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Seven earnings reports that matter

Looking to cut through the earnings fat to get to the meat? Here are the coming week's top reports.
January 17, 2003: 11:28 AM EST
By Justin Lahart, CNN/Money Staff Writer



NEW YORK (CNN/Money) - You might not know it from the way the market's been shaking, but the fourth-quarter earnings period is going well, Microsoft notwithstanding.

"So far, so good," First Call analyst Ken Perkins said. "The preannouncement season was better than we thought it was going to be and the numbers are coming in relatively well."

Of the companies in the S&P 500, 95 have reported so far, and on average they are reporting fourth-quarter earnings that are 9.8 percent higher than last year and 3.7 percent better than analysts expected.

But there is much more to come -- particularly in the coming week when a bevy of companies are due to report. If you're a day trader, you'll want to keep an eye on all of them. If not, you can focus on these seven reports that matter and let the rest of the earnings noise pass you by.

Companies in this report: Ford; Citigroup; 3M; Pfizer; J.P. Morgan; Tyco; McDonald's.

Ford
The last few years have badly hurt Ford (F: Research, Estimates), which reports results before the bell Tuesday.

Its balance sheet damaged by an underfundeded pension fund, still smarting from former CEO Jacques Nasser's mishandling of the Firestone crisis and heavily in debt, Ford has been severely cut up. In October, its stock plummeted and the yield on its bonds spiked to distressing levels -- a sign that investors were questioning its solvency.

Ford's share of the U.S. market shrank last year and its biggest rival, General Motors (GM: Research, Estimates), smelled blood in the water. Sure, the No. 1 auto maker's generous incentive programs are aimed at maintaining sales in a tough economy, but they have had the added benefit of hitting Ford, the No. 2 auto maker, when it's down.

It looks like the worst may be behind Ford, but slowing consumer-spending growth in the coming year could open the old wounds again. And investors still don't know what to think of Bill Ford, the company's CEO. Ford's heart seems to be in the right place -- as a member of the automaker's founding family he is focused on its long-term health. But does that mean he lacks appropriate focus on day-to-day operations?

Why it matters: Ford's health, or lack thereof, is a barometer for the health of the entire manufacturing sector. If it can get back on the road to Wellville it would signal health for the entire economy.

Analysts surveyed by Multex think Ford earned 7 cents in the fourth quarter.

Citigroup
With limited exposure to the likes of Enron and WorldCom, Citigroup (C: Research, Estimates), which reports ahead of the open Tuesday, has weathered the tough economy much better than J.P. Morgan, its closest competitor (see below).

But boy, has it been exposed to the storm over Wall Street. Jack Grubman, a former telecom analyst at Citi's Salomon Smith Barney brokerage unit, has been accused of hyping stocks in order to win investment banking deals for the firm. CEO Sandy Weill was pulled into the fray in the fall when it emerged that he had asked Grubman to take a "fresh look" at AT&T's stock. Grubman said in an e-mail that his children were, thanks to Weill's efforts, admitted to the prestigious nursery school at New York's 92nd Street Y after he upgraded AT&T stock in 1999.

In a settlement agreed to last month, Wall Street firms are to pay about $1.5 billion to end the investigation into charges that analysts issued glowing reports to win lucrative banking business for their firms. Citi will pay $400 million of that -- more than any other firm. A final settlement has been delayed as regulators hammer out details.

Critics say that the regulatory mess has taken Weill's focus away from his job of running the bank, and that Bank One, run by his former protege Jamie Dimon, is where the future is. Investors want to know if Weill's got his eye back on the ball, or if he should be led out to pasture.

Why it matters: The nation's largest bank, Citi is a proxy for the health of the entire U.S. financial system. Also, if it is losing focus, that could signal a profound shift in the banking sector.

Analysts expect Citi earned 46 cents a share in the fourth quarter, down from last year's 74 cents.

3M
By all rights 3M (MMM: Research, Estimates), the Minnesota-based industrial company known for its abrasives, adhesives and Post-it Notes, should be in a deep funk. What other business is so leveraged to the skulking global economy? Yet the company, which is due to report before Tuesday's open, has weathered the downturn remarkably well, with sales and earnings losing only a bit of ground in 2001, and then making it back up in 2002.

