Google Tumbles 10%

Elena
28 Feb, 2006
New York City

Concerns over inflation and further interest-rate hikes sent stocks lower as the government released its second reading of Q4 GDP which showed economy grew at slightly faster rate. The GDP figures were up to 1.6% from 1.1%, meeting expectations. The GDP deflator rose at an annualized pace of 3.3%, above the estimated 3% increase. Apollo cut its Q2 profit and revenue forecast and suspended its 2006 outlook. Google dropped after CFO reported the company develops at slower pace.

U.S. MARKET AVERAGES

U.S. stocks moved lower on renewed fears of accelerating inflation and further interest-rate hikes after a government report showed the economy grew slightly faster in the fourth quarter than first reported.

The Commerce Department reported Q4 GDP up to 1.6% from 1.1%, meeting economist expectations. The GDP deflator, a gauge of inflation, rose at an annualized pace of 3.3%, more than the 3% estimated previously.

The Conference Board reported sharper-than-expected drop of consumer confidence index. According to the report the CCI fell to 101.7 in February from a revised 106.8 in January. Economists had expected a more modest decline to a reading of 104.0.

In earnings news, H.J. Heinz Co., one of the world's largest food producers, posted Q3 earnings drop of 24% due to higher costs, missing analysts' expectations. Office supply retailer Staples Inc posted 15% profit rise in Q4, beating expectations by a penny.

Energy stocks posted weakness in early trading, including a 1.3% decline in the oil service sector. The transportation group, especially airlines and railroads also moved to the downside. The biotech sector was also one of the early decliners.

The Dow Jones industrial average was down 75.72 points, or 0.68%. The Standard & Poor's 500 Index was down 10.83 points, or 0.84%. The Nasdaq Composite Index was down 23.54 points, or 1.02%.

Treasury yields were slightly lower in the early going, giving back some of Monday''s advance. The 10-year yield remained in a recent trading range, dropping by 1.3 basis points to 4.577%.

MOVERS AND SHAKERS

Apollo Group ((APOL)) projected Q2 net income of 43-44 cents a share and revenue of $570 million, below analyst forecasts of earnings of 54 cents a share and revenue of $586 million. The company, due to report earnings on March 23, didn't provide outlook commentary. The stock fell 12%.

Dycom Industries ((DY)), provider of specialty contracting services, reported Q2 net income drop of 10 cents a share compared with 15 cents in the year-earlier period. Revenue rose to $244.1 million from $224.5 million. Company’s quarterly results beat expectations of earnings of 8 cents a share on revenue of $213 million. The stock dropped 11%.

BJ Services ((BJS)), oil-services provider, was cut to neutral from buy at Merrill Lynch. The broker cited a continued drop in natural-gas prices and blamed the company's conservative strategy which caused it to lose market share to smaller and more aggressive rivals. The stock lost 5.2%.

Dynamic Materials ((BOOM)), metalworking company, reported a 50% rise in Q4 earnings. The company posted profit of $3.5 million, or 28 cents a share, up from $2.3 million, or 20 cents a share a year ago. Sales climbed 16% to $23.2 million. The company said it will increase its capex budget to $4.5 million in 2006, up about 50% from 2005, to expand production capacity at both of its divisions. Company’s shares rose 10%.

Marvel Entertainment ((MVL)) was upgraded at J.P. Morgan to overweight from neutral, which said share buybacks and a strong movie slate in 2007 should enable the company to perform better than its rivals. The broker expects the stock to outperform due to the release of 'Spider-Man 3', 'Fantastic Four 2' and 'Ghost Rider'. The stock gained 5%.

ECONOMIC NEWS

Consumer confidence fell much more than expected in the month of February, according to a report from the Conference Board, with consumer expressing concerns about the outlook for the economy.

The Conference Board said that its consumer confidence index fell to 101.7 in February from a revised 106.8 in January. Economists had expected a more modest decline to a reading of 104.0 compared to the 106.3 originally reported for January.

The decrease by the index came as a modest increase by the present situation index was more than offset by a notable decline by the expectations index.

The report showed that the present situation index rose to 129.3 in February from 128.8 January, reaching its highest level since the month before the September 11th terrorist attacks. The reading suggests that the start of 2006 will be better than the end of 2005

At the same time, the report showed that the expectations index, a reading of consumers' outlook for the next six months, fell to 83.3 from 92.1 last month. With the decrease, the index fell to its lowest level in three years, excluding the two months following Hurricane Katrina.

