Profit Warning Sends 3M down 7%

Elena
07 Jul, 2006
New York City

U.S. stocks opened weaker, reflecting corporate profit warnings, record-high oil prices, and a weaker-than-expected jobs creation report, raising worries that the economy was cooling too quickly. Dow component 3M Co. dropped 7% on warning of lower-than-anticipated Q2 earnings. Micro Devices slipped 4.7% on warning of 6% drop in Q2 revenue.

[R]9:45AM Stocks opened lower on corporate profit warnings.[/R]
Stocks moved lower at the start of trading, reflecting corporate profit warnings, record-high oil prices, and a jobs creation report. The Labor Department report showed weaker-than-expected June employment growth and a bigger-than-expected increase in average hourly earnings, but raised worries that the economy was cooling too quickly. Record oil prices also weighed, with traders worrying that higher energy prices would hurt consumer spending. A barrel of light crude set an intraday record of $75.78 before retreating to $75.65.

Technology stocks showed significant weakness in early trading. The semiconductor sector posted a notable decline on the heels of lowered guidance from Advanced Micro Devices ((AMD)). Shares of AMD slipped 4.7% on warning of 6% drop in Q2 revenue. The Philadelphia Semiconductor Index dropped 2%. Outside the tech sector, shares of Dow component 3M ((MMM)) came under pressure after the diversified manufacturer forecast Q2 earnings below analyst estimates. The 7% loss by 3M contributed to the decline by the Dow. In the first hour of trading, the Dow Jones industrial average fell 35.32, or 0.32%. The Standard & Poor's 500 index lost 4.49, or 0.35%, and the Nasdaq composite index dropped 16.40, or 0.76%.

[R]June jobs increased less than expected.[/R]
Friday morning, the Department of Labor released its closely watched report on the employment situation in the month of June. The report showed that the U.S. economy added fewer jobs than economists had been expecting. The report showed that the U.S. economy added 121,000 jobs in June following an upwardly revised increase of 92,000 in May. Economists had expected an increase of 185,000 compared to the increase of 75,000 originally reported for May. The Labor Department said that several service-providing industries and mining saw continued employment growth, although it noted that the construction and retail sectors lost jobs during the month of June. At the same time, the report also showed that the unemployment rate remained unchanged at 4.6 percent. Some economists had been expecting the unemployment rate to edge up to 4.7 percent. Additionally, the Labor Department said that average hourly earnings rose 0.5 percent to $16.70 in June. The increase exceeded economist estimates of an increase of about 0.3 percent.


[R]9:00AM Stock futures jumped on weaker jobs data.[/R]
U.S. stock futures advanced Friday morning, following a weaker-than-expected job growth, suggesting that the Fed Reserve might pause its cycle of interest rate hikes. The U.S. Labor Department reported that 121,000 nonfarm payroll jobs were created in June, below economists'' expectation of 185,000 jobs and up an upwardly revised 92,000 in May. The unemployment rate stayed at a five year low of 4.6%, in line with expectations.


Despite the positive sentiment generated by the data, some technology stocks could come under pressure following two warnings in the sector. Advanced Micro Devices ((AMD)) dropped 5% on warning of 6% drop in Q2 revenue. Business Objects ((BOBJ)) said that Q2 earnings and revenues would come below its previous guidance. Shares of the business software developer dropped more than 25% in pre-market trading. On the other hand, shares of 3M ((MMM)) posted some strength in pre-market trading after J.P. Morgan upgraded its rating on the diversified manufacturer to Overweight from Neutral, citing valuation. Shares of AmerUS ((AMH)) are expected to rise as the company confirmed that it is in talks to be acquired by Britain''s largest insurer Aviva. Standard & Poor''s 500 futures were up 4.1 points, above fair value. Dow Jones industrial average futures were up 36 points, and Nasdaq 100 futures were up 4 points.

WebMethods Inc, ((WEBM)), maker of business software applications, reported it now anticipates a loss of 12 to 15 cents a share for its Q1 on revenue of between $44 million and $45.5 million. The loss estimate includes $600,000 in expenses for amortization of intangibles, $2.7 million in stock-based compensation costs, and $200,000 in income tax expense. The company''s previous guidance was for earnings of 1 to 5 cents a share on revenue of $51 million to $53 million. The analyst estimate is for a profit of 7 cents a share on revenue of $52.5 million. The company attributed the lower view to its failure to expect additional steps in the customer procurement process in its previous estimate.

Bell Industries Inc., ((BI)), provider of technology services, announced that the tech-solutions side received contracts that will bring in $30 million of revenue in 2007. Bell anticipates to add about 500 new jobs in the next six months. Bell added that the deals involve customer-relationship-management solutions for a leading broadband-phone group, and services to a major computer maker and a consumer-products company.

