Companies Spy an End to Declines in Earnings

By KELLY EVANS and VANESSA O'CONNELL For the first time since the recession began more than a year ago, a host of major companies on Tuesday said the economy is approaching a bottom. But their tentative optimism triggered a debate with other firms that say it's far too early to call a floor. Delta Air Lines Inc. reported that its portion of filled seats for May and June is just slightly below year-ago levels -- the period before the full force of the financial crisis struck. U.K.-based retailer Tesco Plc. said it is seeing improved sales in Poland and Hungary, both particularly hard-hit by Europe's woes, and said buyers were returning in Asia as well. And handbag and accessories maker Coach Inc. said sales at its North American stores have begun to stabilize to pre-Christmas levels. United Technologies Corp., maker of Otis elevators and Pratt & Whitney jet engines, said Tuesday its first-quarter income fell by a quarter, but that the overall rate of decline in orders is slowing. While orders are still down, "they have stabilized across the businesses," CEO Louis Chênevert said. "For the full year, we still expect a better back half." Chip maker Advanced Micro Devices Inc. late Tuesday expressed caution even though it saw first-quarter improvements. "I don't see how anybody can say that we've hit the bottom," given the broad economic uncertainty, said CEO Dirk Meyer, responding to a question on a conference call. His words were considerably less upbeat than those of Paul Otellini, CEO of Intel Corp., AMD's chief rival, who said last week he believed "the worst is now behind us." Intel said revenue should be more or less flat in the second quarter, a period that's usually slightly slower than the first. None of the data indicate a return to economic growth. In fact, given that last year's fourth quarter was particularly disastrous, it's relatively easy to achieve improvement on a quarter-by-quarter measure. Construction-equipment maker Caterpillar Inc. on Tuesday said it swung to a first-quarter loss and cut its full-year sales and profit forecasts, saying continued uncertainty makes it "extremely difficult to know how our customers will respond" the rest of the year, according to CEO Jim Owens. Some policy makers see the earnings figures reaffirming their cautiously optimistic assessments of the economy. In a speech Monday night, Federal Reserve Vice Chairman Donald L. Kohn said the first three months of this year show that "consumption appears to have steadied some after a sharp drop" last summer and fall. "There are a few tentative signs that the pace of decline in some other key components of demand may be lessening," he said. Any signs of stabilization at some companies are also notable given the finance industry's continued weakness. On Tuesday, the CEO of Capital One Corp. said U.S. credit-card charge-off rates are going to "cross 10% in the next couple of months," up from 8.4% in first quarter. At the same time, BlackRock Inc., the nation's largest publicly traded asset manager, reported disappointing earnings, along with others including Huntington Bancshares Inc. On Monday, a Wall Street Journal analysis showed deeper-than-thought declines in overall bank lending. "It remains our expectation that no significant turnaround will occur this year," said Stephen D. Steinour, Huntington's president. Shares of financial firms have fallen heavily this week. The Dow Jones Industrial Average slid 3.6% on Monday, its biggest one-day drop since March 2. On Tuesday, the Industrial Average climbed 1.6%. Many economists agree it's too early to call a bottom. The U.S. economy posted a 6.2% annualized drop in the fourth quarter, the most in nearly three decades; it likely weakened almost as much in the first quarter. Forecasters in the latest Wall Street Journal survey don't expect the current recession, which began in December 2007, to end for at least another six months, making it by far the longest downturn since World War II. Companies have shed more than 5 million jobs through March. The unemployment rate, currently 8.5%, is widely expected to hit double-digits by next year. Still, the latest spate of earnings report are starting to reveal glimmers of stabilization in the U.S. economy, particularly retail sales, consumer spending, and housing. Even the devastated auto industry is showing some signs of stability, said Michael J. Jackson, CEO of Ft. Lauderdale, Fla.-based AutoNation, Inc., the country's largest chain of auto dealers. "We believe the industry has definitely stopped going down," Mr. Jackson said. "There is a stabilization in new-vehicle sales taking place." Mr. Jackson said the first quarter will prove to be the bottom, with a "very gradual recovering" over the course of the year. AutoNation reports earnings Thursday. Mr. Jackson said he is encouraged because banks and auto-finance companies have started granting more loans in the past few weeks. "We had customers coming into showrooms but they couldn't get credit," Mr. Jackson said. But now, "people with good credit records can get loans." He cited efforts by the Federal Reserve, which has lowered interest rates to near zero. Analysts credit the U.S. government's response to the crisis, including the $787 billion stimulus package and aggressive moves by the Federal Reserve, with helping to create conditions for an eventual recovery. Similar massive government spending in China is also widely cited as helping that country navigate the downturn. Michael Darda, chief economist at Greenwich, Conn.-based MKM Partners, says the early indicators are "essentially pointing to a reversal in the economy sometime later this year." He cited lower interest rates for corporate bonds, a sign that companies' debt is perceived as less risky; calmer credit markets; and a rebound lately in industrial-commodity prices, reflecting an uptick in demand from manufacturers. —Don Clark, Neal Boudette, E.S. Browning and Robert Guy Matthews contributed to this article. Write to Kelly Evans at kelly.evans@wsj.com and Vanessa O'Connell at vanessa.o'connell@wsj.com