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Warnings: A barometer?
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June 29, 2000: 6:26 p.m. ET
Fed says slower economy is best, but some companies feel the pain
By Staff Writer Franklin Paul
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NEW YORK (CNNfn) - From soap makers to metals distributors, prominent companies this week began to display their fiscal wounds -- bottom-line bruises blamed on high interest rates, bloated prices for oil and raw materials, and growing reluctance by consumers to spend.
Although the Federal Reserve on Wednesday chose not to raise interest rates for a seventh time since June 1999, the previous actions have had the desired cooling effect on the economy, experts said. At the same time some companies are hurting as the urge to splurge dissipates.
 With credit card rates soaring, forcing consumers to think twice about buying items, and firms re-evaluating the cost of contract purchases, the roster of companies affected has grown this week to include such well known names as Proctor & Gamble, Goodyear, Unisys and Del Monte.
Still, experts said that the pace of companies warning that quarterly earnings will fall short of either internal expectations or Wall Street's outlook - or both - is generally similar with the average for this time of the season, some three weeks before the lion's share of companies begin to report.
"It's par for the course in terms of warnings," said Joe Cooper, senior research analyst at First Call/Thomson Financial, which tracks earnings data. "There have been 301 pre-announcements so far, and 56 percent of those have been negative."
He explained that by mid-July, when companies typically being to state quarterly results, about 57 percent of the pre-announcements are negative.
"We are right about where we should be," he said. "Maybe we are a bit on the negative side, but it's nothing to worry about."
The flow of gloomy corporate news gained momentum this week, due in part to the household names that have popped up with warnings. Market watchers said the warnings were most strongly concentrated in the basic materials segment - such as steel, paper and chemical product makers -- and the consumer cyclical area -- in particular, retailers and companies that market home furnishings.
The common thread in the concerns of many of the companies was the high price of materials and slumping consumer spending, experts said.
"The underlying themes are interest rates and commodity pricing," First Call's Cooper said. "Home buying has slowed down, thus the consumer furnishings area has started to hurt, and in some cases consumers aren't buying any clothes anymore."
According to First Call, companies warning for the second quarter include three furniture companies, a plumbing supplies company, and a carpet company.
High-profile string make announcements
Procter & Gamble Co (PG: Research, Estimates), the Cincinnati-based maker of Tide detergent, Crest toothpaste and Oil of Olay cosmetics, on Tuesday led a string of announcements from consumer products companies, after it warned that its struggle with higher raw material costs would trim its fourth-quarter results 2-to-3 cents per share below analysts estimate of 67 cents.
Procter & Gamble, the largest maker of consumer products in the United States, is a big consumer of resources like pulp, used in paper products, and petroleum, an ingredient in detergents, shampoos and packaging.
What's more, unfavorable economic conditions and slower sales also hurt Scottsdale, Ariz.-based Dial Corp. (DL: Research, Estimates), which said its earnings per share in the first six months and the full year would come in about 40 percent below profits reported for the same periods the previous year.
Del Monte Foods Co. on Wednesday warned of a fiscal fourth-quarter sales and earnings shortfall, as retailers reduced product inventories and the company cut sales of lower margin foodservice products.
 Stubbornly high oil prices and other expensive materials have weighed on the purses of companies in industrial sectors, including auto-parts maker Dana Corp., Metals USA, and Goodyear Tire & Rubber Co., which all warned this week.
Phelps Dodge Corp., the world's second largest copper producer, warned on Tuesday that its earnings for the second quarter and full year will be far below Wall Street expectations, due to a range of adverse factors including high fuel costs and restructuring charges.
The slowdown also nipped technology companies, such as Xerox, which last week warned of a disappointing quarterly profit for the third time in just over nine months. The company cited problems from a restructuring of its sales force and new competition for its high-end and most profitable copiers.
SCM Microsystems Inc., a developer of products to access secure digital content and services, blamed volatile markets for some of its products for second-quarter earnings and revenue that it says will be lower than expected.
Also, Unisys Corp. (UIS: Research, Estimates), a computer services company, issued its second warning this year, saying that second-quarter profits will be about half of Wall Street forecasts.
"Purchasing decisions are taking longer than in the past as customers finalize their strategies before initiating complex e-business implementations," Unisys Chairman and Chief Executive Lawrence Weinbach said in a news release.
Stocks bruised by earnings concerns
The flow of negative earnings news tugged at Wall Street stocks, which had been expected to benefit from the Federal Reserve's decision on Wednesday to leave rates as they are. Prudential Securities market analyst Larry Wachtel said the market is beginning to worry about earnings, and noted that 21 companies released negative earnings news on Wednesday.
 On Thursday, the Dow Jones industrial average lost 129.75 to 10,398.04, and the S&P 500 slipped 12.43 to 1,442.39. The tech-heavy Nasdaq composite index shed 63.11 points, or more than 1 percent, to 3,877.23.
"It is profit warnings and it's taking down more of the market than it probably should," said Barry Hyman, chief market strategist at Ehrenkrantz King Nussbaum. "The profit warnings are very specific to stocks that have not been performing well anyway."
Analysts said investors would now mull over other economic data and remain alert for other warnings in the next two weeks.
"We celebrated the fact that (the Fed) was much less stern on their rhetoric yesterday (Wednesday), but today the party is over and a slower economy may have an adverse effect on earnings," said Art Hogan, chief market analyst at Jefferies & Co. 
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