Anxiety greets third-quarter profit reports

updated 7:53 p.m. ET Oct. 19, 2008

Even as U.S. companies report some good news about the third quarter, investors and executives are peering ahead anxiously.

Many U.S. corporations have turned in results that were surprisingly good, although the Dow Jones industrial average has suffered some of its worst losses in history. Tech companies delivered higher-than-expected profits and consumer products firms like Coca-Cola Co. and The Hershey Co. reported solid profit growth.

Still, banks suffered big drops in profit, airlines were pounded by high fuel prices and some manufacturers promised to trim operations. The results suggested a deep uncertainty about the U.S. economy, even as they hinted at some underlying strengths.

Corporate earnings "are probably coming out better than the stock prices are telling you," said Jerome Heppelmann, chief executive and chief investment officer of Liberty Ridge Capital in Berwyn, Pa.

In spite of the decent earnings, many stock prices are depressed by fears about the future, Heppelmann said. Investors are worried a massive government bailout might not give banks the confidence to loan money more freely, which would freeze up corporations ability to borrow for expansion.

"If the credit markets stay frozen, nothing is a good buy," he said.

Indeed, companies released largely gloomy and uncertain outlooks.

Despite a healthy third quarter, Google Inc. Chief Executive Eric Schmidt said the company is facing a more daunting challenge.

"It is pretty clear the economic situation today globally is worse than people were predicting a month ago," he said.

Intel Corp.'s finance chief Stacy Smith said the company was also cautious about the current quarter.

"We have a high degree of uncertainty around demand in the fourth quarter, but our execution is good," he said Tuesday.

It doesn't help that many underlying factors that helped corporations during the third quarter have disappeared since the economy went into a tailspin in mid-September, said Mike Helmar, an economist with Moody's Economy.com.

The weak dollar boosted U.S. exports, and helped firms like Coca-Cola with broad international operations. But the world economy is expected to slow, and could dry up demand for U.S. goods, Helmar said.

With banks hesitant to lend, companies that do best in 2009 will be those with plenty of cash on hand to fund operations.

"You have to take it on a company-by-company basis," Helmar said. "If they need to borrow, corporate credit is not the same story" as it was in the third quarter.

AIG slashes amount it owes U.S. by $25 billion American International Group Inc. on Tuesday reduced the amount of money it owes the government by completing a move of two subsidiaries into special holding units. Blacks fear path to middle class blocked Black workers' crisis may linger after upturn Lessons from ‘80s don’t bode well for economy Jobs, spending data hint at recovery

Banks are pinning their hopes on an unprecedented flood of cash from the U.S. Treasury. On Tuesday, the Bush administration announced it will invest $250 billion in the nation's leading banks in return for a stake in those institutions.

Conditions could ease as the government's actions work their way through the system, Bank of America Chief Executive Kenneth D. Lewis earlier this month.

But Lewis doesn't expect Bank of America to loosen up its underwriting standards anytime soon.

"We're making every good loan we can find ... but it's not going to be pretty for a while," Lewis said during a conference call with investors.

MORE FROM EARNINGS

Earnings Section Front

Deere’s profit falls after drop in sales Tiffany raises forecasts for rest of the year Barnes & Noble, Borders post losses Spam maker's profit rises 50 percent Campbell's profits rise despite falling sales Tyson Foods profit drops, but sales rise Smucker's profit surges after acquiring Folgers Dell profit falls 54 percent amid PC slump Sears posts second consecutive quarterly loss Gap profit up 25 pct in 3Q as Old Navy recovers Earnings Section Front   Add Earnings headlines to your news reader: