office workers pulling up profits

With about 70 percent of S&P-listed companies having reported their first quarter’s earnings, net profit margins of those companies have ticked up to 11.5 percent from 11.3 percent the quarter before, according to The Wall Street Journal.

The quarter marks a turnaround after six consecutive quarters of declining net margins. 

“A larger share of revenue at big U.S. companies is beginning to reach the bottom line,” the WSJ said.

The improved profit margins also have strengthened net profits: they decreased about 2.9 percent from the previous quarter, much better than the 6.7-percent slide that analysts had projected.

Many companies are still working to slash costs as inflation continues, even though at a lesser pace; prices grew at a 5.0-percent annual clip in March. April’s data is scheduled to be released this week.

The corporate cost-cutting campaigns have led to hiring freezes and a rise in layoffs.

The uptick in margins may give a sense of direction in the market to investors who have been puzzled over conflicting news regarding rising interest rates, continued strong employment, and increasing numbers of layoffs, analysts told the WSJ.

TREND FORECAST: While corporate profits are up now, the higher interest rates rise the lower corporate profits will fall. 

Just ask Warren Buffett, the “Oracle of Omaha” who warned last week what we had forecast when the Fed and Washington ended their cheap money. The consumer splurge is over.

Buffett said the “extraordinary period” of excessive spending that was generated during the COVID years has ended and many of his businesses, as with others, are loaded with an inventory build-up that they’ll have to dump by putting items on sale. 

“It is a different climate than it was six months ago. And a number of our managers were surprised,” Buffet said at his stockholders meeting last Saturday. “Some of them had too much inventory on order, and then all of a sudden it got delivered, and people weren’t in the same frame of mind as earlier. Now we will start having sales when we didn’t need to have sales before,” he said.

“It was just a question of getting goods to deliver. People bought, and they didn’t wait for sales. If you couldn’t sell them one thing, they would put another thing in their backlog,” Buffett said.

“In the general economy, the feedback we get is that, I would say, perhaps the majority of our businesses will actually report lower earnings this year than last year,” he said.

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