Earnings Jitters

123jump.com Staff
17 Jan, 2006
New York City

Earnings rose on top of traders agenda. Broader averages declined as oil rose, bank stocks issued earnings warnings and analysts downgraded tech stocks including AMD, Applied Materials and Sandisk. Oil rose on global geopolitical concerns in Iran and Nigeria. Gold declined. Dow lost 63.55 points Nasdaq lost 14.30 and S&P dropped 4.68 points. Yahoo stock fell 13% and Intel fell 10% in the after-market trading.

U.S. MARKET AVERAGES

Market remained under pressure as earnings warnings, ratings downgrades and spike in oil price all converged on the eleventh day of trading for the year.

Three broad averages Dow, Nasdaq and S&P closed lower after trading all day in the negative territory. After the close IBM, Yahoo and Intel are scheduled to release earnings. Analysts also downgraded Sandisk, Applied Materials, and Advanced Micro Devices on valuation concerns. Wells Fargo and Fifth Third Bancorp traded lower as both companies released earnings warnings.

Oil rose close to 2.5% at close. Oil traded higher during the day and is expected to stay near elevated prices as Iran nuclear program and attack on Nigerian oil field unnerved oil traders.

Federal Reserve reported that nation’s industrial production rose 0.6% and capacity utilization was reported at 80.7%. For the third month in a row industrial production rose. For the fourth quarter, industrial production rose at an annual rate of 3.8% and for the full year production rose at 3.2% rate.

MOVERS AND SHAKERS

Boston Scientific ((BSX)) lifted its proposal to acquire Guidant Corp. ((GDT)) to roughly $27 billion, or $80 a share from earlier $25 billion. Boston Scientific noted its bid represents a premium of $3.3 billion, or $9 per share, over the competing offer of Johnson & Johnson ((JNJ)). Boston Scientific said its amended offer expires at 5:00 pm ET unless its offer is declared ‘superior’ by Guidant''s board, a condition that would move the offer''s expiration back to Jan. 25. Boston Scientific’s shares fell 4.8%. Guidant’s stock rose 7.6%.

Quanex Corp. ((NX)), maker of engineered materials for vehicles and the construction industry, raised its Q1 earnings outlook by 35%, citing better-than-expected results. The company said it expects adjusted earnings of $1.00 to $1.05, above the average forecast for earnings of 84 cents a share. The stock climbed 12% before closing near 10%.

Furniture Brands ((FBN)) dropped over 6% after CS First Boston downgraded the furniture seller to underperform from neutral, citing valuation and lofty expectations for margin improvement. The stock dropped 8%.

Innovex ((INVX)) reported Q1 loss of $9.77 million, or 51 cents a share, vs. a net loss of $1.01 million, or 5 cents a share, in the year-ago period. Excluding 52 cents a share in restructuring charges, the company earned $160,000, or a penny a share on 26% revenue growth to $50.5 million from $40 million last year. Innovex said it plans to move all prototyping and high volume manufacturing to its Thailand manufacturing facility over the next 12 months. The company expects to reduce its workforce and see annual cost savings of $8 million once the transition is complete. The company’s shares slipped 9.3%.

Toll Brothers ((TOL)) was downgraded to sell from neutral by Banc of America Securities, citing lower demand on higher prices. The stock fell 1.5%.

SanDisk Corp. ((SNDK)) dropped 3% after it was downgraded to hold at Citirgroup but closed down 1.3%.

ECONOMIC NEWS

Tuesday morning, the Federal Reserve released its report on industrial production and capacity utilization in the month of December. The report showed that industrial production growth and the capacity utilization rate both came in slightly above economist estimates.

The Fed said that industrial production grew by 0.6 percent in December after an upwardly revised increase of 0.8 percent in November. Economists had expected industrial production to grow by 0.5 percent compared to the 0.7 percent growth originally reported for November.

The report showed that the December industrial production growth reflected a 0.2 percent increase in manufacturing output as well as a 2.7 percent increase in output from utilities and a 2.5 percent increase in output from mines.

The Fed added that industrial production rose 2.8 percent over the twelve months of 2005, rising to 109.8 percent of its 2002 average. Total industrial capacity rose 1.7 percent in 2005.

The report also showed that the capacity utilization rate rose to 80.7 percent in December from an upwardly revised 80.3 percent in November. Economists had expected the rate to increase to 80.6 percent compared to the rate of 80.2 percent previously reported for November.

INTERNATIONAL MARKETS NEWS

Asian-Pacific benchmarks finished deeply in the red Tuesday, pressured by selling of Internet-related, real estate and brokerage issues. The decline started as Japan’s authorities began a probe of Internet portal Livedoor Co. The Nikkei tumbled 2.8% to 15,805.95. South Korea’s Kospi slid 2.3%, followed by Hong Kong’s Hang Seng, down 1.4%. Shanghai Composite was the only gainer with an advance of 0.5%.

