Despite earnings boom, firms tight with money.

Call it the year of the well-heeled tightwad.

Sluggish hiring and continued caution over capital spending belies a very different trend in the economy--companies are making big bucks and are expected to continue to do so through the second half of the year.

But as happened in the first half of the year, most of that money won't be turned back out into the economy, at least not by corporate America.

Although capital expenditures have picked up since the beginning of the year, spending is still far off the levels in 2001 and that is not likely to change anytime soon.

"Capital expenditures we think will be $40 billion (in 2004)," said Howard Silverblatt, equity market analyst at Standard & Poor's.

"That's still 18 percent lower than two years ago. Companies have record earnings and they're not spending it."

These same companies project further improvements in earnings.

Of the Valley's 25 largest public companies that have issued guidance on future performance, most have raised their projections for the third quarter, the full year or both. Even where the earnings guidance remains unchanged from earlier pronouncements, the projections reflect significant improvement over last year.

The positive projections reflect a broader national trend among publicly-held companies, which are showing more optimism about the next quarter than they have in the past.

"Third quarter guidance is better than what we've seen in the past," said David Dropsey, research analyst with Thomson Financial. "Based on what we've seen historically, the third quarter as far as guidance given to us is better than what we might see in a typical quarter."

According to Thomson Financial, 464 of reporting companies have issued guidance below analysts estimates for the third quarter versus 248 companies whose guidance topped analyst estimates. Although the negatives far outweigh the positives, Dropsey said that is typically the case--many companies are reluctant to set the bar too high because they don't want to come up short when reporting time comes around. Nonetheless, for the upcoming third quarter, fewer companies issued guidance below analysts expectations than usually do.

Those local companies that adjusted their expectations upward represent a variety of sectors from technology to homebuilding.

They include THQ Inc., Guitar Center Inc., United Online Inc., The Ryland Group Inc., Countrywide Financial Corp. and ValueClick Inc.

Video game maker THQ, coming off a fiscal fourth quarter that saw sales increase by 84 percent and net income rise to $5.4 million or $0.14 per share from a loss of $7.7 million in the year ago period, said it expects revenues of $680 million and earnings of $1.05 to $1.10 per share for its fiscal 2005 year which began on April 1. On the earnings side, that's at least 12 percent more than initially projected and 14 percent more than the company earned last year.

United Online up

Interact service provider United Online is projecting that operating income for the full 2004 year will be in the range of $78.4 million to $80.4 million, an estimate that is 6 percent higher than its earlier estimate and would amount to a 58 percent increase over United Online's operating income last year.

Homebuilder Ryland raised its earnings estimates for the full year to $12 a share, up from an earlier projection of $11 a share and nearly 32 percent more than last year, when Ryland earned $9.11 a share.

The same trend held for companies that issued guidance for the first time during this last round of financial reporting in July and August.

Semiconductor supplier Semtech Corp. reporting its second quarter results last week including a notable 53 percent revenue increase and a six-fold earnings jump versus the like period last year, said it estimated that earnings in its third quarter would be $0.23 per diluted share--more than twice the $0.12 it earned last year in the third quarter.

After nearly doubling its earnings in the second quarter, retailer Guitar Center said it expects to earn $0.39 to $0.42 cents in the third quarter. That would reflect a boost of about 75 percent over third quarter '03 when Guitar Center earned $0.23 per share.

The local news was tempered by a few companies. IHOP Corp. downsized its full year earnings estimates to $1.40 to $1.50 a share from earlier projections of $1.65 to $1.75 a share, noting that its transition to a new business model was taking longer than anticipated. And Superior Industries International Inc., a wheel manufacturer that has been laboring under a slump in automotive manufacturing, said it expected earnings to be flat in the third quarter compared to the period last year.

But by and large, the earnings windfall anticipated is consistent with a rosy national picture. According to Standard & Poor's estimates, an average index of the S&P 500 companies, corporate America will earn about $16.63 a share in the third quarter, up from $14.41 last year.

Record first half

And those results follow a record first half, where companies posted earnings increases in the 25 percent range.

"This year we're saying the index will reach an all-time high as far as earnings go," said Silverblatt.

But don't expect to see those results reflected in other parts of the economy. The pickup in capital spending, a projected 5.53 percent increase over 2003, will not only be well off levels in 2001, some sectors are not expected to see a pickup at all.

S&P data shows spending in the financial sector, which was 13 percent lower in the second quarter of 2004 versus the same quarter in 2003 and utilities, which logged a 30 percent decrease in spending for the second quarter, will continue to lag for the rest of the year.

And although Standard & Poor's is projecting that telecommunications and industrials will up their spending considerably, in general companies will hold on tight to their new gotten gains through the end of the year.

The recent volatility in the price of oil, the threat of terrorism, the uncertainty over interest rates and the upcoming presidential election will likely keep companies, not just from spending on equipment, but from hiring, acquiring or otherwise expanding as well.

"Companies are not into commitment," said Silverblatt.

[GRAPHIC OMITTED]

Looking Up

Some of the firms that have increased guidance.

Company                      Current EPS          Former EPS   Percent
Name                          Guidance    Period   Guidance    Change

THQ.                         $1.05-$1.10   (FN)     $0.94       +12%
The Ryland Group               $12.00      (FN)     $11.00       +9%
Countrywide Financial Corp.  $7.50-$8.50          $7.00-$8.25    +5%

Source: Company reports