Dow Tumbles 152.23 to 10,424.42; Nasdaq Plummets 40.81 to 1,988.56; Investors Disappointed With Weak Earnings in Second Quarter
LOU DOBBS, CNN ANCHOR: Tonight, on Wall Street, stock prices plummet: The Nasdaq is now below 2,000. Quarterly results late today: AT&T; struggling with a stock that's collapsed. And Amazon.com facing investors clamoring for profits. And Ron Muhlenkamp will tell us how his fund is outshining the rest of the market. Jessica Bibliowicz: her bet on when the economy will recover. And Conoco's chief executive officer on his company's performance and the outlook for oil and gasoline prices.</s>ANNOUNCER: From the heart of New York City, this is LOU DOBBS MONEYLINE. Here now, Lou Dobbs.</s>DOBBS: Good evening. It was yet another hectic day of profit reports and a losing session on Wall Street: It was the first time in weeks that stocks tumbled in back-to-back sessions. Our coverage tonight begins with Steve Young -- Steve.</s>STEVE YOUNG, CNN CORRESPONDENT: Lou, AT&T; managed to beat drastically lowered expectations slightly, but delivered lots of reasons for concern about the current quarter.</s>JENNIFER WESTHOVEN, CNN CORRESPONDENT: Stocks sunk but volume was really light. Could the market snap back? We'll have details of the trading day coming up.</s>TIM O'BRIEN, CNN CORRESPONDENT: Labor, the environment and what Democrats call unfair competition add up to trouble on trade for George Bush. I'll have that story.</s>KITTY PILGRIM, CNN CORRESPONDENT: Indonesia may have averted a political crisis, but will investors give it another chance? -- Lou.</s>DOBBS: All of that and after-the-bell results from the Internet pioneer that's never made a dime: Amazon.com. We begin tonight with a late-day profit report from AT&T.; The struggling telecom reported that it lost 5 cents a share last quarter. That compares with a profit of 53 cents only a year ago. Profit from continuing operations coming in at 4 cents a share. That edged just past lowered expectations. AT&T; also warning that the weak economy will put further downward pressure on profit. The stock is down fractionally now in late trading. The news comes at an extremely sensitive and difficult moment for AT&T; and its embattled CEO, Michael Armstrong. The board has put off the break-up plan, hoping to sell the company's cable assets to unwind the controversial acquisitions made during Armstrong's four-year tenure. Steve Young has the report.</s>YOUNG (voice-over): AT&T;'s earnings meltdown gained momentum in its June quarter. The company beat lowered expectations slightly, but said that counting a charge, earnings in the current quarter will be less than analysts were looking for. On the basis of continuing operations, which strips out AT&T; wireless, now a separate company, earnings were 4 cents a share. That's down 92 percent from a year ago. And AT&T; says including a number of charges it amounts to a 4-cent-a-share loss.</s>CHARLES NOSKI, CFO, AT&T;: What you're seeing are all of the investment costs associated with the acquisition of Media One and the other growth investments that we've made. We think that we're going to see continued improvement in the quarters ahead.</s>YOUNG: In what almost sounded like an echo of dot-com valuations, one analyst said AT&T; earnings don't matter.</s>TIM HORAN, CIBC WORLD MARKETS: We don't think earnings are so important at this point for AT&T.; The company is breaking itself up. It's transitioning. We think a lot of the assets have a lot of value even though they're not contributing to earnings right now.</s>YOUNG: Sales were off 2 percent to about $13 1/3 billion. But some analysts were more focused on whether broadband growth would climb to the mid-teens from a year ago -- it did -- whether consumer long distance growth would improve -- it didn't -- and whether business long distance growth would stabilize, another disappointment.</s>FLOYD GREENWOOD, PRUDENTIAL SECURITIES: We saw pretty much what we were expecting from AT&T; this time around. We saw expected weakness -- weakness in mature products like basic voice services. The company spoke about e-mail substitution, wireless substitution.</s>YOUNG: On the conference call, AT&T; CEO Michael Armstrong said Comcast's bid for AT&T; broadband was rejected because it was just too low, and he's reviewing a range of strategic options for the unit, including the already planned spin-off. The company will hold a conference call tomorrow to discuss broadband. CEO Armstrong says it will be, quote, "a deep dive" -- Lou.