Reports of slowing economies in China and Europe along with some weak guidance spooked investors returning from a long weekend Tuesday. The Dow Jones Industrial Average (DJINDICES: ^DJI) and the S&P 500 (SNPINDEX: ^GSPC) fell sharply but partially bounced back in the last hour of the session.
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Energy stocks and industrials led the market down. The SPDR S&P Oil & Gas Exploration & Production ETF (NYSEMKT: XOP) plunged 4.2% and the Industrial Select SPDR ETF (NYSEMKT: XLI) lost 2.1%.
Two companies helped put the market in a dour mood. Johnson & Johnson (NYSE: JNJ) and Stanley Black & Decker (NYSE: SWK) both gave disappointing forecasts for 2019.
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Johnson & Johnson projects slowing growth
Johnson & Johnson reported fourth-quarter results that beat expectations, but forecast sales growth slowing in 2019, and shares fell 1.5% on the news. Sales for the quarter were up 1% to $20.4 billion and adjusted earnings per share increased 13.2% to $1.97. Analysts were expecting earnings of $1.95 on sales $20.17 billion.
Excluding the effect of acquisitions and divestitures and in constant currency terms, Johnson & Johnson's sales increased 5.5% in 2018. Looking forward, though, the company expects 2019 sales growth on that basis to slow to between 2% and 3%. Organic growth of $4.6 billion to $6 billion is expected to be partially offset by losses of $3 billion to $3.5 billion as a result of competition from generic drugs and biosimilars.
Johnson & Johnson is also experiencing drug pricing pressure, with CEO Alex Gorsky saying on the conference call that net prices of pharmaceuticals declined between 6% and 8% in 2018.
Stanley Black & Decker sees economic headwinds ahead
Tool manufacturer Stanley Black & Decker stoked concerns about a global economic slowdown when it turned in anticipated results for the fourth quarter but guided to 2019 profit well below expectations, sending shares down 15.5%. A 4.9% increase in net sales to $3.63 billion was just above the analyst consensus, and adjusted earnings per share of $2.11 beat it by $0.01.
Sales volume grew 5%, acquisitions added 2% of growth, and price increases tacked on another 1%, offsetting 3% of currency losses. Gross margin fell 2.8 percentage points, though, due to commodity inflation, foreign exchange, and tariffs.
Looking forward, Stanley Black & Decker sees continued "external headwinds" and forecast adjusted earnings growth between 4% and 6%, well below the 7.7% increase analysts had been expecting. The company gets 29% of its sales through mass merchandisers and home centers, so the projected weakness, on top of similar stories from other companies this month, helped fuel investors' worry today.
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