U.S. stocks slip ahead of rush of earnings reports

U.S. stocks slip ahead of rush of earnings reports Friday April 11, 11:39 am ET By Denise Duclaux

NEW YORK, April 11 (Reuters) - Stocks dipped in light trading on Friday, erasing an opening rally of more than 1 percent, as nagging worries over the U.S. economy and corporate earnings took the luster off surprisingly strong readings on retail sales and consumer sentiment.

Next week is one of the busiest of the quarterly earnings season, and many companies have warned that results will fall short of estimates. Investors are struggling to determine how much uncertainties over the war against Iraq bit into earnings and how much profits will pick up once the conflict ends.

"It's not certain whether you want to buy ahead of major earnings," said Donna Van Vlack, director of trading at Brandywine Asset Management, which oversees about $8 billion. "Everybody's crystal ball is more fogged than ever."

Boeing Co. (NYSE:BA - News), the world's No. 1 jet maker, fell after warning of $1.2 billion in charges, while Wal-Mart Stores Inc. (NYSE:WMT - News) the world's No. 1 retailer, dropped on a sour investment call. But Juniper Networks Inc. (NasdaqNM:JNPR - News) jumped after posting a profit, offering a boost to other network gear makers.

The tech-laced Nasdaq Composite Index (NasdaqSC:^IXIC - News) eased 8.55 points, or 0.63 percent, to 1,357.06, after jumping more than 1.5 percent. The blue-chip Dow Jones industrial average (CBOT:^DJI - News) was down 20.09 points, or 0.24 percent, at 8,201.24. The broad Standard & Poor's 500 (CBOE:^SPX - News) was off 3.4 points, or 0.39 percent, at 868.18.

The market had surged at the open after a report showed that U.S. retail sales rebounded with surprising strength in March. Separate data shortly after the open showed that U.S. consumer sentiment improved in recent weeks as consumers saw signs the war in Iraq was coming to an end.

But the early rally fizzled, and market watchers said investors were demanding more signs of a strengthening economy before funneling money into stocks.

General Electric Co. (NYSE:GE - News), a conglomerate whose businesses range from television broadcasting to jet-engine manufacturing, edged up 20 cents to $27.58. The Dow component said first-quarter earnings fell nearly 9 percent on sharply reduced gas turbine sales, but its results landed in line with analysts' estimates.

Boeing fell 80 cents, or almost 3 percent, to $26.29, leading the Dow lower. The jet maker said it would post $1.2 billion in charges before taxes to reflect the declining value of companies it had acquired and to add reserves for the second consecutive quarter.

Wal-Mart dropped $1.11, or 2 percent, to $53.47 and ranked as the second biggest loser on the Dow. Investment bank Prudential cut Wal-Mart to "hold" from "buy," saying the stock is trading at 27 times Prudential's 2003 earnings per share estimate.

Juniper, the No. 2 network equipment maker, jumped 62 cents, or 7.4 percent, to $9.03. The company posted a net profit in the first quarter versus a loss a year earlier, as revenues rose despite the overall spending slump in the telecommunications industry. Rival Cisco Systems Inc. (NasdaqNM:CSCO - News) climbed 25 cents, or 1.9 percent, to $13.29.

Network equipment maker Foundry Networks Inc. (NasdaqNM:FDRY - News) surged $1.09, or 13.6 percent, to $9.09. The company said it expected to post first-quarter sales and earnings that would top cautious Wall Street expectations, after strong sales to government.

Quintiles Transnational Corp. (NasdaqNM:QTRN - News), a provider of testing services to drug makers, jumped $1.58, or 13 percent, to $13.77. The company said it agreed to be bought by an entity led by its chairman after it raised its bid to $1.7 billion. (With additional reporting by Doris Frankel, Elizabeth Lazarowitz)

But the early rally fizzled, and market watchers said investors were demanding more signs of a strengthening economy before funneling money into stocks.

Somebody's waking up.

March Retail Sales report wasn't that strong. It was compared to an abysmal Feb, but was nearly unchanged from Jan (which was bad). See the full report here.

