U.S. corporations ended 2011 with the slowest profit growth in two years as the mending economy that lifted Macy's Inc. was met by a European slump that vexed companies more tied to global sales, such as Cisco Systems Inc.

Standard & Poor's 500 Index companies may have earned $24.74 a share in the fourth quarter, according to analysts' estimates compiled by Bloomberg as of Jan. 6. The projected 6 percent gain is the smallest against a year-earlier quarter since September 2009, just after the U.S. recovery began.

“Slowing global growth, some impairment of export activity to Europe and perhaps even the rise of the dollar collectively have begun to sort of work against the multinational story,” said Mark Luschini, chief investment strategist at Philadelphia- based Janney Montgomery Scott LLC, which manages $54 billion. While growth is still “subpar,” he said he intends to invest more in the U.S. to avoid higher international risk.

The U.S. jobless rate fell in the final four months of 2011 and economic growth may rise to 2.1 percent in 2012, the average estimate of economists in a Bloomberg survey. The European Union may contract by 0.2 percent, its second slowdown in four years, and China's 8.5 percent growth would be the lowest in 11 years.

“I'm growing more optimistic that the economic activity in the U.S. is firming to the point that it's durable,” he said.

Overseas demand that propelled U.S. profits a year ago may wane as European nations trim budgets to deal with their debt crisis and a slowdown in China hurts commodity-tied developing nations, said Chad Morganlander, a Stifel Nicolaus & Co. money manager in Florham Park, New Jersey.

Alcoa Inc., the largest U.S. aluminum producer, plans to release results today after markets close, the first company in the Dow Jones Industrial Average to report. Investors will be watching to see how the difference in economic trends in the U.S., Europe and Asia affect companies' earnings.

“There's going to be a big dichotomy between U.S. exporters and domestic-focused U.S. companies,” said Jacques Porta, a fund manager at Ofi Patrimoine in Paris, who helps oversee about $400 million.

U.S. payrolls rose 200,000 in December, double November's gain. Average jobless claims for the four weeks ended Dec. 31 dropped to the lowest since June 2008. A measure of consumer confidence ended 2011 at a five-month high. And manufacturers reported growth in December was the fastest pace in six months.

Global Economy

In Europe, where austerity measures are tightening and unemployment remains at a 13-year high, data show households and businesses are more reluctant to spend. In China, residential property values are falling and the ruling Communist Party is shifting focus to supporting growth rather than damping inflation as Europe's debt crisis threatens to curb exports.

“A pronounced deceleration of global economic growth will bleed into earnings” for some U.S. companies, said Morganlander, whose firm oversees more than $107 billion in client assets. He predicts S&P profit will drop in 2012, the first annual decline since 2008.

Philip Orlando, chief equity strategist at Federated Investors Inc. in New York, which oversees $355 billion, is less pessimistic, saying the stronger U.S. economy probably boosted S&P 500 company earnings by about 10 percent for the fourth quarter, and should support 6 percent growth for 2012.

“It's not going to be a phenomenal quarter, but a nice solid quarter,” said Orlando.

U.S. growth will help boost profits for companies that get almost all of their revenue from home, such as retailers, said Orlando. Macy's had a better-than-expected holiday season and other retailers got a boost from inventory restocking during the fourth quarter. There is a risk that discounts to lure in shoppers may lower profit margins, Orlando said.

Apple Inc., spurred by holiday sales of the iPad, is predicted to report net income rose 56 percent to about $9.35 billion for the quarter ending in December, slightly higher than earnings growth of 54 percent for the previous quarter.

Alcoa, which relies on markets outside the U.S. for about half its revenue, said Jan. 5 it will close 12 percent of its smelting capacity after aluminum prices tumbled 18 percent in 2011 as the economic slowdown made some smelters unprofitable.

Analysts have cut their fourth-quarter earnings estimates for Alcoa in the past month to a 1-cent loss, from a projected 7-cent profit 30 days ago. The New York-based company reported profit of 21 cents a year earlier.

International Business Machines Corp., the biggest computer services provider, is predicted to post fourth-quarter net income of $5.51 billion, a 4.9 percent increase from a year ago. The Armonk, New York-based company, which gets the majority of its business from outside North America, had earnings growth of 7 percent in the third quarter and 8.2 percent in the second.