</s>DOBBS: Now, what does he mean, "a deep dive" on this call?</s>YOUNG: He means he's going to get into the nitty-gritty details. One supposes the analysts wanted to know how the company could explain sinking profit margins and what they're going to do about them in the future.</s>DOBBS: Is part of this now, because of the Comcast bid, is it possible that we're going to see this four-way split just simply held up in its entirety, not just AT&T; broadband?</s>YOUNG: I think analysts think anything is possible. They think Comcast may come back with a richer bid or maybe the spin-off will continue.</s>DOBBS: All right, Steve, thanks. Steve Young. Also out after the bell, results from Amazon.com. The e-commerce company lost less than expected last quarter, but sales for the quarter came in below some expectations as did the guidance for revenue going forward. Amazon's stock is down 85 percent from its all-time high. It's under pressure in late after-hours trading. Bruce Francis has been analyzing the report and joins us now. Bruce, tell us all about it.</s>BRUCE FRANCIS, CNN CORRESPONDENT: Lou, they did beat the bottom line by a wide margin, but I'm afraid that's where the good news stops for Amazon. Let's take a look at Amazon's earnings scorecard, or they don't actually have earnings, so we can't call them an earnings scorecard. They've lost on a pro forma basis 16 cents a share. That versus an estimate of 22 cents a share. Revenue light, at up 16 percent to $668 million. On a gap basis, though, they lost 47 cents a share. The highlight: The U.S. operations were profitable at Amazon. Earlier, Amazon CEO Jeff Bezos described an arrangement, a new deal with AOL, the parent of CNN. Amazon is going to get $100 million, a cash investment from AOL, and he described what exactly the company is going to do with that.</s>JEFF BEZOS, CEO, AMAZON.COM: Now, we are going to be taking certain parts of our platform -- for example, our e-commerce search technology -- and integrating that into AOL's shopping area.</s>FRANCIS: But the bad news starts when you get into the outlook. Let's take a look at some of the key points. When it comes to the third quarter, Amazon says that revenues will be down 7 to 14 percent from what analysts are currently expecting. And they will -- and for Q4, they'll be up year over year, but below the estimate. Also, the -- you'll see that this is something that we have seen very strongly in after-hours trading, a big reaction to that. Earlier we spoke to Jeff Fieler of Bear Stearns, who said for a company that's supposed to be a growth company Amazon really isn't growing all that much.</s>JEFF FIELER, BEAR STEARNS: Until the company can prove to investors that it's going to be able to grow its business, its accomplishments in terms of operational efficiencies will only help to keep the stock from going down, but it won't power it higher.</s>FRANCIS: Amazon.com has, before this report anyway, had practically doubled from its April 4th low. But in after-hours trading, Lou, it is down sharply. We're down more than 2 bucks, and it's now down for the year. It had a distinction of being one of the big Nasdaq big caps that was actually up for the year. That's no longer true, and they're guiding down on revenues.</s>DOBBS: Somewhat lesser cap right now.</s>FRANCIS: Much so, yes.</s>DOBBS: Well, this puts Bezos in an interesting position, doesn't it? Because now he's been managing toward break-even or profitability. Now The Street is saying, and neither are you growing, so he has two issues that he has to contend with simultaneously.</s>FRANCIS: Yes. What's the Amazon story now? They're looked at as a growth company, but they aren't growing the top line very aggressively. Their sole profitable operation -- books, music and video -- barely growing at all, just 1 percent in this quarter.</s>DOBBS: And the third issue, their cash position in this quarter: They took a very heavy hit.</s>FRANCIS: That's why they had to do the deal with AOL. They have other reasons for doing it, but that certainly helped them.</s>DOBBS: Even with that 100 million, over half a billion is a significant erosion in anybody's book.</s>FRANCIS: Pressure is on.</s>DOBBS: 47 cents loss...</s>FRANCIS: On a gap basis.</s>DOBBS: ... on a gap basis. And that's what we pay attention to irrespective of pro forma, right?</s>FRANCIS: Look at all the numbers.