Its stock is up 28 percent from where it was three years ago -- one of just four Dow Jones industrial average components to gain since the index hit its January 2000 peak.

Why it matters: Because so many manufacturers use what it sells, 3M is seen as a good barometer for the overall economy. Despite its relatively good results through the downturn, it has consistently struck a cautious note. Any sign that this caution is receding could sound the all-clear signal on the economy.

Analysts think 3M earned $1.28 a share in the fourth quarter, compared with 98 cents in the year-earlier period.

Pfizer
Shares of Pfizer (PFE: Research, Estimates), the big drugmaker set to report before the open Wednesday, have been under the weather, struggling since it announced in July that it would buy rival Pharmacia (PHA: Research, Estimates).

Part of this is related to arbitragers, who have sold Pfizer shares short and bought Pharmacia shares in expectation that when the merger does go through they'll make a profit. With the merger expected to be completed this quarter, this is an overhang that should be cleared away shortly.

But Pfizer also is suffering from problems similar to many of its peers: Its pipeline of new drugs is limited, and with patent expirations on a number of its current products coming up, competition from generic manufactures looms. Already, Pfizer is locked in a court battle over the impending generic release of anticonvulsant Neurontin.

Why it matters: Pfizer may be an example of investors ignoring the forest for the trees. The arbitrage play and worries about generics aside, it continues to offer something that many other companies have not -- earnings and revenue that have grown throughout the economic downturn and which are expected to continue to grow through the coming year.

Analysts think Pfizer earned 47 cents a share in the fourth quarter, compared with 34 cents a year ago.

J.P. Morgan Chase
It's been a tumultuous time for J.P. Morgan Chase (JPM: Research, Estimates), due to report ahead of the bell Wednesday. Heavily exposed to Kmart, Global Crossing, Argentina and, especially, Enron, the bank has taken mighty losses over the past year. Nor is the trouble over just yet -- there may not be any more Enrons out there, but the bank's exposure to other troubled energy firms is a cause for concern.

The book on Enron, at least, appears to have closed. Earlier this month the bank said it would take a $400 million charge related to the settlement of an Enron-related surety bond dispute with insurers. It said it would take an additional charge of $900 million to pay for other lawsuits over the bank's dealings with Enron and to settle charges of conflicts of interest on Wall Street.

Why it matters: Some companies are good barometers of the health of a specific sector or the economy at large; J.P. Morgan is an indicator of the stupidity bankers will stoop to during an investing bubble. The sooner J.P. Morgan sorts through the aftereffects of its past mistakes, the sooner the post-bubble hangover will go away for all of us.

Analysts expect J.P. Morgan lost 7 cents a share in the fourth quarter, compared with a year-ago gain of 12 cents.

Tyco
Amazing to think it's been just a year since Tyco (TYC: Research, Estimates), due to report Wednesday, began to fall apart.

Let's review: Critics have long said there was something fishy about Tyco's results, but investors didn't care -- so long as the company kept on posting its market-pleasing profits. But when it reported its fourth-quarter 2001 earnings last January, it said its first-quarter earnings would miss estimates. The deal was off, as far as the market was concerned, and Tyco shares fell 8.3 percent. They would fall much more in the weeks and months to come.

A rushed breakup plan that later was abandoned, the resignation of CEO Dennis Kozlowski, zillion-dollar umbrella stands, lewd ice sculptures -- there's something to be said for a company that can make its way to the front page of the New York Post. But with new CEO Ed Breen, Tyco appears to be in steadier hands. Though nowhere near its old highs, its stock has climbed steadily since the summer.

Why it matters: Tyco has become a battleground between investors, who feel that the company which, after all, runs real businesses, is a deep value, and critics (aka short sellers) who think there is more pain to come. Who is right will depend on whether Tyco can get profit growth moving again. It is heavily indebted and will have trouble paying off creditors if it cannot do that.

Analysts expect Tyco made 32 cents a share in its latest quarter, compared with 73 cents in the year-ago period.

McDonald's
McDonald's (MCD: Research, Estimates), due to report results ahead of Thursday's open, has been through the grinder.

