Stocks Finish Lower After Google's Earnings Leak


NEW YORK ( TheStreet) -- The major U.S. equity averages finished lower Thursday after the surprise early release of disappointing quarterly results by Google ( GOOG) threw the markets for a loop.

A midday Form 8-K filing by the Internet search giant contained an unfinished press release, including the phrase "Pending Larry Quote" referring to CEO Larry Page, as well as the company's third-quarter numbers, which fell well short of Wall Street's expectations.

Google shares, which spent much of the afternoon halted, resumed trading with about 40 minutes left in the session and closed down 8% at $695. In the aftermath of the earnings leak, company pulled together an official press release -- complete with a positive quote from Page -- and placed blame for the controversy on R.R. Donnelley ( RRD), whose stock finished down less than 1%.

Regardless of where the fault lies, the actual results were very bad, adding to general investor apprehension about third-quarter earnings season, which has been at best a mixed bag. Google's non-GAAP earnings came in a $3.01 billion, or $9.03 a share, far below the average estimate of analysts polled by Thomson Reuters for a profit of $10.65 a share. Revenue excluding traffic acquisition costs came in at $11.33 billion for the quarter vs. the consensus view of $11.86 billion.

Aside from the Google noise, traders also grappled with a soft read on labor market conditions and nervousness ahead of a two-day summit of European Union leaders in Brussels.

The Dow Jones Industrial Average finished down 8 points, or 0.06%, at 13,549. The blue-chip index, which ranged less than 80 points during the session, snapped a four-day winning streak.

Breadth within the Dow was positive with winners ahead of losers, 18 to 11, with Procter & Gamble ( PG) finishing flat.

The sharpest decliners among the blue chips were American Express ( AXP), IBM ( IBM), McDonald's ( MCD) and JPMorgan ( JPM).

AmEx shares lost nearly 3% after the credit card company came up a bit short on the top line with its third-quarter results.

The biggest percentage gainers were DuPont ( DD), Johnson & Johnson ( JNJ), Merck ( MRK), Travelers ( TRV) and Verizon ( VZ).

Shares of Travelers rose 3.6% after the insurance and financial services giant posted a record quarterly operating profit of $2.22 a share, blowing past the average analyst estimate of $1.61 a share, with results driven by lower catastrophe losses and higher underlying underwriting results.

Verizon's stock got a 2.4% boost after the communications company reported a quarterly profit of $1.59 billion, or 56 cents a share, compared with $1.37 billion, or 49 cents a share a year earlier. Revenue came in at $29 billion, up from $27.91 billion last year. Excluding items, earnings came in at 64 cents a share. Analysts were calling for earnings of 64 cents a share in the September-ended period on revenue of $29 billion.

Microsoft ( MSFT) finished slightly lower and was extending losses in after-hours trading after its fiscal first-quarter report, which showed a year-over-year decline in operating income amid slow PC demand ahead of the company's Windows 8 launch.

The S&P 500 gave back nearly 4 points, or 0.24%, to close at 1457, while the Nasdaq dropped more than 31 points, or 1.01%, to settle at 3073.

The weakest sectors in the broad market were technology, consumer non-cyclicals, and basic materials. Capital goods, consumer cyclicals, conglomerates were areas of strength.

Breadth was fairly even on the New York Stock Exchange while losers were ahead of winners on the Nasdaq by roughly a 2-to-1 ratio. Volume totaled 3.86 billion on the Big Board and 2.04 billion on the Nasdaq.

Thursday's data didn't provide much impetus to continue the rally stocks had enjoyed so far this week. Before the opening bell, the Labor Department said initial jobless claims for the week ended Oct. 13 rose by 46,000 to 388,000 from the previous week's upwardly revised figure of 342,000. The four-week moving average was 365,500, an increase from the prior week's 364,750.

Continuing claims for the week ended Oct. 6 fell 29,000 to 3.252 million from the preceding week's upwardly revised level of 3.281 million.

On average, economists were expecting initial jobless claims of 365,000 and continuing claims of 3.275 million.

"After all the confusion between a high current reading and last week's barely revised low level of initial claims the key four-week moving average now stands at 365,500 and we continue to believe that despite the higher than forecast reading the broad labor market is maintaining its forward momentum," said Andrew Wilkinson, chief economic strategist at Miller Tabak. "Going forward and using the benchmark four-weekly average, we would say that initial claims will trend towards last week's lower number rather than this week's higher headline level."

The Philly Fed's Business Outlook Survey registered a jump to 5.7 in October from -1.9 the prior month. Economists were expecting a rise to 1.

Jim O'Sullivan, chief U.S. economist at High Frequency Economics, noted that while the headline index signaled some improvement in manufacturing, "the details remain quite weak," with orders slipping to -0.6 from 1, employment falling to -10.7 from -7.6, and the six-month outlook index falling to 21.6 from 41.2.

"In short, while the headline index signals some improvement in manufacturing, the details remain quite weak. In interpreting the data, we expect manufacturing numbers to be weaker than other data now because of greater exposure to declining exports," said O'Sullivan.

A small bright spot among the economic releases was the Conference Board's Leading Economic Indicators Index, which rose 0.6% in September after falling by a downwardly-revised decline of 0.4%. Economists were forecasting a rise of 0.2%.

The FTSE 100 in London finished down 0.10% and the DAX in Germany was up 0.58% in trading Thursday.

The Nikkei Average in Tokyo closed up by 2% and the Hang Seng index in Hong Kong gained 0.48% after data showing that China's third-quarter gross domestic product rose 7.4% from a year ago, which was as expected by economists surveyed by Reuters. Industrial production and retail sales data for September came in a bit above expectations.

The in-line GDP figure was "firming up beliefs that the Chinese economy has stabilized," noted Stephen Guilfoyle, U.S. economist at Meridian Equity Partners.

November crude oil futures closed down 2 cents at $92.10 a barrel. December gold futures settled down $8.30 at $1,744.70 an ounce.

The benchmark 10-year Treasury dipped 3/32, raising the yield to 1.834%. The greenback rose 0.37%, according to the dollar index.

In corporate news, Morgan Stanley ( MS) beat estimates for the third quarter, helped by higher fixed income trading revenue. The stock fell 3.8%.

Shares of Philip Morris International ( PM) lost 4.2% after the tobacco company reported lower-than-expected third-quarter earnings and sales, and provided a disappointing full-year profit outlook.

Southwest Airlines ( LUV) swung to a profit in the third quarter from a year-earlier loss and topped earnings estimates. Revenue was little changed as average ticket prices fell amid lower demand last month. The stock edged up 0.34%.

Shares of eBay ( EBAY) jumped more than 5% after the online auctioneer missed on the top line in its latest quarter and gave a mixed fourth-quarter outlook. The company did beat earnings per share estimates by a penny, and several brokerages raised their price target on the stock on Thursday.

Mellanox Technologies ( MLNX) was a big loser after the company gave weak revenue guidance, saying it expects revenue between $145 and $150 million, well below the consensus estimate of $157 million. Shares plunged 20.5%.

Online movie services company Netflix ( NFLX) announced that it has launched in Sweden, Denmark, Norway and Finland. The stock dipped less than 2%.

Sprint Nextel ( S) revealed it's adding to its stake in Clearwire ( CLWR) by buying out the founder of the troubled wireless network operator. Clearwire shares tumbled 10.2% and Sprint shares climbed 0.87%.


--Written by Andrea Tse and Joe Deaux in New York.

>To contact the writer of this article, click here: Andrea Tse.