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Rockwell Leads Profit-Warning Chorus

Earnings: More firms say weaker demand, rising costs and slumping euro will hurt near-term results.

September 19, 2000|From Bloomberg News

The list of third-quarter corporate earnings victims keeps getting longer, and auto- and truck-industry suppliers are increasingly finding themselves on it.

Rockwell International Corp., a maker of factory-automation equipment, said Monday that profit in its current quarter and next year will be below forecasts because of slowing demand from truck and auto makers.

The company's shares (ticker symbol: ROK) plunged $7.69, or 20%, to $30.50, in the biggest decline since Rockwell was reorganized after the sale of its aerospace business in 1996.

Also, Dana Corp. (DCN) and Eaton Corp. (ETN) joined Rockwell in saying that profit will miss forecasts because of reduced truck and auto demand.

Dana shares slid 69 cents to $23.19, while Eaton slid $1.06 to $61.94.

Rockwell said it expects fiscal fourth-quarter automation sales to be 5% lower than last year's as customers such as Ford Motor Co., General Motors Corp. and their suppliers put off projects in their plants.

That will leave earnings for the quarter ending Sept. 30 about 11% below analysts' estimates, Rockwell said.

What's more, it expects fiscal first-quarter earnings to be about 20% below the 81 cents a share earned in the same quarter a year ago, and 2001 earnings to be between $3.10 and $3.20 a share instead of the $3.76 average estimate of analysts surveyed by First Call.

"I've never seen anything quite as precipitous as this slowdown," Rockwell Chief Executive Don Davis said during a conference call. Rockwell sells about a quarter of its automation control systems, which include sensors, motors and computers, to truck and auto makers and their suppliers.

Companies are also spending less in commodity-based businesses such as oil and paper, as well as in the food industries, Davis said. Meanwhile, a shortage of some electronic components and displays is increasing the company's material costs.

Spending on improvement by the auto industry will drop 8% in 2000, Davis said, citing an industry study. Rockwell's customers have canceled millions of dollars of orders in recent weeks for new equipment such as assembly lines, he said.

"The fact that [Rockwell] pre-announced is not a surprise," said Michael Regan, an analyst with Credit Suisse First Boston Inc. who has a "hold" rating on the shares. "The magnitude is."

North American production of heavy trucks slipped to a 270,000-unit annual pace in the first half from a record 316,000 for all of 1999 as fuel and interest costs rose.

Navistar International Corp. (NAV), the world's third-largest truck maker, has said it may lay off as many as 500 workers in November at a Springfield, Ohio, plant as it cuts production. Ford closed three truck factories for three weeks to make more replacement tires available for customers affected by Bridgestone Corp.'s recall of Firestone brand tires.

Truck transmission maker Eaton expects third-quarter profit to miss estimates, partly because of production slowdowns by Ford and other auto makers.

Operating profit at the Cleveland-based company is expected to be unchanged or as much as 10% lower than the $1.45 a share the company earned in the year-earlier period. Eaton was expected to earn $1.58 a share, according to First Call.

Dana said third-quarter profit will fall to 41 cents to 46 cents a share, below the 86-cent average forecast of analysts.

The maker of light-truck axles also cited the euro's slide against the dollar, reduced U.S. and European demand for replacement parts, and computer difficulties.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Blame It on Detroit

Rockwell International's shares (ticker symbol: ROK) plunged Monday after the company said truck and auto makers are buying fewer of its factory automation systems than expected.

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Weekly closes and latest on the New York Stock Exchange

Monday: $30.50, down $7.69

Source: Bloomberg News

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