Big U.S. companies not expected to continue double-digit growth
Fourth-quarter results are leaving some investors disappointed
NEW YORK » For America's top 500 companies, the absence of extraordinary earnings news this past week pretty much guarantees 18 consecutive quarters of double-digit profit are over.
Wall Street analysts say fourth-quarter results are running just about on par with historical averages. As of Jan. 31, with 57 percent of S&P components reporting, companies have posted profit growth that has averaged 8.1 percent, the rating agency said.
But measure the latest results against the third-quarter's 23 percent performance and the fourth quarter pales in comparison.
"There was some hope of getting back into double digits if there were a few surprises, but that's over now," said Howard Silverblatt, Standard & Poor's senior index analyst. "There's nobody left that can hit a home run. We're still going to finish under 10 percent no matter which way you go."
Wall Street hoped some knockout results from major U.S. companies, or a surprise here or there, might give the S&P 500 enough juice to hit 10 percent growth. But, even with strong earnings from the likes of Exxon Mobil Corp., growth still remains in single-digit range, Silverblatt said.
The fourth quarter is also leaving some investors disappointed as a number of closely-watched companies had lackluster results, including Ford Motor Co., Alcatel-Lucent, 3M Co., and Advanced Micro Devices Inc.
About 308 S&P members reported results as of Feb. 2, and 197 have posted profit above Wall Street projections, according to Thomson Financial. Sixty-three fell below expectations, while 48 matched.
The best news has come from the financial sector, where Wall Street banks turned in record results all year. Investment banks have enjoyed an unprecedented run thanks to the rallying stock market, including robust fees from advising on some $4 trillion of acquisition activity in 2006.
With help from companies like Merrill Lynch & Co. and Goldman Sachs Group Inc., S&P said 26.7 percent of the index's earnings are coming from the financial sector. Energy companies account for about 14 percent of the earnings.
But the technology sector has been the most troublesome. Telecommunications companies remain the index's laggards, while warnings and weak profit outlooks from broader tech players received an unsettling reception by investors.
Those disappointing include JDS Uniphase Corp., Sandisk Corp., and even Yahoo Inc. However, S&P said about 72 percent of the index's information-technology companies have still beaten analyst estimates.
Dirk van Dijk, director of research for Zacks Equity Research, said stocks might still post double-digit gains if you take a different approach.
The S&P weights stocks in its index to come up with the growth rate, while van Dijk said he prefers to use the median number for all the stocks combined.
Using this formula, the S&P 500 shows some 13.2 percent of growth thus far into the earnings period. Materials, energy companies and financials have been showing the most growth, he said.
"On a median basis, we are heading for double-digit growth, the fourth quarter is shaping up remarkably like the first three quarters of the year," he said. "It is safe to say we're going to be in the 12-to-14 percent range when all is said and done."
Also taking a different measurement is Thomson Financial, which estimates the growth rate at about 10.4 percent. The financial information provider uses net income that excludes one-time items, then compares that to estimated profit from those yet to report.
Thomson is also not as strict as S&P is about what items can be included or excluded from the bottom line.
Either way, stock advisers say the market has already priced in the likelihood results will be in the high single digits. Investors really aren't paying all that much attention either way.
"Everybody expected this to be the end of double digit and arrival of single growth, this isn't a surprise," said Todd Salamone, senior vice president of research for Schaeffer's Investment Research. "As a stock market investor, I'm OK with these lowered expectations because I've already factored it in."
And Salamone isn't alone. Wall Street has been off to a good start this year, with the Dow Jones industrials setting new all-time highs and other indexes also reaching milestones.
Just this past week, the Dow rose 166.47, or 1.33 percent; the S&P is up 26.21, or 1.84 percent; and the Nasdaq climbed 40.39, or 1.66 percent.