More Firms Warn on Earnings

NEW YORK —  An increasing number of companies are warning that third-quarter earnings are unlikely to meet expectations, reversing an improving trend that began in 2001 and disappointing investors who were optimistic the worst was over.

Companies as diverse as casual-apparel retailer American Eagle Outfitters Inc., railroad operator CSX Corp., health-care company MedImmune Inc. and fast-food chain Jack in the Box Inc. have warned investors in recent days that they won’t meet profit expectations this quarter.

Overall, earnings for the blue-chip Standard & Poor’s 500 companies still are expected to rise this quarter from a year earlier. But the jump in profit warnings is a reminder that many firms are struggling amid the sluggish economy.

Through Tuesday, 765 companies had made earnings pre-announcements for the third quarter, and 401 of those were negative--meaning the firms believe their results will come in below previous expectations, according to Boston-based earnings tracker Thomson First Call.

The number of warnings is 28% more than at the same point in the second quarter and on a par with the third quarter of 2001, when profits in general still were in decline.

“We normally see more negative [pre-announcements] than positive,” said Joe Cooper, a research analyst at Thomson First Call. “As the quarter begins, it’s 50-50, but the closer to reporting season, the more negative announcements, and we are in that stretch now.”

To Cooper and others, the increase in warnings is a sign that the economy may not be stabilizing as had been hoped.

Profit warnings “are an indication the economy has slowed, something the market was already concerned with,” said Joe Stocke, managing director at money manager StoneRidge Investment Partners in Malvern, Pa.

The diversity of companies issuing warnings indicates the slowdown “is more broad-based” than it had been, he said.

Third-quarter operating earnings for the S&P; 500 companies are expected to be 10.9% above year-earlier levels, according to analysts’ consensus estimates. But that has come down from the 16.6% rise analysts predicted at the start of the quarter.

Nearly 200 companies have announced that they expect results this quarter to beat previous guidance. They include personal products maker Procter & Gamble Co., which last week said it expects earnings to rise between 14% and 16% from a year earlier, thanks in part to cost cutting.