More of Those Lesser Earnings

Yogi Berra might as well have been talking about quarterly earnings-warning season when he intoned, “It ain’t over till it’s over.”

Two blue-chip companies--DuPont Co. and J.C. Penney--on Thursday stunned investors with news that quarterly results will be below expectations.

The warnings added to the growing list of companies that, for one reason or another, don’t expect to meet near-term Wall Street estimates.

Some analysts say it’s late in the process for major firms to be figuring out that they’ll have a profit shortfall. Typically, companies try to warn investors in the weeks leading up to the quarter’s end.

There have already been plenty of early warnings: First Call, which tracks quarterly earnings data, says the number of “negative pre-announcements” will be the highest in the three years it has compiled that data.

Asia’s crisis has received much of the blame, but rising labor costs and a general lack of pricing power also are weighing on many firms.

On Thursday, chemical giant DuPont said its second-quarter earnings will be 10% to 15% below year-ago results because of weak market conditions that include turmoil in Asia and low oil prices.

The stock plunged $7 to $70.13 on the New York Stock Exchange.

DuPont attributed “about half” of the shortfall to what it called a sudden weakness in its crop-protection products unit. Weather and pricing pressure in North America, plus weak demand and currency conversions in Asia, caused a shift in the business in June, DuPont said.

Rainy weather had forced farmers to delay purchases of herbicides and other crop chemicals. Meanwhile, DuPont said its new computer-driven sales-management system accidentally recorded pre-bought June orders as May orders. That inflated May sales figures and projections for June, which were based on May figures.

But some analysts said DuPont’s problems in crop protection could indicate the beginning of a battle between herbicide and pesticide products and new crop seed products genetically altered to withstand problems.

“The question is, is it a one-of-a-kind thing brought about by weather conditions and Asia, or is this the real beginning of the ag-biotech starting to cannibalize the traditional herbicide market?” asked A.G. Edwards analyst Alex Hittle.

DuPont said the crop-protection business has stabilized since June.

The shortfall is the first big challenge faced by Charles Holliday, who became DuPont’s chief Feb. 1. Holliday wants to transform DuPont by building its so-called life sciences businesses, including crop protection chemicals, drugs and genetically engineered seeds. In May, Holliday announced plans to shed DuPont’s Conoco oil unit. He said Thursday the firm will proceed with a partial stock spinoff of Conoco.

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Meanwhile, retailer J.C. Penney said it expects that per-share earnings for the quarter ending Aug. 1 will be less than the 38 cents a share it earned a year ago. The stock slid $5.81 to $65.63 on the NYSE.

To stimulate sales, Penney said it cut prices on goods more than it planned. Extensive markdowns erode retailers’ profits because they can’t offset the cost of goods sold. June sales at Penney stores open at least a year fell 2.1%, more than the 1% drop analysts expected.

The retailer, which has been closing stores and paring its work force, has faced intense competition from department-store rivals such as Sears and discounters such as Wal-Mart Stores.

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Partial List of Casualties

As warnings about weaker earnings keep coming, the subject stocks keep dropping. Ten companies that have warned recently about second-quarter results, and how their stocks have fared:

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Warning Stock price Stock price Percent Company date Pre-warning Thursday change Rio Hotel/Casino June 15 $21.38 $17.63 --18% Weyerhaeuser June 17 45.88 44.00 --4 Iomega June 18 6.38 5.88 --8 Robert Mondavi June 22 34.38 25.25 --26 Armstrong World June 25 75.38 66.69 --12 Olsten June 26 11.75 10.44 --11 Parametric Tech. July 1 27.13 16.50 --39 First Brands July 2 25.94 22.88 --12 Parker Hannifin July 6 38.06 34.75 --9 Hershey Foods July 8 70.50 66.00 --6

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Source: First Call