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From Briefing.com: 4:20PM : Fading after lunch, the market's major averages' finished at session lows, sunken by the Delphi (DPH 0.38 -0.74) bankruptcy effect and by an altogether lack of leadership amid what appears to be a wait-and-see stance ahead of the Q3 earnings season that officially begins with Alcoa's (AA 22.72 -0.32) Q3 report after the bell. Extending 2.7% declines in both the Dow and S&P and a 2.9% dip in the Nasdaq last week, the inflation-flustered market has not yet shifted its focus to the fact that Q3 aggregate earnings are expected still to rise 15%, an expectation that should ultimately provide support to the market. With respect to sector performance, all ten closed in the red - with Utilities (-1.6%) surpassing Energy (-1.4%) in terms of laggards late in the day. As the second-best year-to-date performer, the Utilities sector suffered profit-taking attempts that left all of its 33 constituents underwater, most of which posted losses in excess of 1.0%. An article in the Wall Street Journal that highlighted the effect of rising interest rates on utilities issues perhaps made matters worse. Prolonged profit taking, intensified by a sector downgrade to Underweight from Market Weight at Citigroup, as well as extended pullbacks in energy prices, defined trading within the Energy sector and added to the approximate 8% loss it chalked last week. After plunging 28% last week, gasoline futures eased further today, while crude - which lost 7% last week - and natural gas also continued to deteriorate. The Tech sector (0.8%) placed third on the laggard list, shoved below the flat line by semiconductors' 3.1% dip following a Q2 sales warning from Xilinx (XLNX 22.77 -4.35) and a 6.4% slide in the IT consulting and services group that Unisys' (UIS 6.01 -0.82) profit warning fostered. Limiting the downside, though, were the effects of analyst upgrades on IBM (IBM 81.25 +0.75) and Dell (DELL 32.82+0.74), with the latter gaining additional ground following a favorable mention in Barron's. While Financials (-0.6%) similarly closed on the downside, news that Lincoln National (LNC 49.19 -1.54) agreed to acquire Jefferson-Pilot (JP 53.81 +3.02) for about $7.5 bln and Citigroup's upgrade of the banking group limited the sector's fall. Facing General Motors' (GM 25.48 -2.81) plunge, which resulted from Delphi's bankruptcy filing and subsequent analyst downgrades, the Consumer Discretionary sector slipped 0.8%. Easing energy prices, as well as rising Home Depot (HD 38.02 +0.22) and eBay (EBAY 40.46 +0.56) shares, helped to somewhat offset the Delphi effect upon the sector, but reports that Dana Corp. (DCN 6.04 -3.15) will restate past earnings to fix improper accounting and withdraw profit estimates for the remainder of the year further weighed upon it. For their parts, HD and EBAY each received favorable mentions in Barron's, and positive analyst comments on EBAY added to its bounce. The auto giant served as the Dow's biggest drag, but strength in HD, IBM, and Wal-Mart (WMT 44.54 +0.51) - due to a positive write up in Barron's that suggested shares, at current price levels, are a value - and Merck (MRK 26.90 +1.05) offered some support. A 4.0% surge in Merck (MRK 26.61 +0.76) shares supported the blue chip average, while also limiting the Healthcare sector's (-0.1%) decline and leaving it as the best performer today. In related news, Barron's reported that plan manager Express Scripts (ESRX 61.06 -1.23) will drop Pfizer's (PFE 24.45 +0.06) Lipitor from its list of preferred drugs in favor of generic versions of Merck's Zocor...DJTA -0.35, DJUA -1.88, DOT +0.13, Nasdaq 100 -0.57, Russell 2000 -0.99, SOX -3.24, S&P Midcap 400 -0.73, XOI -1.10, NYSE Adv/Dec 951/2292, Nasdaq Adv/Dec 1070/1904

4:40PM Skyworks guides SepQ revs below consensus (SWKS) 6.61 -0.04: -Update- Co now expects Q4 (Sep) revenue to be approx $190 mln, which is below the low end of the co's July guidance of $194 mln and Reuters consensus of $198.6 mln. Lowered guidance based on: first, a one-time payment to a customer recorded against current period revenue; second, a late-quarter demand shift away from hub/consigned products and toward highly integrated GPRS, EDGE and WCDMA front-end modules, which the co was unable to support within the quarter given material and capacity constraints. Operating income is expected to be in the range of $7-$10 mln.

