Apple, American Express point to weak open

By Charley Blaine and Elizabeth Strott

Stocks were headed to a lower open on Tuesday after weaker-than-expected guidance from Apple's (AAPL, news, msgs) and poor results from American Express (AXP, news, msgs).

Apple was down 10% to $149.70 in after-hours trading; American Express was off 11.4% to $36.25.

In the regular session, the Dow Jones industrials were down 29 points to 11,467. The Standard & Poor's 500 Index was off 1 point to 1,260, and the Nasdaq Composite Index was down 3 points to 2,280.

A big factor keeping the market in check was a rebound in crude oil to $131.04, up 1.7% from Friday, because of worries about possible storm damage to oil and gas platforms in the Gulf of Mexico.

The earnings reports were more evidence of the toll that the slumping economy is exacting from corporate profits. Weak reports also came from flash memory maker SanDisk (SNDK, news, msgs) and Texas Instruments (TXN, news, msgs), the world's largest maker of chips for cellular phones.

SanDisk reported an unexpected decline in sales and warned worse was in store as it further slashed prices of its memory chips in the current quarter. Shares were down 13% to $15.60 in after-hours trading after rising 2.1% to $17.93 in regular trading.

TI said blamed a broad slowdown in customer orders and said wireless chip orders were specially weak. The stock, down 1% to $28.52 in regular trading, fell an additional 11.5% to $25.25 after hours.

The earnings reports are coming in one of the busiest weeks in the second-quarter earnings season. Tuesday will be equally hectic with reports due from Dow components Caterpillar (CAT, news, msgs) and DuPont (DD, news, msgs). In addition, Internet company Yahoo, which agreed today to put activist shareholder Carl Icahn on its board, reports after the bell.

Results from two financial companies -- Wachovia (WB, news, msgs) (before the open) and Washington Mutual (WM, news, msgs) (after the close) -- will be closely scrutinized.

The guidance crushes Apple

Apple, which normally offers only conservative earnings guidance, projected even more conservative profits than Wall Street expected.

The company sees fiscal fourth-quarter earnings of $1 a share; Wall Street has been projecting earnings of $1.14 to $1.25. Revenue was projected at $7.8 billion; the consensus estimate has been $8.3 billion.

The fiscal third quarter was actually quite strong.

Apple earned $1.1 billion in the quarter, or $1.19 a share, in its fiscal third quarter, up 31% from a year ago and ahead of the consensus estimate of $1.08 billion.

Revenue was $7.46 billion, up 38% from a year ago and ahead of estimates of $7.37 billion.

• Top Stocks blog: Apple's guidance can drive an investor crazy

Apple shipped 2.5 million Macintosh computers in the quarter, up 41% from a year ago, and 11 million iPod music players, up 11% from a year ago. But revenue for the iPods was up just 7% from a year ago. In addition, Apple's overall gross profit margin slipped from 36.8% a year ago to $34.8%.

Apple said it sold a million 3G iPhones in the three days after its July 11 release and expects to be selling the device in 20 countries by August. But sales of the new model won't provide a big immediate boost to the company's revenue, since Apple recognizes revenue from its handsets over a 24-month period.

There have also been problems. Many Apple stores have sold out of the device, and the company's new paid email service, Mobile Me, has had glitches that prevent users from accessing certain information. A note on Apple's Web site Monday said "service will be restored ASAP," The Wall Street Journal noted.

CFO Peter Oppenheimer said CEO Steve Jobs has no plans to leave the company. Jobs' health became a concern with his gaunt appearance at the MacWorld conference in June. Apple had closed up slightly at $166.29 in regular Nasdaq trading.

AmEx says the economy is a problem

American Express, meanwhile, said it earned $653 million, or 56 cents a share, down 38% from a year ago. Wall Street had expected earnings of 83 cents a share. Revenue was up 8% to $7.48 billion.

The company said the economic environment has "weakened significantly" with even its very best "superprime" customers having problems.

In addition, American Express said it is "no longer tracking " to a prior forecast of 4%-to-6% to earnings per share growth. "We do not expect to meet or exceed our long-term financial targets until we see improvements in the economy," CEO Kenneth Chenault said in a statement.

American Express customers tend to be wealthier than the average credit card user. If its customers are slowing down spending and are increasingly delinquent in paying, the news could be worse for less prosperous customers of other lenders.

