Market Braves Falling Energy Prices

Elena
23 Sep, 2005
New York City

European stocks closed up led by the German DAX 30 and CAC 40 both up 0.7%. Oracles, software supplier, posted 1Q profit of 10 cents a share on 25% higher revenue, but released disappointing 2Q revenue forecast. Alcoa, aluminum maker, projected 3Q earnings 39% below estimates. JLG Industries, equipment maker, posted doubled 4Q earnings of 69 cents a share on record-high revenue, but projected 2006 profit below expectations. Mexico's central bank reduced its benchmark rate to 9.25% from 9.50%.

U.S. MARKET AVERAGES

The U.S. market averages have slightly recovered from the lower levels of trading in early morning. The Nasdaq and the S&P 500 have climbed back near the unchanged line while the Dow continues to post a modest loss which is largely attributable to aluminum giant Alcoa which is currently down 5.8%.
Oil prices started retreating on news that Rita was losing power and had weakened to category 4 from top strength of 5, and might not directly hit the key oil refineries around Houston. Traders are cautious on continuous concerns about the impact of the storm. They still hope that Rita’s impact will be less than Katrina’s as Texas refineries are on higher ground than those in Louisiana.

It has been reported that 74% of 819 manned platforms in the Gulf of Mexico and 65% of 134 rigs have been evacuated. About 92% of the daily oil production has been shut down, which is currently approximately 1.5 million BOPD. Approximately 66% of the daily gas production in the GOM has been shut down, which is currently approximately 10 BCFPD.

Among the gaining stocks American International Group ((AIG)) is posting a notable gain of 1.67%, boosting the whole insurance sector. Honeywell ((HON)) has risen by 2.13%, United Technologies ((UTX)) has gained 1.10%, and Caterpillar ((CAT)) has added 0.90%.

The following stocks stand out among the biggest decliners of the day. Valero Energy ((VLO)) lost 1.86%, Tesoro Corp. ((TSO)) dropped 3.26%, Murphy Oil ((MUR)) slid 2.33%, Exxon Mobil ((XOM)) declined 1.18%, and Rowan Cos. ((RDC)) fell 1.92%.

Two major companies influenced the stock markets, releasing disappointing reports. Oracles, software supplier, met 1Q earnings expectations but posted 2Q revenue below analysts’ estimates. Alcoa, aluminum maker, projected 3Q profit 39% below expectations.

MOVERS AND SHAKERS

Alcoa Inc. ((AA)) descended 8% in pre-market dealings due to the company’s bad forecast about its third-quarter profit. The metal giant explained this forecast with Hurricane Rita, low aluminum prices and higher raw-material costs. The brokers Prudental and Goldman Sachs downgraded the company citing its profit warning.

Software company Oracle Corp ((ORCL)) announced gloomy sales outlook that confused investors. The company reported a 2% rise in fiscal first-quarter profit, but its shares declined 5.1% due to its sales outlook.
Palm Inc. ((PALM)) fell 16% before the bell after the computer maker posted discouraging fiscal first-quarter earnings and revenue, and announced a lower-than-expected perspective.

Tire manufacturer Goodyear Tire & Rubber Co. ((GT)) announced its expectations about burden of $150-$250 million over the next three years connected to its restructuring plans. The company intents to cut down its manufacturing capacity by 8%-12% in that time. Goodyear is expecting to lower expenses by $750 million-$1 billion by 2008. The company’s stock was down 0.2% yesterday.

ECONOMIC NEWS

No major economic news release is due Friday.

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks closed mostly down on profit-taking. The Japanese exchanges were closed for a public holiday. Across the region, South Korea’s Kospi dropped 2% with Samsung Electronics, SK Telecom and Hyundai Motor being the leading decliners. Shanghai Composite lost 0.2% after the central bank of China widened the yuan’s trading range against non-U.S. dollar currencies. Australia’s All Ordinaries was one of the few gainers, rising 0.6%.

European markets closed in the positive territory on the back of declining oil prices as Hurricane Rita weakened to category 4. Support to the stocks was also provided by some deal news, led by the Swedish insurer Skandia which rejected an offer for $6 billion from Old Mutual. The German DAX 30 gained 0.7%, the French CAC 40 added 0.7%, and London’s FTSE 100 rose 0.6%.

ENERGY, METALS, CURRENCIES

Oil prices further declined as Hurricane Rita weakened to category 4, suggesting that the damage to the refinery capacity will be less than feared. Light sweet crude November delivery slipped $1.30 to $65.20 a barrel in late morning trading on the Nymex. Heating oil lost 8 cents to $1.96 a gallon, while gasoline slid 9 cents to $2.05. London Brent declined $1.28 to trade at $63.32.

Gold declined in European trading. In London the precious metal closed at $462.80 per troy ounce, down from $466.35. In Hong Kong gold lost $7.70 to close at $465.05. Silver closed at $7.25, down from $7.35.

The U.S. dollar advanced against the other major currencies in European trading. The euro was quoted at $1.2076, down from $1.2146. The dollar changed hands at 112.05 yen, up from 111.65. The British pound was trading at $1.7784, down from $1.7891.

EARNINGS NEWS

3Com Corp., ((COMS)) converged networking solutions provider, posted 3Q loss of 11 cents a share, down from 9 cents a share in the year-ago period on revenue growth, missing analyst estimate of a loss of 8 cents a share. Apart from restructuring and other charges, which equaled 2 cents a share, 3Com would have lost 9 cents a share.

Tibco Software Inc. ((TIBX)), integration and process management software company, posted 3Q net earnings of 6 cents a share, up from 4 cents a share in the year-earlier period on a slight revenue growth, beating analyst estimate of 4 cents a share. On a pro forma basis, the company announced income of $10.2 million, or 5 cents a share.

Finish Line Inc., ((FINL)) athletic apparel and accessories retailer, posted 2Q net earnings of 38 cents a share, compared with restated earnings of 42 cents a share in the same time last year. Revenue was $341.6 million vs. restated revenue of $312.2 million last year. Same-store sales for the period dropped 2%, down from a rise of 6% in the year-earlier period.

Scientific Industries, ((ESIO)) chip and electronic equipment manufacturer, posted 1Q net earnings of 5 cents a share, down from 36 cents a share in the year-ago period on 39% sales decline. The company announced that its results included a $4.1 million charge resulting from the redemption of its 4.25% convertible notes, which eliminated its long-term debt.

Darden Restaurants Inc., ((DRI)) restaurant chain, posted 1Q net earnings of 53 cents a share, up vs. 44 cents a share in the same period a year earlier on revenue growth, beating analyst estimate by a penny. The company announced that same-store sales for its Olive Garden chain rose 7% to 8% in August and advanced 7.4% in 1Q. The company approved a semi-annual dividend of 20 cents, up from 4 cents a share.

Oracle Corp., ((ORCL)) software company, reported that 1Q net profit advanced to $519 million from $509 million a year earlier and remained the same as last year’s at 10 cents a share, missing analysts’ forecast of 14 cents a share. Excluding one-time items, the company would have gained 14 cents a share, up from 10 cents a share on the same basis a year ago. Revenue for the period soared 25% to $2.77 billion, up from $2.22 billion a year earlier.

INTERNATIONAL NEWS

The central bank of Mexico reduced its benchmark lending rate for a second time to help support a slowing economy, taking advantage of slowing inflation. The interest rate has been lowered to 9.25% from 9.50%.