Warning Signs: After Historic Surge, Profit Gains May Face An Extended Slump --- S&P 500's Earnings Are Seen Falling 9% in 1st Quarter, Worst Showing Since 1991 --- The Era of the Write Off?
Brace yourself.</br></br>Over the next several weeks, hundreds of U.S. companies will report profit-and-loss statements that are going to look ugly.</br></br>According to analysts' estimates gathered by Thomson Financial/First Call, operating profits for the companies in the Standard & Poor's 500 declined 9% in the quarter ended March 31 from the year-earlier period. If the estimates hold up, it will be the sharpest drop since the 1990-91 recession. Second-quarter earnings are also expected to tumble 7% and the third-quarter outlook, while still barely positive, is rapidly deteriorating.</br></br>That's a big departure from 1999 and 2000, when year-over-year quarterly operating profits frequently grew more than 20%. But some economists say the current decline doesn't begin to tell the full story of what's in store in the coming years.</br></br>They say that even once the economy rebounds and earnings start growing again, the outsized profit gains of 1999 and 2000 are a thing of the past. Profits in the 1990s, they say, grew out of sync with the rest of the economy, lifted temporarily by tame debt and labor costs, accounting quirks and technology investments that might never yield significant returns. They say a reversion to the mean is in the works that will translate into a period of profit gains that, at best, are in the single digits. And if consumers cut back on spending in response to their stock market losses, it will only add to the profit pain.