The weak results also may be a sign that American Express relaxed its standards in pursuit of growth, one investor said.

"It has expanded in recent years beyond higher-end clientele," Richard Moroney, chief investment officer at Horizon Investment Services, told Reuters. "Like many financial companies that did this at the end of the credit cycle, it got burned."

Before the earnings report was issues, shares of the Dow component had fallen 3.1% to $40.90 in regular trading.

Vytorin problems hit Merck and Schering-Plough

Shares of drug giants Merck (MRK, news, msgs) and Schering-Plough (SGP, news, msgs) moved lower after a new study said that their anti-cholesterol drug Vytorin failed to meet the main goal of improving cardiovascular outcomes in a closely watched heart study.

Dow component Merck fell 6.2% to $35.33 in regular trading and an additional 6.6% to $33.01 in after-hours trading. Schering-Plough fell 11.6% to $18.95 in regular trading and an additional 3.2% to $18.35 after-hours.

Merck shares were also hit in after-hours trading after the company cut its sales forecast on two key medicines and said its long-term financial forecast was in doubt because of the Vytorin problems. Vytorin is a combination of Merck's Zocor, now available as a generic, and Schering-Plough's Zetia.

Merck projected 2008 sales of Gardasil, which prevents cervical cancer, at $1.4 billion to $1.6 billion; it had forecast $1.9 billion to $2.1 billion. Merck failed to win U.S. approval earlier this year to market the vaccine to an older group of women.

The company now expects the asthma drug Singulair revenue of $4.4 billion to $4.6 billion, down from $4.6 billion to $4.8 billion. Sales are falling because of recent warnings it can increase the risk of suicidal thoughts.

For the second quarter, Merck earned $1.77 billion, or 82 cents a share, up from $1.68 billion, or 77 cents a share, a year ago. Revenue fell 1% to $6.1 billion.

Schering-Plough earned $398 million, or 24 cents a share, in the second quarter, down from, $517 million, or 34 cents a share, a year ago. But once one-time items are excluded, the drug maker earned 45 cents a share. Analysts had forecast 42 cents.

Sales were up 55% to $4.92 billion, helped by new products acquired in the November Organon deal. Analysts had expected $4.77 billion.

Storm warnings boost crude

Crude oil closed up 1.7% to $131.04 in New York -- the first gain after four consecutive losses. The gain was caused by concerns that Tropical Storm Dolly would become a hurricane and possibly threaten oil and gas production facilities in the western Gulf of Mexico.

Traders also said the lack of a breakthrough in talks between Western nations and Iran over its nuclear program helped prices.

Energy stocks moved higher with crude. Oil and gas producer Apache (APA, news, msgs) was up 4.3% to $115.76. Oil services company Schlumberger (SLB, news, msgs) jumped 5.5% to $106.08. ExxonMobil (XOM, news, msgs) added 1.8% to $82.98. And coal producer Massey Energy (MEE, news, msgs) closed 11.6% higher to $74.81.

Energy prices -- New York close

	Mon.	Fri.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$131.04	$128.88	$2.16	-6.40%	36.53%
Heating oil (per gallon)	$3.7479	$3.6915	$0.0564	-3.97%	41.46%
Natural gas (per million BTU)	$10.5100	$10.5700	-$0.0600	-21.29%	40.45%
Unleaded gasoline (per gallon)	$3.2171	$3.1709	$0.0462	-8.12%	29.16%

B of A profit better than expected

Bank of America (BAC, news, msgs) cheered Wall Street with better-than-expected earningts.

The shares, up as much as 12.4% right after the open, finished up 3.9% to $28.56.

The banking company earned $3.41 billion, or 72 cents a share, down from $5.76 billion, or $1.28 a share, last year. Results, however, were well above analysts' estimates of 48 cents per share.

Revenue rose 14.6% to $20.32 billion in the quarter, and Bank of America also said it added $2.2 billion to loan reserves.

Bank of America recently acquired mortgage lender Countrywide Financial, which lost $2.33 billion in the quarter, including just under $4 billion in credit-related losses. Countrywide's results weren't part of Bank of America's earnings.

Countrywide still holds billions of dollars of home loans and related securities, making investors concerned that the value of these may have to be written down further, pressuring Bank of America into raising capital or cutting its dividend.

