A return to lighter volume and a lack of firm economic news meant a somewhat directionless market Tuesday morning. That’s not to say there weren’t any good reasons for some issues or sectors to move, as a small spate of earnings warnings and a couple of merger announcements proved enough for investors to latch onto. Sectors on the upside included energy, transports, and biotechs, while retailers and financials fell on continued concern that a slowing economy might reduce profits.
(Prices as of 11 a.m. Central time.)
The long-awaited merger between food companies BestFoods and Unilever lifted shares of both companies. The sweetened deal, anticipated for weeks after Unilver’s previous bid was rejected, has the Dutch giant ponying up $73 per share in cash and debt, and turns Unilever into the world’s biggest food company. Shares of BestFoods rose 9.9% to 69 1/4, while Unilever edged 1.1% higher to 50 15/16.
News that coffee retailer Starbucks will be added to the prestigious Standard & Poor’s 500 Index gave a jolt to its shares. Starbucks will replace software maker Shared Medical Systems, which is being bought by German software maker Siemens. A move into such an index boosts the company’s shares, because mutual-fund managers whose offerings must track the index are compelled to purchase a stake in the company. Shares of Starbucks rose 7.1% to 38 3/16.
One of the most closely watched companies for investors who are worried about cash-strapped Internet plays got a boost from news it had found a new source of revenue. Online health-information provider drkoop.com, which has seen its shares flounder near its 52-week low of 1 in recent weeks, has suffered from a well-publicized cash-flow problem and said in April it would post larger-than-expected losses and had about five months of cash left. A deal to provide content and receive payments from webofcare.com, another online health-information provider, brought the stock back to life. Shares of DrKoop.com jumped off the charts, up 87.2% to 3 11/32.
Another rally was taking place Tuesday in the biotech sector, particularly among shares of companies involved in analyzing and mapping the components of human genes. Leading the way were shares of Genelabs Technologies, 29.5% higher at 4 15/16. Close behind were shares of Genome Therapeutics, up 26.6% to 24 3/8; Millennium Pharmaceuticals , gaining 14.7% to 122; PE226Celera, rising 11.8% to 108 +; and Affymetrix, .8% better at 180 7/8. The Amex Biotechnology index of 15 stocks rose 32.67 points, or 5.8%, to 594.84. Investor enthusiasm for companies involved in mapping the human gene has been high throughout the last year.
An earnings warning sent shares of Circuit City sharply downward. The electronics retailer said Tuesday that despite slightly higher sales, per-share profits would fall about $0.04 under the expected $0.27 for the quarter ended May 31. The company, which also controls auto retailer Circuit City Stores-CarMax, said same-store sales for May were flat as well. Shares of Circuit City tumbled 21.8% to 40 +.
Circuit City’s troubles bled into the rest of the retailing sector amid investor worries that a slowing economy resulting from higher interest rates might cut back on consumer spending, eating into profits for the industry. Among the companies seeing their shares drop were Circuit City rival Best Buy, down 6.6% to 67 +; Federated Department Stores, 4.1% lower at 37 7/16; discounter Target [ticket TGT], dropping 8.3% to 58 15/16; and giant Sears, falling 5.5% to 36 +.
A second-quarter earnings warning gave investors reasons to pummel shares of Electronics for Imaging. The company, which makes software and hardware that allow for high-quality color printing, said Monday it would report earnings between $0.38 and $0.40 per share instead of the expected $0.51. Shares of Electronics for Imaging were cut by almost one third, plunging 30.9% to 24.