Earnings perform like 2009; Boos then, boos now

Wall Street performs like it did in 2009, and yes, that's as bad as it sounds

Nobody in Corporate America wants to go back to 2009, but by one measure companies are there right now.

Based on the 291 companies in the Standard & Poor's 500 that have reported earnings so far - along with estimates for the rest - S&P Capital IQ expects overall profits to decline by half a percent from the same period a year ago. That would be the first time that profits have shrunk since the third quarter of 2009, just after the Great Recession. Analysts are predicting that earnings will shrink 0.3 percent for the third quarter, too.

Revenue for those 291 companies has increased just 2.3 percent, compared with a 10-year average of 7.1 percent, according to S&P Capital IQ.

Worse, companies are getting more pessimistic about the rest of the year.

Companies that should benefit from a recovery are instead getting ready for a slowdown. UPS, the world's largest package delivery company, said it expects the global economy to get worse before it gets better. It lowered its profit forecast for 2012. Cisco Systems said it will lay off 1,300 people and warned that revenue for the current quarter will grow much less than expected. Chemical maker DuPont said this year's profits will be at the low end of its expectations because of uncertainty about the economic outlook.

The last recession ended in June 2009, but the U.S. economy remains unusually sluggish this far into the recovery. It grew at an annual rate of just 1.5 percent from April through June. Unemployment remains above 8 percent.

"The economy is bordering on stall speed," said Kurt Reiman, a strategist at UBS.

To be sure, some companies are reporting profit growth. Caterpillar's quarterly profit jumped 67 percent, and the maker of big construction equipment boosted its outlook for the year. Boeing reported a better-than-expected 3 percent increase in profits as it delivers more planes.

But outlooks overall are very cautious. In a survey by data provider FactSet, 47 out of 60 companies lowered the earnings guidance they gave investors for the third quarter. And investors often trade more on outlooks than on the last quarter's results.

Shares of online game-maker Zynga plummeted nearly 40 percent on Thursday after it slashed its profit guidance for the year to between 4 cents and 9 cents per share, from 23 cents to 29 cents previously. UPS lost 5 percent of its value the day after cutting its full-year earnings forecast by 25 cents per share, to a range of $4.50 to $4.70 per share. Its stock regained some of that loss later in the week.

Starbucks shares plummeted 9.4 percent on Friday after it cut its outlook for the current quarter and said it is still struggling in Europe.

Indeed, Europe's problems are causing slowdowns for others. U.S. airlines are cutting flying to Europe this fall. China's growth is slowing, in part because it's hard to sustain the torrid pace of the past few years, and in part because of less spending from Europe.

Dow Chemical has a good window into the world's economies because its materials are used in televisions, paint and agricultural products. CEO Andrew N. Liveris, for example, has visited China four times in the last four months.

"Every single visit, to customers and to governments, they were seeing a decline and the decline was the domino effect of Europe," he said on Dow's earnings conference call on Thursday. Dow has scrapped its prediction for an economic upturn in the second half of the year, and Liveris said it's now unlikely that the world's economy will have broad positive developments this year. Dow's quarterly profit missed analyst estimates, and revenue fell 10 percent.

Investors and corporate executives will be watching Washington Wednesday when the Federal Reserve Open Markets Committee meets.

One option for the Fed is another major round of bond purchases, where it would buy up more mortgage-backed debt to inject more money into the economy and, in effect, lower interest rates further. Such a move would be the third time that the Fed has engaged in so-called "quantitative easing."

Fed Chairman Ben Bernanke said on June 20 that another round would be considered "if we need to take additional measures to strengthen the economy."

But Scott Wren, a senior equity strategist at Wells Fargo Advisors, doesn't think the Fed will announce a new round on Wednesday, and he doesn't think it would help much anyway. Rates are already low, but businesses are holding back because they don't know what their future tax burden will be or how much it will cost to hire more workers, he said.

"Their confidence isn't great. They're not hiring a lot of people - and that harms consumer confidence. It's a negative circle. When confidence is low all the way around, people just aren't looking to borrow more money."

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