Profits fell 23% at U.S. corporations in quarter

Companies `glad to have 2001 behind them,' a money manager says

February 05, 2002|By BLOOMBERG NEWS

NEW YORK - U.S. corporate profits fell 23 percent in the fourth quarter, marking a year of declines, as businesses used less energy and slashed budgets for networking gear and air travel because of the recession.

"Companies are glad to have 2001 behind them," said Owen Fitzpatrick, who helps manage $7 billion at Deutsche Bank Private Banking.

The decline is based on the fourth-quarter results of the 350 companies in the Standard & Poor's 500 index that had reported by the end of last week. Profits fell in all four quarters of 2001.

Companies such as Ford Motor Co., Merrill Lynch & Co., Verizon Communications Inc. and Motorola Inc. each had losses of more than $1 billion in the quarter as they shed jobs. Those reductions lowered expenses and may contribute to the end of the quarterly profit declines some time later this year.

Analysts polled by Thomson Financial/First Call say profit will fall 8 percent this quarter, the first time earnings would have dropped five straight periods since 1969-1970. That may be the last quarterly fall, said analysts, who forecast gains for S&P 500 companies in the latter three quarters and a full-year rise of 18 percent.

"This is a transition quarter," said Michael Holland, who manages the Holland Balanced Fund. "It's ugly out there for a lot of companies, but this is what happens at the end of a recession."

Federal Reserve Chairman Alan Greenspan said last month that reductions in companies' inventories may spark a "significant" boost in income and spending. Last week, the U.S. Commerce Department said the nation's economy expanded at a 0.2 percent annual pace in the fourth quarter.

Optimism that a recovery has started helped lift the S&P 500 10 percent in the fourth quarter, while the Nasdaq composite index rose 30 percent. Both were the biggest gains in eight quarters.

Personal spending increased by 5.4 percent during the fourth quarter, buoying profits of some companies tied to consumer purchasing.

Procter & Gamble Co.'s fiscal second-quarter earnings increased 8.8 percent after the largest U.S. household-goods maker boosted sales for the first time in more than a year. The company also said profit this quarter will rise more than forecast.

Best Buy Co., the biggest U.S. electronics chain, in January said fourth-quarter earnings would exceed forecasts because of increased holiday demand for digital products.

And many financial-services companies had profit increases after the Fed's 11 interest-rate cuts last year spurred borrowing by consumers and lowered deposit rates.

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