Companies struggle to grow profits, look ahead to 2020

NEW YORK — Corporate profits continued their yearlong slide during the third quarter and analysts expect another decline this quarter before the numbers start improving.

Companies have been hindered by slower global economic growth, worsened by the U.S.-China trade war, in their efforts to increase profits from a year ago. Many with international supply chains have faced higher costs, and several sectors have seen declining global revenue.

U.S. companies are also having a tougher year by comparison to 2018, when sharply lower corporate tax rates helped goose profits.

Analysts expect profits to resume growing in the new year, starting slowly in the first quarter and accelerating after that. Much of the optimism centres around hopes for a resolution to the trade war and companies getting a clearer picture of where the global economy is headed.

Wall Street has taken this year’s quarterly profit contractions in stride, largely because companies, for the most part, have managed to beat already low forecasts. Analysts came into the third quarter expecting profits for the S&P 500 to fall 4%. With 97% of companies in the index reporting, profits are expected to have declined by 2.3%, with three-quarters of the companies topping expectations.

Reassured by those results, investors have instead focused on the broader U.S. economy and the Federal Reserve’s moves to lower interest rates. Consumer spending remains strong, with unemployment close to a five-decade low. Inflation is also restrained. Those have contributed to steady, if not spectacular, economic growth around 2%.

Fears of a U.S. recession, tied largely to a drop in manufacturing activity, have recently subsided.

“There’s no question earnings are challenged,” said David Kelly, chief global strategist at JPMorgan Asset Management. “The market is to some extent coasting off good stable job performance.”

Investors have been in a buying mood all year. The S&P 500 is hovering around a 25% gain for the year, while the tech-heavy Nasdaq is on track for a 30% gain.

Companies that beat analysts’ forecasts in the third quarter saw an average price increase of 2.2% within the four-day period surrounding their report, according to John Butters, senior earnings analyst at FactSet. That is well above the five-year average price increase of 1% during that same window.

Investors have also been taking it relatively easy on companies that fell short of the mark, according to Butters. Companies that fell short of expectations saw an average price decline of 1.7% during that four-day window. That’s smaller than the five-year average price decrease of 2.6% during that same window for companies falling short of expectations.

Katie Nixon, chief investment officer at Northern Trust Wealth Management, said investors have been responding more to economic data and policy, along with trade developments.

“We are in jet propulsion mode right now as investors focus on the holy trinity of low, but positive growth, low inflation and accommodative central banks,” she said.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Masks were made mandatory in any workplace setting across Alberta as the premier introduced sweeping measures to prevent the further spread of COVID-19. (Photo by Paul Cowley/ Advocate Staff)
Kenney declares state of public health emergency as COVID-19 cases rise

High schools shift to online learning, businesses face new restrictions

Lynne McConnell, a Red Deer single mom who runs a delivery company, is left without a car for her business after her vehicle was stolen twice in about 48 hours. Photo by Mamta Lulla/Advocate staff
Highway 11, from Sylvan Lake to Rocky Mountain House, is about to be twinned in a $120-million project announced Friday. Photo by PAUL COWLEY/Advocate staff
Town of Sylvan Lake likes Highway 11 twinning plans

Province plans to twin Highway 11 to Rocky Mountain House

Lynn Van Laar, chair of this year’s Christmas Wish Breakfast, said the event was planned outdoors to minimize the risk of COVID. Photo by Mamta Lulla/Advocate staff
Outdoor Christmas Wish Breakfast helps central Alberta families this holiday season

The coronavirus pandemic isn’t going to stop children from having a merry… Continue reading

QMJHL Roundup: Armada down Olympiques to extend win streak to seven games

QMJHL Roundup: Armada down Olympiques to extend win streak to seven games

Nashville SC ends Toronto FC’s season with stunning 1-0 extra time upset

Nashville SC ends Toronto FC’s season with stunning 1-0 extra time upset

Juve, Barça, Chelsea, Sevilla advance in Champions League

Juve, Barça, Chelsea, Sevilla advance in Champions League

Toronto Raptors guard Fred VanVleet (23) brings the ball up court against Atlanta Hawks guard Trae Young (11) during the first half of NBA basketball action in Toronto on January 28, 2020. The Raptors officially annoucned that VanVleet has agreed to a multi-year contract with the team. THE CANADIAN PRESS/Frank Gunn
Raptors guard Fred VanVleet says contract negotiations were “easy”

Raptors guard Fred VanVleet says contract negotiations were “easy”

FC Cincinnati head coach Alan Koch waves to the crowd before an MLS soccer match against the Portland Timbers in Cincinnati on March 17, 2019. Canadian Premier League team FC Edmonton has hired Koch as head coach and director of football operations.THE CANADIAN PRESS/AP, John Minchillo
FC Edmonton names Alan Koch coach of Canadian Premier League club

FC Edmonton names Alan Koch coach of Canadian Premier League club

Time running short for NHL to start next season Jan. 1

Time running short for NHL to start next season Jan. 1

Former Chicago Blackhawk Fred Sasakamoose, one of the first Indigenous pro hockey players, is honoured at the Edmonton Oilers and Chicago Blackhawks game in Edmonton on December 29, 2017. THE CANADIAN PRESS/Jason Franson
Fred Sasakamoose, Indigenous NHL pioneer, dies at age 86 after presumed COVID-19 case

Fred Sasakamoose, Indigenous NHL pioneer, dies at age 86 after presumed COVID-19 case

Thanksgiving lessons jettison Pilgrim hats, welcome truth

Thanksgiving lessons jettison Pilgrim hats, welcome truth

Most Read