Most of Georgia’s largest companies reported strong profits in the late summer months, as they headed toward an uncertain but likely positive finish for the year.
Despite worries on Wall Street about financial turmoil in Europe and a wobbly economy here, many of Georgia’s Fortune 500 companies turned in double-digit profit increases in the third quarter, compared with a year earlier. Industry analysts expect profit growth to be nearly as good in the final months of 2011.
None of Georgia’s 13 companies on the Fortune 500 list, the nation’s largest publicly-traded firms as ranked by sales, is expected to lose money this year. Only four are expected to report lower profits for 2011 than last year.
Likewise, only one of the big Georgia companies reported a loss in the third quarter.
Newell Rubbermaid, the Sandy Springs maker of Calphalon pans and numerous other consumer plastics, said it lost $178 million in the third quarter, partly as the result of a restructuring plan that will cut 500 jobs.
Third-quarter profits at NCR, the Duluth-based maker of bank ATMs and other self-service terminals, dropped more than 80 percent compared with a year earlier. But it still made a $16 million profit.
Most other companies recovered a lot of ground lost during the Great Recession, at least in terms of reported incomes.
Farm equipment company AGCO said third-quarter net income surged almost 36 percent during the quarter to $84.4 million, almost matching its previous high for the quarter in 2008. Capitalizing on farmers’ rising fortunes in Europe, North America and other regions, the Duluth company has been expanding production and buying other agriculture businesses.
Despite rising profits, most of the businesses’ stock prices are down this year, reflecting investors’ still gloomy expectations.
“In general you’re starting to see investors acknowledge the dangers in the world [and] the weak economic backdrop,” said Dorsey Farr, an economist and financial adviser at French Wolf & Farr in Buckhead.
After the stock market’s wild swings up and down this year, the Dow Jones Industrial Average is roughly where it was on Jan. 1.
Investors seem to be anticipating a mild recession in the United States stemming from a recession that has likely already started in Europe, said Jeffrey Humphreys, director of the Selig Center for Economic Growth at the University of Georgia.
“The market is forward-looking. It’s not looking at current returns,” said Humphreys, who puts the odds of a U.S. recession at 40 percent. He puts the odds of a recession in Georgia, which has lagged the nation’s recovery, slightly higher, at 45 percent.
Likewise, even though several of Georgia’s big companies have shown a strong recovery in profits since the economy bottomed out in early 2009, others have lagged. Their strategies for the future have varied widely, as well.
Some are still shedding jobs and trimming operations. SunTrust Banks reported its sixth quarterly profit in the third quarter, $215 million. But the Atlanta bank is still haunted by loan losses left over from the real estate market crash. Last month, it said it will close bank branches and cut expenses by $300 million.
Likewise, United Parcel Service and Delta Air Lines both said they are cutting their flight capacity to counter higher fuel costs, weaker demand and other issues, despite third-quarter profits of $1 billion and $549 million, respectively.
Other companies, such as Home Depot, utility Southern Co., and auto parts retailer Genuine Parts, saw third-quarter profits jump 12 to 15 percent as people spent more on necessities such as car repairs, and keeping the lights on and the roof from leaking.
“Earnings have been strong and continue to be strong,” said Farr. “It may be a little bit puzzling, given the weak economic drop.”
But some companies still have healthy sales growth from their overseas operations, especially in fast-growing emerging markets such as China and Latin America.
Also, it doesn’t take much of an increase in revenues these days to translate into big jumps in profits, because companies are “pretty lean,” said Farr. After shedding jobs during the recession, few have added back employees since then, and some are still cutting their work forces.
“That can’t go on forever,” said Farr. But for now, resulting profit margins are “essentially at record levels.”
At about 10 percent of gross domestic product, a measure of the nation’s total output, corporate profits are in “record territory,” he said. Typically the corporate profit share is around 6 percent of GDP, he said.
Coca-Cola got a boost from its international operations and other moves in its home market. Selling more drinks overseas and charging higher prices in North America, the company raked in a $2.2 billion profit during the third quarter, or 8.1 percent more than the year-earlier period. Coke’s results also benefited from its $12.3 billion acquisition late last year of the North American operations of its largest bottler, Coca-Cola Enterprises.
As a result of the CCE deal, which added a $5 billion accounting gain to Coke’s reported net income in 2010, the company is expected to show a profit decline this year of nearly 27 percent. But Coke won’t be hurting. Analysts expect full-year profits to top $8.6 billion.
Profits for Georgia companies
Georgia’s largest public companies, ranked by sales as they appear on the Fortune 500 list, are generally expected to report strong profits this year, with the help of overseas sales and lean labor costs.
Note: Includes all unusual charges and gains.
Source: Bloomberg LP consensus of analysts’ estimates
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