Weaker earnings propel decline Computer-related stocks lead drop as rates remain unchanged

Dow falls 17

July 04, 1996|By BLOOMBERG BUSINESS NEWS

NEW YORK -- U.S. stocks sank for a second day yesterday as a batch of computer-related companies said their earnings would fall short of estimates.

The warnings overwhelmed any positive effect on the market from the Federal Reserve's decision to leave key lending rates unchanged. Instead, investors focused on the idea that earnings -- especially at computer makers such as Apple Computer Inc. and Hewlett-Packard Co. -- may be weaker than expected.

"You're losing the underpinning of the market," said Ric Dillon, a money manager in charge of $110 million at his own firm in Columbus, Ohio. "The bull market was a function of two things: strong earnings and declining interest rates. Earnings have stopped growing and interest rates have stopped declining. Given that, the market's vulnerable."

The Dow Jones industrial average fell 17.36 to 5,703.02, hurt most by General Motors Corp., International Business Machines Corp. and DuPont Co. The 30-stock average briefly rebounded after the Fed announcement at 2: 15 p.m., then slid back.

The broader Standard & Poor's 500 index fell 1.21 to 672.40 and the Nasdaq composite index dropped 9.55 to 1,181.60. The Russell 2,000 index of small-company shares fell 2.14 to 344.8 and the Wilshire 5,000 index dropped 20.79 to 6,629.11.

Almost six stocks fell in price on the New York Stock Exchange for every five that rose.

Fewer than 337 million shares changed hands on the Big Board, down from 387.5 million Tuesday.

Automobile stocks dived as investors questioned whether profits would grow amid increased competition for minivans and sport utility vehicles. Salomon Brothers Inc. told clients that car and truck sales may weaken in 1997. Chrysler Corp. slid $3.625 to $59.875; GM dropped $1.625 to $52.125; Ford Motor Co. sank $1.50 to $32; and Goodyear Tire & Rubber Co. fell 75 cents to $48.25.

Computer makers stumbled for a second day, after rallying in the prior three sessions. Companies that told investors profits won't meet forecasts added to recent poor news from Digital Equipment Corp., Computer Associates International and International Business Machines Corp.

Yesterday, Astea International Inc., a publisher of customer service software, lost 62 percent of its value, plummeting $14.25 to $8.75 after saying it will lose up to 29 cents a share in the second quarter because of order delays.

A chorus of other companies made similar warnings. FileNet Corp. slumped $9.25 to $23.75; Quality Systems Inc. fell $4.75 to $12.50; Zoom Telephonics Inc. collapsed $4.50 to $11.50; Integrated Process Equipment Corp. slid $3.75 to $16.50; ParcPlace Digitalk Inc. tumbled $3.50 to $5.25; and Spacetec IMC Corp. skidded $2.50 to $12.125.

Digi International Inc., a data communications equipment maker, lost $9.25, or 36 percent, to $16.75. Fiscal third-quarter earnings will fall short of analyst expectations and the 35 cents it earned in the same quarter a year earlier because overseas sales receded, the company said.

Cerner Corp. dropped $5 to $14.875. The publisher of medical information software said second-quarter earnings might fall as low as 2 cents a share from 21 cents last year because of slowing orders and shrinking profit margins.

IBM dropped $1.50 to $98.50; Digital Equipment sank $1.125 to $39.25; Sun Microsystems Inc. fell $1.875 to $57; and Dell Computer Corp. eased 87.5 cents to $48.875. Hewlett-Packard slumped $3.375 to $94.125 after it was downgraded to "neutral" from "outperform" at Morgan Stanley.

Cisco Systems Inc., a computer networking company, fell $1.375 to $57.375. Cisco 55 call options, which expire this month, fell 62.5 cents to $3.625 and were among the most active options in the United States. Each gives the right to buy 100 shares at $55 a share, and their decline reflects less confidence in computer shares.

Helping to moderate the stock market's losses was a third day's rally in oil shares amid optimism that crude oil prices will remain high during the summer. Exxon Corp. rose 62.5 cents to a record $89.25; Mobil Corp. gained $1 to $115.50; and Texaco Inc. rallied 87.5 cents to $86.875.

Lockheed Martin Corp. rose for a fifth day, after the National Aeronautics and Space Administration granted the company a $950 million contract Tuesday to build a prototype spaceship. Lockheed Martin rose 37.5 cents to a record $87.375.

AES Corp. rallied $1.125 to $30.875. The Virginia-based energy company won a bid to buy 81 percent of a Hungarian power plant.

Food wholesalers were the worst-performing industry in the S&P 500 on a percentage basis after Sysco Corp. swooned $2.375 to $31.875.

Donaldson, Lufkin & Jenrette downgraded the company to "market performer" from "buy," trimmed its earnings estimates for 1996 and 1997 and lowered its price target for the stock.

Pub Date: 7/04/96

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