In the U.S.: Stock Futures Decline; Intel Slides as Yahoo Gains

18 April 2012

Is 1400 a sustainable level for the S&P? Stocks look set to take a breather with underwhelming earnings results.

U.S. stock futures retreated, following the biggest advance in more than a month for the Standard & Poor’s 500 Index, as Intel (INTC) Corp. and International Business Machines Corp. tumbled after reporting results.

Intel, the largest semiconductor maker, slumped 2.8 percent after forecasting gross margin that was lower than some analysts predicted. IBM, the biggest computer-services provider, dropped 1.7 percent as sales missed forecasts. Berkshire Hathaway Inc. (BRK/A) Class A shares slid 1.8 percent as Warren Buffett was diagnosed with stage 1 prostate cancer. He said in a letter to investors that his condition is “not remotely life threatening.”

S&P 500 (SPX) futures expiring in June dropped 0.1 percent to 1,381.60 at 8:24 a.m. New York time. Dow Jones Industrial Average futures slid 21 points, or 0.2 percent, to 13,003.

Equity futures retreated as Intel and IBM, two of the computer industry’s biggest bellwethers, posted the slowest sales growth in years as the European (SXXP) slump weighed on orders last quarter. Nineteen companies in the S&P 500 are scheduled to report results today. European shares fell for the first time in three days after Bank of England policy makers said inflation may be higher than forecast.

The S&P 500 has risen 11 percent in 2012 amid better-than- estimated economic and corporate data. While S&P 500 per-share profit growth will accelerate to 8.6 percent during all of 2012, it slowed to 1.7 percent during the first three months of the year, according to analyst estimates compiled by Bloomberg. The forecast for first-quarter earnings growth has dropped from 4.1 percent in the first week of January, the data showed.

Smallest Since 2009

Intel slumped 2.8 percent to $27.68, while IBM (IBM) retreated 1.7 percent to $203.87. IBM’s revenue climbed 0.3 percent to $24.7 billion in the period, while Intel sales rose 0.5 percent to $12.9 billion. That was the smallest increase for either company since the third quarter of 2009, when the U.S. economy was just emerging from recession. Even so, Intel predicted a pickup in sales for the current quarter.

The two technology giants are seeking growth in emerging markets while coping with a slowdown triggered by the European debt crisis. The personal-computer market, which contracted in the U.S. last year for the first time since 2001, also is hurting demand for Intel’s processors. IBM, meanwhile, is more focused on expanding earnings per share, rather than pursuing less-profitable orders.

“All else being equal, you’d rather see top-line growth,” said Toni Sacconaghi, an analyst at Sanford C. Bernstein & Co. in New York. Still, he said, most investors are looking more closely at profit than sales. “IBM has conditioned investors to focus on EPS growth. That’s how it provides guidance.”

Buffett’s Treatment

Berkshire Hathaway Class A shares lost 1.8 percent to $119,100. Buffett, 81, will begin a two-month treatment of daily radiation in July, he said. The regimen will restrict his travel during the period and not otherwise change his daily routine, said Buffett, who is also chief executive officer of the Omaha, Nebraska-based company.

“I feel great — as if I were in my normal excellent health — and my energy level is 100 percent,” Buffett said in the letter yesterday. “I will let shareholders know immediately should my health situation change. Eventually, of course, it will; but I believe that day is a long way off.”

Yahoo! Inc. (YHOO) advanced 3.1 percent to $15.48 after reporting first-quarter sales that topped estimates, fueling optimism that a turnaround effort by Chief Executive Officer Scott Thompson may take hold.

Halliburton, Textron

Halliburton Co. (HAL) added 2.3 percent to $33.40. The world’s largest provider of hydraulic fracturing services said first- quarter profit increased as rising crude prices drove producers to expand drilling in North America.

Textron Inc. (TXT) gained 4 percent to $28.76 as first-quarter profit quadrupled, buoyed by risingsales of its Bell helicopters and Cessna aircraft.

Catalyst Health Solutions Inc. (CHSI) surged 36 percent to $86.11. SXC Health Solutions Corp. (SXC) agreed to buy the company in a cash and stock transaction valued at $4.4 billion to stay competitive as larger pharmacy benefits managers join forces. SXC Health jumped 12 percent to $90.

Consumers may catch a break from higher food prices at U.S. supermarkets, said Charles Grom, an analyst at Deutsche Bank AG. Consumer prices for groceries and producer prices for processed foods are rising more slowly this year, according to data compiled by the Labor Department.

The pace of price increases slowed in March by the most since July 2009, according to both indicators. Food bought at stores cost 3.6 percent more than a year earlier. The rate was 0.9 percentage point lower than in February. Processed-food prices last month rose 4.3 percent, a decline of 1.6 point.


“Food inflation should continue to slow,” he wrote, because increases last year were unusually steep. Prices for food that’s eaten at home peaked at a 6.2 percent growth rate last September. The pace was the fastest since December 2008.

Sales growth may suffer at Wal-Mart Stores Inc. (WMT), the world’s largest retailer, and the Safeway Inc. and Supervalu Inc. supermarket chains as they struggle to raise prices, Grom wrote. The New York-based analyst has sell ratings on Wal-Mart and Safeway and a hold rating on Supervalu.


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