European stocks finished in the negative territory on oil prices over $65 a barrel, mixed corporate news and heavy losses in the Japanese Nikkei. The German DAX 30 slipped 1%, the French CAC 40 shed 1%, and London’s FTSE 100 fell 0.7%.

OIL, METALS, CURRENCIES

Crude oil prices climbed to a three-month high of over $65 a barrel amid supply concerns, raised by political tension in Nigeria and Iran. Light sweet crude for February delivery rose $2.33 to $66.25 a barrel. Heating oil gained 7 cents to $1.788 a gallon. Gasoline added 9 cents to $1.822. Natural gas surged 36 cents to $9.15 per 1,000 cubic feet. London Brent March delivery rose 99 cents to $64.17 a barrel.

European gold prices retreated from 25-year highs on signals that recent gains may be overdone. In London gold traded unchanged at $561.70. In Zurich the precious metal traded at $557.15, down from $559.55. In Hong Kong gold fell $1 to close at $557.80. Silver closed at $9.12, down from $9.18. In new York gold closed down $2.70 per ounce.

The U.S. dollar advanced against major currencies on economic data. The euro was quoted at $1.2055, down from $1.2121. The dollar bought 115.80 yen, up from 114.15. The British pound was quoted at $1.7595, down from $1.7758.

EARNINGS NEWS

Fifth Third Bancorp, ((FITB)), reported Q4 earnings per share were 60 cents, up from 31 cents per share for the year-ago period. Return on average assets (ROA) and return on average equity (ROE) were 1.27 % and 13.9 %, respectively, compared to 0.72 %and 7.6 % in 2004''s Q4. Earnings and balance sheet comparisons to the prior year were also impacted by the Q1 of 2005 acquisition of First National Bankshares of Florida, Inc.

M.D.C. Holdings Inc. ((MDC)), home builder, reported that Q4 net income advanced to $4.29 a share, up from $3.17 a share in the same period previous year on more homes sold at greater prices, beating analysts expectations of $3.98 a share. Total revenue, which reflects orders taken months ago, rose 29 % to $1.7 billion.

Texas Regional Bancshares, ((TRBS)), reported Q4 net income of 46 cents a share, up from 42 cents a share in the year-earlier period, topping analyst estimate of 44 cents a share. The company recorded about $898,000 in Q4 charge-offs due to the impact of Hurricane Rita, less than the provision of $2.5 million.

Continental Airlines, ((CAL)), airline company, reported a narrower Q4 net loss of 53 cents a share, up from $3.16 per share in the year-ago period helped by a gain on sale of stock but hurt by almost 58% higher costs of fuel and related taxes as well as sharp competitive challenges. In the latest quarter, if not for a $106 million gain on the sale of Copa stock and charges of $21 million, the loss was $1.58 per share, topping on that basis analysts’ estimates of a loss of $1.68 per share.

National City Corp., ((NCC)), banking services, reported that Q4 net income dropped to 64 cents a share, down from $1.46 a share in the same period the previous year, missing analyst estimate of 67 cents a share. The bank took $75 million in after-tax charges during the quarter. It took $132 million provision for credit losses compared to $81 million in the year-ago quarter, on higher commercial and consumer net charge-offs, as well as a $20 million provision for bankruptcy losses that haven''t yet been realized.

U.S. Bancorp, ((USB)), banking services, reported an 8% increase in quarterly net income to 62 cents a share, compared to 56 cents a share in the year-ago period on growth in its fee-based businesses, matching analyst estimate.

Freeport-McMoRan Copper & Gold Inc., ((FCX)), copper and gold mining company, reported Q4 earnings of $2.19 a share, up 118% $1.08 a share in the same period the previous year on operating performance and favorable copper and gold markets, topping analyst estimate of $1.78 a share.

Forest Laboratories, ((FRX)), drug maker, reported Q3 earnings of 57 cents a share, down from 70 cents a share in the year-ago period, missing analyst estimate of 62 cents a share. The latest results incorporate a payment of 5 cents a share to Gedeon Richter Ltd. for the U.S. and Canadian rights to a developmental compound. Revenue dropped 9% in Q3. December period.

Monro Muffler Brake Inc., ((MNRO)), repair services for passenger cars company, reported Q3 net income increased 15.4% to 27 cents a share, up from 24 cents a share in the same period the previous year, beating analysts forecasts by a penny. Q3 sales rose 12% to $90.2 million.

AmSouth Bancorporation, ((ASO)), banking services, reported Q4 net income of 52 cents a share, up 2.9% from 49 cents a share in the year-ago period, beating analysts’s expectations of 50 cents a share.

Wells Fargo & Co, ((WFC)), banking services, reported that its Q4 net income rose 8% to $1.14 a share, up from $1.04 a share a year ago but a spike in personal bankruptcies in the quarter weighed on results and the company came up a penny shy of analyst expectations.