Transcripts

The Third Quarter Proves Difficult For Big Business

SUSIE GHARIB: General Electric got a vote of confidence today from legendary investor Warren Buffett. He's buying $3 billion worth of GE's preferred shares, just days after making a $5 billion investment in Goldman Sachs. Buffett's GE investment comes at a time when the giant conglomerate is struggling because of the effects of the credit crisis. The deal guarantees Buffett a 10 percent dividend and the option to buy another $3 billion of GE stock. Buffett says GE is, quote: "The symbol of American business to the world," and he's confident the company will be successful in the future. Well, other investors didn't share that optimism today, GE shares fell a dollar to close at $24.50. Last week GE warned that its third-quarter profits could fall by as much as 12 percent.

PAUL KANGAS: GE is not the only company likely to report a tough quarter. Corporate America begins releasing its third-quarter results next week, starting with Alcoa (AA). Experts say given the worsening economy, it was another rough period for many U.S. companies. Suzanne Pratt has a preview of what to expect.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: At some point in the not too distant future, stock investors might refocus on fundamentals, things like the economy and corporate profits. But, portfolio strategist Steven Wood says watching earnings seems like a luxury as we battle the massive financial crisis.

STEVEN WOOD, SENIOR PORTFOLIO STRATEGIST, RUSSELL INVESTMENTS: I think right now corporate profits is kind of like putting a candle up to the sun. They are being eclipsed by this larger issue. And really estimates right now are going to have to come down and I'm not even convinced that current estimates are very meaningful.

PRATT: Optimists say there will soon be a rescue plan. And then, third- quarter results, which flood Wall Street in a few weeks, may garner some attention. While the earnings news could provide a welcome distraction, the actual results are likely to be disappointing. Market strategist Brian Rauscher says corporate profits are melting away, but they're not collapsing.

BRIAN RAUSCHER, DIRECTOR, PORTFOLIO STRATEGY, BROWN BROTHERS HARRIMAN: Earnings are decelerating. They are having some problems. But they're -- I would still say they are not falling off a cliff.

PRATT: Right now, analysts expect third-quarter earnings for companies in the S&P 500 to drop 2.3 percent. That's down from estimates in July that earnings would rise nearly 13 percent. If current expectations are correct, the third quarter would be the fifth straight quarter in which profits fell, the longest such stretch since the 2001 recession. Some market pros say investors should be prepared for the possibility of lots of earnings misses, with companies putting the blame squarely on credit market turmoil. But others point out that not all firms need credit to do business.

RAUSCHER: There are a lot of large health care companies, the large consumer staples companies, this does not impact them that much, companies that generate a lot of free cash flow and don't have a lot of debt and don't need to go to the credit markets. While that may impact their customers, it's not impacting the financing of their businesses.

PRATT: At the moment, analysts profit growth of 47 percent for S&P 500 firms in the fourth quarter. Much of that is due to easy year-over-year comparisons. Still, experts say those expectations will undoubtedly be reset. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.