Europe’s fiscal crisis and China’s slower growth weighed down first-quarter earnings at U.S. companies reliant on overseas sales, threatening to temper a recovery that pushed the Standard & Poor’s 500 Index to records.

Caterpillar Inc. (CAT), the world’s largest maker of construction equipment, is projected to report back-to-back drops in quarterly profit for the first time since 2009. Ford Motor Co. (F)’s earnings growth may stall as European losses counter rebounding U.S. auto sales. Meanwhile Macy’s Inc. (M), without its namesake store abroad, may see earnings per share climb 26 percent.

The overseas slowdown may have triggered a 1.8 percent drop in first-quarter profit for the S&P 500, the first decline in more than three years, before growth returns later this year, analysts’ estimates compiled by Bloomberg show. Firms getting more than half their sales internationally are leading the drop. Cuts to these companies’ profit projections outnumber increases by 56 percent, versus a 5 percent gap for businesses with all sales in the U.S., according to Bespoke Investment Group.

“With all the background noise with European economic slowness and weakness in Asia, I don’t think people are looking forward to earnings season with much optimism,” John Carey, a portfolio manager at Pioneer Investment Management Inc. in Boston, said in a telephone interview. “Domestically, the economy seems to be chugging along, not in a barn-burning but a steady recovery.” Pioneer oversees about $208 billion.

Makers of durable consumer goods and apparel are forecast to post a 20 percent earnings gain, the best among 25 industry groups in the data compiled by Bloomberg. Semiconductor makers face the largest projected decline at 25 percent. Alcoa Inc. unofficially starts the first-quarter earnings season today as the first company in the Dow Jones Industrial Average to report.

Europe’s Recession

Reliance on Europe has taken a toll. The euro region’s economy is projected to contract 0.2 percent this year, according to a Bloomberg survey of 55 economists. Unemployment in the 17-nation area climbed to 12 percent in the first two months of the year, the highest since recordkeeping began in 1995, the European Union’s statistics office said on April 2.

“In the next two weeks, I wouldn’t be surprised to see companies announcing or pre-announcing results saying Europe is more of drag than a driver,” said John Manley, chief equity strategist at Wells Fargo Funds Management LLC, which oversees $222 billion. “There’s a good chance we get a good number of disappointments in the quarter.”

Ford Job Cuts

Ford is cutting jobs in Europe and adding plants in Asia to curb losses in both regions while relying on earnings in North America. The carmaker’s new-car registrations in Europe plunged 23 percent in 2013’s first two months, the European Automobile Manufacturers’ Association said. Ford, which has said it expects to lose $2 billion in the region this year, made 51 percent of revenue in the U.S. last quarter and 13 percent from Europe.

Ford may report first-quarter earnings per share of 39 cents, little changed from a year earlier, according to the average estimate of analysts surveyed by Bloomberg. The forecast has fallen 7 percent since February, the data show.

Europe is “the one obvious negative” for Ford, “but a well-flagged one,” said Brian Barish, president of Denver-based Cambiar Investors LLC, which manages $7 billion, including shares of Dearborn, Michigan-based Ford.

China’s weaker growth is also weighing on companies with a global reach. The country’s gross domestic product may expand 8.1 percent this year, according to a Bloomberg poll of 52 economists. While that’s still more than four times the projected U.S. growth rate of 1.9 percent, it’s also the second- slowest pace in the last decade, the data show.

Caterpillar Profit

Caterpillar over the last several quarters has been working to reduce inventory as the weaker economy in China, stalled budget talks in the U.S. and parts of Europe in recession reduced orders. The company has instituted layoffs to help bring production in line with demand, Rusty Dunn, a Caterpillar spokesman, said in an e-mail on April 3.

The Peoria, Illinois-based company may post a 40 percent decline in first-quarter earnings per share to $1.42, the average of analysts’ projections. That’s 21 percent lower than at the end of last year.

Global retail machine sales fell 13 percent in the three months through February, according to a filing on March 20. The construction-equipment maker got almost two-thirds of its sales from outside North America last year.

No Upside

“We remain constructive on Caterpillar’s leading returns and franchise and its structurally higher construction equipment margins, but in an over-supplied commodity environment we no longer see upside to consensus earnings expectations,” Jerry Revich, a New York-based analyst for Goldman Sachs Group Inc., said in a report on April 2. He cut his rating on the shares to the equivalent of a hold from buy.

Analysts’ estimates that profit shrank last quarter contrast with investors’ optimism. The S&P 500 gained 10 percent in the first three months of the year and reached an all-time high on April 2. Stockholders may be looking ahead: Earnings are predicted to rise 6.1 percent this quarter, followed by gains of 8.4 percent and 13 percent in third and fourth quarters.

“Europe as a whole is in a recession but it shouldn’t get much worse,” Hank Smith, who oversees $7 billion as chief investment officer at Radnor, Pennsylvania-based Haverford Trust Co., said in a telephone interview. “The fourth quarter and first quarter are trough quarters for S&P 500 earnings growth and there’ll be a slight pickup as we move throughout the year as the economy starts to gain momentum.”

Too Pessimistic

U.S. investors have also grown more confident that disagreements between President Barack Obama and his opponents in Congress over the budget, as well as $1.2 billion in spending cuts that took effect last month, won’t derail the economic recovery, Smith said.

Analysts have proven too pessimistic in recent quarters. They projected S&P 500 profits to decline 1.7 percent in the third quarter, when earnings actually expanded 4.6 percent. Analysts projected 2.5 percent growth in the fourth: Profits ultimately rose 8 percent.

Macy’s, the second-largest U.S. department store chain after Sears Holdings Corp., derives almost all of its $28 billion in annual revenue from its home country. Chief Executive Officer Terry Lundgren has a cautious, exploratory approach to expanding to international markets, said Edward Yarbrough, an analyst with Edward Jones & Co. in St. Louis.

The retailer also has reaped profit with its strategy of offering more exclusive goods and better tailoring its merchandise to local tastes, said Yarbrough, who recommends holding the shares. The Cincinnati-based chain is projected to report first-quarter earnings per share of 54 cents a share, excluding some items.

“Retailers are doing better in the U.S. than in some of the international markets, and Macy’s specifically is benefiting from that,” Yarbrough said. “Being domestic-only has helped them.”

(Source: Bloomberg)