3M and Merck Limit Dow Losses

Elena
20 Oct, 2006
New York City

Stocks traded in a lackluster fashion at opening, with the Dow erasing gains on disappointing Caterpillar results a day after breaking through 12,000 for the second day in a row. The Dow component dropped 10.6% after warning that costs, a slowing housing market and lower sales would negatively affect its earnings by the end of 2006 and 2007. However, the decline was limited by 2% gain for 3M and 1.3% for Merck after they reported better-than-expected Q3 earnings.

[R]9:45AM stocks opened mixed. 3M and Merck limited Dow losses.[/R]
Stocks traded in a lackluster fashion at opening, driven by mixed earnings news. The Dow erased gains on disappointing Caterpillar ((CAT)) results a day after breaking through 12,000 for the second day in a row. The Dow component dropped 10.6% after warning that costs, a slowing housing market and lower sales would negatively affect its earnings by the end of 2006 and 2007. However, the decline was limited by 2% gain for 3M ((MMM)) and 1.3% for Merck ((MRK)) after they reported better-than-expected Q3 earnings. Google ((GOOG)) supported the Nasdaq, rising 7% after it said its profit nearly doubled and revenue surged 70% during the third quarter. Yahoo ((YHOO)) was downgraded by Stifel Nicolaus to hold from buy, citing worries about competition from rival Google. Yahoo shares lost 1.7%. In midmorning trading, the Dow fell 45.86, or 0.38 percent, to 11,965.87. The Standard & Poor's 500 index was down 3.03, or 0.22%, at 1,363.93, and the Nasdaq composite index fell 9.75, or 0.42%, to 2,331.19, despite a strong showing by Google Inc. Bonds showed little movement, with the yield on the benchmark 10-year Treasury note flat at 4.79% from late Thursday.


[R]9:30AM The London benchmark FTSE 100 declines, following U.S. futures down.[/R]
The FTSE 100 in London declined 1.4 points, or 0.02%, to 6,155.4 in early afternoon on Friday.

Advancers

Pearson, the media group that owns the Financial Times, advanced 1.7%, its highest level since April. The advance was sparked by Goldman Sachs, which encouraged clients to buy ahead of the trading update of Pearson.

ITV ignored a profits warning from SMG, as talks of a private equity bid continued to emerge. Its shares improved 0.9%. Despite a profits warning from US rival Martin Marietta, building materials group Hanson gained 1.3%. Rumours of a private interest helped bookmaker Ladbrokes gain 3%

Decliners

SMG was down 26% and Corus slid 1.4% after the Anglo-Dutch steelmaker recommended an offer from Tata Steel of India. Next was also under pressure, falling 1.4% on further worries about tough trading.

Wolfson Microelectronics was in focus. Its shares slumped 37% after the chip designer warned full-year revenues would fall short of expectations because of a glut of consumer electronics goods. The Wolfson warning impacted fellow chip designer CSR, which was down 3%.

Other news

UK public borrowing hit 7 billion pounds in September, leaving the Treasury with much ground to make up if it is to reach its Budget public finance forecasts this financial year.


[R]9:00AM Stock futures declined on disappointing results from Caterpillar.[/R]
U.S. stock futures erased earlier gains and moved to the downside, hurt by disappointing earnings and guidance from blue chip equipment maker Caterpillar. Rebounding crude oil prices ahead of production cuts, also weighed. Crude oil rose 35 cents to $58.85 a barrel, following a move by the OPEC to cut production by more than expected. Positive results from Internet bellwether Google failed to lift sentiment.

In corporate news, Dow component Caterpillar ((CAT)) slipped 8% in preopen trading after reporting disappointing Q3 earnings of $1.14 a share, up from 94 cents a year ago, but missing expectations of $1.35. The company also cut its full-year earnings outlook. Revenue of $10.52 billion topped analysts'' prediction for $9.87 billion, benefiting from higher volume, prices and currency translation. In contrast, Google Inc. ((GOOG)) climbed 7.5% in preopen trading after the Internet search giant reported a 92% quarterly profit rise on 70% sales growth.

In other Dow components reporting results, Merck and 3M Co. topped analyst expectations. 3M ((MMM)) said it earned $1.18 per share, up from $1.08 per share last year. Drugmaker Merck & Co. ((MRK)) reported a 34% drop in Q3 net income to 941 million, or 43 cents per share, down from $1.42 billion, or 65 cents per share due to flat sales and restructuring costs. The pharmaceutical company said it is adding an additional $598 million to its reserves for future legal defense costs over its withdrawn painkiller Vioxx.

