Profits for S&P; 500 Rise 11%, Topping Forecasts

U.S. corporate profits in the first quarter are notching their biggest gains in 2 1/2 years as consumers borrowed to refinance homes, companies cut costs and some businesses began replacing aging equipment.

Earnings climbed 11% for the 329 companies in the Standard & Poor’s 500 index that had reported results as of Friday, lifted by increases at Citigroup Inc., Microsoft Corp. and General Motors Corp.

Some investors and analysts said profit growth might slow in the second quarter amid concerns about persistent unemployment, the spread of severe acute respiratory syndrome and threats of terrorism.

A plunge in oil prices after the war in Iraq may blunt earnings gains for Occidental Petroleum Corp. and other energy producers, which had some of the fastest profit growth.

The earnings gains for S&P; 500 companies in the latest period is the biggest since the third quarter of 2000, said Chuck Hill, Thomson First Call’s director of research.

Profits are surpassing many analysts’ estimates, which on average anticipated growth of about 8% in the quarter, Hill said.

Estimates were low for the first quarter because companies and analysts “got burned too many times lately, talking about things starting to pick up a little and then having that not materialize,” Hill said.

Analysts forecast that profit growth will slow to 6% in the second quarter, according to Thomson First Call, and will increase 12% for all of 2003.

The first-quarter earnings have helped give the S&P; 500 a year-to-date gain of almost 4%. The index declined 3.6% in the first quarter as the U.S. prepared to go to war.

Financial-services companies’ profits helped raise investor optimism that the economy is poised for faster growth.

“The big banks start to do well when they sniff a better economic time ahead,” said Fritz Meyer, who helps manage growth funds at Invesco Funds Group Inc. “They are all telegraphing better times ahead for the market.”