Investors Punish Suspect Techs
A DAY AFTER escaping a mauling following a big warning by IBM (IBM), tech stocks slumped on fears that Cisco Systems (CSCO) might also disappoint.
No fire was visible behind a smokescreen of rumors, though RBC Capital Markets did trim its estimates for the networking bellwether. But investors weren't waiting for hard evidence a day after IBM bore out rumors about its own miss, officially postponing the tech recovery until further notice.
The Dow lost 40 points to 10208, while the Nasdaq fell 43, more than 2%, to 1742. The S&P 500 finished down 7 to 1117. Telecoms, networkers and chip makers took it on the chin. Energy stocks also struggled as fears over oil supplies and Mideast violence eased a bit. Insurers and consumer stocks led the way.
The Nasdaq's plunge brought it within 26 points of its lowest close this year. The tech-burdened index was doomed by Cisco's 8% drop. Meanwhile, floundering rival Nortel Networks (NT) actually gained six cents after issuing one of history's least surprising warnings. Quarterly revenues of $2.9 billion will fall $100 million short of the mark, while the pro-forma loss of 14 cents a share was a penny wider than forecast. But many investors feared worse as the stock grazed multiyear lows amid the clampdown on telecom investments.
East Coast telephone giant Verizon (VZ) fell 3% to a new one-year low after warning that first-quarter earnings will fall a penny short of analysts' consensus at 72 cents a share. With revenues stagnant, the company has been busy cutting costs, especially capital spending. Other telecoms dropped in sympathy: WorldCom (WCOM) also hit a new low after an 11% drop, while fellow Baby Bell SBC Communications (SBC) surrendered 4%.
The Dow was also weighed down by the two tech bellwethers set to join IBM next week in updating their profit forecasts. Top chip maker Intel (INTC) was the weakest blue chip with a 5% loss, while Microsoft (MSFT) stumbled 4%.
Photography giant Eastman Kodak (EK) propped up the Dow Industrials, rising 4% after Salomon Smith Barney upgraded the stock to Outperform amid signs that the business is gradually improving. "Given the high dividend yield and the cloud of negative sentiment toward Kodak shares, it would seem that any positive news could cause some upward momentum for the stock near term," wrote analyst Jonathan Rosenzweig. "That said, the long-term secular story continues to reflect significant challenges."
The same could be said about Compaq Computer (CPQ), which said it will meet or beat quarterly estimates calling for pro-forma first-quarter earnings of a penny a share. Sales are expected to come in $100 million above the Street's $7.6 billion consensus. Analysts weren't convinced that uptick portends great things for struggling PC makers. The stock fell 3%.
Merger partner Hewlett-Packard (HWP) rose 2%. The widening spread on its offer for Compaq reflected Monday's refusal by a judge to dismiss a lawsuit challenging the merger by dissident H-P director Walter Hewlett.
In contrast to the struggling techs, salad days are back for the Wendy's (WEN) burger chain, where a new line of Garden Sensation salads boosted same-store sales by more than 6% in March, year-over-year. The extra business and strong cost controls will boost first-quarter earnings to 39 cents a share, three cents above the Street's consensus. The news had analysts salivating and the stock crunching 4% to a new all-time high.
Soap is selling well, too, with Dial (DL) promising quarterly earnings at least a nickel above the current consensus for 19 cents a share. The stock bubbled 6% higher.
Several retailers reported increases in March same-store sales, with tech-toy haven Sharper Image (SHRP) leading the way thanks to an 18% year-over-year boost. That will help the chain post a first-quarter loss of four cents to eight cents a share, instead of the 19 cents a share in red ink the Street was forecasting. The stock rose 13%; it too set a new 52-week high.
What's good for retailers was good for retail-software supplier JDA Software (JDAS), which said first-quarter earnings will top the Street's consensus forecast for a profit of 17 cents a share by two or three cents. That was good for a 12% share-price gain.
Sales were also up at Abbott Labs (ABT), to the tune of 18% above the year-ago quarterly results, thanks to the drug maker's acquisition of the European firm Knol. The first-quarter profit of 54 cents a share matched expectations, but the second-quarter forecast for 53 cents a share fell two pennies shy of the Street's consensus. The stock gained 1%.
The warnings haven't stopped, of course. Business-software supplier Citrix Systems (CTXS) said it will come in a penny or two shy of the consensus estimate for first-quarter earnings of 17 cents a share because of a shortfall in sales. The stock fell 8%.
Recliner maker La-Z-Boy (LZB) also warned, complaining that after cutting spending following the 9/11 attacks its hotel-chain customers are increasingly buying furniture abroad. La-Z-Boy is shutting a Virginia plant, and halting manufacturing at a North Carolina facility, moves that will force it to take a charge of nine cents a share. Even excluding that write-off, fourth-quarter earnings could fall four cents short of analysts' consensus estimate for 46 cents a share. The stock drooped 1%.
Treasurys rose as stocks fell, sending yields lower. The yield on the 10-year Treasury note dipped to 5.20% from 5.24% Monday, while the two-year note yielded 3.41%, down from 3.47% a day earlier
