13 billion at PNC Capital Advisors in Baltimore.
Retailers Close
Earnings at U.S. retailers will fall 20 percent this year, according to analystsâ estimates. The International Council of Shopping Centers in New York predicts 73,000 U.S. stores may shut in the first half of 2009 after what may have been the worst holiday-shopping season in 40 years. Thatâs after about 148,000 stores closed last year, the most since the 2001 recession, according to the trade group.
âYouâll see department stores, specialty stores, discount stores, grocery stores, drugstores, major chains -- either multi- regionally or nationally -- go out,â said Burt Flickinger, managing director of Strategic Resource Group, a retail-industry consulting firm in New York.
AnnTaylor Stores Corp., Talbots Inc. and Sears Holdings Corp. are among chains shuttering underperforming locations as consumers tighten budgets. More than a dozen U.S. retailers filed for bankruptcy in 2008, including Circuit City Stores Inc., Linens ân Things Inc. and Sharper Image Corp.
Wal-Mart Stores Inc., the largest retailer, may report a 6 percent profit increase this year by offering lower prices to consumers seeking bargains, according to estimates.
âVery Difficultâ
JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp., Goldman Sachs Group Inc. and Morgan Stanley, the biggest U.S. banks, will probably post higher profits this year compared with 2008, when finance companies wrote down more than $720 billion of losses.
âFor the large financials, itâs going to be a very difficult year,â said David Burg, a Purchase, New York-based analyst at Alpine Woods Capital Investors LLC, which manages about $6.5 billion, including JPMorgan shares. âThe story for 2009 continues to be radical transformation -- companies fundamentally changing their business model.â
Goldman Sachs and Morgan Stanley, which were the two biggest U.S. securities firms before converting into banks, will suffer from a 15 percent decline in mergers and acquisitions and slowing underwriting fees, Kenneth Worthington, an analyst at JPMorgan in New York, said last month in a note.
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Global Corporate Profits to Drop in â09; More Bankruptcies Loom
By Katie Hoffmann and Joseph Galante
Jan. 5 (Bloomberg) -- Corporate earnings will continue to slump into the first half of 2009 amid the first simultaneous recessions in the U.S., Japan and Europe since World War II.
Earnings at Standard & Poorâs 500 companies will probably fall in the first half, marking eight straight quarters of declines. In Europe and Asia, the outlook may be even worse as the recession curbs demand for retail goods and exports.
âItâs going to be a miserable ride,â said Bruce McCain, chief investment strategist at Cleveland-based Key Private Bank, which manages about $30 billion. Earnings probably wonât rebound until the end of 2009, he said. âThe market recovers, then the economy recovers, then finally the earnings recover.â
Companies are battling falling consumer demand and dwindling cash flows after banks tightened lending to cope with billions of dollars of real-estate losses. The U.S. Federal Reserve has cut interest rates to as low as zero percent, while governments worldwide have taken stakes in banks and companies to prevent a collapse of the global financial system.
âWe hit the peak in earnings in 2007, and in 2009 weâre going to see continued deterioration,â said Diane Garnick, who helps oversee $500 billion as an investment strategist at Invesco Ltd. in New York. Analystsâ earnings estimates are âstill way too optimistic.â
In the U.S., profit at Standard & Poorâs 500 companies will fall 11 percent in the first quarter, followed by a 6.2 percent drop in the following three months, according to data compiled by Bloomberg. Earnings should improve in the second half, driven by a rebounding financial industry, the data show.
Europe, Asia
While profits will rise 4.3 percent for the full year in the U.S., earnings in Europe are projected to decline for all of 2009 and analysts predict worsening reports out of Asia because the recession hasnât fully hit there yet.
The energy industry will lead U.S. declines, with earnings estimated to drop 29 percent in 2009. Profit at Exxon Mobil Corp., Chevron Corp. and ConocoPhillips, the largest U.S. oil companies, will probably fall after the recession sapping fuel demand, spurring a 78 percent drop in crude-oil prices from Julyâs record.
At Irving, Texas-based Exxon Mobil, the worldâs biggest publicly traded company, earnings will probably tumble 39 percent to $28.2 billion, the first decline since 2002, according to a Bloomberg survey of analysts.
âWe expect industry earnings to be down sharply, especially in exploration and production,â said Gene Pisasale, who helps manage $13 billion at PNC Capital Advisors in Baltimore.
Retailers Close
Earnings at U.S. retailers will fall 20 percent this year, according to analystsâ estimates. The International Council of Shopping Centers in New York predicts 73,000 U.S. stores may shut in the first half of 2009 after what may have been the worst holiday-shopping season in 40 years. Thatâs after about 148,000 stores closed last year, the most since the 2001 recession, according to the trade group.
âYouâll see department stores, specialty stores, discount stores, grocery stores, drugstores, major chains -- either multi- regionally or nationally -- go out,â said Burt Flickinger, managing director of Strategic Resource Group, a retail-industry consulting firm in New York.
AnnTaylor Stores Corp., Talbots Inc. and Sears Holdings Corp. are among chains shuttering underperforming locations as consumers tighten budgets. More than a dozen U.S. retailers filed for bankruptcy in 2008, including Circuit City Stores Inc., Linens ân Things Inc. and Sharper Image Corp.
Wal-Mart Stores Inc., the largest retailer, may report a 6 percent profit increase this year by offering lower prices to consumers seeking bargains, according to estimates.
âVery Difficultâ
JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp., Goldman Sachs Group Inc. and Morgan Stanley, the biggest U.S. banks, will probably post higher profits this year compared with 2008, when finance companies wrote down more than $720 billion of losses.
âFor the large financials, itâs going to be a very difficult year,â said David Burg, a Purchase, New York-based analyst at Alpine Woods Capital Investors LLC, which manages about $6.5 billion, including JPMorgan shares. âThe story for 2009 continues to be radical transformation -- companies fundamentally changing their business model.â
Goldman Sachs and Morgan Stanley, which were the two biggest U.S. securities firms before converting into banks, will suffer from a 15 percent decline in mergers and acquisitions and slowing underwriting fees, Kenneth Worthington, an analyst at JPMorgan in New York, said last month in a note.
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