Updated from 12:15 p.m. EDT

  • Shares of HealthSouth ( HRC) plunged 42% to $6.90 after the surgical rehabilitation provider said changes in government reimbursement schedules would cut $175 million out of its yearly EBITDA. The company also said it plans to spin off its surgery care centers to shield them from the reimbursement issues. HealthSouth Chief Executive Richard Scrushy was named chairman of the new unit, giving up the CEO role at HealthSouth to President and Chief Operating Officer William Owens.

  • Luxury homebuilder Toll Brothers ( TOL) recorded a 10% drop in third-quarter earnings Tuesday as a slowdown in orders late last year and a decline in contracts following Sept. 11 hurt profits. The company, headquartered in Huntingdon Valley, Pa., said it earned $53.5 million, or 70 cents a share, compared with $59.4 million, or 77 cents a share, in the year-ago period. Analysts were expecting the company to post a net profit of 65 cents a share. Revenue for the quarter dipped slightly to $580.7 million from $584.1 million last year. Shares were recently down a nickel at $26.70.

  • Merrill Lynch issued cautious comments on the retail sector as a whole and downgraded a number of specialty names, citing concerns that consumers are spending more conservatively than anticipated.

    The firm lowered its investment rating on AnnTaylor ( ANN), Limited ( LTD), Oakley ( OO), Sports Authority ( TSA), Too ( TOO), Williams-Sonoma ( WSM), Talbots ( TLB), and Coach ( COH).

    Merrill also cut its forecast on broadline retailers, recommending a shift to a defensive stance. The firm downgraded Barnes & Noble ( BKS), Borders ( BGP), BJ's Wholesale ( BJ), Costco ( COST), and Target ( TGT) to a neutral rating.

    Each stock mentioned in the note was facing considerable pressure. As for the broader sector, the Dow Jones U.S. Retail Index was down 2% during afternoon trade.

  • Surfwear merchant Quiksilver ( ZQK) upped its third-quarter earnings forecast citing increased revenue from its diversified product lines and stringent cost-cutting measures. The Huntington Beach, Calif.-based retailer said it now sees a net profit of 32 cents to 33 cents a share, which would be relatively flat with year-ago levels. Analysts, on average, were expecting the company to earn 29 cents a share, according to a poll conducted by First Call/Thomson Financial. Revenue for the quarter is expected to come in at $170 million and $173 million, ahead of the consensus estimate of $167.8 million.

    Quiksilver also said it remains on pace to earn at least $1.42 a share on revenue $685 million to $690 million, compared with $1.17 a share on $615.5 million last year. Analysts are projecting a year-end profit of $1.40 a share. The company's shares were up 2.2% to $21.15.

  • Biopharmaceutical company Geron's ( GERN) stock surged 15.1% after the company said it was issued a U.S. patent for its telomerase-based cancer treatment. The therapy, currently in Phase 1 human clinical trials, uses telomerase, an enzyme that is abnormally activated when tumors progress, to prepare a patient's immune system.

  • Regis Corp.'s ( RGIS) fourth-quarter EPS rose 22%, beating analysts' estimates by 2 cents. The company, which opened more than 2,000 new stores in 2002, said its 1,000-strong Wal-Mart ( WMT) Supercenter-based SmartStyle salons contributed heavily to its performance. Excluding a one-time tax benefit of $1.8 million, or 4 cents a share, the company said it earned $20.4 million, or 45 cents a share, compared with $15.8 million, or 37 cents a share, in the year-ago quarter. Revenue was up 11% to a record $384.4 million vs. $345.9 million from last year. Shares of Regis were up 0.8% to $25.50.

  • Telecommunications contractor Dycom ( DY) posted a wider-than-expected loss in the fourth quarter because of "customer difficulties and bankruptcies" that led to various charges. The company reported a loss of $56.8 million, or $1.19 a share, compared with earnings of $13.6 million, or 32 cents a share, a year ago. The charges total $59.9 million, or $1.25 a share. Excluding charges, Dycom earned $3.0 million, or 6 cents a share, an 81.3% decrease over last year's comparable quarter before charges. The results came in 4 cents lower than analysts' estimates. Dycom was up 1.3% to $11.09 around midday.