Tuesday morning, the Department of Commerce released its revised report on fourth quarter GDP growth, showing that the annual rate of growth in the quarter was upwardly revised in line with economist estimates.

The report showed that fourth quarter GDP growth was revised up to 1.6 percent compared to the 1.1 percent growth previously reported. While the growth met expectations, it was still well below the 4.1 percent rate of growth seen in the third quarter.

The Commerce Dept. said that the upward revision to fourth quarter GDP growth reflected upward revisions to readings on exports, federal government spending, equipment and software spending, and to changes in private inventories.

The slowdown in GDP growth in the fourth quarter compared to the third quarter was primarily due to a slowdown in consumer spending, an acceleration in imports, a downturn in federal government spending, and a slowdown in spending on equipment and software.

The report also showed a downward revision to the pace of core inflation, as the increase in the index of consumer prices excluding food and prices was revised down to 2.1 percent from the 2.2 percent growth previously reported. The growth is still above the 1.4 percent increase seen in the third quarter.

INTERNATIONAL MARKETS NEWS

Asian-Pacific benchmarks closed mixed, reflecting lower oil prices, disappointing U.S. economic data, worries about further downgrades, and overcapacity in the tech sector. The Nikkei spent most of the session in the red, but eventually recovered on demand from overseas investors and new domestic investment funds to edge up 0.1%. Indian shares hit an all-time high of 0.9%. South Korea’s Kospi lost 0.2%, dragged by automotive and steel stocks. Hong Kong’s Hang Seng fell 0.2% on profit taking.

European stocks traded in the negative at mid-day, hurt by utilities like Suez and metals stocks like Rio Tinto. Strong cash-return programs from Royal Bank of Scotland and AXA failed to provide a boost to market sentiment. The German DAX 30 fell 0.4%, the French CAC 40 dropped 0.4%, and London’s FTSE 100 also lost 0.4%.

OIL, METALS, CURRENCIES

Crude oil prices continued to decline on easing supply concerns. Light sweet crude April delivery slipped 38 cents to $60.62 a barrel. London Brent for April delivery declined 20 cents to $60.79 a barrel.

European gold prices recovered from yesterday’s decline. In London gold traded at the fixed price of $556.40 bid per troy ounce, up from $553. In Zurich the precious metal traded at $556.50, up from $552.90. In Hong Kong gold slipped $1.20 to $555.30. Silver opened at $9.60, up from $9.59.

The U.S. dollar was weak against other major currencies. The euro traded at $1.1860, up from $1.1855. The dollar bought 116.07, down from 116.12. The British pound stood at $1.7477, up from $1.7400.

EARNINGS NEWS

Overseas Shipholding Group, ((OSG)), provider of energy transportation services, reported Q4 earnings of $2.88 a share, down from a profit of $5.35 a share a year-ago. If not for gains on vessel sales and securities transactions, the company earned $2.79 a share in Q4, still missing analyst estimate of $3.63 a share. In addition, the company announced it plans to increase the quarterly dividend by 43% to 25 cents a share, effective with its next payout.

Astec Industries Inc, ((ASTE)), road building equipment maker, reported that Q4 net income climbed to $1.02 million, or 5 cents a share, up from $268,000 in the year-ago quarter. Revenue in Q4 jumped 21% to $134.5 million. The company stated that Q4 showed seasonal weakness, but added the work backlog is considerably higher than last year. Astec also made it clear that, during its annual audit, it identified significant internal control deficiencies related to inventory controls and accounting system access controls. Despite the weaknesses, the company remains confident in the reliability of its financial statement.

H.J. Heinz Co ((HNZ)), maker of sauces, condiments and packaged foods, reported Q3 net income of 35 cents a share,. down from 43 cents in the same period last year. Quarterly sales shot up 5.7% to nearly $2.19 billion, from $2.07 billion, but gross profit dropped to $780.7 million from $784.7 million. Sales grew 9.4% on a constant-currency basis. Earnings from continuing operations, aside from special items, would have been 50 cents.The company missed analysts view for earnings of 56 cents a share.

Innkeepers USA Trust ((KPA)), real estate investment trust, reported a Q4 breakeven on a per-share basis, up from a loss of 6 cents a share, a year earlier. Funds from operations grew to 21 cents a share from 15 cents a year ago. The company missed analysts’ estimates for earnings of 23 cents a share. Revenue increased to $60.9 million from $50.5 million.

Staples Inc ((SPLS)), office products retailer, reported Q4 earnings of 39 cents a share, up from a profit of 33 cents a share a year-ago on sales and 3% same-store sales growth in Q4, topping analyst estimate by a penny.