By ,
Published January 13, 2015
The nation's economy showed it worst performance in a decade during the third quarter, according to figures released Wednesday, heightening fears that America is flirting with recession.
The nation's total output of goods and services, or gross domestic product, dropped by 0.4 percent in the third quarter, hammered by the Sept. 11 terror attacks and the drop in consumer confidence in their aftermath. And while the drop wasn't as severe as the 1 percent expected by economists, it hardly circled the darkening clouds with a sliver lining.
"It's sort of a sigh of relief," Eric Nickerson, currency strategist at Bank of America in New York, told Reuters. But "everything still portends for a rather ugly fourth quarter."
The weak performance reflected a sharp pullback in spending by consumers, which slowed to the weakest pace in more than eight years, and a continued plunge in investment by businesses in new plants and equipment.
Some slumps, like the toll on airlines, have been widely reported, but others are emerging for the first time or in unexpected ways, such as the shrinking sales in toilet paper and tissue to hotels.
Many businesses reported an impact, direct or indirect, from the attacks on America in their quarterly earnings statements issued this month.
"In July, I wasn't expecting that 747s would be flying into buildings or that we would be worried about biological warfare. A lot has changed," said Tom Siebel, chief executive of Siebel Systems Inc., after the software maker's profits dove 48 percent in the third quarter.
Companies that struggled before Sept. 11 may be rushing to blame the attacks for their financial fall-outs, but for others, a dramatic shift in consumer behavior after the attacks could well be the reason, positive or negative, for their current financial status.
"Use your imagination as to what doesn't get bought and what doesn't get done," said David Orr, chief economist for Wachovia Securities. "It can have a big effect on the economy."
The world's largest photography company, Eastman Kodak Co., reported a 77 percent drop in third-quarter earnings. It also lowered fourth-quarter guidance for the critical holiday picture-taking season to no more than 15 cents per share, well below analysts' estimates of about 46 cents.
Film sales are floundering because photo-snapping tourists aren't traveling frequently. Kodak's U.S. consumer business dropped 13 percent for the third quarter, leading to net earnings of $96 million, or 33 cents a share.
Also hit hard were forest products makers International Paper and Weyerhaeuser, which reported deeper losses after corporate layoffs and reduced advertising cut into paper production.
Weyerhaeuser's profits fell 54 percent to $91 million, or 41 cents per share, and International Paper, the No. 1 paper producer, had a net loss of $275 million in the third quarter.
"There's been less demand for magazines and catalogs, and as people were laid off, we had empty offices and people no longer at their computers and photocopy machines, so clearly that has had an effect," said Joshua L. Zaret, analyst for ABN AMRO Inc. in New York.
Despite all the bad news, some companies are actually seeing positive figures since the attacks.
Campbell Soup Co. acknowledged financial stumbles in its canned soup division before Sept. 11 as consumers-on-the-go ran toward seemingly easier-to-prepare items. But this week it said earnings this quarter will be better than expected, after Americans stocked up on canned goods after the attacks.
Campbell's soup, a popular staple in U.S. homes during World War II and the Cold War, said it expects earnings per share between 40 cents and 42 cents, up from 33 to 36 cents, when it reports results on Nov. 14.
Blockbuster Inc., the world's largest video rental chain, said it expects a long-term earnings boost as uneasy consumers stay home more. The Dallas-based company had a 92 percent rise in third-quarter earnings, mostly from strong DVD sales.
"As people enjoy time and security at home, we think it's a lasting trend," said John Antioco, chairman and chief executive. "Clearly, people's behavior has been adjusted, and this will translate to continued affection for video (rentals)."
And aircraft makers General Dynamics and Bombardier predict strong business jet sales and in some cases are boosting production despite the economic slowdown. Their bet: Executives in the long-term will prefer travel by private jet given the uncertainty of security via commercial air travel.
Kimberly-Clark Corp. had quarterly profit fall for the first time in three years. It attributed the decline in part to lower demand for tissues and toilet paper in hotels, airports and office buildings, which makes up 15 percent of company sales.
The maker of Huggies diapers, Kleenex tissue and Scott toilet paper reported net income of $419.4 million, or 79 cents a share, in the third quarter, vs. $440.4 million, or 81 cents a share, a year earlier.
Solid earnings and stronger growth were forecasted by 1-800-Flowers.com . The company, which picked up 455,000 new customers during the usually slow summer season, cited an uptick in flower sales following the attacks.
"We believe we are well positioned as our customers .... continue (to) express themselves and connect with all of the important people in their lives," said CEO Jim McCann.
The drop in the gross domestic product, the total output of goods and services produced in the country, was the biggest since the first quarter of 1991 when the country was in the depths of the last recession, the Commerce Department reported.
The Associated Press contributed to this report.
https://www.foxnews.com/story/slumping-economy-gnaws-at-companies-bottom-lines