S&P 500 Profit Estimates Slashed After Third-Quarter Misses

By Meg Tirrell

Nov. 6 (Bloomberg) -- Analysts are slicing profit forecasts for U.S. companies in the fourth quarter and 2009 as third- period results miss projections at the highest rate in almost 11 years.

``Estimates have been coming down with a vengeance,'' said Dirk van Dijk, director of research at Zacks Investment Research Inc. in Chicago. ``It's just plain ugly out there.''

Companies in the Standard & Poor's 500 Index may see fourth-quarter earnings advance 15 percent, down from 42 percent projected at the end of August, according to a Bloomberg survey of analysts' estimates. Profits in 2009 may grow 13 percent, analysts say now, compared with the 24 percent predicted two months ago.

Financial firms worldwide have posted almost $700 billion in credit-related losses and writedowns since the beginning of 2007, in the worst economic crisis since the Great Depression. The S&P 500 is down 35 percent this year, headed for its worst annual performance since 1937.

``Wall Street has underestimated the negative impact on corporate earnings of the ongoing global economic deterioration,'' said Alec Young, an S&P equity strategist in New York. ``We're still finding out where the bottom is.''

Financial, Auto, Retail Drag

Third-quarter earnings retreated 9.6 percent at the 415 S&P 500 companies reporting results through yesterday, dragged down by financial, auto and retail businesses. More than 30 percent of companies missed analysts' earnings estimates, the most since the fourth quarter of 1997, according to Bloomberg data.

Bank of America Corp., the largest U.S. consumer bank, missed estimates last month when it reported third-quarter profit dropped to $1.18 billion, or 15 cents a share, from $3.7 billion, or 82 cents, a year earlier. Twenty analysts surveyed by Bloomberg had estimated 61 cents a share, on average.

``The financial services are getting whacked, and I mean that in the `Sopranos' sense of the word,'' van Dijk said, referring to the U.S. television drama about an organized crime family in New Jersey. ``It's just a massacre across the board.''

The banks aren't alone. Office Depot Inc., the world's second-largest office-supplies retailer, missed analysts' adjusted profit estimates Oct. 29, as sales slumped in North America. Best Buy Co., the top U.S. electronics retailer, fell short of earnings projections Sept. 16 after spending more to enhance U.S. shops. Boeing Co., the world's second-biggest commercial aircraft maker, posted profit below expectations Oct. 22 as revenue sank.

23-Year Low

The third-quarter earnings drop helped send the stock market to the lowest valuation in 23 years. The S&P 500 was valued at 10.7 times estimated profit when trading opened Oct. 28, the cheapest compared with the multiple using trailing profit since 1985. Since then, the index has jumped 12 percent.

The financial turmoil has caused companies to delay 2009 projections and withdraw growth targets, making it harder to estimate what will happen next year, S&P's Young said.

Caterpillar Inc., the world's largest maker of bulldozers and excavators, put off issuing its full-year projection while Western Union Co., the world's biggest money-transfer business, withdrew long-term profit targets set in June because of ``uncertainty'' in global markets.

``There's no visibility,'' Young said. ``I'm not even looking at '09 numbers because I don't trust them. They're too high.''

To contact the reporter on this story: Meg Tirrell in New York at mtirrell@bloomberg.net.