By Gaurav Dogra and Patturaja Murugaboopathy
(Reuters) – Global company profits in third quarter are expected to fall for the first time in 18 months after record profits in April-June, Reuters calculations showed, as the spread of the COVID-19 variant Delta squeezes the chains supply and increases labor costs.
Massive fiscal stimulus to support the economic recovery and a loosening of pandemic brakes generated strong consumer demand in the second quarter, and companies struggling with disrupted supplies and declining inventories raised prices to compensate James Solloway , chief market strategist at SEI, said a further cut in interest rates could squeeze the profitability of U.S. banks by raising input costs.
This helped boost the combined net profits of 2,542 global companies with a market capitalization of at least $ 1 billion to a record $ 734 billion in the quarter ended in June, according to Reuters analysis of Refinitiv data. .
But profits are expected to fall 8% on average to $ 678.2 billion in the July-September quarter.
China’s factory output and retail growth contracted sharply in July, as new COVID-19 outbreaks and flooding disrupted business operations, while growth in business activity in the United States slowed for a third consecutive month in August.
In addition, a months-long shortage of semiconductor chips that has forced automakers to cut production and smartphone makers to save chips for popular models is turning into a new crisis as cases of COVID-19 are multiplying in Asian countries https://www.reuters.com/ article / asia-economy / delta-blow-knocks-wind-out-of-asias-economic-recovery-idUKL4N2PQ11F which are the key to supply chains global.
Chart: Quarterly Growth in Global Corporate Profits – https://fingfx.thomsonreuters.com/gfx/mkt/dwpkrrdnwvm/Global%20corporate%20profits%20by%20quarter.jpg
Chart: Global Business Quarterly Revenue Growth – https://fingfx.thomsonreuters.com/gfx/mkt/lbpgnngdyvq/Global%20corporate%20revenue%20by%20quarter.jpg
“Supply chain issues, labor issues and increases in input prices are all expected to dampen growth in the third quarter,” said Brian Jacobson, senior investment strategist at Wells Fargo Asset Management.
“Avoiding lost sales due to supply chain issues is more of a problem today than it has been in the past. Shipping costs are high. The weakening of stimulus check support may change the composition of consumer spending. “
Toyota Motor Corp announced last week that it will reduce global production https://www.reuters.com/business/autos-transportation/toyota-slash-september-production-due-global-chip-shortage-nikkei-2021 -08-19 for September by 40% compared to a previous plan. Apple Inc predicted last month that growth would slow https://www.reuters.com/world/china/apple-beats-sales-expectations-iphone-services-china-strength-2021-07-27 during the quarter September.
U.S. corporate profits are expected to fall 7.2% in the third quarter, according to the data, after rising 12.4% in the second quarter.
A strong dollar could hurt U.S. exporters and a further cut in interest rates could squeeze bank profits, said James Solloway, chief market strategist at wealth manager SEI.
Profits of European and Asian companies are expected to fall by 10.3% and 9.6% respectively.
By sector, the real estate, financials and consumer discretionary sectors are expected to see their profits decline by 22.2%, 18.8% and 16.2% respectively.
Chart: Breakdown by country of profit growth – https://tmsnrt.rs/3iUi8uLhttps://tmsnrt.rs/3mcGQbZ
The average net margins of global companies are expected to fall to 10.66% in the third quarter, from 11.43% in the second quarter.
Supply chain bottlenecks lead to either a lack of availability of inputs or price increases, said Daniel Morris, chief market strategist at BNP Paribas Asset Management.
“In some cases, companies are able to pass the higher costs on to their customers, but if they fail to do so, the margins are reduced,” he said.
Chart: Sector Breakdown for Profit Growth – https://fingfx.thomsonreuters.com/gfx/mkt/xmvjookxzpr/Breakdown%20by%20sector%20for%20revenue%20and%20profit%20growth.jpg
(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Sayantani Ghosh and Jacqueline Wong)
Copyright 2021 Thomson Reuters.