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  • CFO.com | US

New Highs Expected for Q4 Earnings

Even though earnings growth slowed down relative to the first three quarters, 2004 will probably wind up the best year for operating earnings since 1988.

Most stock indices surged to multiyear highs as 2004 wound down, and one driving force may have been the impact of strong corporate earnings.

When the companies that make up the Standard & Poor’s 500 start reporting their December quarterly results next week, they are expected to set a collective record for a three-month period.

Fourth-quarter operating earnings for the group are expected to total $161 billion, or $17.30 per share, up 16.3 percent from the $14.88 per share reported for the fourth quarter of 2003, according to S&P.

Even though “earnings growth has slowed relative to the first three quarters of 2004,” according to S&P analyst Howard Silverblatt, 2004 will probably wind up the best year for operating earnings since 1988. Earnings for the group are expected to top $624 billion, or $67.02 per share, compared with $505 billion, or $54.69 per share, in 2003.

Standard and Poor’s adds that dividend payments, corporate share buybacks, and cash holdings of the S&P 500 also figure to have recorded new highs last year. This trend is expected to persist next year; earnings and dividends should each post gains of over 10 percent, according to the ratings agency.

“Many of the fundamental ratios should stay in line for 2005,” noted Silverblatt. “We do expect dividend payout ratios to improve as more companies initiate cash dividends, and margins to start to decline due to increased expenditures and employment.”

The S&P 500 index is still around 20 percent below its March 2000 high, probably because the markets were widely inflated at the time. “Investors are no longer willing to pay the exorbitant P/E’s that dominated the market several years back,” said Silverblatt.

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