Weak earnings reports pummel stocks

NEW YORK (AP) — Nobody was expect­ing this round of cor­po­rate earn­ings reports to be great. But com­pa­nies’ under­whelm­ing results are still rat­tling investors.

Stocks plunged Tues­day in one of the worst days on Wall Street this year. Big-name com­pa­nies reported weak quar­terly rev­enue and low­ered their fore­casts for the rest of the year.

The Dow Jones indus­trial aver­age sank as much as 262 points, or roughly 2 per­cent. In the late after­noon, it was down 208 points to 13,138.

The Dow’s biggest decline this year was 274 points. That was June 1, the day the gov­ern­ment released a weak jobs report.

Other indexes also fell sharply Tues­day. The Stan­dard & Poor’s 500 index was down 17 points to 1,417, and the Nas­daq com­pos­ite index was off 16 points at 3,000. The Nas­daq hasn’t closed below 3,000 since Aug. 6.

Com­pa­nies of all stripes sig­naled that the econ­omy is far from healed, and that demand isn’t what it was a year ago. DuPont, 3M, UPS and Xerox all missed finan­cial ana­lysts’ expec­ta­tions for revenue.

Because of their global foot­prints and vari­ety of prod­ucts and ser­vices, those com­pa­nies augur how the world econ­omy is performing.

Chem­i­cal maker DuPont said it will have to cut jobs and other expenses after sales fell through­out the world. 3M, which makes all man­ner of prod­ucts includ­ing Scotch tape and coat­ings for LCD screens, cut its profit pre­dic­tion for the year.

UPS, the world’s largest package-delivery com­pany, warned that the pace of global growth remains uneven, and that the hol­i­day shop­ping sea­son could prove disappointing.

Xerox reported steep declines in sales of equip­ment and sup­plies and noted that the “chal­leng­ing econ­omy” was caus­ing “cost pres­sures for large enter­prises and governments.”

Tim Court­ney, chief invest­ment offi­cer at Exen­cial Wealth Advi­sors in Okla­homa City, wasn’t sure whether the soft earn­ings results were the main prob­lem, or just a symp­tom of a sput­ter­ing economy.

Many ana­lysts were already expect­ing declines in earn­ings growth and rev­enue before com­pa­nies started report­ing results.

“They’re using that as an excuse, but it’s the broader issues that are dri­ving it,” Court­ney said. “What’s going to hap­pen with the elec­tion, what’s going to hap­pen with the fis­cal cliff? Europe is already in reces­sion — are we going to go too? That fear is dri­ving a lot of the sell­ing right now.”

The so-called fis­cal cliff is a com­bi­na­tion of tax increases and gov­ern­ment spend­ing cuts that will take effect Jan. 1 unless Con­gress intervenes.

DuPont and Xerox were among the worst-performing stocks in the S&P 500. DuPont slid $4.35 to $45.41. Xerox was down 37 cents to $6.66. 3M slipped $3.19 to $89.34. The excep­tion was UPS, which rose $2.24 to $73.80, appar­ently able to con­vince investors that it can make money even in a weak economy.

Not only is the third quar­ter earn­ings sea­son shap­ing up to be poorer than many expected, those com­pa­nies that have been will­ing to make pre­dic­tions about what’s com­ing up in the fourth quar­ter have been over­whelm­ingly pessimistic.

Of the 23 com­pa­nies in the S&P 500 that had made fore­casts as of Mon­day, 18 low­ered their expec­ta­tions for fourth-quarter results, and five kept their fore­casts roughly the same. None raised their forecasts.

Pil­ing on to the weak earn­ings news, the Fed­eral Reserve Bank of Rich­mond, Va., reported that man­u­fac­tur­ing in the cen­tral Atlantic region “pulled back” in Octo­ber, and said that man­u­fac­tur­ers had grown less optimistic.

The price of crude oil fell, another sign that investors expect a weak econ­omy. The yield on the bench­mark 10-year U.S. Trea­sury note sank to 1.77 per­cent from 1.82 per­cent Mon­day as ner­vous investors sold stocks and shifted money into low-risk U.S. gov­ern­ment bonds.

Of the 123 com­pa­nies in the S&P 500 that had reported earn­ings as of Mon­day, only 38 per­cent beat expec­ta­tions on rev­enue, accord­ing to John But­ters, senior earn­ings ana­lyst at Fact­Set, a provider of finan­cial data.

That’s far below the aver­age of 56 per­cent over the past four years and the low­est pro­por­tion since the first quar­ter of 2009, when the stock mar­ket hit its low­est point of the Great Recession.

Com­pa­nies have done bet­ter on earn­ings: 67 per­cent have beat expec­ta­tions so far, accord­ing to But­ters. But investors are inter­ested in rev­enue as a more accu­rate mea­sure of growth, because earn­ings can swing wildly because of one-time fac­tors like account­ing gains.

Some of the dis­ap­point­ing rev­enue is due to weak­ness in for­eign mar­kets. Multi­na­tional com­pa­nies are hav­ing a hard time sell­ing to Europe, which has been hob­bled by reces­sion. The red-hot growth in emerg­ing mar­kets like China and India is also slow­ing down, and many busi­nesses that had relied on growth there to off­set weak U.S. con­sumer demand are being forced to come up with new strategies.

“The reces­sion in Europe is very real,” said Bernard Schoen­feld, senior invest­ment strate­gist for Bank of New York Mel­lon Wealth Man­age­ment in New York. “It’s not going to dis­ap­pear very quickly, and it will cer­tainly neg­a­tively affect earn­ings of exporters in the United States.”

Schoen­feld cited the weak­ness in mate­ri­als com­pa­nies as a reflec­tion of the weak­ness in emerg­ing markets.

Com­pa­nies are blam­ing some of the rev­enue declines on the stronger dol­lar. As the dol­lar gains value, as it has over the past year, the money that multi­na­tional com­pa­nies make over­seas trans­lates into fewer dol­lars back at headquarters.

“They’re feel­ing the pain of the stronger dol­lar,” said Kathy Lien, man­ag­ing direc­tor at BK Asset Man­age­ment in New York. “Com­pa­nies try to hedge, but they don’t always hedge perfectly.”

Lien said that so far this earn­ings sea­son, Google, Philip Mor­ris, IBM and Coca-Cola Bot­tling Co. have com­plained that the stronger dol­lar has hurt revenue.

Among other stocks mak­ing big news:

- Yahoo jumped 92 cents to $16.69, an aber­ra­tion on a gloomy day. The company’s first earn­ings report under Marissa Mayer as CEO eas­ily beat the fore­casts of Wall Street ana­lysts. Yahoo hired Mayer from Google in July to orches­trate its lat­est turn­around attempt.

–Lux­ury hand­bag maker Coach, motor­cy­cle maker Harley-Davidson and Whirlpool all soared after report­ing quar­terly results.

–Apple fell $12.99 to $621.04 ahead of the expected release of a smaller ver­sion of its iPad. Apple has the most sway among stocks in the S&P 500 and the Nas­daq com­pos­ite and helped drive those indexes lower. A smaller, cheaper iPad could help Apple com­pete with Amazon’s Kin­dle Fire and Google’s Nexus 7. It’s not clear how prof­itable a smaller tablet would be.

Posted by Randa Wagner on Oct 23 2012. You can follow any responses to this entry through the RSS Feed. Both comments and pings are currently closed.