BL: U.S. Stocks Fall on Morgan Stanley Profit Decline, FedEx's Loss
By Elizabeth Stanton
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June 18 (Bloomberg) -- U.S. stocks fell for a second day after Morgan Stanley's earnings dropped 57 percent and FedEx Corp.'s results trailed analysts' estimates, reinforcing concern bank losses and record oil will prolong the slump in profits.
Morgan Stanley, Merrill Lynch & Co. and Lehman Brothers Holdings Inc. helped lead the Standard & Poor's 500 Index lower. Fifth Third Bancorp, Ohio's second-largest bank, tumbled the most in at least 23 years on plans to cut its dividend and sell shares to boost capital. FedEx slid to a three-year low as rising fuel costs left the second-biggest U.S. package-shipment company with a quarterly loss.
The S&P 500 dropped 8.03 points, or 0.6 percent, to 1,342.9 at 12:18 p.m. in New York. The Dow Jones Industrial Average decreased 75.88, or 0.6 percent, to 12,084.42. The Nasdaq Composite Index lost 17.57, or 0.7 percent, to 2,440.16. Almost three stocks fell for each that rose on the New York Stock Exchange.
``It's just going to be a tough environment for equities for a while,'' David Joy, chief market strategist at Riversource Investments LLC in Minneapolis, which manages $160 billion, told Bloomberg Television. ``The environment is not conducive to growing earnings.''
Financial shares began their retreat before the official open of exchanges after investor John Paulson, who earned the most of any hedge fund manager last year on bets that subprime debt would fall, told a conference in Monaco that banks are ``only a third'' way through credit-related writedowns. Global financial firms so far have posted $394 billion in losses and charges stemming from the collapse of the subprime mortgage market, according to data compiled by Bloomberg.
Morgan Stanley Tumbles
Morgan Stanley, the second-largest U.S. securities firm, retreated $1.85 to $38.74. Earnings from continuing operations fell to $1.03 billion, or 95 cents a share, in the second quarter from $2.36 billion, or $2.24, a year earlier. The average estimate of 19 analysts surveyed by Bloomberg was for earnings of 92 cents a share.
Merrill, the third-biggest securities firm in the U.S., sank 2.7 percent to $36.90. Lehman, the No. 4, tumbled 3.9 percent to $24.15.
FedEx, considered a proxy for the U.S. economy because it controls about 31 percent of the U.S. package market according to SJ Consulting Group Inc., fell $2.33 to $82. The company reported a fiscal fourth-quarter loss of $241 million, or 78 cents a share. Earnings excluding items were $1.45 a share, below the $1.47 forecast by analysts in a Bloomberg survey. FedEx projected fiscal first-quarter profit of 80 cents to $1 a share, compared with an average analyst estimate of $1.34.
FedEx was unable to boost surcharges enough to keep pace with fuel costs that have almost doubled in the last year.
Regionals Retreat
Fifth Third lost $1.95, or 15 percent, to $10.78 for the biggest decline in the S&P 500. The bank will sell convertible preferred shares and assets to raise capital. It lowered it dividend by 66 percent. Earnings may be as little as 1 cent to 5 cents a share in the second quarter excluding additional charges, Cincinnati-based bank Fifth Third said in a regulatory filing today. Analysts surveyed by Bloomberg had predicted an average of more than 40 cents.
Eleven of 12 regional banks in the index fell as the group declined 3.8 percent. Yesterday the regional banks index retreated 5.7 percent after Goldman Sachs Group Inc. said it was ``cautious'' on the group.
The S&P 500 declined for the first time in four days yesterday on Goldman's prediction that banks will need to raise $65 billion in new capital to cover losses, while new home construction fell to a 17-year low and rising fuel costs caused the biggest increase in wholesale prices in six months.
Since closing at a four-month high on May 19, the benchmark of large U.S. companies has fallen more than 6 percent, and is down almost 9 percent this year.
Earnings Slump
Earnings at S&P 500 companies tumbled 19 percent on average in the first quarter. The third straight quarter of lower profits marked the longest stretch of declines since 2002, according to data compiled by Bloomberg.
Bob Janjuah, a London-based credit strategist at Royal Bank of Scotland Group Plc, said the S&P 500 may fall 22 percent from current levels by October. The combination of slow economic growth and inflation makes a ``major policy error'' by central banks more likely, Janjuah wrote in a report dated June 11.
Among smaller companies, MF Global Ltd. tumbled 35 percent to $8.56. The world's largest broker of exchange-traded futures contracts said net revenue this quarter will fall short of analysts' estimates and it plans to sell shares to help pay down debt.
Auto Slide
CarMax Inc. lost 13 percent to $15.99. The largest U.S. used-car retailer reported fiscal first-quarter profit that missed analyst estimates. Carmax attributed the profit decline to weak consumer spending amid rising food and energy prices.
General Motors Corp., the largest U.S. automaker, slid 5.2 percent to $15, the lowest since 1982. U.S. vehicle sales may plunge to a 15-year low this month, according to reports by Citigroup analyst Itay Michaeli and Deutsche Bank analyst Rod Lache. Ford Motor Co., the second biggest, retreated 5.2 percent to $6.26.
Tyson Foods Inc. fell $1.35, or 9.1 percent, to $13.55, a four-month low. Fitch Ratings lowered the debt rating of the second-largest U.S. chicken producer to below investment grade because rising grain costs are eroding profitability.
Union Pacific, General Mills
Union Pacific Corp. rose $3.27, or 4.5 percent, to $75.74, for the biggest gain in the S&P 500. Shares of the largest U.S. railroad may double in the next three to four years, Morgan Stanley said. In the second quarter Union Pacific may post at least 11 percent profit growth as it overcomes higher fuel costs through increased productivity, analysts led by William Greene wrote in a report.
General Mills Inc. rose $2.17 to $62.90. The second-largest U.S. cereal maker posted fiscal fourth-quarter profit that exceeded some analysts' estimates on higher sales. Profit excluding commodity trading rose to about 73 cents a share. Thirteen analysts surveyed by Bloomberg estimated average earnings of 68 cents.
Panera Bread Co. rose $3.25, or 7.1 percent, to $48.81. The owner of the chain of more than 1,000 bakery-cafes said it expects to earn 48 cents to 50 cents a share in the second quarter. In April, the company forecast earnings of 40 cents to 44 cents a share. The average estimate of 14 analysts surveyed by Bloomberg is 42 cents.
YRC Worldwide Inc. added $1.02, or 6.1 percent, to $17.79. The largest U.S. trucking company by sales affirmed its second- quarter earnings forecast of 30 cents to 40 cents per share, excluding certain costs. Analysts estimated profit of about 30 cents per share on average.
To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net
Last Updated: June 18, 2008 12:20 EDT
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