Cisco Turnaround

The European slump may slow the turnaround efforts of Cisco, the biggest maker of networking equipment, which has been getting about a fifth of its revenue from the region. Chief Executive Officer John Chambers said in November that order growth in Europe was expected to slow to the mid-single digits, down from double-digit growth in recent quarters.

The San Jose, California-based company has reorganized its sales force, giving it more flexibility in setting prices. That might help Cisco overcome some customers' reluctance to buy now, making it a tougher competitor, said Matt Robison, an analyst in San Francisco for Wunderlich Securities Inc.

What had been a year of improvement for U.S. industries eroded and a two-year equities rally came to halt as the debt crisis that began in Greece in late 2009 drove borrowing costs to euro-era records in nations such as Spain and Italy. The International Monetary Fund will probably cut its global growth forecast to a level “consistent with reality,” Managing Director Christine Lagarde told reporters last week.

The S&P 500 lost 0.04 point to 1,257.60 in 2011, the smallest annual change since 1947. The Stoxx Europe 600 Index fell 11 percent and the MSCI Asia Pacific Index plunged 17 percent.

Fourth-quarter earnings per share for Stoxx Europe 600 companies probably declined 21 percent from a year earlier, the biggest drop since the second quarter of 2009, according to data compiled by Bloomberg. In the U.S., the 6 percent earnings growth forecast for the S&P 500 would be down from 15 percent growth in the third quarter and 33 percent in the fourth quarter of 2010.

S&P profit excluding financial companies is projected by analysts to rise 6.4 percent, about a third of the growth rate from both the third quarter of 2011 and fourth quarter of 2010.

U.S. profits are settling into more normal levels above economic growth after the recovery from the deepest recession since the 1930s caused earnings to jump as much as 52 percent in the first quarter of 2010, said Gina Martin Adams, a New York- based equity strategist for Wells Fargo & Co.

Financial Companies

Europe's debt crisis dragged down earnings at U.S. banks, including JPMorgan Chase & Co. and Goldman Sachs Group Inc., as corporations shelved initial public offerings and plans to raise capital.

Banks may fare better this year, lending more as credit-card debt stops deteriorating and foreclosures slow, allowing capital reserves to move back to profits, Luschini said. The S&P 500 Financials Index dropped 18 percent in 2011, making it the worst of the 10 industries tracked within the S&P 500.

“If we don't see something catastrophic happen, their earnings will continue to normalize,” Luschini said. “A lot of bad news has been reflected already.”

JPMorgan is forecast to report net income of about $3.8 billion, a 21 percent drop from a year ago that is wider than a 3.5 percent drop in the third quarter, estimates show. Citigroup Inc.'s earnings are predicted to rise to about $1.9 billion.

Higher oil prices that drove earnings in 2011 for energy companies such as Exxon Mobil Corp. and Chevron Corp., two of the top four-weighted companies in the S&P 500, may be reversed this year, said Jonathan Golub, chief equity strategist for UBS Securities in New York. Oil prices had jumped to a closing high of $113.93 a barrel in April, fueling earnings, before dropping to $98.83 at the end of 2011.

Exxon, based in Irving, Texas, may report fourth-quarter earnings of $9.8 billion, an increase of 6 percent from a year earlier, according to analysts' estimates. That's the slowest quarterly profit growth last year. Chevron, based in San Ramon, California, may have climbed 24 percent to about $6.6 billion, a lower rate of growth from the third and second quarters.

European stagnation may curb demand for the petroleum exports that helped Valero Energy Corp. and Marathon Petroleum Corp. post near-record profits in the first nine months of 2011.

U.S. chemical makers such as DuPont Co. and Dow Chemical Co. probably will report fourth-quarter earnings that fell from the prior quarter and from the year-earlier period.

Fiat, Ford

Fiat SpA, which will kick off earnings for European carmakers on Feb. 1, may post a 24 percent decline in fourth-quarter trading profit versus the third quarter, according to a Bloomberg survey of analysts.

Western European sales may fall 6.5 percent to 13.3 million units in 2012, said Stuart Pearson, a Morgan Stanley analyst in London. Carmakers “with strong balance sheets and high credit ratings should continue to gain,” he said in a Jan. 4 note.

Volkswagen AG, Europe's biggest carmaker, may have boosted operating profit 51 percent to 2.62 billion euros ($3.3 billion) in the fourth quarter, according to a survey of five analysts. Daimler AG's may have risen 47 percent to 2.29 billion euros.

