updated 10/19/2008 7:53:50 PM ET 2008-10-19T23:53:50

Even as U.S. companies report some good news about the third quarter, investors and executives are peering ahead anxiously.

Many U.S. corporations have turned in results that were surprisingly good, although the Dow Jones industrial average has suffered some of its worst losses in history. Tech companies delivered higher-than-expected profits and consumer products firms like Coca-Cola Co. and The Hershey Co. reported solid profit growth.

Still, banks suffered big drops in profit, airlines were pounded by high fuel prices and some manufacturers promised to trim operations. The results suggested a deep uncertainty about the U.S. economy, even as they hinted at some underlying strengths.

Corporate earnings "are probably coming out better than the stock prices are telling you," said Jerome Heppelmann, chief executive and chief investment officer of Liberty Ridge Capital in Berwyn, Pa.

In spite of the decent earnings, many stock prices are depressed by fears about the future, Heppelmann said. Investors are worried a massive government bailout might not give banks the confidence to loan money more freely, which would freeze up corporations ability to borrow for expansion.

"If the credit markets stay frozen, nothing is a good buy," he said.

Indeed, companies released largely gloomy and uncertain outlooks.

Despite a healthy third quarter, Google Inc. Chief Executive Eric Schmidt said the company is facing a more daunting challenge.

"It is pretty clear the economic situation today globally is worse than people were predicting a month ago," he said.

Intel Corp.'s finance chief Stacy Smith said the company was also cautious about the current quarter.

"We have a high degree of uncertainty around demand in the fourth quarter, but our execution is good," he said Tuesday.

It doesn't help that many underlying factors that helped corporations during the third quarter have disappeared since the economy went into a tailspin in mid-September, said Mike Helmar, an economist with Moody's Economy.com.

The weak dollar boosted U.S. exports, and helped firms like Coca-Cola with broad international operations. But the world economy is expected to slow, and could dry up demand for U.S. goods, Helmar said.

With banks hesitant to lend, companies that do best in 2009 will be those with plenty of cash on hand to fund operations.

"You have to take it on a company-by-company basis," Helmar said. "If they need to borrow, corporate credit is not the same story" as it was in the third quarter.

Banks are pinning their hopes on an unprecedented flood of cash from the U.S. Treasury. On Tuesday, the Bush administration announced it will invest $250 billion in the nation's leading banks in return for a stake in those institutions.

Conditions could ease as the government's actions work their way through the system, Bank of America Chief Executive Kenneth D. Lewis earlier this month.

But Lewis doesn't expect Bank of America to loosen up its underwriting standards anytime soon.

"We're making every good loan we can find ... but it's not going to be pretty for a while," Lewis said during a conference call with investors.

Banks were among the worst performers during the quarter.

Bank of America, JPMorgan Chase & Co. and Wells Fargo & Co. all reported sharp declines in profit as they took hits on investments and increased their credit reserves to prepare for troubles ahead.

While JPMorgan and Wells Fargo managed to beat Wall Street's expectations, Bank of America's results fell short. Citigroup Inc., meanwhile, was the only big bank to report a loss — its fourth straight quarterly loss to be exact.

Increasing deterioration in commercial and residential real estate portfolios was a common theme. Credit card and other consumer loan portfolios have also begun to show signs of stress.

Goldman Sachs Group Inc. analyst Richard Ramsden recently pegged the total cost of the credit crises for financial firms at $1.4 trillion. He estimated that so far, write-downs and provisions total roughly $770 billion.

"We are half way through," he said of the crisis.

Airlines were also hit hard during the quarter, as oil prices spiked in July at $147 a barrel and caused a near panic among the industry's executives.

Southwest Airlines Co. reported its first loss in 17 years — $120 million — ironically, because of fuel hedges that lost money when oil prices fell fast near the end of the quarter. Continental Airlines Inc. lost $236 million while Delta Air Lines Inc. lost $50 million.

An exception was American Airlines parent AMR Corp., which made $45 million during the period because of a $432 million gain from selling its investment business.

But most airline analysts are focused on the future, with JPMorgan's Jamie Baker even calling third quarter results "irrelevant."

Baker pointed out that jet fuel prices are now $1 per gallon cheaper than the third-quarter average, and the industry has already moved to cut capacity.

Delta CEO Richard Anderson said he'd rather have a strong economy and lower fuel prices — but forced to choose, he'll take the lower fuel prices he's getting now.

"When you think about what you would rather manage at an airline, you would rather deal with demand cessation rather than $150 fuel," he said.

Fuel prices "dropping like a rock is a big offset to what happens in the economy," he said.

Technology sector bellwethers — IBM Corp., chip maker Intel and Google — have been cautiously trudging along, with several posting better-than-expected third-quarter results this week. Even Advanced Micro Devices Inc. bested low expectations, though the company continues to lose money as it struggles against Intel. Excluding items, however, AMD posted an operating profit.

Google, the online search leader, posted a 26 percent profit increase Thursday, reassuring jittery investors that advertisers will continue to turn to it to compete for consumers' tightening wallets. Google's shares, which have taken a beating this fall, added about 4 percent Friday, having recovered from a three-year-low a day earlier.

IBM, having posted partial results last week to reassure investors, also surpassed Wall Street's expectations with a nearly 20 percent profit increase.

The quarter was sweet for the likes of Coca-Cola and Hershey. The soda maker reported double digit growth as sales in emerging markets offset U.S. weakness, with net income of $1.89 billion.

Hershey doubled its earnings to $124.5 million on sales of $1.49 billion. The candy maker's revenue rose 6.4 percent, partly due to customers timing extra shipments ahead of a price increase announced Aug. 15.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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