9:52AM Semiconductors Hldrs Trust - - 200 Day Alert (SMH) 34.76 -0.69: -Technical- As the SOX breaks down to a fresh 2-1/2 month low under its Sept low of 452.81, the SMH also penetrates its 200-day exponential moving average (34.87).

9:36AM Altera gaps lower, nears its 52-wk low from Jan at 17.75-- session low 17.82 (ALTR) 17.82 -0.52: -Technical- -Update- Its Sep 2004 low comes into play thereafter at 17.50.

8:50AM Xilinx cuts forecast (XLNX) 27.12 :Co issues downside guidance for Q2 (Sep), sees revs down 1-2% sequentially, below prior guidance of flat to up 4%, vs. $415.53 mln Reuters Estimates consensus. "Turns business during the month of September was less than forecast. Sales from companies with manufacturing operations in Asia Pacific decreased double digits sequentially. Sales of mainstream products were also lower than expected. Sales from 90nm products are still expected to be approximately 10% of total revenues. Gross margin is expected to be in line with prior guidance of 61% to 62%".

9:52AM IBM (IBM) Citigroup upgrades Hold to BUY. Firm's upgrade is based on: 1) improving mkt fundamentals in services; 2) restructuring in services; 3) several new product cycles in microelectronics and servers; 4) lack of PC or printer exposure in what is likely to be an increasingly difficult pricing environment for these mkts, and 5) attractive valuation on options expense adjusted ests.
8:14AM Apria Healthcare (AHG) Legg Mason downgrades Buy to HOLD. Downgrade follows co's preannouncement of much worse-than-expected results for the 2H05. Firm also notes that the timing of any potential sale may be delayed due to uncertainty over news concerning potential cuts to the administration fee for respiratory therapy medications due in the beginning of November.

8:13AM Home Prop of NY (HME) Citigroup upgrades Sell to HOLD. Firm thinks the stock has been overly penalized for the co's exposure to rising natural gas prices in the wake of hurricane Katrina. They note that the co trades at 12.4x 2006 FFO, the lowest multiple in the sector, nearly four multiple points below the multifamily average. They believe the co's operating results should benefit from improving apartment demand and its above-average exposure to supply-constrained mkts.

8:13AM Sirius Satellite (SIRI) Friedman Billings upgrades Mkt Perform to OUTPERFORM. Firm says that since the co ended Q3 with 2.17 mln subscribers (in line with their est), they think SIRI remains poised to end 2005 with over 3.0 mln subscribers. They expect the majority of subscribers to be captured through the retail channel, driven primarily by promotions surrounding the current NFL season, the arrival of Howard Stern in January 2006, and the upcoming holiday season. They continue to view the co as fully funded to reach cash-flow breakeven by 2007.

8:12AM R.H. Donnelley (RHD) Friedman Billings upgrades Mkt Perform to OUTPERFORM. Upgrade follows the announced acquisition of Dex Media for $4.2 bln in cash and stock. Firm expects synergies to be derived from integrating systems, production and G&A functions as well as consolidation in roughly nine mkts, where both cos have geographic overlap or contiguous operations. They estimate a net present value of synergies near $2.50 on a fully taxed basis.

8:12AM Constellation Brands (STZ) Goldman Sachs upgrades In-Line to OUTPERFORM. Firm believes the recent weakness in the shares has created a very attractive entry-point at 12-13x CY06 and vs their $30 fair value est. Firm expects key investor concerns to be resolved favorably in the coming 3-6 months as they remain confident that firm US sales growth behavior can support solid 20%+ EPS growth in 2H06. Also, they see little risk from the Spitzer probe, and believe worries about this will diminish as investors understand the narrow scope and the co's limited involvement in these sales practices.

8:11AM Ariba (ARBA) RBC Capital Mkts upgrades Underperform to SECTOR PERFORM. Target $6 to $8. Based on their research, firm believes several projects are finally turning into significant rev events for the co, including significant wins in high tech, retail, healthcare and real estate. They think the co is on track to deliver the first components of its on demand software offering this fall, which should lower the decision hurdle for some customers, and give the co a competitive differentiation from the major ERPs.

