U.S. Profits May Drop the Most in a Decade, Led by Lehman, Merrill Lynch

[marmar]

from Bloomberg:



U.S. Profits May Drop Most Since at Least 1998, Led by Lehman

By Meg Tirrell

July 30 (Bloomberg) -- Profits at U.S. companies may have dropped the most in at least a decade last quarter after credit writedowns triggered a combined $7.43 billion loss at Merrill Lynch & Co. and Lehman Brothers Holdings Inc.

Earnings of Standard & Poor's 500 Index companies have tumbled 24 percent from a year earlier, according to data compiled by Bloomberg on the 291 companies that had reported quarterly results through yesterday. As recently as July 3, analysts expected a drop of 11 percent.

Financial industry profits, which analysts estimated would fall 60 percent, have plummeted 87 percent. Record oil prices drove earnings of ConocoPhillips and Occidental Petroleum Corp. to the highest in their histories. The energy group of the S&P 500 has posted a 15 percent gain in profits so far.

``It's a tale of two sectors that are really driving things,'' said Dirk van Dijk, director of research at Zacks Investment Research in Chicago. ``On the bad side it's financials,'' he said in an interview. ``On the upside, it's energy.''

The benchmark S&P index, representing companies with a combined market value of $11.3 trillion, slipped 3.2 percent in the quarter, the worst showing for the period since 2002. The index fell 14 percent this year before today.

A 24 percent earnings drop would be the deepest since at least the second quarter of 1998, according to the earliest comparable Bloomberg data. Profits fell 23 percent in the third and fourth quarters of 2001 and in the fourth quarter of 2007. .....(more)

The complete piece is at: http://www.bloomberg.com/apps/news?pid=20601087&sid=ahwBWuxNJ5Eg&refer=home

[Phoebe Loosinhouse]

1. Profits are what you have after expenses.

Part of expenses are the insanely bloated salaries, bonuses, golden parachutes, failure rewards of the upper echelon CEOs and BODs who have basically plundered what might have been profits and paid out as dividends to shareholders. It's like legal embezzlement done in the open. They have abrogated their fiduciary duties to their shareholders and they have violated a broader unwritten social contract of "fair play" and reasonableness.

If companies no longer have earnings and profits and their share price stops rising and their dividends dry up, there is no point in "investing" (hah!) in them, is there? Take the same money and give it to your alcoholic gambler brother-in-law to "invest" for you at the casino - it's really the same thing.

[charlie]

2. Get ready for the fire sale of the century

A squintillion dollars of our debt sitting in foreign banks... where's it gonna go? For purchases in international markets where dollars are worth less than ever and dropping daily? Or right here in the ol' US of A where company valuations are cratering into Blue Light Special territory? The bath Ford just took in selling 2 divisions to Tata Motors (they reeeeally needed the cash) is just the start.

The good old days are coming back. As in, Colonial America. Gooooo Team Dubya!