With earnings season about to get into full swing, we’re back with “The Upshot,” our daily (for the next three weeks at least) column in The Wall Street Journal that takes a look under the hood of corporate America and tells you what’s really humming, and what needs to be tuned up.
We start off this season with “The Last Easy Quarter“:
It won’t happen for the first quarter, maybe not even in the second, but the last easy quarter for corporate profit growth is coming soon.
Since late last summer, profit gains have looked terrific—mainly because they’ve been stacked up against pushover comparisons. After all, the period from the end of August 2008 through March 2009 was likely the recession’s nadir and provided some of the worst earnings that corporate America ever reported.
But the tables will start to turn as companies begin coming up against their own improved profits.
The fourth quarter of 2008 and first quarter of 2009 were so awful that anything looks good by comparison. Add in a serious bout of cost cutting, and they look even better. But keep in mind, too, that very few of these companies have gotten back to the profits they had in the fat years, and they aren’t projected to get there through at least 2011 (I don’t have the numbers in front of me right now but that’s the case going by S&P projections.)
So if corporate America’s going to maintain its growth trajectory, it’s going to have to come the old fashioned way, through selling more stuff. And not to upset the boys in marketing, but that is largely out of their hands. If employers start hiring, if people start getting rehired, if salaries start rising, then those profit statements will rise as well. But if hiring’s tepid (read this survey from Grant Thornton for a taste; corporate CFOs see weak hiring next six months,) if salaries aren’t rising, then companies are going to struggle to boost the top and bottom lines.