8:11AM Albertson's (ABS) Lehman Brothers downgrades Equal-weight to UNDERWEIGHT . Firm sees ABS as a full or partial break-up, given their view that no one buyer will want to purchase and operate all of the co's assets for the long-term.

8:10AM Applied Materials (AMAT) RBC Capital Mkts upgrades Sector Perform to OUTPERFORM. Firm continues to believe the semi-cap stocks may peak when the good news hits over the next few months. However, for the nimble trader they recommend being long AMAT/KLAC and short NVLS between now and then. They believe that one of the major catalysts with the potential to get the semi-cap stocks moving up again will be the arrival of orders from TSMC. They expect the orders to come in Q4 and Q1 and believe that AMAT & KLAC have solid exposure to TSMC 90nm, but say NVLS has very little exposure.

8:00AM Plexus (PLXS) KeyBanc Capital Mkts / McDonald reiterates BUY. Target $18 to $20. Firm has an increased level of confidence about PLXS's revenue and earnings potential following mgmt meetings with investors. They believe there are several factors mgmt discussed that may prove to be catalysts for volume improvement, margin expansion and positive EVA generation.

8:00AM KFX (KFX) Hibernia Southcoast Capital reiterates BUY. Target $15 to $25. Firm notes the co recently announced plans for 12 mln ton/y of K-Fuel capacity to be brought online by the end of 2008, and announced significant mgmt additions. They believe KFX has sufficient cash to fund the remaining $25.8 mln in expenditures to complete the initial K-Fuel plant.

2:51PM Lincoln National Corp. (LNC)
49.62 -1.11: Lincoln National Corp. on Monday agreed to acquire Jefferson-Pilot Corp. (JP) for approximately $7.5 billion in cash and stock, resulting in a combined company with significant scale and reach in the life insurance, annuity, and investment services market. Under the terms of the agreement, Jefferson-Pilot shareholders will receive 1.0906 Lincoln shares or $55.96 in cash for each of their shares, which represents a 9.2% premium based on Friday's (October 7, 2005) closing price. The deal is expected to close in the first quarter of 2006, pending shareholder and regulatory approval.

Lincoln expects the merger to be slightly accretive to operating EPS in the first year, excluding one-time costs, building to 6% to 7% growth by year-end 2007. It projects total annual cost savings of approximately $180 million, with 50% achieved within a year of closing, 80% within 2 years, and the remainder by the end of 2008. The companies noted in a statement that these cost savings are expected to result from greater efficiencies through shared services, the consolidation of corporate functions, and reductions in business unit costs. In addition, the merged company said it expects to gain from revenue enhancement opportunities across business units, distribution channels, and product lines by leveraging the diverse distribution strengths that are inherent in both companies.

Commenting on the merger, John Boscia, Lincoln Chairman and CEO, said "by combining forces we will create a company with enhanced scale, a comprehensive and balanced product portfolio, greater distribution penetration and geographic and market diversity." He continued, "this combination will further round out both companies' product offerings in the wealth protection, accumulation and enjoyment areas and strengthen our leadership position in this space." Specifically, as baby boomers continue to mature, opportunities in the retirement income segment are likely to become more attractive.

In general, the merger is expected to combine the strengths of two highly regarded companies and should result in further opportunities for growth through increased size and diversity of earnings. The deal brings together Lincoln's strength in life and annuity products with Jefferson's considerable presence in fixed and variable universal life and fixed annuities, the companies said. Cost savings were said to be less of a factor for the deal than the potential opportunity to increase sales, according to Jefferson-Pilot CEO Dennis Glass.

As critical mass becomes increasingly important for success in the industry, the merger of Lincoln and Jefferson effectively bolsters the combined company's position, given the tremendous scale benefits. In addition, the deal should be accretive to long-term earnings growth which should also benefit both companies. The merged company, which will use the name Lincoln Financial Group and be listed on the New York Stock Exchange as "LNC", will also be better positioned for future mergers and acquisitions. Lincoln, which is now considered the fourth largest insurance company, presents a compelling long-term investment opportunity. However, with regard to customary closing conditions and impending integration efforts, investors should be mindful of the near-term risks associated with the deal. --Richard Jahnke, Briefing.com

2:23PM Dana Corp. (DCN)

6.13 -3.06: This Monday hasn't exactly been a banner trading day for the auto parts industry. Over the weekend, Delphi Corp. (DPH) filed for Chapter 11 bankruptcy protection, and this morning, Dana Corp. (DCN) announced it will be restating its financial statements for 2004 and the first two quarters of 2005.

