AMR Loss Widens, Southwest Net up 54%

Elena
18 Jan, 2006
New York City

Stocks opened in the negative, dragged by disappointing earnings from major tech companies like Yahoo and Intel, rising oil and a heavy drop in the Japanese Nikkei. In earnings news, AMR posted a wider Q4 profit loss of $3.49 a share vs. $2.40 a year ago on higher fuel prices, below estimates of a loss of $2.50. Low-cost carrier Southwest Airlines reported 54% Q4 profit rise to 10 cents a share vs. 7 cents last year on 20% revenue increase.

U.S. MARKET AVERAGES

U.S. stocks traded weak at opening after disappointing quarterly earnings released by major tech companies like Intel and Yahoo, raising worries about corporate earnings, spurt large-scale sell-off. Investors also worried about the heavy slump of the Japanese Nikkei, down 3% and other global markets. Meanwhile, oil prices extended their climb past $66 a barrel.

Dow component Intel Corp., the world''s top chipmaker, reported Q4 results below expectations on weak demand for the processors used in desktop computers. Piper Jaffray downgraded its rating on Intel and cut its price target. Yahoo Inc., the world''s largest Internet media company, also posted quarterly earnings that fell short of Wall Street expectations.

International Business Machines Corp., the world''s biggest computer company, said quarterly profit rose higher than expected.

Yet most of the U.S. market''s losses could be blamed almost entirely on tech-sector selling, with other stocks generally holding firm after the Labor Department reported better-than-expected retail inflation data.

The Internet sector was the most conspicuous decliner in the tech sector, after Yahoo! ((YHOO)) slipped nearly 12% on its disappointing quarterly results. Google ((GOOG))dropped by about 3.5%after it was downgraded by analists. eBay ((EBAY)) fell less than 1% ahead of its earnings release, due out after the close of trading.

A number of other tech sectors posted significant weakness in early trading with the networking and disk drive sectors being two of the worst performers. The semiconductor sector, dragged by Q4 profit drop of 10% in Intel ((INTC)) also moved notably to the downside.

In the first hour of trading, the tech-focused Nasdaq composite index fell 35.46, or 1.54%. The Dow Jones industrial average dropped 39.70, or 0.36%, and the Standard & Poor''s 500 index lost 5.90, or 0.46%.

Bonds rose as stocks fell, with the yield on the 10-year Treasury note falling to 4.31% from 4.33% late Tuesday.

MOVERS AND SHAKERS

Southwest Airline ((LUV)) reported Q4 net income jump of 53.6% to $86 million or 10 cents a share, below estimates of 13 cents a share. Operating revenue for the quarter rose 20.1% to $1.99 billion. The company said it sees a favorable outlook for the first quarter of 2006 and expects January's load factor and unit revenues to rise. The company’s shares rose 4.9%.

AMR Corp. ((AMR)) posted a wider Q4 loss of $604 million, or $3.49 a share from a loss of $387 million, or $2.40 a share a year ago, below estimates for a loss of $2.55 a share. Excluding items, the company lost $413 million, or $2.39 a share, in the quarter. Revenue rose 13.8% in the latest three months to $5.17 billion from $4.54 billion in the same period a year earlier. The stock gained 1.9%.

Applied Industrial Technologies ((AIT)) reported Q2 income rise of $15.3 million, or 50 cents a share, from $10 million, or 33 cents a share in the year ago period, beating estimates for 47 cents a share. Sales grew by 13% to $456.2 million. For Q3, the company projected earnings of 53 to 58 cents a share on sales of $483 million to $493 million. For fiscal 2006 it forecast earnings of $2.10 to $2.20 a share on sales of $1.86 billion to $1.89 billion. Company’s shares jumped 4%.

ECONOMIC NEWS

Consumer prices unexpectedly showed a modest decline in December, according to a report from the Department of Labor. The drop in prices was largely due to a continued decrease in energy prices.

The Labor Dept. said that its consumer price index fell 0.1 percent in December following a 0.6 percent decrease in November. Economists had been expecting prices to increase by about 0.1 percent.

The decrease in prices was due in large part to a 2.2 percent drop in energy prices, which continued lower after falling 8.0 percent in November. Prices for transportation and apparel also fell in December.

The core CPI, which excludes food and energy prices, rose 0.2 percent in December, matching the increase seen in the two previous months. The modest increase came in line with economist estimates.

The report also showed that the CPI rose 3.4 percent for the 12 months ended in December compared to a 3.3 percent increase in 2004. At the same time, the core CPI rose 2.2 for 2005, unchanged from the previous year.

INTERNATIONAL MARKETS NEWS

Asian-Pacific benchmarks closed Wednesday deeply in the red, hurt by heavy selling pressure. The Nikkei ended down for a second straight session, dropping 2.94% to 15,314.18. Tokyo Stock Exchange finished 20 min earlier as the number of orders and executions has increased so sharply that threatened to exceed the systems’ 4 million-order capacity. South Korea’s Kospi tumbled 2.64%, Taiwan’s Weighted index slid 3.16%.

