Stocks Down on Euro Zone Woes; Apple Misses in After Hours

Published on Tuesday, 24 July 2012 18:41 Written by Christopher Lynn

New York, July 24^th (TradersHuddle.com) – Stocks fell, with the Dow logging its third straight session triple-digit decline, amid ongoing worries of a deteriorating debt crisis in the euro zone. Weak manufacturing data in Germany and Moody’s downgrading Germany’s credit outlook, coupled with raising Spanish bond yields, weighed on sentiment and offset data that showed some improvement in Chinese manufacturing. In After hours, Apple delivered a big earnings miss, highlighting the impacts of a stronger Dollar and a weak European business.

The Dow Jones Industrial Average lost 104.22 points or 0.82%. The S&P 500 index slumped 12.22 points, or 0.90%, while the NASDAQ dropped 27.16 points, or 0.94%.

The market started near the flat line amid a slew of earnings reports and as ongoing euro zone woes were offset by data that showed improvement in Chinese manufacturing. The reading in Chinese HSBC flash Manufacturing PMI was better than expected, but still showed contraction, while in Europe, German manufacturing PMI was weaker than expected. Moody's cut its outlook on Germany, Netherlands, and Luxembourg, and Spanish yields continued at elevated levels, spurring fears that the country would eventually need a full blown bailout.

But selling pressure build quickly, as European fears weighed on the session. Spanish 5-year bond yields climbed for the first time above the yields of the 10-year bond yields, spooking investors and signaling the financial stress in the euro zone’s fourth largest economy. The selloff accelerated in midday trading after European Union officials said, according to reports that Greece will likely require further restructuring of its national debt.

Despite a late attempt to recover, losses were still sizeable, with all of the S&P 500 sectors ending in negative ground. Energy, materials, and industrials posted the biggest declines, while staples and financials were the best performances. The energy sector was weighed down by poor performances from coal stocks following a weak outlook from Peabody Energy (NYSE: BTU). The coal producer with worldwide operations posted quarterly results that beat earnings expectations by $0.20 per share on revenues that were shy of consensus, while issuing downside earnings guidance for the current quarter. Peabody plunged more than 11%, while rival Alpha Natural Resources (NYSE: ANR) tumbled 10%.

Meanwhile, Cliffs Natural Resources (NYSE: CLF) tumbled 3.7% to the bottom of the materials sector amid worries over the impacts a worsening crisis in Europe will have on global demand. Other economic sensitive sectors were also under pressure, with industrials seeing downside amid poor earnings results from United Parcel Services (NYSE: UPS). The package delivery Logistics Company lost 4.6% after its quarterly results missed consensus. UPS reported earnings that were $0.02 per share shy of expectations on revenues that were below consensus. The stock also fell after the company lowered fiscal 2012 EPS guidance below consensus and after Bank of America Merrill downgraded the stock to a Neutral rating.

In tech land, participants were expecting for Apple (NASDAQ: AAPL) to report its quarterly results after the closing bell. Jitters over its results and the broad market weakness weighed on the stock performance, taking it near the $600 per share mark.

AT&T (NYSE: T) lost more than 2% after the company reported EPS that beat expectations on revenue that was roughly inline with consensus. The owner of the second largest wireless carrier said that it activated 3.7 million iPhones in the second quarter, with 22% of those activations being new customers for the wireless carrier. Last week, the company announced that it would introduce shared wireless data plans, following its rival Verizon.

In after hours, Apple was tumbling 5.3% to $569.20, breaking below its 50day moving average at $580.23, after the tech giant delivered a big earnings miss, while offering a disappointing outlook. The iPhone maker reported a profit of $9.32 per share, $1.06 per share worse than consensus, on revenues that climbed 22.6% from a year ago to $35.02 billion, which was below consensus of $37.35 billion. Apple issued weak guidance for the quarter, saying it sees EPS at about $7.65 per share on revenues of $34 billion. The company recorded 26 million iPhones sold in the quarter versus expectations of 29 million; iPads sold were better than expected at 17 million; while it sold 4 million Macs versus 4.5 million that was widely expected. 

Apple guidance is always conservative, but the guidance seems particularly low this time, as the company expects lower margins in the current quarter from impacts from the fall product transition and negative impacts from a stronger Dollar. CEO Tim Cook said that iPhone sales in Europe were essentially flat year over year, representing an area of weakness for the company.

Other stocks that contributed to the weakness during the session were Lexmark (NYSE: LXK) and Cisco Systems (NASDAQ: CSCO). Lexmark plunged nearly 13%, logging the biggest decline in the technology sector and trading at 3-year lows. The company reported earnings that beat by $0.01 per share on revenues that were inline with consensus, while providing poor earnings guidance for the quarter. Lexmark has seen its stock drop more than 30% since it lowered second quarter guidance on July 12^th.

The world’s largest maker of networking equipment tumbled more than 6%, posting the biggest decline in the Dow Jones Industrial Average, on news that VMware (NYSE: VMW) announcement that it acquired network virtualization company Nicira, worrying Cisco’s investors, which saw the move as a competitive threat down the road. VMware lost 0.38% during the session after the company reported results that were largely inline with last week’s preannouncement.

Elsewhere in the consumer discretionary space, DeVry (NYSE: DV) was crushed, plunging more than 24% after the for-profit education company that offers online platforms and graduate programs issued weak guidance. The company said that its sees EPS for fiscal fourth quarter in a range of $0.43 to $0.46, which is well below consensus of $0.79. Revenues are expected to be in a range of $465 to $475 million versus consensus of $518.3 million. DeVry cited that the shortfall in revenue was partly due to increase in scholarships awarded to students in DeVry University's May and July classes.

Under Armour (NYSE: UA) spiked more than 9% after beating expectations on both top and bottom lines and issuing inline guidance, while Whirlpool (NYSE: WHR) tumbled more than 7% in the session after the company reported weak results, while reaffirming its full year earnings guidance.