Drugmaker Schering-Plough Corp. ((SGP)) rose 3% after it said its Q3 earnings rose nearly sevenfold to top Wall Street estimates as its revenue rose 13% and profits nearly doubled from its cholesterol drug joint venture with Merck & Co. Net income grew 19 cents per share, from 3 cents per share, a year ago. S&P 500 futures eased 1.60, to 1372.70 and Nasdaq 100 futures gave up 0.75 of a point to 1722. Dow industrial futures shed 34, to 12025.


[R]8:00AM Steelmaker Corus accepted an $8 billion bid offer from Tata Steel.[/R]
Anglo-Dutch steelmaker Corus Group ((CGA)) on Friday agreed to be taken over by India''s Tata Steel ((TATLY)) in a deal worth 4.3 billion pounds ($8 billion). Under the terms of agreement Corus stockholders will receive 455 pence in cash for each of their shares. The offer is at a 26.2% premium to the 12-month average closing price for Corus shares, but it came in below their market price. Since Tata said it was considering a bid in early October, the shares had risen around 26%.

The transaction will create the world''s fifth-largest steel producer. Still, some investors held out hopes for a better offer. Corus shares fell 1.6% in London but still held well above the offer price at 470.5 pence, suggesting investors see an alternative bid, or an improved offer from Tata Steel. However, Corus insisted it had achieved a good price. The deal marks another step in the consolidation trend among steelmakers, including the $32.4 billion takeover of Arcelor by Mittal Steel. Tata Steel rose 1.4% in Bombay


[R]7:30AM Strong U.S. close and oil production cuts led Asia to a broad rise.[/R]
Asian markets finished broadly higher on Friday. The benchmark Nikkei 225 rose 0.61% to finish at 16651.63. Canon gained 0.93% and Toyota added 1.47%. Machinery maker Komatsu climbed 1.83%, while Nippon Steel reported a 0.81% gain. Sony, however, shed 0.83% after the company revised its earnings forecast downward due to troubles with laptop batteries and delays at its games unit.

The Hang Seng Index in Hong Kong rose 0.7% to end at 18113.55. The China Enterprises Index was up 0.4% to 7,469.80. The Shanghai Composite Index declined 0.3% a day after mainland authorities announced that GDP growth was 10.4% in the third quarter, down from 11.3% annualized growth it the second quarter.

Australia S&P/ASX 200 index closed up 1% at 5335.4. South Korea Kospi index advanced 0.8% and Singapore Straits Times Index was up 0.2%. Taiwan''s Taiex index rose 0.5% and Malaysia KLSE Composite traded nearly flat. Shares traded in New Zealand were lower 0.2%. Indonesia Jakarta Composite Index declined 0.1%.


[R]6:30AM European stocks advance on oil cuts and strong overnight U.S. finish.[/R]
European markets were higher by mid-morning on Friday. The U.K. FTSE 100 gained 0.44% at 6,183.30, the German DAX 30 rose 0.4% at 6,204.16, the French CAC 40 advanced 0.5% at 5,384.01.

Advancers

BP and Royal Dutch Shell each advanced 1%, boosted by the unexpected oil production cut by OPEC. Shares of PartyGaming gained 1.6%, following its statement that in the few days since U.S. customers were prevented from accessing the real money sites, average daily gross revenue of the non-U.S. facing business has been 2% below that of the third quarter.

Valeo, a French auto parts maker, also gained after recent slips. Valeo shares jumped 6.8% after it reported that its quarterly profit sank76%. Valeo agreed on a memorandum of understanding to sell its electrical motors and actuators unit for an undisclosed price.

Decliners

Corus Group declined 1.5% as investors were disappointed that it gave its agreement to be bought by Tata Steel for 4.3 billion pounds ($8 billion). Wolfson Microelectronics, a Scottish chipmaker producing chips for the iPod music device of Apple Computer, fell 30% after registering a build-up of inventory in consumer electronics products, leading to a fourth-quarter revenue guidance between $52 million and $57 million.

Oil and gold

Crude oil for November delivery advanced 40 cents to $58.90 a barrel in on the NYME. December Brent crude on London ICE Futures exchange rose 33 cents to $61.20 a barrel.

Gold opened on Friday at a bid price of $600.15 a troy ounce, up from $596.00 late Thursday.

Currencies

The euro was steady against the U.S. dollar Friday, holding onto gains that it made on disappointing U.S. economic data. The euro bought $1.2624 in morning European trading, barely changed from its level of $1.2626 in New York late Thursday. The British pound was unchanged at $1.8777. The dollar rose to 118.32 Japanese yen from 118.15 yen.