April 6 (Bloomberg) -- Earnings at companies such as Alcoa Inc. and Dow Chemical Co. may show the first signs of recovery in the second quarter after profits at Standard & Poor’s 500 Index members fell 37 percent in the first three months of 2009.

The slide may moderate in the second and third quarters, and earnings may start growing by the end of year, according to data compiled by S&P and Bloomberg. The first quarter may mark the seventh straight period of profit declines, the longest slump since the Great Depression.

“This is a throwaway quarter -- everyone expects it to be bad,” said Richard Vanden Boogard, who helps oversee $60 billion at Victory Capital Management in Cleveland. “People will be looking forward to the commentary for guidance. It’s all about the outlook.”

Spending by companies and consumers may have begun to pick up following cutbacks caused by a wave of mortgage defaults that led to tighter credit and mounting asset write-offs. Orders placed with U.S. factories rose in February for the first time in seven months, and inventories are falling.

Things will remain tough for luxury-good companies such as jewelry-seller Tiffany & Co. and apparel makers like Liz Claiborne Inc. and Jones Apparel Group Inc., said Burt Flickinger, an analyst at New York-based Strategic Resource Group. Car makers such as General Motors Corp. and Ford Motor Co. may also suffer. Last month, consumer confidence stayed at an almost 42-year low and the U.S. unemployment rate climbed to the highest level since 1983.

‘Fell Off a Cliff’

“Last quarter we completely fell off a cliff,” said Diane Garnick, an investment strategist in New York at Invesco Ltd., which manages about $357 billion. “This quarter the fall isn’t quite as far, but there is no bungee cord in the stimulus package that’s going to make us go all the way back where we started.”

Stock prices reflect the potential earnings recovery. The S&P 500 gained the most in seven years last month. According to data compiled by the National Bureau of Economic Research and Bloomberg, the index began rising on average five months before recessions ended in 1975, 1982 and 1991.

The S&P 500 fell 7.02 points to 835.48 at 4 p.m. New York time. It has dropped 7.5 percent this year.

Automotive and banking industries led earnings declines last quarter. Carmakers probably performed the worst, with General Motors and Ford projected to post combined losses of more than $10 billion.

JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon told CNBC March 27 that the month had been “a little tougher” after the New York-based lender made money in January and February. Kenneth Lewis, Bank of America Corp.’s CEO, said “the trading book was not as good as it was in the first two months but deposit flows were actually pretty good.”

Exxon Mobil

Dimon and Lewis, along with Citigroup Inc. CEO Vikram Pandit, halted a plunge in their companies’ shares by proclaiming last month that the banks were profitable through February, excluding taxes and provisions. The companies were stung by the collapse of the housing market last year, leading Citigroup and Bank of America to record fourth-quarter losses and JPMorgan to report a 76 percent slump in profit.

Profits at U.S. oil and gas companies fell 63 percent last quarter and the declines won’t abate until the fourth quarter, according to Bloomberg estimates. Exxon Mobil Corp., the world’s largest publicly traded oil producer, will probably post its lowest first-quarter profit in five years after crude prices plunged to almost $100 a barrel from 2008’s all-time high.

“First-quarter oil prices year-over-year were pretty weak, and a lot of the majors don’t sell a lot of forward contracts,” said David Foley, who helps manage $2 billion at Estabrook Capital Management in New York.

Oil Falls

Oil futures in New York averaged less than $44 a barrel, down from $97.82 in last year’s first quarter. The average natural-gas price fell by almost half as the first simultaneous recessions in the U.S., Europe and Japan since World War II sapped fuel demand.

The drop in natural-gas prices should help aluminum producers such as Alcoa because energy costs are one of the most expensive elements in production of metal used in cars and airplanes, said David Goerz, who oversees $18 billion as chief investment officer at Highmark Capital Management.

“There is a good possibility” that the decline for Alcoa and other aluminum producers will end this quarter,” San Francisco-based Goerz said. In the first quarter, Alcoa probably had a loss of $374.7 million, a Bloomberg survey showed.

“You could get a pretty sharp snap back” in the second half if credit becomes easier, allowing government stimulus money to flow to businesses,” Goerz said. “People will want to travel after the global economy is back on its feet.”

‘1,000-Day Recession’

Even as indicators suggest a recovery in consumer spending, retailers may have to make additional job cuts to boost profits, said Strategic Resource Group’s Flickinger. Earnings at U.S. retailers dropped 38 percent last quarter and will fall 31 percent this period, according to analysts’ estimates.

