Cut Your Estimates and the Mountain Will Come to Them

First Union's earnings warning follows a tough Monday for bank stocks.
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"A Year of Transition, Consolidation and Strategic Focus," read the headline of

First Union's

(FTU)

press release this morning. It sure looks like its stock is going to consolidate.

The bank, "faced with overcoming the impact of substantial 1998 unusual, noncore earnings items, major acquisition integration and acceleration of spending for major new strategic initiatives" (whatever that means), warned that it expects 1999 earnings to come in at $3.40 to $3.50 a share, with second-quarter earnings at 80 to 83 cents a share. First Union had previously said that it expected to make $4 a share this year, and analysts pretty much ate what they were fed. Consensus estimates, according to

First Call

, were for $3.98 a share on the year and 97 cents a share for the second quarter.

First Union's news comes in the wake of

Credit Suisse First Boston

analyst Mike Mayo's slapping a sell rating on

Citigroup

(C) - Get Report

,

J.P. Morgan

(JPM) - Get Report

,

Bank One

(ONE) - Get Report

and

Chase Manhattan

(CMB)

yesterday.

But it looks like yesterday's selloff may have inoculated the broader market against any spillover from First Union. At 9 a.m. EDT, the

S&P 500

futures were down 1.5, putting them about a point ahead of fair value.

"I'm surprised the futures are swallowing the news from First Union as well as they have," said Bill Meehan, market analyst at

Cantor Fitzgerald

. "It looks like we'll get a little rally attempt."

After yesterday's selloff, Internet stocks should see a bounce. Of course there's the usual dip-buying, but there are a couple of other factors as well. Yesterday's fall was due, in part, to investors raising cash for the next raft of initial public offerings. With the biggest of the week,

barnesandnoble.com

(BNBN:Nasdaq) going today, the supply pressure should be somewhat alleviated.

To that add Credit Suisse First Boston Internet analyst Lise Buyer's upgrade of

Lycos

(LCOS)

to buy from hold. Buyer wrote Lycos has "significant unrealized potential," and that somebody, either current management or an acquirer, will figure out how to tap it. On the acquisition front, she noted that this is the third time in the past eight months that Internet stocks have seen a downturn. "In each case (late fall 1998, late January 1999) the price rationalization was a catalyst for significant M&A activity in the group," wrote Buyer. "We would not be surprised to see that pattern repeat."

Buyer picked her spot well -- Lycos gets added to the

Nasdaq 100

today.

In lackluster trading, the 30-year Treasury bond was down 8/32 to 92 16/32, putting the yield at 5.78%.

The retreat on Wall Street hurt Tokyo stocks, with global blue-chips seeing additional selling on dollar weakness. The

Nikkei

fell 176.26, or 1.1%, to 16,214.23.

Hong Kong's

Hang Seng

shed 89.95 to 12,346.91. Trading was light, with investors awaiting news on

Guangdong Enterprises'

restructuring.

European stocks were still getting buffeted by the losses in New York yesterday. In Frankfurt, the

Dax

was off 112.98, or 2.2%, to 5151.70. In Paris, the

CAC

was down 54.03, or 1.2%, to 4344.09. In London, the

FTSE

was down 128.3, or 2%, to 6193.8.

Tuesday's Wake-Up Watchlist

By

Brian Louis

Staff Reporter

  • First Union warned it expects second-quarter and 1999 earnings to fall short of expectations. For the full year, the bank expects to earn between $3.40 and $3.50 a share, far short of the current First Call 25-analyst forecast of $3.98 a share. First Union, based in Charlotte, N.C., expects to report earnings for the second quarter of between 80 and 83 cents a share. The 22-analyst forecast currently estimates the bank will earn 97 cents. The outlook for the full year and second quarter excludes previously announced nonrecurring gains of 8 cents a share in the second quarter and 20 cents a share for the year, the bank said. It also excludes merger-related and restructuring charges.
  • McKesson HBOC (MCK) - Get Report, which last month saw a sharp drop in its stock after it revised its preliminary year-end results, said "further downward revision will be required of those fiscal year's results as well as of quarterly results during the fiscal year." In other news (earnings estimates from First Call):
  • Albertson's (ABS) posted first-quarter operating earnings of 57 cents a share, in line with the 18-analyst estimate, and up from the year-ago 45 cents.
  • Goldman Sachs yesterday priced barnesandnoble.com's (BNBN:Nasdaq) 25 million-share IPO top-range at $18 a share. The online bookseller is owned by Barnes & Noble (BKS) - Get Report and Bertelsmann. The stock will begin trading today.
  • Compaq (CPQ) cut prices on a wide range of its Deskpro desktop PCs. The computermaker said prices on selected models of Compaq's Deskpro EP and EN Series were reduced up to 14%.
  • Federated Department Stores (FD) and WeddingChannel.com, set an exclusive agreement to create an integrated in-store and online bridal registry. The Wall Street Journal reported that Federated signed a letter of intent to take about a 20% stake in closely held Wedding Channel -- which operates WeddingChannel.com -- for an undisclosed amount.
  • Harnischfeger Industries (HPH) said its board named John Nils Hanson CEO and Robert B. Hoffman nonexecutive chairman. The company also said Francis M. Corby Jr. resigned as chief financial officer.
  • Lycos will become a component of the Nasdaq 100 effective at the beginning of trading Friday, replacing Fore Systems (FORE) . Meanwhile, Credit Suisse First Boston upgraded Lycos to buy from hold.
  • Promus Hotel (PRH) - Get Report cut its earnings targets for 1999 as a result of "softening market conditions, repositioning actions of the Doubletree brand and deteriorating performance of Red Lion related hotels." Promus forecast 1999 percentage EPS growth in the mid-single digits, down from previous expectations in the midteens.
  • Polo Ralph Lauren (RL) - Get Report posted fiscal fourth-quarter operating earnings of 27 cents a share, in line with the 13-analyst estimate, but down from the year-ago 29 cents.