What’s driving company earnings up?
TEXT OF STORY
Kai Ryssdal: Much like the Fed, corporate America is in the throes of profit reports. Aluminum producer Alcoa kicked things off after the closing bell yesterday by posting a worse-than-expected loss for the last quarter of ’09. Overall, though, best guesses are we’ll see the first growth in quarterly profits in almost three years, as Marketplace’s Amy Scott explains.
AMY SCOTT: During the second and third quarters of ’09, corporate profits were better than expected. But mostly because companies were cutting costs and slashing jobs.
Mark Eibel is a strategist with Russel Investments. He says this time around, investors want to see those companies actually bringing in money.
MARK EIBEL: Last quarter you were OK if you just hit your earnings number. This quarter, we don’t want to see it just from cost-cutting. We want to see revenue growth, and we want to see more companies showing revenue growth than the previous one.
But even if companies do show growth, investors shouldn’t get too excited. After all, it’s easy to look good compared to the end of 2008, when it looked like the economy might collapse.
And some companies are going out of their way to make sure investors don’t get ahead of themselves. Gamemaker Electronic Arts cut its forecast for the coming year.
Alec Young with Standard and Poors expects to see more companies set the bar low.
ALEC YOUNG: Let the market get its head around some fairly modest expectations, only to see those beaten. That I think would be a better situation than to have investors hoping for more than is realistic only to be disappointed down the road.
It’s not just investors who care. Quincy Krosby with Prudential Financial says companies that don’t make profits can’t create jobs.
QUINCY KROSBY: Once we see that companies are turning the corner, and really earning money, at some point they have to hire.
But S&P’s Alec Young says it may be April, when this quarter’s number start coming in, before we see how well companies are really doing.
In New York, I’m Amy Scott for Marketplace.
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