Inflation Drags Averages

Elena
18 Oct, 2005
New York City

Merrill Lynch released 51% Q3 earnings rise of $1.14 a share on strong trading activity, beating estimates of $1.18. 3M reported Q3 profit rise of $1.10 a share vs. 97 cents a year ago, beating estimates. The technology bellwether IBM exceeded profit expectations, posting Q3 earnings increase of $1.26 a share, exluding charges, but fell short of revenue estimates.

U.S. MARKET AVERAGES

Stocks opened flat but moved to the downside on data, showing a sharp jump in wholesale prices for September. The Labor Department's PPI, which measures prices at the wholesale level, rose 1.9% in September on high energy and food costs, marking the biggest increase in 15 years.This news raised new inflation worries, sending stocks modestly lower despite strong profit reports from a number of Dow Jones industrials. Each of the three major averages is currently down by 0.2%.

Better-than-expected earnings from major companies like Johnson & Johnson IBM Corp, Merrill Lynch ,and United Technologies Corpwere offset by the Producer Price Index increase.
Blue-chip manufacturer 3M Co. ((MMM)) also reported better-than-expected earnings but projected a full-year outlook that came below analysts' estimates.

Another Dow component, chip maker Intel Corp. ((INTC) is expected to release its quarterly results after the market's close.

The housing sector has extended losses, posting a decline of about 2.4%. The semiconductor sector dropped on disappointing earnings from Novellus ((NVLS)). The space is down about 1.2%.

The airline sector is posting a modest advance of about 1%. Biotech and computer hardware stocks also post gains.

PPD Inc. ((PPDI)) is among the biggest gainers in the early going on third-quarter earnings report. The stock is currently up 10%.

Guidant ((GDT)) is a notable loser after Johnson & Johnson ((JNJ)) said that it is considering alternatives with regards to its merger with Guidant. The stock is currently down 7%.

Bonds edged higher as stocks fell, with the yield on the 10-year Treasury note falling to 4.48% from 4.50% late Monday.

MOVERS AND SHAKERS

3M Co. ((MMM)) posted third-quarter results that were above analyst expectations. Sales increased 8.3% in the three months ended September 30 to $5.38 billion from $4.97 billion in the same period a year ago, according to the report. The company also increased its share buyback program. 3M Co.’s stock gained 1.4%.

Diversified industrial company United Technologies Corp. ((UTX)) raised its profit outlook for this fiscal year after its third-quarter report topped expectations. The company posted earnings of $821 million, or 81 cents a share, up from $693 million, or 68 cents, in the same period a year ago. Quarterly revenue came to $10.91 billion from $9.34 billion, up 17%, according to the report. The stock fell 1% yesterday, but it is likely to gain today.

Healthcare company Johnson & Johnson ((JNJ)) could be under pressure after it has reported a third-quarter profit that topped analyst estimates, but its sales fell below Wall Street forecast.

IBM ((IBM)) reported earnings that came in ahead of Wall Street expectations. The computer giant posted net income of $1.52 billion, or 94 cents a share, for the three months ended September 30, down 2.5% from $1.55 billion, or 92 cents, a year ago. Sales from continuing operations increased slightly as the company sold more hardware and services. The company’s stock added 2.6%.

In financial sector, Merrill Lynch’s ((MER)) stock was up 2.1% as the investment bank posted a record profit for its third quarter, easily jumping over analyst estimates. Wells Fargo ((WFC)) also reported earnings that came in above analyst expectations.

In semiconductor sector, Goldamn Saches downgraded Texas Instruments ((TXN)) to “underperform” from “in-line”, pointing increased competition from Qualcomm Inc. ((QCOM)) in the third-generation broadband business. At the same time, the financial broker upgraded Entegris Inc. ((ENTG)) to “outperform” from “in-line”, citing merger and business divestitures are likely to create improved secular earnings. The sector is likely to be in focus today.

ECONOMIC NEWS

Wholesale prices rose at their fastest pace in over 15 years in the month of September, according to a report from the Department of Labor. The sharp increase in prices was largely due to a surge in energy prices.

The report showed that the producer price index rose 1.9 percent in September after rising 0.6 percent in August. The increase came in above economist expectations of a somewhat more modest 1.1 percent increase.

As was the case with the increase in consumer prices, the increase in producer prices was largely due to a 7.1 percent increase in energy prices. The increase reflects the sharp rise in energy prices that was seen following Hurricane Katrina.

The report also showed that the core PPI, which excludes food and energy prices, rose 0.3 percent in September after coming in unchanged in August. Economists had expected core prices to increase by 0.2 percent.