A weak global economy, along with persistent worries abroad over mad cow disease, have hurt sales badly. Rather than luring customers back, price cuts have mostly just cut into profits. CEO Jack Greenberg announced his retirement in December, shortly after the hamburger chain warned of lower profits again.

Why it matters: McDonald's ain't exactly Le Cirque: when people stop stopping by the golden arches, it says something about the consumer.

Analysts expect McDonald's earned 25 cents a share in the fourth quarter, compared with the previous year's 34 cents.

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Bank of England May Cut Rates Half Point, Forecaster to Predict
By Iain Rogers


London, Jan. 19 (Bloomberg) -- The Bank of England will trim half a point from its key lending rate in the second quarter, and may cut more should a war with Iraq dent business and consumer confidence, the ITEM Club forecasting group will predict Monday.

Europe's second-biggest economy will probably expand 2.1 percent this year, less than the government's forecast of as much as 3 percent, according to a report the group will publish Monday. The ITEM Club, which is sponsored by accountants Ernst & Young LLP, uses the U.K. Treasury's economic model for its forecasts.

``With the housing and consumer booms cooling, the main focus is likely to shift to preventing a severe slowdown that risks generating sizeable falls in house prices,'' Peter Spencer, the ITEM club's economic adviser and a former Treasury consultant, will say in the report. ``A war with Iraq could prompt further rate cuts to support consumer and business confidence.''

Surging house prices have underpinned U.K. consumer spending, which accounts for about two-thirds of the economy. Growth accelerated to 0.9 percent in the third quarter of last year, faster than the average of 0.3 percent for the dozen nations sharing the euro.

Britons have taken advantage of the lowest interest rates in almost four decades to borrow record amounts against the rising value of their homes. Bank of England policy makers earlier this month voted to keep the benchmark borrowing rate at 4 percent for a 14th month.

House Prices Impede Cut

``The heady rate of house-price inflation makes it almost impossible for the bank to cut interest rates anytime soon,'' the ITEM Club report will say. The half-point cut between April and June will come in two quarter-point steps, the group will say.

The U.S. Federal Reserve has lowered rates a dozen times in about two years, taking the overnight lending rate to a 41-year low of 1.25 percent. The European Central Bank at the beginning of December cut its benchmark for the first time in more than a year to 2.75 percent, the lowest in three years.

Investors expect the Bank of England to trim rates, interest- rate futures suggest. The yield on the three-month sterling contract due in June is at 3.81 percent, down from 3.99 percent a month ago.

Military action against Saddam Hussein's Iraqi regime would boost oil prices and sow fear among consumers, the ITEM club report will say.

``The uncertainty this creates has put a lot of important economic decisions on hold,'' the report will say.

ITEM stands for Independent Treasury Economic Model. In its report published in April last year, the club predicted U.K. growth of 2.8 percent for this year. In its July report the group had pared that forecast to 2.6 percent

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Rising Oil Prices May Erase January Gains: U.S. Stocks Outlook
By Josh P. Hamilton


New York, Jan. 18 (Bloomberg) -- U.S. stocks' rise this month may fall victim to higher energy costs, which threaten to undercut any potential benefits from President George W. Bush's $674 billion tax-cut proposal, some investors said.

DuPont Co., the second-largest U.S. chemicals maker, said oil prices' surge to a two-year high will hurt profit by lifting raw- material costs. Companies as different as Maytag Corp., an appliance maker, and Harley-Davidson Inc., a motorcycle producer, may find consumers less willing to buy, the money managers said.

``A rule of thumb is that a penny-a-gallon increase at the (gasoline) pump amounts to a billion dollars in costs to the economy,'' said Will Braman, chief investment officer of John Hancock Funds Inc., which manages $29 billion in Boston. ``Maybe you'll get $45 billion in tax relief this year, but 45 cents of increase at the pump would eliminate that.''

While expectations that Bush's economic plan would boost the economy and whet investors' appetite for stocks helped the market rally earlier this month, the Standard & Poor's 500 Index had its biggest weekly loss in more than three months during the past week. The 2.8 percent decline trimmed a year-to-date gain that had been as much as 5.9 percent.

The Dow Jones Industrial Average shed 2.3 percent for the week and the Nasdaq Composite Index lost 4.9 percent. Markets will be closed Monday for the Martin Luther King Jr. holiday.