GE also said in it's conf call it's looking for second-quarter profit to decline by 10% to 15%. Excluding the power division, profit may rise by 5% to 10%. (from Dow Jones Newswire). GE Power was the reason it lost $ this quarter as well. How many "one-time" exclusions are allowed before they're not once but often?

And while JNPR and FDRY has solid quarters, Cap-Ex from the Telecom industry on which they depend is still contracting.

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Networking Stks -3: Shrinking US Mkt Seen Hurting Juniper

Several brokerages, including SG Cowen and UBS Warburg, lowered their 2003 revenue estimates for Juniper, citing a shrinking U.S. market and the company's growing dependence on customers like Siemens AG (SI) and L.M. Ericsson Telephone Co. (ERICY). The companies each contributed about 10% to Juniper's sales in the quarter.

"Juniper is benefiting from the global reach provided by Siemens and Ericsson as well as the higher penetration rate of DSL and ethernet services in both Europe and Asia," analyst Nikos Theodosopoulos of UBS Warburg said.

He noted that Juniper's sales in the U.S. continue to decline because the regional bell companies are slow to spend, while the adoption of digital subscriber lines is pacing more slowly in the U.S. than in Europe.

Theodosopoulos cut his 2003 revenue estimate to $656 million from $672 million but raised his earnings target for the year to 10 cents a share from 9 cents a share.

Juniper derives the chunk of its revenue from service providers, and market watchers said the networker's solid first-quarter results may boost the near-term stock prices of companies like Ciena Corp. (CIEN), Nortel Networks Corp. (NT) and Lucent Technologies Inc. (LU), which derive most of their revenues from service providers, also.

Ciena recently moved up 5 cents, or 1.2%, to $4.41; Nortel added 3 cents, or 1.4%, to $2.20; and Lucent is unchanged at $1.52.

But Juniper's results aren't seen as a market mover for Cisco Systems Inc. (CSCO). Cisco, the world's leading switch and router maker, is viewed as a proxy for enterprise spending, with 80% of its revenue derived from large businesses. Service providers account for the remainder.

"The fact that revenue has become stable would be a positive indicator for 20% of Cisco's revenue," said Hasan Imam, analyst at Thomas Wiesel Partners. "When a Cisco comes out, you can draw broad sector-wide trends."

Cisco shares recently moved up 22 cents, or 1.7%, to $13.26. .

(MORE) Dow Jones Newswires

04-11-03 1241ET- - 12 41 PM EDT 04-11-03

Networking Stks Up-4: Foundry Seen At End Of Product Cycle

Foundry said its improved first-quarter revenue and earnings comes from "significant" strength in sales to the U.S. government, which is significant news for rival Extreme Networks Inc. (EXTR), which targets the same market.

Tal Liani, analyst at Merrill Lynch & Co., said Extreme is trading on the news of its own quarterly report on Monday. The networker posted a net loss of 7 cents a share on revenue of $85.2 million in its fiscal third quarter, sharply missing Wall Street's target loss of 2 cents a share on revenue of $87 million.

Liani noted that while Foundry, unlike Extreme, exceeded expectations, Foundry may be losing its advantage over its competitors.

Foundry has had an advantage over Cisco and Extreme following the launch of its next-generation system in the second quarter of 2002. But in the past month, Liani noted, both Cisco and Foundry have launched their own next-generation systems, which Foundry will have to contend with.

Liani rates Foundry and Cisco at neutral because he sees limited upside for those stocks in the near term. He rates Extreme at buy, noting that it trades at a 60% discount to Foundry.

"You want to ride the product cycle," Liani said. "We believe Extreme will gain some of the market share back."

Extreme shares recently moved up 2 cents, or 0.5% to $4.

-Cynthia Schreiber, Dow Jones Newswires; 201-938-2408 cynthia.schreiber@dowjones.com. .

(END) Dow Jones Newswires

04-11-03 1345ET- - 01 45 PM EDT 04-11-03

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