European stocks traded weak at mid-day on disappointing sales from Intel, sharp declines in Asian markets and surging oil prices. The German DAX 30 tumbled 1.5%, the French CAC 40 slipped 1.5%, and London’s FTSE 100 dropped 0.8%.

OIL, METALS, CURRENCIES

Crude oil prices climbed over $66 a barrel amid supply concerns, raised by political tension in Nigeria and Iran. Light sweet crude for February delivery rose 47 cents to $66.78 a barrel. Heating oil gained 6 cents to $1.7978 a gallon. Gasoline added 10 cents to $1.8330. Natural gas surged 14 cents to $9.306 per 1,000 cubic feet.

European gold declined on speculations of accelerating inflation, diminishing the metal’s appeal. In London gold traded at $554.75, down from $561.70. In Zurich the precious metal traded at $545.25, down from $557.15. In Hong Kong gold fell $13.10 to close at $544.70. Silver opened at $9.04, down from $9.12.

The U.S. dollar slipped against major currencies. The euro was quoted at $1.2115, up from $1.2095. The dollar bought 115.15 yen, down from 115.51. The British pound was quoted at $1.7672, up from $1.7664.

EARNINGS NEWS

IBM, ((IBM)), computer company, reported that Q4 net profits rose 13 % to $1.99 per share, up from $1.67 per share in the year-ago period, despite unimpressive revenue, beating analysts'' estimate of $1.94 per share. Cost cuts and the sell-off of IBM''s personal-computer business boosted profit margins, while positive trends in chips and mainframes helped the hardware division. The results were pulled down 10 cents per share by a $267 million charge stemming from IBM''s recent decision to freeze its pension plan for U.S. workers in 2008, and by 2 cents per share because of an accounting change.

Yahoo Inc., ((YHOO)), Internet company, reported Q4 net earnings of 46 cents per share, up 83% from 25 cents per share at the same time in 2004. The 2005 results incorporate a $310 million gain triggered by a complex deal that left Yahoo with a 40 % stake in Alibaba.com, China''s largest e-commerce company. Excluding the gain and other accounting items unrelated to its ongoing operations, Yahoo would have earned 16 cents per share. That figure falls a penny below the analyst estimate.

CIT Group Inc., ((CIT)), leasing company, posted Q4 net profit of $1.21 a share, up 21.8% from the year-ago period, beating analyst estimate of $1.04 a share. Q4 finance income, which excludes revenue from fees and sales of leasing equipment, advanced 23.5%. The company stated that Q4 included several items, including the sale of its micro-ticket leasing unit and a reduction in Q4 income tax expense, which resulted in a 24 cents a share increase in earnings.

ASML, ((ASML)), Dutch chip equipment maker, announced that Q4 net income fell to 51.6 million euros from 109 million euros, with sales down to 548 million euros from 785 million. Both profit and sales were higher than analysts’ forecasts. On a sequential basis, Q4 profit and sales advanced, and the company booked 55 systems compared to 46 systems in Q3.

SunTrust Bank Inc., ((STI)), bank company, reported that Q4 net profit advanced to $1.41 a share, up from the comparable period last year on tight cost controls and improving credit quality trends. Income excluding expenses from the acquisition of National Commerce Financial Corp. came to $1.43 a share, in line with the analysts’ forecasts. Revenue increased 7%.

Mellon Financial Corp, ((MEL)), financial company, reported Q4 net income of 50 cents a share, up from 46 cents a share in the prior year on revenue growth, topping analyst estimate by a penny. Assets under management rose 11% to a record $781 billion.

J.P. Morgan Chase & Co, ((JPM)), banking services, reported Q4 net income of 76 cents a share, up from 46 cents a share in the year-earlier period. Excluding non-operating items, earnings were 73 cents a share, beating on that basis analysts’ expectations by a penny. Investment banking fees continued to be strong; deposits and accounts in retail banking increased.

Southwest Airlines, ((LUV)), airline company, reported that Q4 net income advanced to 10 cents a share, up 53.6% from the year-ago period. If not for the effects of unsettled derivatives transactions, net income rose 44% to 12 cents a share. Operating revenue for the quarter increased 20.1%. The company missed analysts’ expectations for earnings of 13 cents a share.

State Street Corp, ((STT)), provider of products and services for global investors, reported Q4 net income of 74 cents a share, up 35% from 55 cents a share in the year-ago period on revenue growth, beating analyst estimate by a penny. Return on stockholders'' equity from continuing operations was 15.9% in Q4, up from 11.9%.

Ethan Allen Interiors Inc., ((ETH)), home furnishings retailer, reported that Q2 profit increased to 77 cents a share, up from 63 cents in the year-ago period. Sales for Q2 rose to $276 million from $245.3 million in last year''s Q2.

Northern Trust Corp, ((NTRS)), commercial banking and investment management services company, reported Q4 earnings were 67 cents a share, compared with 60 cents a share in the year-ago period, a penny shy of analyst estimate of 68 cents a share.