Profits: More Pain, but More Gain

Cost-cutting and canny management lifted first-quarter performance

The year could hardly have gotten off to a rockier start for American businesses. Bitter winter weather kept shoppers at home, energy prices soared, and the nation went to war. Yet despite all this, U.S. companies are posting tidy profits for the first quarter. Analysts polled by Thomson Financial/First Call on Apr. 23 predict 11% profit growth for the period, up from 7.2% in an early March survey. Revenue is expected to rise 3.8% for the quarter.

BusinessWeek's flash report on 90 companies' first-quarter profits from continuing operations, before extraordinary items shows similar results. Low interest rates helped, boosting profits for homebuilders and financial institutions that lend to homeowners, such as Fannie Mae, whose net soared 61%, to $1.9 billion.

While cost-cutting accounts for much of the improvement, credit also goes to managers who are becoming savvier and more resilient. That progress "bodes well for the future when the economy picks up some steam," says Wells Fargo & Co. economist Sung Won Sohn.

Southwest Airlines Co. steered clear of losses reported by its rivals and posted a 14% profit gain on a 7% rise in sales. Despite travelers' war jitters, the carrier eked out productivity gains. Occidental Petroleum's profits spurted 220% on rising oil and gas prices. Stronger results across the board are keeping hope alive for more improvement in the months ahead.

By Pallavi Gogoi in Chicago, with bureau reports

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