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Recent hurricanes take toll on U.S. quarterly earnings

A Delta Air Lines jet sits at a gate at Hartsfield-Jackson Atlanta International Airport in Atlanta.

David Goldman/AP

After raging over the southern United States and Puerto Rico, remnants of hurricanes Harvey, Irma and Maria are now dampening U.S. corporate profits.

While the deadly storms in August and September slammed insurers who are now on the hook for billions of dollars in damaged property, many retailers, manufacturers and banks are also feeling the pain.

Over half of S&P 500 companies reporting third-quarter results in recent weeks, including Harley-Davidson, Delta Airlines and Costco, have said on conference calls with investors that the storms harmed their businesses to some degree, according to a Thomson Reuters analysis.

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"We estimate the impact of the hurricanes accounted for approximately 1.5 to 2 percentage points of Harley-Davidson's retail sales decline during the quarter," the motorcycle maker's Chief Financial Officer, John Olin, told investors on Tuesday after reporting a decline in quarterly profit per share.

The hurricanes were part of the worst Atlantic hurricane season in over a decade, destroying or damaging homes, businesses and public infrastructure, killing over 200 people and paralyzing normal economic activity.

Senior executives of least 48 S&P 500 companies have told investors on quarterly conference calls that their businesses had been negatively affected by the storms.

At least 12 companies, including U.S. Bancorp and Abbott Laboratories, also said their businesses were hurt by a September earthquake that killed 369 people in Mexico, a major market for U.S. firms.

American International Group has estimated pretax losses of about $1-billion each from Harvey and Irma, up to $700-million from Maria and additional catastrophe losses, including Mexico's earthquake, of about $150-million.

Travelers Cos Inc said on Thursday it recorded $700 million in catastrophe losses from the destruction wrought by Hurricanes Harvey and Irma, although its quarterly profit fell less than Wall Street feared.

S&P 500 companies on average are expected to have increased their non-GAAP earnings per share by 4.2 per cent in the third quarter, the slowest growth in a year, according to Thomson Reuters I/B/E/S.

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Excluding insurers, which are expected to have suffered a 63.3-per-cent decline in quarterly profits, S&P 500 earnings are expected to be up 6.9 per cent.

The lingering effects of Hurricanes Harvey and Irma hobbled activity at factories in September and blunted a rebound in U.S. industrial production, the Federal Reserve said on Tuesday

Still, the storms have not stopped the stock market's record advance. Up 15 per cent in 2017, the benchmark S&P 500 is trading at 18 times expected earnings, a multiple not seen since 2002, according to Thomson Reuters Datastream.

The S&P 500 property and casualty index on Friday hit a record high, more than recovering from a selloff that coincided with the Harvey's destruction. Many investors believe that insurers will raise premiums to make up for losses, and that those higher premiums will become permanent.

Dover Chief Executive Robert Livingston said overtime and other related expenses to get back up to speed had cost the manufacturing company as much as 2 cents per share in the quarter after Harvey forced it to close its Texas factories for four or five days.

Hand tool maker Snap-On said the storms cost it about $8 million in sales in Texas, Florida and Puerto Rico.

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"Timing of both further disruption and rebuilding are unclear," Snap-On Chief Executive Nicholas Pinchuk told analysts on Thursday.

Waiving late fees and increasing reserves for customer credit cost PayPal Holdings about 1 cent per share in the past quarter, leaving its non-GAAP EPS at 46 cents.

Procter & Gamble on Friday said it had to suspend operations along the Gulf Coast due to the hurricanes and in Mexico because of the earthquake.

Some companies, including Constellation Brands, said the hurricanes had only a minor negative on their results. For others, the storms will mean new business.

With 600,000 homes in Texas and Florida in need of re-roofing, shares in building materials firms USG Corp, Owens Corning and Eagle Materials Inc have jumped between 17 percent and 30 percent since just before Harvey struck Texas.

Home Depot has surged 9 per cent since the end of August on bets that homeowners repairing damage will spend more at its stores.

"They were hurricanes of a massive size that caused significant disruption to labor forces and spending," said Phil Blancato, head of Ladenburg Thalmann Asset Management in New York. "But it's a pendulum, early on it has an impact, but as the rebuild gets going and there's an inventory ramp-up, I think it swings back the other way."

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