World and Nation

Low growth in corporate earnings is expected

Corporate profits have been among the brightest lights of the economic recovery, helping to lift the stock market more than 25 percent since October.

But analysts predict that when the first-quarter reporting season starts in earnest next week, U.S. companies will show the slowest rate of growth in operating earnings in three years.

One widely used gauge of profits, the Standard & Poor’s Capital IQ survey, forecasts that earnings will have grown 0.93 percent in the first quarter, compared with the first quarter of 2011, for the companies that make up the S&P 500-stock index. That would bring the value of one share of the index to $23.85.

In the same period last year, operating earnings per index share were $23.63, the result of 19.68 percent growth from the first quarter in 2010.

“It is the lowest quarter of growth we have seen since the third quarter of 2009,” said Christine Short, the senior manager for S&P Global Markets Intelligence. Other surveys, by Thomson Reuters and FactSet, show similar trends of weak first-quarter growth compared with the year before.

Many companies struggled through the difficult period since the 2008 financial crisis by trimming costs and laying off employees to help rebuild their bottom lines.

Now analysts say that the cutbacks may have reached their limits and that profits could very well have peaked in the second half of last year.

The eurozone debt crisis, slowing growth in Asia and emerging markets, and commodity price inflation are also expected to have hurt performance, analysts said.

Analysts don’t expect the European debt crisis “to be fully dealt with in the first half of the year,” Short said. “There is too much uncertainty looming to say how it is going to affect corporate earnings.”

Part of the reason the numbers will show weakness is also smoke and mirrors: Profits were starting to grow a year ago as the economy rebounded from the financial crisis, so comparisons to 2011 will be relatively mild.

“You still have growth, but it is at a slower pace,” said Lawrence Creatura, a portfolio manager at Federated Investors.

Three of the 10 sectors of the S&P 500 index will show earnings growth in the first quarter of 2012, according to the forecast: the industrial, technology, and consumer staples companies. The energy industry is expected to show flat earnings. Of the other six, materials and telecommunications are expected to record the largest drops, partly because of shrinking global demand, according to Short.