Per usual, the market's response to these pernicious declarations has been swift and severe. As of this posting, DPH had fallen 63.0% from its closing price on Friday while DCN had dropped 33.0%. Briefing.com addressed the Delphi news in an earlier Story Stock, so we'll turn our attention now to the Dana debacle.

In brief, it was determined by Dana's management and the Audit Committee of its Board of Directors that the company improperly accounted for certain items involving customer pricing and transactions with suppliers in its Commercial Vehicle business during 2004 and the first half of 2005. Consequently, the company has sounded the alarm that its prior statements should no longer be relied upon and that restatements are required for those periods. Dana also acknowledged that it believes there are material weaknesses in its internal control over financial reporting and that it will not release its Q3 results on October 19, as previously anticipated.

Today's news follows a September 15 warning from the company that its EPS results for FY05 were going to come up well short of consensus estimates due to the effects of higher than expected costs for steel and other materials, as well as increased energy costs. We won't bother to give specifics on the company's revised guidance range, because today's admission has rendered it meaningless.

The company also said on September 15 that it will likely restate its 2Q05 financial statements and that the change in its earnings outlook had prompted an evaluation of its ability to maintain its U.S. deferred tax assets, which totaled $740 million on June 30. In light of today's revelation, Dana now thinks it will be unable to maintain its deferred tax assets or record similar tax benefits in the future.

Suffice it to say, with the restatement net having been cast a lot wider today, credibility concerns are playing a big role in the pounding the stock is taking, as is the uncertainty over how this latest update will affect Dana's obligations pertaining to its credit facilities and other agreements. With more questions than answers surrounding Dana right now, investors have ample reason to steer clear of this auto parts company. --Patrick J. O'Hare, Briefing.com

11:32AM Delphi Corp. (DPH)

0.46 -0.66: After months of speculation, auto parts supplier Delphi Corp. and 38 of its domestic units filed for Chapter 11 bankruptcy protection Saturday - more than a week ahead of a scheduled change in U.S. bankruptcy laws. Since being spun-off from General Motors (GM) in 1999, the Troy, Michigan-based company has struggled with high wages and benefit costs and has stated that without the necessary relief funding from GM and labor concessions from the UAW, it would be forced to seek bankruptcy protection.

The Chapter 11 filing represents the largest in U.S. automotive history and presents broad implications for the industry, particularly for GM and the UAW. Although the reorganization should help resolve Delphi's legacy issues and the resulting high cost of domestic manufacturing operations, it marks a major setback for GM - Delphi's largest customer - and the workers union. In addition, the bankruptcy has left its employees with an uncertain future.

For General Motors, Delphi's filing could potentially result in significant price increases and supply disruptions, as well as damage the already shaky GM-UAW relationship. Furthermore, under the terms if its spin-off, GM may be liable for up to $11 billion in retirement benefits for Dephi's UAW-represented workers. According to Citigroup, the fallout from the filing, combined with GM's slower restructuring progress, are expected to erode near-term margins. CSFB, respectively, said that to the extent that Delphi bankruptcy results in the reduction of excess component-manufacturing capacity, re-writes the rules regarding "jobs banks" and permanent employment, and cuts labor rates for hourly worker, they would view this process as ultimately beneficial for the industry. However, the process will surely be rocky. Unless this process shakes the UAW into the realization that the good old days are gone, the firm thinks there is an increased likelihood that either GM and/or Ford (F) will ultimately end up in court-directed reorganization within the next few years.

The UAW who was deeply disappointed by the decision, called the filing "an extremely bitter pill for the 25,000 Delphi workers represented by the UAW as well as for the thousands of workers represented by other unions and non-union salaried Delphi employees." Over the past few months, the UAW has engaged in discussions with the company to develop a mutually beneficial agreement to avert bankruptcy, UAW President Ron Gettelfinger noted. However, Delphi's financial woes were deeper than the UAW alone could solve. Without greater support from GM, the union has been left essentially powerless in crafting a solution to the company's problems.

