As we near the end of October the topic of the week is third quarter earnings. At first glance, it appears we're off to a healthy start. So far 74% of companies in the S&P 500 that have reported earnings at this point have far exceeded estimates and only eight percent fell below expectations, according to Thomson Financial. However, the Commerce Department reported on Friday economic growth during the third quarter fell to its weakest point in three years. A softening housing market and a gross domestic product that fell from the second quarter contributed to the slowest advance since the first quarter of 2003.
Two major companies currently in the news for their earnings are Ford (NYSE: F) and Exxon Mobil (NYSE: XOM). Last Monday, Ford reported a third quarter loss of $3.08 per share - 21 times worse than last year's $0.15 per share loss for the same quarter. What's their problem? Many analysts feel Ford, along with other American automakers, shifted their focus to pickup trucks and sport utility vehicles in the 90s while foreign manufacturers such as Toyota and Honda took over their less expensive car market. In terms of this quarter, auto sales were down 6% for the quarter to $32.6 billion and $861 million was spent in employee separation costs as the company implemented massive downsizing. But better times may be around the corner as former Boeing chief, Alan Mulally, recently took the helm at Ford. Also, the recent easing of gas prices could bring more buyers back into the SUV market. Only time will tell.
Exxon Mobil had quite a different quarter. It announced last Thursday third-quarter earnings rose to $10.49 billion, the second-largest quarterly profit ever recorded by a publicly traded company. The largest quarterly profit ever was Exxon Mobil's $10.71 billion profit in the fourth quarter of 2005. Is this a surprise as consumers in some areas paid over $3 a gallon for gas in early August? It appears there is no end in sight for Exxon's massive profit margin as many analysts feel they may set a new record next quarter. That would put the company in line for the highest annual profit ever by a US company. It already holds the title with its record $36.1 billion profit in 2005.
Be sure to check out the Dividends and Earnings core lesson located in the Lesson Sequence Section of the Teacher Support Center. This lesson touches upon the relationship between a company's earnings and its stock price.
This article was written by a staff member of The Stock Market Game.