</s>DOBBS: There you go. Bruce, thank you. Well, during regular trading today stocks slumped across the board, the second-straight session in which that has occurred. The Nasdaq down for the third time in the past four sessions, ending below 2,000 for the first time in two weeks. Investors are facing a grim reality as corporate profit reports continue to pour in. Not only was the second quarter horrendous for earnings, but this quarter isn't looking appreciably better. Jennifer Westhoven has the day's activities for us from Wall Street.</s>WESTHOVEN (voice-over): More companies are reporting poorer earnings and giving negative comments about future profits. The Dow turned lower, closing near its worst levels, down 152 at 10,424. 3M beat lowered targets, but it highlighted weakness in economies around the globe and the pressure of the strong dollar. American Express rose, but barely, after a heavy writedown for bad junk-bond investments cut into profits. And printer company Lexmark, a top loser after a profit warning.</s>BYRAN PISKOROWSKI, PRUDENTIAL SECURITIES: We came into the second-quarter earnings season with the hope that we'd be able to see at the end of the tunnel, that we'd see confirmation that the bottoming process is taking hold. Ultimately, right now, what the market is enduring is more earnings warnings about the third quarter.</s>WESTHOVEN: Stock analysts said trading was trendless, but still frustrating, with many industries lower: utilities, semiconductors and software. On the upside, networking stocks gained after UBS Warburg said: "Things are calm at Cisco" in contrast to the sense of panic at many tech companies as they scramble to book orders. Losses in tech stocks sent the Nasdaq back below 2,000, closing down 40 to 1,988. Some strategists dismiss fears the market is near dangerous levels.</s>RICHARD MCCABE, MERRILL LYNCH: The market, after going down from mid-May to basically early July, has been kind of in a see-saw, rally, retest, stabilization process. And I think that's going to be the bottom that would probably be the foundation for a rally phase starting either late in July or in August, and extend out to the very late summer or maybe early fall timeframe.</s>WESTHOVEN: With a trendless day and light action, traders are throwing around a lot of theories. One is the market could be pricing in fear about the second-quarter GDP number, due Friday. There's also worry about a market psychology poll that showed too many bulls, a bad sign. But Lou, arching all of this is a Q&A; session tomorrow from Fed Chairman Alan Greenspan, which traders say kept a lid on the action today.</s>DOBBS: Well, Jennifer, that's kind of curious, because the Fed chairman gave us a pretty exact preview last week.</s>WESTHOVEN: And he's expected to repeat that preview again, but what the traders are honing in on is, is he going to talk about when a bottom might come? That is one thing that could give hope to the market. And they're also, traders are saying that right now with the volume very light today, the market could be in the kind of mood where it could move up pretty quickly -- Lou.</s>DOBBS: It would be nice to think that someone knew exactly where the bottom was in all of this. Jennifer, thanks a lot. Jennifer Westhoven from New York exchange. Topping tonight's "MONEYLINE Movers," Colgate-Palmolive down more than a dollar a share. The consumer products maker meeting lowered estimates, but its sales barely budged. Revenue edging up 1 percent in the quarter, hurt by the strong dollar. French media conglomerate Vivendi Universal gaining more than $2 1/2 a share, following stronger-than-expected earnings. Strength in its telecom and Hollywood operations, specifically Universal's movie "The Mummy Returns," driving those gains. HCA climbing a $1.30 a share after reporting better-than-expected second-quarter results. Earnings at the nation's biggest hospital chain boosted by an increased number of patients and higher fees. Shares of HCA up 50 percent from their 52-week low. The Nasdaq today once again falling below 2,000, down more than 60 percent from its record high. My guest tonight is still wary of technology stocks, and his fund is up about 14 percent this year while the S&P; 500 is down nearly 10 percent: not a bad record for Ron Muhlenkamp, manager of the Muhlenkamp Fund. Good to have you with us.</s>RON MUHLENKAMP, MUHLENKAMP FUND: Good to be here.</s>DOBBS: Ron, this market is, at the very least, becoming intriguing. What's going on?