Amid difficult times for automakers, Delphi's decision to file for bankruptcy will likely have broad implications for the auto industry, with ripple effects being felt by unions, suppliers, and automakers alike. However, General Motors and the UAW union are likely to be two organizations most affected by the move. As bankruptcy proceedings unfold, greater clarity will had on the potential impact on the two organizations. In the meantime, uncertainty looms among Delphi, GM, and the broader industry. --Richard Jahnke, Briefing.com

10:41AM Northrop Grumman (NOC)

53.98 -0.07: It has been six weeks since Hurricane Katrina ravaged the Gulf Coast, yet the damage reports continue to roll in from publicly-traded companies with exposure to the area. Defense company Northrop Grumman is among the latest to provide shareholders with a damage assessment and the news isn't good at first glance.

Citing delays in production and the damage to its Ship Systems facilities in Louisiana and Mississippi, Northrop Grumman now expects FY05 EPS to range from $3.55-3.65 on revenue of $30.5-31.0 billion. That is down from previous guidance of $3.90-4.00 per share on revenue of $31.0-31.5 billion. According to Reuters Estimates, consensus estimates were pegged at $3.95 per share and $31.2 billion, respectively.

Altogether it is believed the bottom-line impact from hurricane damage will be approximately $0.40 per share in FY05, with $0.08 resulting from work delays and the remaining portion from increased costs for current Ship Systems contracts. When the impact of hurricane damage is excluded, however, it becomes apparent that Northrop Grumman was on track to deliver a reassuring third quarter report as the EPS result would have been in the range of $3.95-4.05 per share.

The latter consideration is why the market's response to Northrop Grumman's lowered guidance hasn't been more pronounced. At the same time, investors haven't found much comfort in the company's affirmation that it continues to expect revenue of approximately $32.0 billion and EPS of $4.10-4.30 for FY06. Two factors help explain why: (1) Northrop Grumman acknowledged that FY06 cash from operations will be $2.3-2.5 billion, down from a prior forecast of approximately $2.5 billion and (2) despite the affirmation of FY06 guidance, it is clear that EPS growth is going to decelerate considerably. Excluding the hurricane impact, FY06 earnings per share are expected to be up just 9.0% at best versus growth in FY05 that is likely to approximate 30.0%.

On a trailing twelve month basis, NOC trades at 15.1x earnings, which is a slight discount to its 5-year average (16.2x ttm). Multiple expansion should be harder to achieve for the time being, though, in light of the earnings growth rate deceleration and increased calls for the federal government to rein in spending that will weigh on investor sentiment. --Patrick J. O'Hare, Briefing.com

8:38AM Page One - On to Earnings

The market stabilized on Friday as the S&P gained 4 points. Futures suggest an up open this morning.

The supposed inflation scare of last week is discussed this morning in Briefing.com's Big Picture column. The S&P lost 2.7% last week, but that was due more to a release of pent-up selling pressures than to any change in the fundamentals. There was no inflation data of note and energy prices fell significantly last week.

Related concerns about the Fed raising rates further are certainly legitimate, but the fed funds futures had already priced in this likelihood before last week. Perhaps the stock market had to come to grips with this reality. Fortunately, Dallas Fed President Fisher is not due to speak this week to pound home this point further.

Earnings season is starting up. Alcoa and Genentech are due to report earnings after the close today.

The heavy slew of earnings reports does not begin until next week. Earnings season rallies typically do not start until well into the reports. This week may well bring a wait and see attitude.

The numbers will be good, however. Third quarter operating earnings for the S&P 500 will be up about 15%. There has been very little focus on this given the obsession with Katrina, energy prices, and inflation. The strong earnings reports will ultimately provide support to the market.

Oil prices are down $0.05 to $61.80 a barrel. There is a chance it will break below $60 this week. Gasoline futures are down fractionally after dropping 28% last week to $1.83 a gallon.

The bond market is is not trading today as banks are closed for Columbus Day. There are no economic releases today. Volume could be light for stocks. The September FOMC minutes will be out tomorrow, and the September CPI data will be released on Thursday. -- Dick Green, Briefing.com