By Elizabeth Stanton
Jan. 23 (Bloomberg) -- U.S. stocks slid, extending a global slump that sent Europe’s benchmark index to a five-year low, as disappointing earnings at companies from Xerox Corp. to Advanced Micro Devices Inc. spurred concern the profit slump is worsening.
Xerox fell 18 percent and AMD lost 7.9 percent on results that trailed analysts’ estimates as the recession sapped demand for computer chips and copiers. Capital One Financial Corp. tumbled 13 percent after the credit-card company posted a $1.42 billion fourth-quarter loss. Samsung Electronics Co. slid 4.1 percent in South Korea following its first quarterly loss, while Infineon Technologies AG, Europe’s second-biggest chipmaker, sank 4.2 percent as its Qimonda unit filed for insolvency.
“As companies come in, I would say 90 percent of the earnings estimates are coming down, so people are having a tough time, struggling as to what the real multiples of stocks are,” Scot Black, who oversees $1.4 billion as president of Delphi Management Inc. in Boston, said on Bloomberg Television.
The Standard & Poor’s 500 Index dropped 1.4 percent to 815.89 at 10:03 a.m. in New York. The Dow Jones Industrial Average lost 142.25, or 1.8 percent, to 7,980.55. The Russell 2000 Index slid 1.9 percent. Europe’s Dow Jones Stoxx 600 Index lost 1.5 percent, while the MSCI Asia Pacific Index tumbled 2.7 percent.
U.S. stocks fell on three of the four trading days this week, taking this week’s drop in the S&P 500 to 3.8 percent, after economic data and corporate profit reports signaled the recession is deepening. The benchmark has lost 9.7 percent this year. European shares have dropped on 12 of the last 13 days.
Earnings Slump
Profits have decreased 60 percent for the 69 companies in the S&P 500 that have released fourth-quarter results so far. Analysts now estimate a 28 percent drop in profits for the entire index, which would mark the fifth straight quarter earnings slumped. In March 2008, analysts projected that income would rise as much as 55 percent, according to Bloomberg data.
U.S. companies are reducing dividends at the fastest rate in half a century, according to S&P data, squeezing investors who depend on the payouts more than ever to boost returns. Companies in the S&P 500 cut $40.6 billion in payouts last year after a five-quarter profit slump lowered cash reserves.
AMD, Xerox
AMD, the world’s second-largest maker of personal-computer processors, slumped as much as 16 cents to $1.86 after reporting its ninth consecutive loss because of plummeting PC demand. The fourth-quarter net loss was $1.42 billion, compared with a loss of $1.77 billion a year earlier. Sales, excluding some items, fell to $1.16 billion, a bigger drop than the company predicted last month.
Xerox slid $1.37 to $6.22. The world’s largest maker of high-speed color printers said fourth-quarter profit dropped on job-cut costs and slowing demand for its machines. Sales fell 10 percent to $4.37 billion, missing the $4.72 billion average estimate of analysts surveyed by Bloomberg.
Stocks will retreat around the world because of shrinking demand from China as growth in the third-biggest economy slows, said Nouriel Roubini, the New York University professor who predicted last year’s financial crisis.
Global equities will fall 20 percent from current levels as China, which contributed 19.5 percent to total growth in 2007, contends with its slowest expansion in seven years, he said. Wall Street strategists predict the S&P 500 will rise 29 percent this year from the closing level yesterday.
Capital One sank 13 percent to $19.12. The Mclean, Virginia-based credit-card company had a $1.42 billion loss in the fourth quarter on impaired-goodwill charges from its auto lender and a $1 billion boost to reserves for soured loans.
Harley, Pfizer
Harley-Davidson Inc. tumbled 16 percent to $10.47. The largest U.S. motorcycle maker said it will cut about 1,100 jobs after fourth-quarter profit slumped on reduced demand for its premium cruiser models.
Pfizer Inc., the world’s biggest drugmaker, declined 2.8 percent to $16.73 after people familiar with the discussions said the company is in talks to buy Wyeth. Wyeth jumped 8.8 percent to $42.26.
A combination would create a drugmaker with annual sales of more than $70 billion and best-selling medicines including the cholesterol pill Lipitor and the Prevnar vaccine against pneumonia. The purchase price would be as much as $60 billion, the Wall Street Journal said, citing a person familiar with the talks.
“The buyer will be penalized because these acquisitions bring around integration costs, debt assumption and in many cases equity dilution,” said Carlos Sanchez, a trader at Interdin Holdings SA in Madrid.
U.K. Contraction
London’s FTSE 100 Index slipped 0.9 percent after the U.K. economy shrank more than economists forecast during the fourth quarter in the biggest contraction since 1980 as the financial crisis crippled the banking industry and mired Britain deeper in the recession. Gross domestic product fell 1.5 percent from the previous quarter, compared with economists’ projection of a 1.2 percent drop, according to a Bloomberg News survey.
Google Inc. climbed 2.8 percent to $315.04. The owner of the most popular Internet search engine beat fourth-quarter profit estimates yesterday after the company famous for boundless growth took a harder line on managing expenses. Google slashed capital spending by 46 percent last quarter and added just 100 employees, compared with about 500 in the third quarter.
-- With reporting by Fabienne Lissak in Paris. Editors: Michael Regan, Chris Nagi
To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net
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