War Worry

Computer-related stocks fell the most in the S&P 500, as Microsoft Corp. and International Business Machines Corp. said there is no sign of a rebound in demand. R.J. Reynolds Tobacco Holdings Inc., Kellogg Co. and other companies whose businesses are less affected by the economy's ups and downs gained the most.

The S&P Energy Index, up 11 percent in the past six months, slid 0.4 percent on the week.

Energy prices have risen because of concern about a potential war with Iraq and about a strike that has disrupted Venezuelan exports. The price of crude has surged 83 percent in the past year and closed yesterday at $32.96 a barrel.

Retail gasoline prices averaged $1.45 a gallon for regular unleaded last week, the government reported, up from $1.11 at this time last year. Prices for heating oil have jumped 75 percent in 12 months.

Some investors said they are confident that investors soon will be able to look past the U.S. conflict with Iraq in making their decisions.

``There will be a resolution to the issue in Iraq, which will be positive because Iraqi oil will come back to the market in a big way,'' said Varun Mehta, a money manager at Northwestern Mutual Life Insurance Co.'s Mason Street Advisors, which manages $58 billion.

`Big Headwind'

Braman, who has added to his holdings of technology and industrial shares in anticipation of stock-market gains this year, wasn't so optimistic about Iraq.

``We may not see anything for six months, or 10,'' he said. ''Maybe the market can make some progress, but it will be slowly, against this big headwind.''

Investors got evidence of consumer pessimism and a slowing economy this week.

The University of Michigan's preliminary consumer confidence index fell to 83.7 in January from 86.7 rather than rising to 87, the average forecast of economists in a Bloomberg News survey.

Production at factories, mines and utilities fell 0.2 percent last month, the Federal Reserve said, and the trade deficit hit a record $40.1 billion in a separate government report. Those numbers prompted some economists to cut fourth-quarter growth estimates.

DuPont lost 4.3 percent for the week as it reported fourth- quarter profit of 31 cents to 33 cents a share, lagging analysts' expectations. The chemical maker struggled with falling prices as well as rising oil costs.

Falling Short

Microsoft sank 8 percent. The largest software maker said sales and profit for the year ending June 30 will fall short of analysts' estimates.

IBM shed 7.3 percent. The biggest computer maker said fourth- quarter profit tumbled 56 percent from a year ago.

Maytag dropped 4.2 percent for the week, while Harley- Davidson fell 4 percent.

About a fifth of S&P 500 companies have reported fourth- quarter earnings so far. The quarter will show profit growth of 12.9 percent, down from the 19.9 percent growth that analysts expected at the start of the quarter, said Chuck Hill, director of research at Thomson First Call.

Economic reports next week include figures for December housing starts on Tuesday and for weekly jobless claims and the Conference Board's December index of leading economic indicators on Thursday.

One-quarter of the S&P 500's companies are scheduled to report earnings next week, including many whose profitability is sensitive to energy prices.

Marathon Oil Corp. and Sunoco Inc., both oil producers, and Halliburton Co. and Schlumberger Ltd., the two largest providers of oilfield services, are reporting. Industrial companies such as Alcan Inc., 3M Co. and Ford Motor Co. also report, as do two of the country's largest railroads, Burlington Northern Santa Fe Corp. and Union Pacific Corp

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Ford Sees January North American Auto Sales `Fairly Strong'
By Michael Forsythe


Chongqing, China, Jan. 18 (Bloomberg) -- Ford Motor Co.'s sales in North America this month have been ``fairly strong,'' putting the company on track to meet its yearly profit forecast of 70 cents a share, a company executive said.

``Right now I'm happy to say that the January market seems to be going fairly strong,'' Executive Vice President David Thursfield told reporters in Chongqing. ``We're still confident we are going to make our commitments.''

The second-biggest automaker joins rival General Motors Corp. in stating that January's sales figures may be better than analysts had forecast. The largest automaker this week predicted industrywide January U.S. sales would be between 16.1 million to 16.5 million vehicles.

