Profits: All's Well That Ends Well

With the U.S. at war in Iraq, oil prices rising, and the SARS epidemic threatening to shut down the supply chain out of Asia, the deck seemed stacked against a stellar second quarter for corporate earnings. But as the quarter fades into memory, it looks as though many companies played a tough hand well. Thanks to a favorable swing in the dollar and further steps by companies to cut costs and boost productivity, Corporate America kept the earnings recovery on track.

Even after allowing for the weaker profit reports expected in coming weeks from utilities, the consensus among Wall Street analysts is for a 6.7% rise in second-quarter operating income for the companies in the Standard & Poor's 500-stock index, according to Thomson First Call. That is nearly a full point higher than forecasts in early June. And BusinessWeek's flash report from 120 early-filing companies shows that income from continuing operations, after excluding special charges, was up 18% compared with the previous year.

With business demand still weak, however -- revenues for the 120 companies in the BusinessWeek survey rose only 3% -- most businesses earned their profits through aggressive cost-cutting. But that should give companies even more leverage if the economy surges this fall as forecast. Analysts polled by Thomson First Call now expect profits for companies in the S&P 500 to climb 13.6% in the third quarter and 21.5% in the fourth quarter. Having already dealt with SARS and war, Corporate America has beat the odds before.

By Brian Grow in Ocala, Fla.

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