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Dupont 1
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Dupont 1
October 2003
S&P 500 US$ Earnings Per Share US Domestic Corporate Profits US$ Billion
55 1100
Corporate GAAP Profits (filed
50 1000 with SEC) are more volatile
Profits as S&P 500 GAAP (EPS, LHS) than NIPA Operating Profits
45 900
(filed with IRS and used by
40 800 BEA), largely due to:
35 700 --Balance Sheet Impacts
--Regulatory Changes
30 600
Recent examples:
25 500 ® 2000 -- Goodwill Write-Offs,
20 400 Decline in Credit Quality
® 2001 -- Corporate Fraud,
15 300 Asset Impairment,
Bankruptcy & Bad Loans
10 200
Profits as NIPA (Bill.$, RHS) ® 2002 -- Expensing Stock
5 100 Options, CEO Certification,
E&O Insurance
0 0
2003 E ® 2003 – Year of Pension
2004 E
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Expense Adjustment,
Change in Executive
Profits as S&P 500 GAAP from SEC (EPS, LHS) Compensation Structure,
Profits as NIPA from IRS via BEA (Bill.$, RHS) Dividend Taxation
How Does the Current Profit Recession Compare The “Top – Down” Adjustment for Capital
to the Previous Profits Recession of 1988-1992? Consumption Has Become Unreliable!
(CCA Adjustment from Tax-Based to Economic Depreciation Rates Where A
U.S. Corporate Profits in Quarters After Cycle Peaks (88-92 Vs. 97-03) Positive Number indicates a Boost to NIA Corporate Profits -- by Taking Back
(Index = 100 at Cycles Peak of Corporate Profits: 1988 Q4 and 1997 Q4) Some Tax Based Depreciation Claimed against Profits)
140 200 25
Adjustment as % of Profits
88Q4-94Q1 with CCA Adj. 180
120 140
110 120 15
97Q4-03Q2
CCA Adj. 100
100
80 10
90 60
80 40 5
97Q4-03Q2 -- No CCA Adj. 20
70
Bottom Scale Shows the Number of Months Prior and After the Previous Peak.
0 0
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003-II
2003-I
60 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
Index for 1988 Q4 to 1994 Q1--With CCA Adjustment CCA Adjustment in US$ (LHS)
Index for 1997 Q4 to 2003 Q2--With CCA Adjustment
CCA Adjustment as % of Base (RHS)
Index for 1997 Q4 to 2003 Q2--No CCA Adjustment
Sector Shares of S&P 500 Total ® Banking and Finance is the largest
Market Capitalization, in Percent S&P 500 sector in terms of sales,
profits and market capitalization
Energy
Utilities
Telecomm 3%
6% ® Financial’s share of Market Cap.
Services Materials
3% 3% would roughly double if leasing &
Industrials other finance is taken from Autos,
11%
Industrial, Retail, etc.
Inform'n
Technology Consumer
18% Discretionary ® In Europe the Financial Sectors’
11%
share of Total Market Capitalization is
Financials Consumer even higher (29%)
21% Staples
11%
Health Care
13% ® The US Financial sector accounts for
33% of Total US NIPA profits
Energy
Telecomm Svs.
Utilities
Technology
Financials
Consumer Discr.
Health Care
Consumer Staples
Basic Materials
Industrials
0 10 20 30 40 50
Sales of Top 10 Companies as % of Total World Sector Sales
(Source: Top Ten Company Sales from WorldScope; Total Global Sales
Sales from GII’s WIS)
Leading Sectors with Improving Profits Sectors with Steady Profits – Future Pressure?
(Billions of US$) (Billions of US$)
250
100
90
200
80
70
150
60 Retail Trade
50 Banking (In Federal Reserve System)
100 40
Financial--NonBanking
Receipts from Rest of World 30
50 20
10
0 0
1996 1997 1998 1999 2000 2001 2001- 2001- 2002- 2002- 2002- 2002- 2003- 2003- 1996 1997 1998 1999 2000 2001 2001- 2001- 2002- 2002- 2002- 2002- 2003- 2003-
III IV I II III IV I II III IV I II III IV I II
Annual Last 8 Quarters
Annual Last 8 Quarters
Sectors with Steady or Improving Profits Sectors with Past Losses Turning into Recovery
(Billions of US$) (Billions of US$)
100 25
Food & Related Products Electronic & Electrical
90 Wholesale Trade Fabricated & Welded Metal Products
20
80 Electricity & Utilities Transportation Services
70
15
60
50 10
40
30 5
20
0
10
1996 1997 1998 1999 2000 2001 2001- 2001- 2002- 2002- 2002- 2002- 2003- 2003-
0 III IV I II III IV I II
-5
1996 1997 1998 1999 2000 2001 2001- 2001- 2002- 2002- 2002- 2002- 2003- 2003-
III IV I II III IV I II
Annual Last 8 Quarters Annual Last 8 Quarters
-10
Sectors With No Recovery Yet in Profits Sectors with Exposure to Oil Related Factors
(Billions of US$) (Billions of US$)
20 Communication Services 25
20
10
15
0 10
1996 1997 1998 1999 2000 2001 2001- 2001- 2002- 2002- 2002- 2002- 2003- 2003-
III IV I II III IV I II 5
-10
0
1996 1997 1998 1999 2000 2001 2001- 2001- 2002- 2002- 2002- 2002- 2003- 2003-
Annual Last 8 Quarters III IV I II III IV I II
-20
Annual Last 8 Quarters
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Consumer Staples
Energy
Health Care
Financials
Utilities
Materials
Industrials
Total
Information Technology
Consumer Discretionary
Telecommunication Svs.
0 5 10 15 20
United States Europe
15 15
10 10
5 5
0 0
'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02
-5 -5
United States United States
United Kingdom United Kingdom
Europe (X UK) Europe (X UK)
0.4
Industrial Chemicals 0.71
Medical Technology 0.80 0.2
Communication Services 0.86
Wholesale & Retail Trade 1.07 0
All Services
All Goods
Comm Svs.
Medicines
Chemicals
Publishing
Wholesale &
Banking &
Insurance
Industrial
Printing &
Drugs &
Drugs & Medicine 1.10
Retail
Printing & Publishing 1.22
US Totals for All Non Financial European Totals for All Non Financial
Corporations in the GICS Sector Corporations in the GICS Sector
Classification Scheme Classification Scheme
5 1.5 5 1.5
4.5 4.5
4 4
3.5 1 3.5 1
3 3
2.5 2.5
2 0.5 2 0.5
'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02
Sectors with High/Buildup in D/E Ratio Sectors with Steady/Declines in D/E Ratio
2.5 2
2
1.5
1.5
1
1
0.5
0.5
0 0
'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02
Health Care
Financial
Technology
Industrials
Total
Telecomm's
Energy
Cons. Discretionary
Materials
Utilities
Consumer Staples
0 1 2 3 4 5 6 7 8 9
Percent Growth of US$ Sector Profits
10
8
6
4
2
0
Machinary
Comm.
Agricultural
Equipment
Computers
Banking &
Technology
Insurance
Medicines
Transport. &
Autos
Industrial
Services
Chemicals
Drugs &
Comm.
Medical
Storage
Copyright ©2003 Global Insight, Inc.
Source: GII World Industry Service 20
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