Annual industrywide sales above 15.5 million this year would allow Ford to make a profit this year, chief executive William Clay Ford Jr. said this month. Ford lost $5.45 billion in 2001 and $850 million through the first nine months of last year. Sales of below 15.5 million would make it ``tough'' for Ford to make a profit, Ford said.

The company a year ago announced a plan to close plants, cut jobs and introduce new models to generate $7 billion in pretax profits by 2005. Ford is scheduled to announce its full-year 2002 financial results on Jan. 21.

Sales in Europe are ``fairly flat,'' Thursfield said, and may be helped by the European Central Bank's decision to cut its main refinancing rate to 2.75 percent on Dec. 5.

``There has been a reduction of interest rates to try to stimulate the economies of Europe,'' he said. ``That's fairly recent so it normally takes some months before a half-point reduction has an impact on the dynamics of economies.''

Thursfield, who heads the company's international operations, was in China to inaugurate production of the Ford Fiesta car in Chongqing.

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Nokia, Siemens Results Bear Watching: European Stocks Outlook
By Sam Fleming


London, Jan. 18 (Bloomberg) -- Results from Nokia Oyj, Siemens AG, STMicroelectronics NV and Infineon Technologies AG may determine whether Europe's benchmark stock indexes rebound after some erased 2003 gains this week.

``People care about technology companies'' because demand for their products is an indicator of economic performance, said Margaret McLaren, who manages 1.5 billion euros ($1.6 billion) as head of European stocks at Britannic Asset Management. ``Next week is important.''

The Dow Jones Stoxx 600 Index lost 2.2 percent Friday, its biggest drop this year, and dropped 3.1 percent for the week. A measure of the Stoxx 600's technology companies fell 6.8 percent, leading losses among its 18 industry groups, as Microsoft Corp. and International Business Machines Corp. said a recovery in demand for software and computers isn't imminent.

The retreat left the Stoxx 600 with a 0.3 percent decline for the year. The Dow Jones Stoxx 50 Index shed 4.1 percent for the week, resulting in a 0.9 percent drop for 2003.

Technology companies led a two-month, 18 percent rally after the Stoxx 600 fell to a 5 1/2-year low in October. In December, their Stoxx index slid 9 percent, the most of any industry-group measure.

Technology is the eighth-largest of the Stoxx 600 groups, accounting for 4.7 percent of the index's total market value. Nokia, Siemens, ST and Infineon together represent almost two- thirds of the group.

No Turnaround

About 120 billion euros have been wiped from those four companies' market value over the past year amid ebbing demand for their products. Some investors said they don't expect anything they will hear next week to signal a turnaround.

``There's no recovery in sight, and if there's no recovery in sight, you shouldn't'' buy technology stocks, said McLaren, who pared holdings of computer-related and phone-equipment companies in December.

Nokia will post earnings Thursday. The world's biggest mobile- phone maker probably will say fourth-quarter net income more than doubled to 1.08 billion euros, a Bloomberg News survey of analysts showed. Nokia last month cut its fourth-quarter sales forecast, partly because demand for more expensive models with in-built cameras hasn't taken off.

Also that day, Siemens may say fiscal first-quarter profit declined 9.4 percent to 487.6 million euros, the average forecast of eight analysts surveyed by Bloomberg News. Germany's largest electronics and engineering company said in November it expects fiscal 2003 to be ``a year of challenges.''

ST Profit

ST will report fourth-quarter earnings on Wednesday. Net income at Europe's biggest semiconductor company probably tripled to $150 million amid growing demand from makers of mobile phones and automobiles, a Bloomberg News survey of analysts showed.

Infineon may report its seventh straight quarterly loss on Monday as prices for some computer-memory chips stayed below the cost of production. The first-quarter loss shrank to 47.8 million euros from 331 million, according to the average survey estimate.

Chipmakers ``are the first ones to know it'' when companies in other industries reduce or increase production, said Juergen Lukasser, who manages 5 billion euros as head of equities at Constatia Privatbank AG in Austria.

Lukasser said he's ``cautious'' about the prospects for stocks because any U.S. attack on Iraq might further dampen economic growth and consumer confidence.

Investors will get indications next week about the strength of the European economy when France publishes December consumer- spending figures and Italy releases January consumer-confidence numbers. The U.K. will report on December retail sales and fourth- quarter economic growth.

