Low Growth in Earnings Is Expected

Corporate profits have been among the brightest lights of the economic recovery, helping to lift the stock market more than 25 percent since October.

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But analysts predict that when the first-quarter reporting season starts in earnest next week, American companies will show the slowest rate of growth in operating earnings in three years.

One widely used gauge of profits, the Standard & Poor’s Capital IQ survey, forecasts that earnings will have grown 0.93 percent in the first quarter, compared with the first quarter of 2011, for the companies that make up the S.& P. 500-stock index. That would bring the value of one share of the index to $23.85.

In the same period last year, operating earnings per index share were $23.63, a result of 19.68 percent growth from the first quarter in 2010.

“It is the lowest quarter of growth we have seen since the third quarter of 2009,” said Christine Short, the senior manager for S.& P. Global Markets Intelligence. Other surveys, by Thomson Reuters and FactSet, show similar trends of weak first-quarter growth compared with the year before.

Many companies struggled through the difficult period since the 2008 financial crisis by trimming costs and laying off employees to help rebuild their bottom lines. Now analysts say that the cutbacks may have reached their limits and that profits could very well have peaked in the second half of last year.

The euro zone debt crisis, slowing growth in Asia and emerging markets, and commodity price inflation are also expected to have hurt performance, analysts said.

Analysts don’t expect the European debt crisis “to be fully dealt with in the first half of the year,” Ms. Short said. “There is too much uncertainty looming to say how it is going to affect corporate earnings.”

Part of the reason the numbers will show weakness is also smoke and mirrors: profits were starting to grow a year ago as the economy rebounded from the financial crisis, so comparisons to 2011 will be relatively mild.

“You still have growth, but it is at a slower pace,” said Lawrence Creatura, a portfolio manager at Federated Investors.

Three of the 10 sectors of the S.& P. 500 index — the industrial, technology and consumer staples companies — will show earnings growth in the first quarter of 2012, according to the forecast. The energy industry is expected to show flat earnings.

Of the other six, materials and telecommunications are expected to record the largest drops, partly because of shrinking global demand, according to Ms. Short.

Among the companies with lowered forecasts are the steel companies Nucor and Steel Dynamics. Nucor said on March 15 that it expected first-quarter results in a range of 30 to 35 cents a share, down from 50 cents in the same period in 2011.

Because investors are being prepared for what they might see in the coming season, analysts said they did not expect the lower growth to cause any major stock market retreat. But the guidance the companies will give investors for the current quarter and the rest of the year poses a much bigger risk to sentiment.

Barry C. Knapp, the head of United States equity portfolio strategy at Barclays, said Barclays was estimating a retreat in the S.& P. 500 — albeit less than 10 percent — if investors were disappointed by companies’ guidance.

Still, equities are inexpensive considering the current low interest rates, Mr. Creatura said.

One of the first major companies to report its first-quarter earnings for 2012 will be Alcoa, the aluminum producer, on Tuesday. Investors view the company as something of a bellwether for global economic trends because its products are used for automobiles, airplanes and construction, and also because it has operations in Europe.

Alcoa’s operating earnings per share are forecast to have declined about 3 cents in the first quarter of 2012, about the same decline as in the fourth quarter, according to a Bloomberg survey. Its most recent guidance in January included an outlook of market growth for aerospace and auto companies, with 7 percent global growth in aluminum.

After Alcoa will be JPMorgan Chase, scheduled for next Friday. Average estimates for JPMorgan’s operating earnings per share are $1.14, compared with $1.28 a year ago and 93 cents in the fourth quarter of 2011.

It, too, is considered a bellwether for its industry, because it is one of the largest banks in asset terms and because its leader, Jamie Dimon, is often seen as a spokesman for the industry, said Gerard S. Cassidy, a banking analyst for RBC Capital Markets.

A recovery in overall earnings growth is expected in the third quarter, according to average forecasts, said John Manley, chief equity strategist at Wells Fargo Advantage Funds.

“I suspect that Europe may have a little bit more of an impact on the bottom line, and the talk may be more measured in terms of growth expectations going forward,” Mr. Manley said.