Bloomberg News

U.S. Stocks Drop on Disappointing Earnings; UPS Tumbles

July 24, 2012

U.S. Stocks Fall on German Outlook as UPS Tumbles on Earnings

Sales rose an average 2.9 percent in the second quarter among 147 companies in the S&P 500 that have reported results so far. Photographer: Jin Lee/Bloomberg

U.S. stocks declined, sending the Standard & Poor’s 500 Index down a third day, amid disappointing results at United Parcel Service Inc. and after Moody’s Investors Service’s cut the outlook on Germany’s rating.

UPS (UPS:US), the largest package-delivery company and an economic bellwether, slumped 3.7 percent as it cut its forecast after a drop in international package sales dragged quarterly profit below estimates. Whirlpool Corp. (WHR:US) lost 4.6 percent as the home appliance maker reported earnings that trailed forecasts. DeVry Inc., a provider of education services, tumbled 26 percent after saying it plans to cut 570 jobs amid declining enrollment.

The S&P 500 slipped 0.5 percent to 1,343.39 at 10:17 a.m. in New York. The benchmark gauge has fallen 2.4 percent in three days. The Dow Jones Industrial Average lost 73.68 points, or 0.6 percent, to 12,647.78. Trading in S&P 500 companies was up 7.9 percent from the 30-day average at this time of day.

“It’s far from over,” said Dan Veru, chief investment officer at Palisade Capital Management LLC, which oversees $3.5 billion. He spoke in a telephone interview. “The euro zone is not doing things fast enough. It gets back to Germany again and how much support they are going to give the euro zone. They also know that Greece is not where it needs to be. It’s so hard to look beyond the risk-off.”

Equities fell as Moody’s cut the outlook to negative for the Aaa credit ratings of Germany, the Netherlands and Luxembourg, citing “rising uncertainty” over Europe’s crisis. Greece’s international creditors return to Athens to assess how far from bailout terms the country has strayed as Prime Minister Antonis Samaras pieces together additional budget cuts that may determine the country’s membership in the euro area.

Earnings Season

Investors also watched second-quarter corporate results. Sales rose an average 2.9 percent in the second quarter among 147 companies in the S&P 500 (SPX) that have reported results so far, according to data compiled by Bloomberg. Only 39 percent of the reported companies have topped analysts’ estimates on sales, while 73 percent have beaten on profit, the data show.

UPS slumped 3.7 percent to $75.06. The company is seeing revenue decline as it seeks to expand in Europe with the $6.5 billion acquisition of TNT Express NV. International package volume gains have slowed in recent quarters amid slowing Asian economic expansion. Rival FedEx Corp. (FDX:US), operator of the world’s largest cargo airline, lost 2.3 percent to $87.24.

Whirlpool retreated 4.6 percent to $64.19. The home appliance maker reported second-quarter earnings excluding some items of $1.55 a share, missing the average analyst estimate in a Bloomberg survey of $1.69.

Economic Weakness

Lexmark International Inc. (LXK:US) slumped 11 percent to $17.03. The maker of laser and inkjet printers forecast (LXK:US) third-quarter profit that missed analysts’ estimate as the economic weakness in Europe erodes sales.

Peabody Energy Corp. (BTU:US) dropped 7.2 percent to $21.49. The largest U.S. coal producer forecast third-quarter earnings that trailed analysts’ estimates after metallurgical-coal prices fell and Australia introduced a carbon tax.

Texas Instruments Inc. (TXN:US) slid 0.8 percent to $26.61. The largest maker of analog chips forecast (TXN:US) third-quarter sales and profit that may miss some analysts’ estimates as an economic slowdown in Europe crimps demand for electronics.

DeVry (DV:US) tumbled 26 percent to $20.47. New enrollment for the summer term at DeVry University may decline as much as 17 percent compared to a year earlier, the Downers Grove, Illinois- based company said yesterday in a statement. Enrollment at its Carrington Colleges Group may see a drop of as much as 21 percent for the term ended June 30, the company said.

Pfizer’s Treatment

Pfizer Inc. fell 1.1 percent to $23.35. The company, Johnson & Johnson and Elan Corp.’s experimental Alzheimer’s treatment failed to improve symptoms of dementia in the first of four pivotal studies testing the drug.

The KBW Bank Index (BKX) rose 0.3 percent. Regions Financial Corp. (RF:US) gained 5.7 percent to $6.76. The 10th-largest U.S. bank by deposits reported second-quarter profit that rose more than analysts estimated as provisions for loan-loss reserves declined.

Under Armour Inc. (UA:US) added 11 percent to $53.67. The maker of athletic apparel and shoes raised its annual sales and profit forecasts amid increased demand.

The two-day selloff in equities pushed bets that the Chicago Board Options Exchange Volatility Index will keep rising to the most in a year.

The ratio of outstanding calls to buy the VIX (VIX) jumped to 2- to-1 on July 20, according to data compiled by Bloomberg. The gauge climbed 21 percent from July 20 to 18.62 yesterday, the biggest two-day increase since April, as the Standard & Poor’s 500 Index slipped 1.9 percent.

Buying Protection

Investors are buying protection against losses after concern increased that Europe’s debt crisis is worsening and a Chinese central-bank adviser said economic growth may slow further. The VIX, trading 9.3 below its two-decade average, is bound to gain, according to Randy Frederick of Charles Schwab Corp. and Prudential Financial Inc.’s Quincy Krosby.

“For the VIX to be below its long-term mean, to me it just seems it’s under-valuing the overall level of risk,” Frederick, managing director for active trading and derivatives at Charles Schwab, which has $1.83 trillion in client assets, said in a phone interview from Austin, Texas. “We got lots of things out there that could potentially cause major havoc.”

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net


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Companies Mentioned

  • UPS
    (United Parcel Service Inc)
    • $97.61 USD
    • 0.28
    • 0.29%
  • WHR
    (Whirlpool Corp)
    • $153.68 USD
    • 0.66
    • 0.43%
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