Earnings Surge, But Stocks Sink
Strong earnings reports from some of America’s industrial giants failed Tuesday to halt a sharp drop in the stock market.
Instead, investors focused on signs that profits may have peaked and sold shares to pocket gains.
International Business Machines Corp. set the tone for the market. Big Blue sprinted through the second quarter, making money at a torrid pace.
The computer giant Tuesday reported a $1.7 billion profit in the three months that ended June 30, about 2-1/2 times its year-ago earnings, as sales rose a healthy 14 percent.
It was IBM’s best operating performance since the fourth quarter of 1990, when it earned $2.5 billion.
But company executives said it would be a hard act to follow and tried to diminish expectations for the rest of the year. That sent IBM stock, along with many other technology issues, tumbling.
Microsoft Corp., which checked in Monday with higher profits and sales, was among the companies whose stock price cooled Tuesday.
Microsoft stock hit $109 a share Monday, but fell Tuesday to $101.875, apparently because Microsoft officials cautioned analysts Monday that they may put the brake on soaring profits.
Microsoft posted its 20th consecutive year of growth in the sales and profit columns. For the fiscal year ended June 30, profit soared 26 percent to a record $1.45 billion from $1.15 billion last year. Sales increased 28 percent to $5.94 billion.
Chrysler Corp. announced an 86 percent drop in second-quarter earnings Tuesday, largely due to rebates it paid to clear out old minivans, extra costs to start making new ones and a sales plunge in Mexico.
But, unlike the technology issues, Chrysler’s stock held up fairly well - losing only 37-1/2 cents to close at $49.50.
Chrysler earned $135 million, or 35 cents a share, in the three months ending June 30, compared with $956 million, or $2.61 a share, in the same quarter of 1994.