WRAPUP 2-Sales stumbles raise fresh worry for corporate America

* Most companies that reported earnings missed sales

expectations

* Slump showing limits of margin expansion

* 'Crack in the armor' of profit growth story

BOSTON, Oct 17 (Reuters) - A flagging world economy took a

toll on much of Corporate America in the third quarter, leading

the likes of eBay Inc, American Express, IBM

and Textron Inc to miss Wall Street's sales

targets or warn that spending was slowing into the holidays.

Those misses sparked concerns among investors that corporate

America's year-long streak of profit growth could be nearing an

end as CEOs run out of costs to cut and customers are

increasingly wary about spending.

A major worry is the risk of the year-end fiscal cliff -

$600 billion of spending cuts and higher taxes that could take

effect at the end of the year if lawmakers in Washington fail to

agree on a plan to shrink the federal deficit.

A majority - 54.3 percent - of the 70 companies in the

widely watched Standard & Poor's 500 Index that have

reported results so far have missed analysts' revenue forecasts,

according to Thomson Reuters I/B/E/S.

The list of companies' reasons for weak performance has

expanded, with some citing a decline in demand in the United

States - until recently a more reliable source of growth - as

well as in Europe, which is mired in a debt crisis.

American Express warned that its cardmembers' spending was

starting to wane. After nine quarters of double-digit growth,

spending among its mostly affluent customer base grew just 8

percent in the last quarter.

The online marketplace eBay beat estimates, but analysts

said the magnitude was unimpressive and the holiday outlook

cautious as price competition increases among retailers.

International Business Machines Corp, the world's largest

technology services company, missed analysts' sales forecasts

for a fifth consecutive time with a 5 percent drop in the third

quarter, as corporate customers in the United States and Canada

cut their spending on equipment and services.

"When I look at our skew of business in the quarter, through

the first two months, our revenue was fairly consistent with our

second-quarter performance," IBM's Chief Financial Officer Mark

Loughridge told investors after the company reported earnings

late Tuesday. "The third month of the quarter was more

challenging."

Chipmaker Intel Corp also said lower corporate

spending hurt its revenue, which was down 5 percent for the

quarter. It set a fourth-quarter sales target that was below

analysts' forecasts.

While troubles in the tech sector reflect in part a lack of

corporate confidence, with companies holding back on committing

to major new investments, soft drink makers PepsiCo and

Coca-Cola Co also reported weaker-than-expected revenue.

PepsiCo said on Wednesday that its sales in the Americas

were down about 3 percent in the quarter, which partly reflected

its decision to stop selling some juices and bottled water

packages after "a hell of a price war," CEO Indra Nooyi said.

The company, which also makes Frito-Lay snacks and Tropicana

orange juice, also noted that the strong dollar hurt its results

by decreasing the value of sales made outside the United States.

Many major U.S. companies with international operations have

cited the strong dollar as a drag on growth this year.

Drugmaker Abbott Laboratories also reported

weaker-than-expected revenue after its sales slipped 0.4 percent

to $9.77 billion in the quarter.

No. 2 oilfield services company Halliburton Co said

slowing U.S. drilling took a toll on its profit in the quarter.

'CRACK IN THE ARMOR'

Of the S&P 500 companies that have reported so far, 64.3

percent have beaten Wall Street's lowered expectations. At the

start of the third quarter on July 1, analysts expected those

500 companies to collectively increase profits by 3.1 percent, a

forecast that was cut to a drop of 2.1 percent by Oct 1.

"Earnings expectations have been lowered so far that it

hasn't been hard to beat them," said Keith Springer, president

of Capital Financial Advisory Services in Sacramento,

California. "Once revenue starts missing and you can't cut costs

anymore, I think this is the crack in the armor."

While the broad Standard & Poor's 500 Index rose

moderately on Wednesday, more revenue misses could take the wind

out of a long climb in stocks this year. The S&P 500 has gained

about 16 percent so far this year.

"Once we start to see earnings miss - when expectations have

been pushed down and they still miss - that is when you'll see

the market start to fall apart," Springer said.

Not all observers took as grim a view of the situation.

"The U.S. economy is in better shape today than it has been

for some years," said Charles King, president of tech

consultancy Pund-IT. "It is in a turnaround even if it is not as

strong as we'd like it to be."

SETTING THE STAGE FOR 2013

With about two-and-a-half months left in 2012, investors are

starting to turn their attention to next year, and analysts are

pushing CEOs to offer some hint of how they expect their

companies to perform in 2013.

After Textron reported weaker-than-expected sales and

earnings, it noted that orders for its Cessna corporate jets had

been very weak in July and August, though they had recovered

somewhat in September.

Management said orders would need to hold at September's

rate for the rest of the year for Cessna to meet its sales goal.

Textron CEO Scott Donnelly declined on Wednesday to offer a

sales forecast for 2013, but allowed that production rates - the

number of aircraft the company makes - would likely be

"flattish," when compared with 2012 levels.

Even companies that beat Wall Street's earnings targets,

such as insurer UnitedHealth Group Inc, cautioned

investors not to set their hopes too high for 2013.

"We continue to be cautious about 2013 earnings

performance," UnitedHealth CEO Stephen Hemsley told investors in

a Tuesday conference call. "We expect to grow revenues and

earnings per share in 2013, but we view the current consensus

level as a considerable challenge."

CEOs may be wise to reel in expectations for 2013 as it

would be difficult to push profit margins much higher, given the

slowdown in revenue growth, said Peter Klein, senior portfolio

manager at Fifth Third Asset Management in Cleveland, Ohio.

"Margins are pretty rich," Klein said. "If you have slower

revenues and you've cut as much (in) expenses as you can,

there's not much more you can do" to grow earnings."

Source: http://news.yahoo.com/wrapup-1-sales-stumbles-raise-fresh-worry-corporate-201929685--sector.html

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