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TSX heads for weak open on earnings disappointment from Apple, lower commodities

The fading name on the former building of the Toronto Stock Exchange is seen on August 18 2011. THE CANADIAN PRESS/Aaron Vincent Elkaim
October 26, 2012 - 8:26 AM

TORONTO - The Toronto stock market headed for a sharply lower open Friday after worse than expected results from Apple Inc. deepened the disappointment about overall third quarter earnings.

"Corporate earnings reports continue to be an issue," said BMO Capital Markets senior economist Robert Kavcic, "and let’s just say that forward guidance has been uninspiring at best, especially in cyclical sectors such as industrials and materials."

The Canadian dollar was down 0.3 of a cent to 100.31 cents as commodities declined and the American dollar advanced ahead of the first reading of U.S. third quarter economic growth. Economists looked for gross domestic product to have increased at an annualized rate of 1.8 per cent, a big improvment over the 1.3 per cent pace of the second quarter.

U.S. futures were sharply lower after Apple missed Wall Street earnings expectations for the second straight quarter, as iPad sales fell short of analyst forecasts. Net income in the fiscal fourth quarter was US$8.2 billion, or $8.67 per share. That was up 24 per cent from $6.6 billion, or $7.05 per share, a year ago.

Analysts were expecting earnings of $8.84 per share. Revenue was up 27 per cent from a year ago to $36 billion, against expectations of $35.8 billion.

The Dow Jones industrial futures dropped points to 12, the Nasdaq futures fell 10.5 points to 2,637.5 and the S&P 500 futures lost 10.1 points to 1,398.1.

Amazon also disappointed as the world’s largest online retailer posted a loss of $274 million, or 60 cents per share, in the July-September period, down from earnings of $63 million, or 14 cents per share, a year earlier.

The results include a loss of 37 cents per share related to Amazon’s minority stake in online deals service company LivingSocial. Without this charge, it still would have lost 23 cents per share, worse than what analysts were expecting. Revenue grew 27 per cent to $13.81 billion, from $10.88 billion, also falling short of analysts’ expectations.

North American markets headed for a losing week as a string of earnings disappointments from big multinationals over the past week, including McDonald's, General Electric and 3M, have reminded investors of the fragile state of the global economy.

Crude oil extended a string of losses after data earlier this week showed much higher than expected inventories. The December crude contract on the New York Mercantile Exchange fell 53 cents to US$85.52 a barrel. Crude has dropped more than seven per cent in the past week.

Metal prices also backed off with December copper down two dents to US$3.53 a pound. Copper, viewed as an economic barometer, has tumbled 20 cents in the past week.

December bullion lost $10.10 an ounce.

Elsewhere on the earnings front, Swedish wireless equipment maker LM Ericsson posted a 43 per cent plunge in third-quarter net profits as operators have grown more cautious about the economic outlook. The report showed a net profit of 2.18 billion kronor (US$325 million), down sharply from the 3.82 billion kronor recorded in the same quarter a year ago.

Sales dwindled to 54.55 billion kronor from 55.52 billion kronor.

It was a quiet morning for earnings news in Canada, a day after the TSX netted a 105-point gain amid strong reports from gold producers Goldcorp Inc. (TSX:G) and Agnico-Eagle Mines (TSX:AEM) and energy company Nexen Inc.

On Thursday after the close, financial services company Fairfax Financial Holdings Ltd. (TSX:FFH) reported that its third-quarter profits plummeted more than 96 per cent to $34.6 million or 90 cents a share as it faced losses on its equity hedges.

Traders will take in earnings during the day from power generator TransAlta Corp. (TSX:TA) and gold miner Eldorado Gold Corp. (TSX:ELD).

European bourses were also negative with London's FTSE 100 index down 0.73 per cent, Frankfurt's DAX lost 0.35 per cent and the Paris CAC 40 was off 0.12 per cent.

Earlier in Asia, stocks suffered from the fallout from the Apple and Amazon reports. Downbeat U.S. housing figures also weighed on sentiment.

Japan’s Nikkei 225 index slid 1.4 per cent, South Korea’s Kospi tumbled 1.7 per cent, and Hong Kong’s Hang Seng shed 1.2 per cent.

Mainland China’s Shanghai Composite Index sank 1.7 per cent and the Shenzhen Composite Index shed two per cent.

News from © The Canadian Press, 2012
The Canadian Press

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