Midday Musings

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Earnings Worries Slash Stock Prices

Brian Louis

Stocks retreated sharply and as midday rolled around on Wall Street, the market was awash in red.

Major Indices INDEX CHANGE % VALUE Dow 160.96 -1.6% 9729.55 S&P 500 26.17 -2% 1270.84 Nasdaq 50.38 -2.1% 2345.56 Russell 2000 7.69 -2% 385.51 TSC Internet 23.31 -3.7% 610.20 TSC E-Commerce 3.84 -3.4% 110.39 TREASURY BOND CHANGE VALUE YIELD 30-Year 1/32 95 13/32 5.571%

Among the sectors pacing the market on the down side have been financial and technology stocks.

Meanwhile the Dow Jones Industrial Average stumbled 161, or 1.6%, to 9730.

Financial services titan American Express (AXP Quote) was a sizable drag on the Dow, as was Coca-Cola (KO Quote). American Express was off 2 5/16 to 120 9/16, while Coca-Cola has slumped 3.8% after Merrill Lynch cut its earnings estimates on the beverage giant.

The Nasdaq Composite Index has tumbled 50, or 2.1%, to 2346.

The hangover of worries surrounding first-quarter earnings in the tech sector continued to weigh on the market.

Nasdaq giant Dell (DELL Quote) renewed its downside travels today after falling yesterday on an analyst's revenue and earnings estimate cut. Dell lately was off 7/8 to 36 15/16.

The Philadelphia Stock Exchange Semiconductor Index has slid 3.3%, while the Nasdaq 100 has slumped 2.3%. The Morgan Stanley High-Tech 35 has also fallen, down 2.7%.

The S&P 500 has given up 26, or 2%, to 1271. The small-cap Russell 2000 was down 8, or 2%, to 386.

Internet stocks were getting pummeled. TheStreet.com Internet Sector index has surrendered 23, or 3.7%, to 610, while TheStreet.com E-Commerce Index has said goodbye to 4, or 3.4%, to 110.

"There's selling pretty much across the board," said Dan Marciano, head of trading at First Albany.

Marciano said the weakness over the last couple of days has simply been a technical correction off the 10,000 level. He expects the Dow to back off to around the 9600 to 9700 level, build a base, and then move higher from there.

Mike Holland, chairman of Holland & Co., said that in light of the market's huge run-up over the past several weeks, today's action is what pundits usually refer to as a healthy giving-up of the gains. "And I don't disagree with that," he said.

Financial services stocks were sharply lower, led by brokerage stocks, which have skyrocketed already this year. The American Stock Exchange Broker/Dealer Index was down 4.4%. Meanwhile, the Philadelphia Stock Exchange/KBW Bank Index has tumbled 2.7%.

Philip Roth, chief technical analyst at Morgan Stanley Dean Witter, said that if the market experiences a couple of days like it's going through today, that would indicate it has seen an intermediate-term peak.

The market has been led by a small group of stocks, Roth noted. Tech stocks have been stalling for a couple of months and have been deteriorating recently, and the sector has gone from a market leader to now being a drag, he said.

Roth said first support for the S&P 500 right now is at the 1206 level. Second support would be at 1137, he said.

Oil and oil-service stocks were doing the second clause of the "buy the rumor, sell the news," cliche, shaving off some of the beefy gains they've enjoyed lately on news -- which had largely been anticipated -- that OPEC and non-OPEC oil producers agreed to cut output. Oil and oil-service stocks, along with the price of crude oil, have rallied sharply in recent weeks ahead of today's OPEC meeting.

The world markets have been awash in oil, and the output reductions are an effort to reduce the glut and boost prices. But Marciano said the big key for oil prices is increasing demand from countries whose demand has been weak because of economic problems, rather than just cutting output.

Market internals were about as ugly as one would expect with the market down this sharply.

On the New York Stock Exchange, decliners were crushing advancers 2,229 to 613 on 453 million shares. On the Nasdaq Stock Market losers were pounding winners 2,649 to 1,002 on 568 million shares.

The biggest losing stock on the Nasdaq is PathoGenesis (PGNS Quote), which lately was down 69.6% on a profit warning yesterday.

On the NYSE, 98 issues had set new 52-week lows while 14 had touched new highs. On the Nasdaq, 81 issues had set new lows while new highs totaled 20.

The 30-year Treasury bond was up 1/32 to 95 13/32, yielding 5.57%, holding in despite today's mammoth $8 billion AT&T (T Quote) bond deal. (For more on the fixed-income market, see today's early Bond Focus.)

Meanwhile, among other indices, the Dow Jones Utility Average was down 0.6%, the Dow Jones Transportation Average was down 1.8% and the American Stock Exchange Composite Index was down 1.6%.

