Good 3rd-Quarter Profits Expected Cost-Cutting Programs Help Lift Corporations

By Ap | St Louis Post-Dispatch (MO), October 2, 1994 | Go to article overview

Good 3rd-Quarter Profits Expected Cost-Cutting Programs Help Lift Corporations


Ap, St Louis Post-Dispatch (MO)


Investors hoping to take advantage of upcoming third-quarter profit reports seem to have a mantra: Just Think Deere.

On Aug. 23, the farm and construction machinery maker posted record third-quarter net earnings. The report not only sent Deere stock soaring 3 5/8 points, but it boosted other construction company issues and the Dow Jones industrial average as well.

The Dow gained 125 points that week, in large part because of Deere & Co.'s earnings. Many investors hope the upcoming third-quarter reports include a few more upside surprises.

Their wishes may well be granted, analysts say. Third-quarter profits are expected to be quite good as companies continue to benefit from the massive cost-cutting they have undertaken over the past two years.

While market participants got a fresh scare this past week that the Federal Reserve might again raise interest rates, companies have suffered little from this year's five previous increases, said Ben Zacks, executive vice president at Zacks Investment Research in Chicago.

Zacks expects corporate profits to be up 20.5 percent in the third quarter compared with the same period last year. That's even better than the 18.5 percent year-over-year growth in the second quarter, "which was a barn burner," Zacks said.

John Eliseo, assistant vice president at the Institutional Brokers Estimate System, a company that tracks earnings projections, said that out of 148 companies that have reported third-quarter earnings so far, positive earnings surprises are running more than two to one ahead of negative surprises.

In addition, analysts traditionally start the year with optimistic earnings growth projections, and lower them about 1 percentage point every quarter as they become more realistic about companies' performance and as companies guide them lower, Eliseo said.

If history is an indication, analysts should have lowered their estimates by an average of 3 percentage points so far this year, but they have not, Eliseo said. …

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