“We’re in a 1,000-day retail recession and we’re not even halfway through it,” he said. “It’s going to be a much more severe brand and consumer-products recession as we get into the second and third quarters.”

Liz Claiborne, Jones Apparel Group and Tiffany & Co. are “really having a tough time,” Flickinger said. Sales at U.S. retailers may fall 0.5 percent this year, the first drop in at least 14 years, the National Retail Federation said in January.

Technology companies may also suffer because demand for servers, computers and consulting services won’t rebound until the end of the year, Forrester Research Inc. analyst Andrew Bartels said in a March 31 report. He said technology spending by U.S. businesses and government will drop 3.1 percent this year, compared with the 1.6 percent increase the research firm previously forecast.

Small Caps

Earnings for most chemical makers will probably improve from the fourth quarter, the worst three-month period in decades for companies such as Dow Chemical. Still, results will be down from a year ago, said Victory’s Vanden Boogard.

U.S. small-cap companies will probably report a 41 percent drop in first-quarter profit, led by raw-material suppliers and technology companies, according to a March 31 note by Bank of America strategists led by Steven DeSanctis. Health-care and utilities are likely the only small-cap businesses that will post an increase in earnings, according to DeSanctis.

Asset managers, whose revenues are linked closely to the amount of money they invest for clients, will probably report another quarter of declining earnings from a year earlier.

“You can put two and two together and see it’s going to be a difficult earnings period compared to last year,” said John Carey, manager of the $3.75 billion Pioneer Fund at Pioneer Investment Management Inc. in Boston. “Earnings are going to be a challenge until the markets turn up in a decisive way.”

Drama in Europe

In Europe, analysts predict profits at companies in the Dow Jones Stoxx 600 Index may rise 22 percent this year.

Profit at Royal Dutch Shell Plc, Europe’s largest oil company, and BP Plc, its U.K. rival, may have plunged more than 50 percent last quarter, according to Bloomberg estimates.

“Earnings compared to last year will be a drama,” said Dirk Hoozemans, who helps manage about $10 billion at Robeco Group in Rotterdam. “Compared with the previous quarter, the earnings outlook is rosier given oil prices bottomed in the first quarter.”

Vodafone, Nokia

Vodafone Group Plc, the world’s biggest mobile-phone company, may say net income dropped 6.8 percent to 6.2 billion pounds ($9.2 billion) in the 12 months through March, according to a Bloomberg survey. Chief Executive Officer Vittorio Colao is cutting costs to eke out more profit from existing operations.

Nokia Oyj, the world’s biggest mobile-phone maker, also may post plunging earnings. The Espoo, Finland-based company said March 17 it will cut 1,700 jobs in sales, marketing and some management functions to adapt to falling demand. Nokia forecasts a 10 percent slide in industry sales this year.

Steelmakers’ earnings will slide after global demand for the metal collapsed. Global output fell 22 percent in February from a year earlier on lower consumption from automakers and construction, according to the World Steel Association.

ArcelorMittal, the world’s biggest steelmaker, will post a 98 percent drop in net income this quarter after a first-quarter loss, according to a Bloomberg survey. The Luxembourg-based company said in November it would slash production by more than 30 percent and cut as many as 9,000 jobs after prices tumbled.

Toyota, Honda, Nissan

Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co., Japan’s three largest carmakers, probably all swung to losses in the first three months of the year as car demand plummeted globally. Toyota is facing its first annual loss in 59 years.

Auto sales in the U.S., where Japanese carmakers have traditionally earned at least half of their operating profit, probably fell to the lowest level since December 1981 as rising unemployment and tighter credit deterred car purchases, according to analysts.

“This coming year looks like another loss-making year, or only a small-profit year,” said Edwin Merner, president of Tokyo-based Atlantis Investment Research Corp., which manages $3.1 billion.

Electronics companies, such as Panasonic Corp. and Sony Corp., may have already bottomed and should see an improvement, according to Choi Seung Hoon, an analyst at LIG Investment & Securities Co. in Seoul.

“The second quarter could be better than the first, but still a tough quarter,” said Bruce McCain, chief investment strategist at Cleveland-based Key Private Bank, which manages about $22 billion. “It may not continue. But recessions do tend to end themselves at some point.”

To contact the reporters on this story: Katie Hoffmann in New York at khoffmann4@bloomberg.net; Joseph Galante in San Francisco at jgalante3@bloomberg.net

Last Updated: April 6, 2009 16:33 EDT