Dow Falls, Nasdaq Gains

An earnings warning from Kodak pressured blue chips, while tech stocks edged higher

Blue chips ended lower, while tech stocks pushed the Nasdaq to a small gain Wednesday amid some downbeat earnings news. There's some anxiety in the market as stock prices have moved quite a bit higher over the last couple of months, and Wall Street must now deal with second-quarter earnings preannouncements, notes Standard & Poor's MarketScope.

The Dow Jones industrial average fell 29.3 points, or 0.31%, to 9,293.8. The broader Standard & Poor's 500 index edged down 1.57 points, or 0.16%, to 1,010.09.

The Nasdaq composite gained 8.71 points, or 0.52%, to 1,677.15, thanks to strength in Cisco Systems (CSCO ), Qualcomm (QCOM ), and Nextel (NXTL ).

No major economic reports were released Wednesday. Weekly jobless claims, leading indicators, and the Philadelphia Fed manufacturing index are due on Thursday.

Companies reporting earnings Thursday include Lehman Brothers (LEH ), Solectron (SLR ), Darden Restaurants (DRI ), and KB Home (KBH ).

Weighing down the Dow average Wednesday was Eastman Kodak (EK ), which tumbled nearly 10% after the company slashed its forecast for second-quarter earnings per share from continuing operations from 60 cents to 80 cents to between 25 cents and 35 cents (or 5 cents to 25 cents EPS on a GAAP basis). The photography products maker cited non-recurring items, including a 10 cents to 20 cents charge, and weak sales of consumer film and photographic paper in Asia due to the SARS outbreak.

Financial services stocks were also lower. Bear Stearns (BSC ) reported better-than-expected second-quarter EPS of $2.05 (including merchant banking gain), vs. $2.59 a year ago, on 9% lower revenues. Morgan Stanley (MWD ) posted second-quarter EPS of 55 cents, vs. 72 cents a year ago, despite a 1.5% rise in consolidated net revenues. The company noted that an aircraft impairment charge reduced EPS by 16 cents.

Clorox (CLX ) shares fell after it said it sees fourth-quarter EPS guidance of 67 cents to 68 cents, which is the low end of its previous guidance. The company attributed the weakness to the unseasonably wet spring weather, which has hurt demand for auto care products and charcoal.

In merger news, Oracle (ORCL ) raised its cash tender offer for PeopleSoft (PSFT ) to $19.50 per share, or roughly $6.3 billion, from $16 per share.

Electronic Data Systems (EDS ) shares rose after the company announced plans to improve cost competitiveness of its outsourcing business. It also said it will take $425 million to $475 million in pretax restructuring charges and asset write-downs. It maintains its 33 cents to 38 cents second-quarter operating EPS guidance, and sees 70 cents to 80 cents in EPS for the second half of the year.

Communications-chip stocks rallied after a Lehman Brothers analyst made positive comments on PMC Sierra (PMCS ), Vitesse Semiconductor (VTSS ), and Applied Micro Circuits (AMCC ).

On the earnings front, Best Buy (BBY ) reported first-quarter earnings per share from continuing operations of 21 cents, vs. 24 cents a year ago, despite a 2.2% same-store sales rise. The consumer electronics retailer sees EPS from continuing operations of 27 cents to 32 cents in the second quarter.

New York Times (NYT ) posted 1.8% higher May advertising revenue in newspaper group. The company sees 43 cents to 47 cents in second-quarter EPS (GAAP), and low-to-mid single-digit growth in 2003 EPS.

Tupperware (TUP ) shares fell after the plastic container maker said late Tuesday that it will stop selling its product in Target (TGT ) stores as of Sept. 1 because it takes sales away from its traditional venue of in-home "Tupperware parties". The move will lower Tupperware's second-quarter EPS to about 20 cents to 23 cents, vs. the consensus forecast of 30 cents. Raymond James downgraded Tupperware shares to underperform on the news.

Treasury Market

Treasuries prices ended lower Wednesday, as traders continued to take profits from the recent rally. Tuesday's CPI data eased fears of deflation, forcing some market players to re-think odds of a 50 basis-point rate cut by the Fed next week.

There are a number of potentially market-moving data Thursday, including the Philly Fed index, weekly jobless claims, and leading indicators, says economic research outfit MMS International. Treasuries could continue to struggle as the risk is for stronger-than-expected figures on the Philly Fed's index (4.5 median estimate) and on leading indicators (+0.5% median), while claims remain in the 430,000 area, MMS says.

World Markets

European stock markets finished with modest gains. London's FTSE 100 index was up 16.6 points, or 0.4%, to 4,207 as housing contractors report strong activity, adding to the perception that Britain's economy is rebounding.

In Paris, the CAC-40 index gained 13.18 points, or 0.4%, to 3,213.93. In Frankfurt, the DAX index was up 17.67 points, or 0.54%, to 3,304.15 as April factory orders were revised higher.

Asian markets finished mixed Wednesday. Japan's Nikkei 225 index gained 59.97 points, or 0.66%, to close at 9,092.97. Hong Kong's benchmark Hang Seng index lost 60.07 points, or 0.6%, to close at 9,970.30.

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