The Dow Jones Industrial Average plunged by 3.68 per cent last night as Procter & Gamble, the largest US consumer products group, shocked the market with a profit warning, which sent its own stock sharply downward and knocked a large dent in several others.
P&G's stock plummeted 31 per cent to $60 (€63) by lunchtime, leaving the Dow index of leading US stocks 3 per cent or 305 points lower at 9,664.6. It subsequently drifted back and forth across the 3 per cent mark and was 4 per cent down by 8.35 p.m. before closing at 9,796.03, down 374.47.
The Dow's fall was its fourth-largest point drop ever and the biggest since the Russian financial crisis erupted in 1998. US rivals such as ColgatePalmolive and Kimberly-Clark rushed out statements reassuring investors their earnings were on track, but their stock also fell sharply.
The Nasdaq market initially powered past the 5,000 level for the first time, as Wall Street pumped cash into traditional technology leaders and new stock stars. But it also retreated in later trade, closing down 66.35 at 4,390.83.
In Europe, the sharp fall on Wall Street dragged most European stocks lower even though news of the possible merger of two big German banks triggered some strong gains for European bank shares. Yet another upward spiral in oil prices also boosted the share prices of major oil companies.
Among leading blue-chip bourse indices, London's FTSE 100 gave up 1.5 per cent and Paris's CAC was 1.6 per cent lower after having been firmer at mid-session before tracking Wall Street weaker.
P&G's warning that its focus on sales growth would result in a 10-11 per cent drop in third quarter earnings made it the latest in a list of global consumer goods giants to disappoint investors. The admission that earnings would grow only 7 per cent in the full year to June 30th, rather than the 13 per cent originally forecast, was also a serious blow to the ambitions of Mr Durk Jager, chief executive, to create a new growth culture in the traditionally staid P&G. Mr Jager insisted that the board remained supportive, but said: "We fully recognise we have to rebuild credibility with investors."
Analysts noted that P&G had advised investors that earnings were on track as recently as last week. Shareholder confidence in the company had already been damaged by news in January that P&G was considering a bid for drugs companies Warner- Lambert and American Home Products.
A 19 per cent fall in the stock persuaded Mr Jager to abandon his bid plans, but P&G's stock is now almost 50 per cent below the peak it reached in January. Since news of the pharmaceuticals talks leaked, the group's market value has dropped by $75 billion.
Mr Jager told analysts: "Disappointing you in the first year of our programme is very unfortunate. I'm confident with this new guidance that we'll not disappoint you again." P&G blamed four factors for its failure to meet expectations in the third and fourth quarters: the cost of pulp and petroleum-based raw materials had been higher than expected; an inventory build-up in Europe had increased manufacturing costs; a delay in US approval for P&G's new osteoporosis drug delayed milestone payments; and brand introductions had led to "aggressive" pricing from competitors, particularly in Argentina, Brazil and Chile.