Bank of America's surprise follows better-than-expected results from Wells Fargo (WFC, news, msgs), JPMorgan Chase (JPM, news, msgs) and Citigroup (C, news, msgs) last week.

Economy expected to slow further

A report out this morning points to a weaker economy later this year.

The Conference Board's index of leading indicators dipped 0.1% in June, in line with economists' expectations. The index was revised down to 0.2% in May from a previous reading of a gain of 0.1%.

"The domestic economy is showing no sign of strength," said Ken Goldstein, labor economist at the Conference Board. "The deep financial crisis, a prolonged, intense slump in housing, high gasoline and food prices, weak consumer confidence and a weak dollar are all combining to produce unrelenting downward pressure on economic activity."

Icahn gets Yahoo board seats; stock sags

Billionaire investor Carl Icahn reached an agreement with Yahoo (YHOO, news, msgs).

Yahoo agreed to put the activist investor and two other membrs of his late on the company's board. It will increase the board size to 11 from nine.

The company this morning said it is nominating Icahn and two members of his slate of directors to its board, increasing the number of board members to 11 from 9. Under terms of the agreement, eight members of the Internet company's current board will be up for re-election at the annual meeting Aug. 1.

In exchange, Icahn will withdraw his board nominees and vote in support of Yahoo's board.

Many investors were not happy with the development because it now looks as though Yahoo's embattled management has dodged another bullet. It also looks as though Icahn, who owns 5% of Yahoo, accepted the board seats because he couldn't win a proxy contest to oust the existing Yahoo board.

On Friday, Legg Mason (LM, news, msgs) manager Bill Miller said he would vote shares he manages with Yahoo's board in hopes of getting some sort of deal done later.

Yahoo shares fell 3.4% to $21.67 and were off an additional 1.8% in after-hours trading to $21.28.

Roche bids for rest of Genentech

Swiss pharmaceutical company Roche wants the rest of Genentech (DNA, news, msgs).

The drug company this morning offered $43.7 billion, or $89 per share in cash, for the 44% stake in Genentech that it does not already own. The offer represents a 9% premium to Genentech's closing price on Friday.

Genentech shares jumped more than 14.7% to $93.88, suggesting that many investors believe Roche will have to sweeten the offer.

Roche's move isn't surprising, as there have been many acquisitions within the drug and biotech industries in recent weeks. Last week, Teva Pharmaceuticals (TEVA, news, msgs) offered $7.5 billion for Barr Pharmaceuticals (BRL, news, msgs), and Sanofi-Aventis (SNY, news, msgs) offered $2 billion for the rest of Zentiva in the beginning of July.

The size of the offer is definitely an issue. "We would expect Roche will have to make a significantly higher offer if it is to acquire Genentech," Cazenove analysts James Millett and David Adlington wrote in a research note today.

Short hits from the markets -- 4 p.m.

	Mon.	Fri.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	1.380%	1.420%	-0.040	-19.06%	-56.05%
5-year Treasury note yield	3.401%	3.397%	0.004	1.80%	-1.56%
10-year Treasury note yield	4.067%	4.081%	-0.014	2.21%	0.79%
30-year Treasury bond yield	4.648%	4.662%	-0.014	2.58%	4.24%
Currencies
U.S. Dollar Index	72.220	72.425	-0.205	-0.80%	-5.83%
British pound in dollars	$2.0044	$1.9964	0.0080	0.56%	0.76%
Dollar in British pounds	£0.4989	£0.5009	-0.0020	-0.56%	-0.76%
Euro in dollars	$1.5934	$1.5845	0.0088	1.16%	9.02%
Dollar in euros	€ 0.6276	€ 0.6311	-0.0035	-1.15%	-8.27%
Dollar in yen	106.40	106.92	-0.52	0.20%	-4.87%
Canadian dollar in U.S. dollars	$1.001	$0.994	$0.0068	2.14%	0.80%
U.S. dollar in Canadian dollars	$1.000	$1.006	-$0.0062	-2.09%	-0.80%
Commodities
Gold	$963.70	$958.00	$5.70	3.81%	15.00%
Copper	$3.6810	$3.6690	$0.01	-5.19%	21.05%
Silver	$18.4250	$18.2000	$0.23	5.23%	23.49%
Corn	$5.8925	$6.0950	-$0.20	-18.70%	29.36%
Crude oil (NYMEX) (per barrel)	$131.04	$128.88	$2.16	-6.40%	36.53%