Analysis: U.S. companies in sales struggle as global downturn bites

Sun Jun 10, 2012 9:03am EDT
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By Caroline Valetkevitch

(Reuters) - U.S. companies are finding it more difficult to grow their revenue now than at just about any time since the financial crisis.

Second-quarter revenue growth for companies in the Standard & Poor's 500 index .SPX is expected to be just 2.2 percent compared with an average 7.3 percent quarterly increase since the fourth quarter of 1998, according to Thomson Reuters data based on Wall Street analysts' forecasts. Take out the supercharged sales of Apple Inc (AAPL.O: Quote) and the picture is even weaker - with growth of only 1.9 percent for the current period.

The lowered expectations are a result of the euro zone crisis hurting demand from Europe, the impact of a slowdown in major developing economies such as China, Brazil and India, and recent signs of weakness in the United States.

Just last year, S&P 500 revenue growth was in double-digit territory, at 11.1 percent in the third quarter following an even bigger 13.6 percent in the second quarter. Revenue growth in the first quarter of this year came in at 5 percent.

Slowing revenue growth has wider implications for the U.S. and global economies. Companies are less likely to hire and more likely to fire to curb costs so that they can reach their earnings targets. Second-quarter earnings expectations for the S&P 500 are for growth of 6.7 percent, and 5.8 percent excluding Apple.

While the U.S. economy remains anemic, its relative strength compared with Europe, and the lack of a big bright alternative for investment in Asia, may provide some protection for the American workforce when any companies do slash jobs. The savagery of cuts during the financial crisis also doesn't give many companies a lot of slack to take out.

The U.S. manufacturing sector is also stronger than most other parts of the economy, with S&P 500 industrials' second-quarter sales expected to be up 6.6 percent from a year ago. The weakest sectors are energy, expected to see a 12.6 percent decline in sales in the second quarter, and telecommunications, seen up 3.2 percent.

"What we were looking for to happen in midyear was for emerging markets and Asian growth to bottom out, and that would provide some improvement in revenues in the second half," said Barry Knapp, managing director of equity research at Barclays Capital in New York.   Continued...