Corporate profit might be beating expectations, but some companies are skimping in ways that might come back to bite them later.
More than a quarter of the 121 companies in the Standard & Poor's 500 that reported research and development spending in the first quarter, including Merck, International Business Machines and Texas Instruments, spent less on R&D than they did in the same year-ago period. These 33 companies cut their R&D budgets by 9% on average, based on the USA TODAY analysis of data from S&P Capital IQ.
It's a continuation of a disturbing trend that showed up last year, when nearly 25% of companies cut their R&D budgets. Last year, 55 of the 225 companies that reported R&D spending said they cut.
Seeing so many large companies cutting their research spending at this point of the economic cycle is somewhat disappointing. Profit growth has largely stalled, along with revenue growth. Sure, first-quarter profit has come in better than expected, but earnings have inched ahead by just 3.4%, says S&P Capital IQ. And revenue is expected to grow by just about the same amount: 3.3%.