Tuesday, July 10, 2007

U.S. Stocks Fall on Earnings Outlooks; D.R. Horton, Sears Drop

By Eric Martin (Bloomberg)

U.S. stocks fell for the first time in six days on concern the housing slump will hurt earnings after D.R. Horton Inc. said it will report a loss and Sears Holdings Corp. forecast its profit will decline.

D.R. Horton, the second-largest U.S. homebuilder, slid after saying it sees no sign of a housing rebound. Sears, the biggest U.S. department-store company, plunged the most since 2005 after it reported earnings will trail analysts' estimates.

Consumer spending has been restrained by the housing recession as pending home sales dropped in May to the lowest level since 2001. Earnings growth at Standard & Poor's 500 Index companies may have slowed to 4.8 percent in the April-to- June period, the first quarter below 10 percent since 2002, according to Bloomberg data.

``There were a couple of relatively high-profile preannouncements that may be contributing to concern with regard to earnings,'' said Michael Malone, a trading analyst at Cowen & Co. in New York. ``If housing were to significantly worsen, it would be a problem.''

The S&P 500 lost 8.04, or 0.5 percent, to 1523.81 as of 10:14 a.m. in New York. The Dow Jones Industrial Average fell 49.67, or 0.4 percent, to 13,600.3. The Nasdaq Composite Index slid 9.37, or 0.4 percent, to 2660.65.

D.R. Horton, Sears

D.R. Horton slipped 39 cents to $19.40. The company said it will report a third-quarter loss after orders plunged 40 percent. ``We expect the housing environment to remain challenging,'' Chairman Donald Horton said in a statement.

Sears dropped $10.91, or 6.4 percent, to $160.50. The company said second-quarter profit will fall to between $160 million and $200 million as sales decline. Earnings per share will be $1.06 to $1.32, Sears said. Six analysts surveyed by Bloomberg estimated profit of $2.07 a share.

Home Depot Inc. said earnings per share will drop between 15 percent and 18 percent in the fiscal year through Feb. 3. Previously, Home Depot had forecast a 9 percent decline. The shares increased 27 cents to $40.50.

Financial shares fell 1.4 percent as a group, the steepest decline among 24 industries in the S&P 500. Standard & Poor's may cut credit ratings on $12 billion of bonds backed by subprime mortgages because losses will rise beyond its previous expectations. Ratings on collateralized debt obligations that contain the mortgage bonds are also under review, S&P said.

Bear Stearns Cos., the securities firm forced to put up $1.6 billion to bail out two hedge funds that nearly collapsed because of investments containing subprime bonds, slid $3 to $140.89. Moody's Corp., whose founder created credit ratings, dropped $1.30 to $60.20.

Automakers Upgraded

General Motors Corp. added 57 cents to $37.34, while Ford Motor Co. rose 13 cents to $9.21 after JPMorgan raised its recommendation for both stocks to ``overweight.'' GM was also added to the broker's ``Focus List'' with a price estimate of $50. JPMorgan had recommended GM as ``neutral'' previously and Ford as ``underweight.''

Analysts including Himanshu Patel wrote in a note to clients that there may be potential for ``upside'' to their earnings estimates for both companies.

Inflation Watch

Investors were also awaiting a speech by Federal Reserve Chairman Ben Bernanke for clues on the outlook for inflation and interest rates. Bernanke will speak at a National Bureau of Economic Research event in Cambridge, Massachusetts, at 1 p.m. New York time.

Alcoa Inc. retreated 8 cents to $42.28. Alcoa's sales were $8.07 billion in the second quarter, missing the $8.36 billion average analyst estimate in a Bloomberg News survey. Alcoa's profit excluding some items was 81 cents a share, beating the average estimate of analysts by 1 cent. The world's second- largest aluminum maker was the first member of the Dow average to report second-quarter results.

Oracle Corp., the world's third-biggest software company, dropped 13 cents to $20.03. Oracle's plans to introduce an improved version of its database-management software package for the first time in four years is getting a lukewarm reception, the Wall Street Journal reported, citing customers.

Gemstar-TV Guide International Inc. gained 66 cents to $6. The biggest supplier of television programming guides said it is exploring options including a sale of the company. UBS Investment Bank is acting as financial adviser to the company, and Wachtell, Lipton, Rosen & Katz is providing legal advice, Gemstar said yesterday.

Akamai Technologies Inc. added $2.55 to $50.08. The Cambridge, Massachusetts-based company, whose software speeds the delivery of Internet data, will replace Biomet Inc. in the S&P 500 index, S&P said.

Pepsi Bottling Group Inc. climbed $1.10, or 3.2 percent, to $35.53. The world's second-largest soft-drink bottler reported second-quarter net income of 70 cents per share, beating the 63 cent mean estimate of 13 analysts surveyed by Bloomberg.

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