General Motors Co., Ford Motor Co., and Chrysler Group LLC finished 2011 stronger than analysts predicted, as annual U.S. auto sales reached 12.8 million in the best year since 2008, when GM and Chrysler sought U.S. bailouts. GM also reclaimed the top spot in world vehicle sales from Toyota Motor Corp.

Toyota, Asia's largest carmaker, probably increased profit even after the record floods in Thailand disrupted output as it boosted production in other factories. The Toyota City, Japan- based company may report net income of 115 billion yen ($1.5 billion) in the quarter ended Dec. 31, rising from 93.6 billion yen a year earlier, according to the average of six analyst estimates compiled by Bloomberg.

“Even with the losses from the Thai floods, global vehicle sales definitely grew from last year with the introduction of new models and as inventory normalized,” said Issei Takahashi, a Tokyo-based analyst at Credit Suisse Group AG who has a “neutral” rating on the company.

Nissan Motor Co., Japan's second-largest carmaker, may post profit of 71.6 billion yen for the quarter, while Honda Motor Co., the third-biggest, may report 73 billion yen, according to analyst estimates. Profit at Hyundai Motor Co., South Korea's largest automaker, probably climbed, helped by a weaker won and a 24 percent gain in overseas sales during the quarter.

Microsoft, AT&T

Microsoft Corp. and Intel Corp. are coping with supply disruptions related to the flooding in Thailand and will report weaker earnings. Analysts estimate that software maker Microsoft's net income declined last quarter, according to data compiled by Bloomberg. Intel, the world's largest chipmaker, is forecast to post a net income gain of 9.2 percent, less than the 17 percent increase in the third quarter.

AT&T Inc., the largest U.S. phone company, will probably post its steepest drop in earnings, excluding some costs, in eight years when it reports Jan. 26. The company said in a Dec. 7 filing that the cost to subsidize the Apple iPhone for subscribers will have “near-term negative impact on margins.”

McDonald's Corp., the world's largest restaurant operator, may see its profit growth slow on higher wage costs. Fourth- quarter net income may have increased 6.9 percent to $1.33 billion, slower than the 8.6 percent during the third quarter.

Restaurants “have benefited a lot from a slack labor market,” Sara Senatore, a New York-based analyst at Sanford C. Bernstein & Co., said in a telephone interview. “But as you keep lapping the benefits, it's harder to find incremental improvements,” she said.

The six biggest U.S. airlines, led by United Continental Holdings Inc. and Delta Air Lines Inc., probably will have a combined fourth-quarter profit of $126.1 million excluding one- time items, according to the average estimates of analysts surveyed by Bloomberg. That's two-thirds less than the $394.5 million group profit a year earlier as rising fuel costs and weaker demand for Europe flights weigh on results.

The weak economy also has reduced the volume of medical services, tamping earnings for drug and device makers and hospitals. Health insurers such as UnitedHealth Group Inc., the largest in the U.S. by sales, were part of the only major health subgroup in which analysts surveyed have raised estimates.

'Beats and Raises'

“I'd expect some beats and raises,” said Sanford C. Bernstein's Ana Gupte, whose estimates beat other industry analysts, according to data compiled by Bloomberg. Gupte said Humana Inc. and Aetna Inc. will top estimates the most.

Drugmakers such as Pfizer Inc., the world's largest, and hospital companies such as HCA Holdings Inc., the biggest U.S. operator, face grimmer prospects. In the last three months, analyst earnings estimates were lowered for 14 of 17 large drugmakers, according to data compiled by Bloomberg. And six of eight hospital companies saw earnings estimates lowered.

Politics in Europe and elsewhere will play a bigger role in the markets this year as elections in the U.S., Russia, Germany and France and changes in China will affect leadership in half the global economy, Luschini of Janney Montgomery said.

“A change in policy behavior in one of these countries could have a marked influence,” he said.

Until then the world economy will limp along as Europe focuses on austerity and U.S. consumers continue to pay down debt, capping growth below 2 percent, said Morganlander of Stifel Nicolaus.

“Global growth expectations will continue to be revised downward,” he said. “I would not be shocked by continuing deterioration of earnings growth.”

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Europe&rsquo;s Woes Weigh on Profits

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