Updated from May 13

Hanover Compressor

(HC)

received two downgrades Tuesday following a lackluster first-quarter earnings report.

Merrill Lynch cut its rating on the natural gas compression services provider to near-term and long-term neutral from buy, saying Hanover will continue to lag behind its peers in oil services until it resolves its Argentine contract disputes, generates free cash flow, and resolves the SEC's inquiry and numerous shareholder suits. The brokerage house cut its 2002 earnings estimate to 63 cents from $1.20 and its 2003 estimate to $1.10 from $1.65.

Salomon Smith Barney also downgraded the stock to outperform from buy.

Both downgrades come in the wake of Hanover Compressor's Monday earnings release in which it posted first-quarter earnings that were down from last year and fell short of analysts' forecasts as natural gas spending waned.

The Houston-based company said it earned $5.0 million, or 6 cents a share, in the quarter, compared with $19.8 million, or 27 cents a share, last year. The latest period included a charge of 12 cents a share to cover foreign currency translation. Earnings before the charge were $14.7 million, or 18 cents a share, 6 cents short of the Multex earnings consensus.

First-quarter revenue was $260.9 million compared with $229.9 million a year earlier. Cash flow, which the company defines as net income before interest expense, leasing expense, distributions on certain convertible preferred securities, income tax, and depreciation and amortization, declined 6% to $65.5 million, compared with $69.5 million for the same quarter a year earlier.