Thursday brought an end to a nine-day streak of upward movement for the Dow Jones Industrials, and investors focused on some of the more downbeat aspects of the current earnings season are pushing stocks lower. Major market benchmarks generally fell less than half a percent, and weakness in the oil patch also helped hold back a key sector of the stock market. Company-specific news also had an influence on the markets, and several stocks posted substantial declines that contributed to a downbeat mood overall. Among the biggest decliners on the day were Southwest Airlines (NYSE:LUV), Sherwin-Williams (NYSE:SHW), and Kinder Morgan (NYSE:KMI).
Southwest Airlines suffers a setback, reports poor results
Southwest Airlines fell 11% after the company reported its second-quarter earnings results and had to deal with a major operational problem that led to delays and cancellations. Despite reporting record quarterly earnings of $757 million, or $1.19 per share, Southwest had investors expecting even faster earnings growth. Moreover, the airline's outlook was disappointing to many investors, in part because Southwest will have trouble doing well compared to an extremely strong performance in the year-ago third quarter. Those following the stock now expect declining revenue per available seat mile from Southwest due in large part to tough competition. At the same time, technology outages from the breakdown of a router and failures in backup systems caused a second day of massive cancellations and delays, hurting Southwest's reputation for strong customer service. The share-price decline is a big one, but it could be warranted if the airline's competitive position takes a hit.
Sherwin-Williams deals with slower growth
Sherwin-Williams dropped 7% in the wake of its second-quarter earnings report. The paint specialist said that revenue grew less than 3% compared to its year-ago quarter, and an 8% increase in net income was far less than the faster growth rate that most investors were looking to see. The company's stalwart paint stores group continued to perform well, but declines in the consumer group came as a bit of a surprise, and weakness in its international-facing businesses also held back Sherwin-Williams' overall results. With short-term guidance suggesting several more months of tough conditions, investors decided that Sherwin-Williams might not keep up its past pace of growth for the foreseeable future.
Kinder Morgan doesn't increase its dividend
Finally, Kinder Morgan dropped 5%. The midstream energy giant also issued its second-quarter financial report late Wednesday, and the key decision the company made was to sustain its current dividend rather than making a payout boost. Investors had gone into the report thinking that earnings would be strong enough to warrant an increase to the pipeline company's payout, which it had cut by roughly three-quarters in late 2015. Instead, Kinder Morgan said that it would work on improving its balance sheet, using the savings from paying a smaller dividend to help pay down debt or perhaps consider capital expenditures that will bolster its long-term prospects. That might not have been exactly what investors wanted to hear, but it could end up paying off for long-term shareholders in time.