Most active on the Big Board was America Online (AOL Quote), with 24.6 million shares changing hands. It was down 6 to 124.

On the Nasdaq, Dell was most active, with 29.3 million shares changing hands.

Tuesday's Midday Movers

By Heather Moore
Staff Reporter

Sure as Dow 10,000 isn't here, earnings preannouncement season is.

As noted above, Coca-Cola was losing 2 9/16 to 65 1/8 after Merrill Lynch cut its first-quarter earnings estimate for the soft-drink giant to 31 cents a share from 32 cents and its full-year 1999 view to $1.45 from $1.50.

And PathoGenesis was plummeting 27 1/16, or 69.6%, to 11 13/16 after last night warning it expects to report a first-quarter loss of 30 cents a share. Analysts were expecting earnings of 20 cents. The company blamed slower sales due to fluctuations in ordering patterns for its TOBI drug for managing pseudomonal lung infections in cystic fibrosis patients. TheStreet.com reported problems with the company in a July 2 story.

Earnings/revenue movers

Atlantic Coast Airlines Holdings (ACAI Quote) was down 3, or 11.7%, to 22 7/8 after last night warning it sees first-quarter earnings of 16 cents to 19 cents a share, including the effect of inclement weather, which reduced earnings by 3 cents to 5 cents. The company said it had more than 900 flight cancellations due to weather during the first 21 days of March -- traditionally the airline's strongest month for traffic. The five-analyst estimate called for 20 cents vs. the year-ago 16 cents.

Cabletron Systems (CS Quote) was down 1 5/16, or 13%, to 8 3/4 after last night reporting fourth-quarter earnings of a penny a share, above estimates for a 1-cent loss, and announcing plans to cut 300 jobs. The company also said it will outsource manufacturing operations to Celestica (CLS Quote) in the restructuring. Celestica was up 1/16 to 27 1/2.

First American (FAM Quote) was down 4 5/8, or 11.3%, to 36 1/2 after last night saying it sees its first-quarter and full-year earnings missing the 11-analyst estimate of 71 cents a share and the 13-analyst estimate of $2.99 a share, respectively. The company cited unanticipated client attrition with resulting balance declines and higher expense levels in client service areas.

Innotrac (INOC Quote) was up 4 3/8, or 38.9%, to 15 5/8 after last night saying it expects first-quarter revenue and earnings to come in better than estimated because of strong caller ID volume, resulting from heavy promotion over the last two months. The company sees earnings of 33 cents to 35 cents a share -- above both the two-analyst forecast for 26 cents and the year-ago 21 cents.

Just For Feet (FEET Quote) was down 11/16, or 6.1%, to 10 5/8 after posting fourth-quarter earnings of 9 cents a share, in line with the seven-analyst estimate but below the year-ago 20 cents.

Petco Animal Supplies (PETC Quote) was up 1 3/8, or 21.2%, to 7 7/8 after recording fourth-quarter earnings of 37 cents a share, 3 cents higher than the three-analyst forecast and above the year-ago 25 cents.

Pillowtex (PTX Quote) was down 5 3/8, or 30.7%, to 12 1/8 after warning both its first- and second-quarter earnings will fall below expectations, citing inefficiencies incurred during the installation of new computer systems, higher-than-anticipated manufacturing costs of new products and costs related to the closing of an Alabama plant. The company expects to earn 40 cents a share in the first-quarter, below expectations for 60 cents, and 50 cents in the second quarter, below expectations for 57 cents. Merrill Lynch dropped the stock to near-term neutral from buy while maintaining its long-term buy. NationsBanc Montgomery Securities lowered it to hold from buy.

In other news:

American Residential Services (ARS Quote) was up 1, or 22.9%, to 5 3/8 after ServiceMaster (SVM Quote) agreed to buy the company for $92 million in cash and $180 million in assumed debt. ServiceMaster was down 1/16 to 19 1/2.

Bridgeport Machines (BPTM Quote) was down 3/4, or 11.3%, to 5 3/4 after declining to repurchase up to 50% of its shares, as suggested by privately held High Technology Holding, which owns more than 10% of the shares.

Computer Network Technology (CMNT Quote) was up 2 1/8, or 19.5%, to 13 1/8 after Bear Stearns initiated coverage at buy.

Egghead.com (EGGS Quote) was up 2 15/16, or 16.1%, to 21 3/16 after Prudential Securities started coverage at strong buy.

Nike (NKE Quote) was off 2 15/16, or 5%, to 55 15/16 on word it's increasing entry-level cash wages for its Indonesian footwear factory workers to 265,000 rupiah (about $30) a month from 250,000, effective April 1.