</s>MUHLENKAMP: Well, as you know, we've had a split market since the fall of '98. In '99 and early 2000, the fad stocks ran up and everything else did nothing. In '99, as you know, there were more stocks on the New York Stock Exchange down than up. We said in late '99, as long as the Fed was raising interest rates and the hype stocks were running, no one looked outside of that.</s>DOBBS: You know, you raise an interesting point. Most people didn't pay attention to what some termed a stealth bear market in '99 and 2000.</s>MUHLENKAMP: Well, we did. The rest of the market, once you look outside the hype stocks, looked just a whole lot like a normal slowdown or recession. It looks a whole lot like the pattern of '90- '91 or '94-'95. And that's what's been going on. Interest rates, long-term interest rates, rolled over in January of last year. The hype stocks rolled over in March. And frankly, since then, this is -- if you step outside...</s>DOBBS: You're speaking rather quickly.</s>MUHLENKAMP: I'm sorry.</s>DOBBS: Let me slow down. What kind of stocks? It began with an "H," I believe.</s>MUHLENKAMP: The hype stocks. People call them tech stocks...</s>DOBBS: Right.</s>MUHLENKAMP: But the public got enthused about a group of stocks that looks for all the world like a fad. And everyone is comparing to prices of a year ago, which have no relationship to anything. If you look at where they were versus three years ago, they're kind of back -- getting close to back to normal.</s>DOBBS: We still have some huge, huge multiples.</s>MUHLENKAMP: Agreed. So the best thing you can do is ignore those. Meanwhile, the rest of the marketplace is doing what it normally does when the Fed slows the economy down and then speeds it up again. A year ago, the place to start was financials and then you rotate into consumer cyclicals, including housing, including maybe auto parts this time instead of autos. Beyond that, frankly, it's pick and choose.</s>DOBBS: And what are you picking and choosing now?</s>MUHLENKAMP: We still think you've got to be in housing stocks. Incidentally, there the news is all good. We still think you can do well in some of the auto parts, a Superior or</s>DOBBS: Let's take a look, Ron, quickly at the picture the last time you were with us, if we can have that up. Thank you. Calpine is off 34 percent, Citigroup off 7 percent, Morgan Stanley off 24 percent. Coastal, which was also one of your recommendations, acquired by El Paso. At this juncture, what would you say? Do you want to keep those? Do you want to...</s>MUHLENKAMP: I want to keep those, and I'm moving down the list of from class a to class b to class c in those groups. We still think that energy, particularly natural gas, is a good place to be.</s>DOBBS: Do you want to add anything to that list?</s>MUHLENKAMP: Certainly. I'll add a Superior. I'll add an MBR, which is in home building. Superior Industry, which is in auto parts, things of that sort. Yeah.</s>DOBBS: And the market from here until the end of the year?</s>MUHLENKAMP: It's going to remain a split market. What we haven't begun to see yet in the hype stocks is tax-loss selling. That's about a month or two away. But the rest of it, it's going to be earnings. The consumer's in good shape. Remember, all of the stuff that we see is problematic for companies is good for the consumers. And consumer is going to be in good shape here.</s>DOBBS: Well, we like that.</s>MUHLENKAMP: Exactly.</s>DOBBS: All right, Ron Muhlenkamp, thanks for being with us.</s>MUHLENKAMP: Good to be here.</s>DOBBS: Well, after the closing bell, Texas Instruments reported its quarterly results along with other technology companies. Profits at the world's largest maker of chips for mobile phones plunging 90 percent. TI's chips are used in about two-thirds of the world's digital cell phones. TI tonight saying the weakness in the sector is stabilizing, however. On a per share basis, Texas Instruments did beat much lowered expectations, but by only a penny. Revenue fell 31 percent compared to the same period a year ago. After hours, the stock has gained a little. It's up 25 cents at 31.05 a share. Over the past year, the stock has lost more than half its price. Still ahead here on MONEYLINE, President Bush, well, he had some advice in Rome: what the pope had to tell him about stem cell research. And a change at the top of one of the world's biggest countries: what a new president in Indonesia may mean for corporate America. Also, Disney grabs a bigger share of the cable television market.