The relatively modest increase in core prices may help to offset some of the recent inflation concerns, although many traders and economists remain concerned that the surge in energy prices will start to be reflected in prices for other goods, driving the rate of inflation higher

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks closed mostly higher, although the Nikkei lost 0.4% on tech stocks, ahead of Intel Corp.’s earnings release. Today’s decline of the Japanese stock markets continued the negative trend from the previous four sessions. Across the region, Hong Kong’s Hang Seng gained 0.4% and South Korea’s Kospi rose 0.8%.

European markets traded higher at mid-day, supported by strong U.S. markets close Monday and declining crude-oil prices. The healthcare sector was in the spotlight. The German DAX 30 added 0.2%, the French CAC 40 rose 0.2%, while London’s FTSE 100 remained almost unchanged at 0.04%. The euro was steady at $1.1998.

ENERGY, METALS, CURRENCIES

Oil prices dropped about $1 on expectations that Hurricane Wilma will fail to hit the vulnerable oil platforms and refineries in the Gulf of Mexico. Light sweet crude for November delivery fell 98 cents to $63.608 a barrel on the Nymex. London Brent lost $1.06 to trade at 59.81.

In European trading gold prices lost ground In London gold December contract traded at the recommended price at $473 per troy ounce., down from $474.30.

In European trading the U.S. dollar grew stronger against its major counterparts. The euro was quoted at $1.1952, down from $1.2092. The dollar changed hands at 115.08 yen, down from 113.92. The British pound was trading at $1.7452, down from $1.7689.

EARNINGS NEWS

Merrill Lynch ((MER)), investment and financing services provider, posted a record Q3 of $1.40 a share, 51% up from last year’s in the same period, topping analyst estimate of $1.18 per share. Revenue amounted to $6.7 billion.

American Standard Cos. ((ASD)), maker of bath and kitchen products and vehicle control systems, posted Q3 earnings of 74 cents a share, up vs. profit of 71 cents a share in the year-ago period. Sales advanced in Q3 to $2.62 billion vs. $2.4 billion in the comparable period. On an adjusted basis, aside from items, the company earned gained 75 cents a share in Q3, missing analyst estimate of 78 cents a share. The company revised its outlook down for the full year to earnings of $2.54 to $2.58 a share from a previous projection for a profit of $2.60 to $2.75 a share.

Great Atlantic & Pacific Tea Co ((GAP)), regional grocery chains, posted Q2 net income of $14.40 a share, up from a loss of $1.67 a share in the year-earlier period. The company’s sales amounted to $2.17 billion, down vs. $2.49 billion on a 1.1% decline in U.S. comparable-store sales. In Q2, A&P won $919 million connected with the disposal of its Canadian operations together with $152 million in charges.

Station Casinos, Inc. ((STN)), casino properties operator, reported that Q3 net income advanced 34% to 63 cents a share, up from 46 cents a share in the year-ago period on 14% revenue growth. Q3 Same-store revenue increased 16%.

U.S. Bancorp ((USB)), financial services provider, announced that Q3 earnings increased 8.3% to 62 cents a share on 1.8% revenue growth on better revenue from credit and debit cards as well as corporate payment products, beating analysts’ estimate by a penny.

KeyCorp ((KEY)) financial-services company, posted Q3 net income of 67 cents a share, up vs. 61 cents in the same period a year ago on revenue growth, beating analysts’ forecasts by a penny. Net interest margin increased to 3.67% in Q3, while both net loan charge-offs and nonperforming loans declined from last year.

3M Co. ((MMM)), maker of industrial and household products, posted Q3 earnings of $1.10 a share, up from profit of or 97 cents a share in the year-ago period, beating analysts’ forecasts of $1.08 a share. Sales in Q3 advanced 8.3%. 3M Co. has approved the buyback of an additional $300 million worth of its common stock, bringing its total repurchase authorization to $2.3 billion for calendar 2005. The company estimates about $500 million of that authorization remains.

State Street Corp. ((STT)), asset management services company, posted Q3 earnings of 43 cents a share, down vs. 52 cents a share in the year-ago period despite revenue growth. Apart from discontinued operations, earnings would have been 75 cents a share, beating analyst estimate of 67 cents a share. The company anticipates earnings growth going forward from continuing operations of 10% to 15% and return on equity of 14% to 17%.

Wells Fargo ((WFC))banking, insurance and investment company posted record Q3 net income of $1.16 a share, up 13% from $1.02 a share in the same period last year on 16% revenue growth, beating analysts’ forecasts by a penny. The company recorded a $100 million provision in excess of net charge-offs for the impact of Hurricane Katrina on its loan portfolio.

Genzyme Corp. ((GEVZ)), biotech group, posted strong Q3 earnings of 43 cents share, up from, 41 cents a share for the same quarter a year ago on 24% revenue growth. Apart from charges amounting to about $63.5 milion, adjusted earnings would have been 61 cents a share, up from 49 cents in the comparable period, beating on that basis analysts’ expectations of 58 cents a share.