LaBranche & Co, ((LAB)), specialist firm, expects to report a Q2 loss of $23 million and an operating loss of 8 cents a share. The company will miss analyst forecasts for earnings of 8 cents a share. The estimate includes a non-cash loss of approximately $17 million in connection with the decline of the estimated fair value of the restricted shares of NYSE Group Inc common stock held by LaBranche. The firm said it saw a decline in its principal trading revenue and market-making business to approximately $20 million dollars, from $47 million.


[R]8:00AM Cingular was accused of deceiving customers.[/R]
Cingular acquired AT&T Wireless Services Inc. for $41 billion in October 2004, and promised that the customers of both companies would see uninterrupted and even improved service as a result of the ‘combined network’, but instead it degraded their reception in an effort to persuade them to sign new contracts. A federal lawsuit alleges breach of contract and violations of consumer protection laws, seeking class-action status on behalf of the more than 20 million customers AT&T Wireless had at the time of the merger. The lawsuit, based on complaints received by the Foundation for Taxpayer and Consumer Rights in Santa Monica, seeks up to treble damages for fees and charges paid by the AT&T Wireless customers.

Cingular spokesman said that the company had not had a chance to review the lawsuit. He also said that the company eventually plans to dispose of the older cell phone technology used by the AT&T Wireless network, called TDMA, but insisted that it is still maintaining that system for now. The majority of Cingular''s nearly 56 million customers use a newer GSM system, and many companies no longer make TDMA-compatible phones. Cingular spent $6.5 billion on network improvements and integration in 2005, and has spent the same amount this year, Owen said.


[R]7:30AM Asia closes broadly higher on receding N.Korea jitters.[/R]
Asian markets closed mostly higher. Japan''s Nikkei 225 settled at 15307.61, down 0.09%, after giving back morning gains. Auto makers reported some of the best gains in Japan, with Toyota Motor climbing 1.5% and Honda Motor advancing 1.1%. Electronics exporters were mixed. Sony shed 0.4%, while Toshiba added 0.3%. Hong Kong''s Hang Seng Index closed 0.11% down at 16459.78, and South Korea''s Kospi index ended with a 0.79% gain. In Hong Kong, metal stocks were in demand, with Jiangxi Copper up 3.4% and aluminum producer Chalco up 1.7%. Phone company PCCW advanced 0.9% after local news media said that a Hong Kong consortium may bid for its telecom and media assets. Bank stocks outperformed the market after Citigroup reported that Hong Kong banks'' strong fundamentals weren''t fully reflected in their valuations. HSBC Holdings gained 0.4%.Australia''s S&P/ASX 200 advanced 0.29% at 5135.30 and Indonesia''s Jakarta Composite settled 0.59% higher at 1347.90. China''s Shanghai Composite slipped 0.14% and Singapore''s Straits Times Index was down 0.12% at 2445.13, while Taiwan''s Weighted index edged up 0.02% at 6660.61.


[R]6:15AM European stocks trade lower due to tech shares and U.S. payrolls report.[/R]
European markets traded lower in mid-morning session. The U.K. FTSE 100 index lost 0.4% at 5,868, the German DAX Xetra 30 index decreased 0.5% at 5,666 and the French CAC-40 index slipped 0.5% at 4,940. Chip makers Infineon Technologies lost 0.6% and STMicroelectronics weakened 1.7% after U.S. company Advanced Micro Devices Inc. late Thursday cut its second-quarter revenue guidance after posting lower sales of entry-level and mainstream mobile and desktop processors. Software maker Business Objects fell more than 27% in Paris after it revised its second-quarter earnings and revenue guidance lower after posting lower-than-expected license revenue. The airline sector provided some respite, as budget airline operator easyJet advanced 7.2% following its statement that it carried 15.6% more passengers in June than a year ago. The company also raised its profit growth guidance for the year. Also in the sector, Ryanair gained 2.3% and Air France-KLM increased 0.5% after it said that passenger numbers advanced 5.9% to 6.6 million in June.

Oil prices dropped below $75 a barrel Friday after a U.S. weekly petroleum supply snapshot showed an unexpected rise in domestic gasoline stocks. Light, sweet crude oil for August delivery shed 34 cents to $74.80 a barrel. Gold opened Friday at a bid price of $631.10 a troy ounce, up from $629.30 late Thursday. The euro was unchanged against the U.S. dollar on Friday after the European Central Bank''s president promised strict measures to curb inflation. The European currency was at $1.2774 in morning trading, unchanged from its level the night before in New York. The British pound gained after the Bank of England kept its own interest rate unchanged for the 11th consecutive month, rising to $1.8377 from $1.8367 the night before. The dollar also slipped against the Japanese currency, dropping to 115.01 yen from 115.15 yen.