Why the Dow Is Plunging

Two months ago, an analyst here at The Motley Fool predicted that the third-quarter earnings season would amount to an earnings recession. While one could have argued about the accuracy of the forecast at the time, the performance of the market today removes all doubt about it. Following a flurry of disappointing earnings releases this morning, the Dow Jones Industrial Average (INDEX: ^DJI  ) is down a staggering 240 points, or 1.73%.

Why the Dow is down today
The Dow is down today for one simple reason: Three of its component stocks reported weaker-than-expected third-quarter earnings and, perhaps even worse, narrowed their revenue guidance for the remainder of the year.

The worst-performing stock by far was chemical giant DuPont  (NYSE: DD  ) , down over 8% in intraday trading. DuPont posted a staggering drop in third-quarter earnings this morning, reporting earnings of negative $0.05 per share versus a positive $0.39 per share in the same quarter last year. According to the company's CEO: "Weaker than expected demand in titanium dioxide and photovoltaic markets contributed to the decline from last year's record third-quarter earnings."

Excluding one-time gains and losses, profit from continuing operations came in at $0.32 per share versus the consensus estimate of $0.47. More significantly, the chemical giant slashed its full-year adjusted earnings target to between $3.25 and $3.30 a share, representing a significant drop from its earlier estimates of between $4.20 and $4.40 a share. In response, the company has vowed to slash 1,500 jobs in order to save $450 million a year in expenses.

Following behind DuPont in terms of stock performance today is the industrial conglomerate 3M (NYSE: MMM  ) , which has seen its stock fall by 3.4% thus far in the trading session. Although 3M's quarterly earnings were not as disappointing as DuPont's, its decision to cut its full-year earnings forecast from a range of $6.27 to $6.35 a share down from an earlier announced range of $6.35 to $6.50 a share is the impetus for today's decline.

For the quarter, 3M reported third-quarter earnings of $1.65 per share, up 8.6% over the same quarter last year, on revenues of $7.5 billion, down 0.4% relative to the same time period. These figures were roughly in line with analysts' expectations.

According to 3M's chief executive officer: "In the face of the current slow-growth economy, our businesses continued to grow organically and generated record profitability. All six of our businesses posted 21 percent-plus operating margins in the quarter, so we continue to execute well in 2012."

Finally, the last Dow component to round out this disappointing earnings trio is United Technologies (NYSE: UTX  ) . Shares in the company are trading down by nearly 1% after it too narrowed its guidance for full-year earnings.

In the most recent quarter, while sales at United Technologies improved by 6% on a year-over-year basis to $15 billion, it nevertheless notched a 4% decrease in earnings per share of $1.37. In addition, the company noted, "Due to the lack of recovery in the commercial aerospace aftermarket and continued uncertainty in the global economy, we now expect 2012 sales of $58 billion." According to The Wall Street Journal, its previous forecast called for revenues between $58 billion and $59 billion.

The Foolish bottom line
It seems clear at this point that the third-quarter earnings season will be as difficult on the markets as originally expected. One way to hedge your portfolio against losses is to invest in the biggest and brightest dividend stocks that the Dow has to offer. Three such companies are identified in our popular free report: "The 3 Dow Stocks Dividend Investors Need." To download a free copy of this report instantly, simply click here now.

John Maxfield has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend 3M. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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