Posted at 12:05 p.m., Thursday, July 5, 2001
Market falls on Liberty House buyer's earnings warning
Associated Press
NEW YORK — Stocks fell today as profit warnings from Federated Department Stores and British telecom firm Marconi reminded investors how badly business is suffering here and abroad.
The warnings added to the market's dread over second-quarter results, which companies begin issuing this month.
The Dow Jones industrial average closed down 91.25 at 10,479.86, according to preliminary calculations.
The broader market also was lower, with the Nasdaq composite index falling 60.60 to 2,080.20, and the Standard & Poor's 500 index declining 15.20 to 1,219.25.
"No one is in a hurry to buy. Earnings warnings continue to surface at a fast and furious pace," said Alan Ackerman, executive vice president of Fahnestock & Co.
The market was rattled by the extent of the earnings warning from Federated, buyer of Hawai'i-based Liberty House, which said it will earn 40 to 50 cents a share for the second quarter rather than the 70 cents to 75 cents Wall Street had expected. Federated tumbled $2.37 to $38.01.
The retailing sector fell on the news. Best Buy, which sells electronics, fell $1.40 to $66.78, while Home Depot, a Dow component, dropped $1.23 to $46.66.
"Retail sales are due to be reported next week, so this has set up a very high level of anxiety," Ackerman said. "With Federated numbers as they are, it appears shoppers are doing more browsing than buying, not just on Wall Street."
He added that the market is worried consumer spending, which accounts for two-thirds of the nation's economy, will continue to shrink. On the positive side, retailing and other consumer stocks could trend higher as federal income tax rebate checks begin hitting mailboxes this month.
The technology and telecommunications sectors came under pressure from Marconi, which announced yesterday it was halving its earnings forecasts for 2001 and will cut 4,000 jobs. Marconi shares on the Nasdaq plunged $3.68 to $3.35, a 52 percent drop.
Other telecom shares fell, including equipment makers Alcatel, down $3.54 at $17.46, and JDS Uniphase, declining $1.06 to $11.61.
Still, analysts said investors shouldn't be too alarmed, calling Marconi's news nothing new in the struggling telecom sector.
"Who could be surprised today with a telecom provider announcing they are not going to meet expectations? You would have to have your head in the sand if you thought we were out of the woods there," said Jon Brorson, head of equities at Northern Trust in Chicago.
The market also focused on WorldCom after it lowered earnings projections for fiscal year 2002 but raised revenue forecasts based on the restructuring efforts of operations in Brazil. WorldCom slipped 19 cents to $14.28.
Since late May investors have heard more than 600 warnings, many to already lowered forecasts, according to Thomson Financial/First Call.
Investors are still holding out hope that business will improve in the second half after the benefits of six interest-rate cuts begin to take hold.
Wall Street's losses today were spread across market sectors. Only three of the Dow's 30 stocks finished higher.
Honeywell rose $1.59 to $36.50. New CEO Lawrence A. Bossidy, said late Tuesday the company — whose merger with General Electric is effectively dead — will remain independent until he can "stabilize" the operation, which could take a year.
The other gains came from SBC Communications, which advanced 68 cents to $41.30, and Alcoa, rising 53 cents to $40.78.
Declining issues outnumbered advancers 8 to 7 on the New York Stock Exchange. Volume came to 728.47 million shares, compared with 622.27 million shares on Tuesday.