Overly Optimistic?

L'Oreal SA, the world's biggest cosmetics company, and LVMH Moet Hennessy Louis Vuitton SA, the largest luxury-goods maker, are due to report 2002 sales next week. Shares of both companies have declined this year, partly on concern that consumer spending will slow.

Other companies reporting sales or earnings next week include Sanofi-Synthelabo SA, France's second-largest drugmaker, Novartis AG, the third-biggest Europe's pharmaceuticals company, and Wella AG, the world's No. 2 maker of shampoo.

Earnings for Stoxx 600 companies are expected to rise 26 percent this year, according to the average estimate of analysts surveyed by JCF Group, a financial-information company. Many investors view that as overly optimistic.

``Brokers' earnings forecasts are still too high,'' said Adam Holmes, a portfolio manager who oversees 1 billion euros of stocks at Credit Suisse Asset Management in London

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Acções EUA caem pressionadas por resultados e dados económicos decepcionantes

As acções americanas encerram a semana a descer, com os investidores decepcionados com os resultados e expectativas da Microsoft e IBM e os indicadores económicos hoje anunciados. O Nasdaq desceu 3,34% e o Dow Jones caiu 1,28%.
O Nasdaq fechou a valer 1.376,19 pontos e o Dow Jones terminou nos 8.586,74 pontos.

No cenário macro-económico, o índice de confiança dos consumidores dos Estados Unidos (EUA), medido pela Universidade do Michigan, caiu para os 83,7 pontos em Janeiro, abaixo das estimativas dos analistas e a produção industrial caiu inesperadamente em Dezembro.

Estes dados sugerem que a economia norte-americana poderá demorar mais tempo a recuperar que o esperado.

No campo empresarial os investidores ficaram desiludidos com os resultados apresentados pela Microsoft e International Business Machines e sobretudo com as suas expectativas pouco animadoras para o sector tecnológico em 2003.

A Microsoft caiu 7,03%, depois de ter reduzido as estimativas para 2003. A IBM desceu 5,37%, a Intel caiu 4,94%, a Oracle depreciou 6% e a Cisco Systems baixou 5,11%.

Também pressionada pelos resultados apresentados a General Electric terminou com uma queda de 1,16%.

O american depositary receipt (ADR) da Portugal Telecom (PT) fechou a cair 1,18% para os 7,52 dólares (7,08 euros), enquanto em Lisboa a empresa fechou nos 7,19 euros.

O ADR da Electricidade de Portugal (EDP) fechou a subir 1,3% até aos 17,15 dólares (16,15 euros), enquanto em Lisboa a empresa fechou nos 1,60 euros. Cada ADR equivale a 10 acções da eléctrica nacional.

2003/01/17 21:11:00

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Apritel diz decisão da Anacom custa 10 milhões aos ISP

A Apritel, associação dos operadores de telecomunicações, considera que a recente decisão da Anacom sobre as condições de acesso, em 2003, aos Internet Service Providers, «é uma grande decepção» e vai custar 10 milhões de euros às companhias do sector.
«Esta deliberação marca mesmo uma ruptura total com toda a política de promoção da Sociedade de Informação prosseguida anteriormente por aquela Autoridade reguladora que (...) estabelecera preços de interligação no horário económico substancialmente mais reduzidos que os relativos ao Serviço Fixo de Telefone», refere um comunicado da Apritel.

A Apritel entende que a deliberação da Anacom tem um «impacto efectivo nas contas de exploração dos operadores, cuja sobrevivência se torna cada vez mais difícil com o quadro regulamentar vigente em Portugal».<(+>

Os ISP queriam uma redução dos preços de interligação de acesso à Internet em cerca de 15%, igualando-os aos da voz, mas a Anacom decidiu-se pela manutenção.

«A presente decisão da ANACOM terá portanto um importante impacto financeiro na actividade dos ISP nas 3 áreas atrás referidas e que se estima atinja cerca de 10 milhões de euros de agravamento no ano 2003 constituindo obstáculos ao desenvolvimento de mercados competitivos e marcando, por isso, um retrocesso no desenvolvimento da Sociedade da Informação e do Conhecimento», acrescenta a mesma fonte.

2003/01/17 20:44:00

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