Profit Warning Pricks Dow’s Latest Bubble

Gillette provided the latest sobering influence for a giddy stock market Tuesday, sending prices lower with a warning that it will fall short of analysts’ expectations for first-quarter earnings.

Gillette’s announcement deflated the rally that sent the Dow Jones industrial average to a record high Monday. The Dow fell 43.84 points Tuesday to close at 9,963.49.

Broader market indicators were mostly lower, although the Dow sustained the sharpest losses. Barry Hyman, senior equity analyst at Ehrenkrantz King Nussbaum, said Gillette’s bad news illustrates the recent split between the fortunes of the blue-chip companies and the Internet upstarts.

“This is a two-tiered market,” he said. “It has been for quite some time, and as long as the Gillettes, the Cokes keep coming out with warnings, it will remain so.”

Gillette joined Coca-Cola and 3M in warning that business abroad is a drag on profits. With stocks near record highs, “there’s no room for error,” said James Weiss, head of stock investments at State Street Research & Management in Boston.

The companies in the Standard & Poor’s 500 index are selling for 26 times this year’s projected operating earnings per share, the highest in 50 years, according to First Call.

The broader S&P; 500 slipped 3.23 points, or 0.2%, on Tuesday to 1,317.89. The Nasdaq composite eked out a 3.11-point gain to a record 2,563.17.

Declining stocks outnumbered gainers on the New York Stock Exchange by a 17-11 ratio; volume was moderate.

Gillette slumped $7.75 to $50 after it said quarterly profit will be a penny less than analysts forecast because of weak sales in Latin America and in its line of Braun appliances.

Coke, which gets two-thirds of its sales and three-quarters of its profit abroad, fell 69 cents to $59.81. 3M, which garners half its sales abroad, fell $1.06 to $71.94. The Morgan Stanley consumer index, which groups shares of 30 U.S. consumer companies, fell 1.1%.

Bond prices rose, pushing the yield on benchmark 30-year Treasury securities to 5.52% from 5.59% on Monday.

Among Tuesday’s highlights:

* Intel led semiconductor shares higher with a gain of $2.94 to $130.44 after an analyst at Lehman Bros. said the industry’s recovery from its worst recession ever is picking up steam.

Applied Materials rose $2.19 to $67.94, LSI Logic gained $3.50 to $36 and Micron Technology climbed $2.25 to $53.75.

* Other computer stocks also rallied. Dell Computer surged $2.75 to $46.81. The third-largest personal computer maker is set to brief analysts Thursday. “People are waking to the fact that the fundamentals continue to be very strong for technology companies,” said Weiss of State Street.

Sun Microsystems surged $10.63 to $140.63 after it unveiled products that work with a rival operating system from Microsoft.

* In the Internet sector, DoubleClick jumped $25.44 to $121 as the Net advertising company was rated “strong buy” by an analyst at CE Unterberg Towbin.

* Alpha Industries rose $7.13 to $25.88 after the maker of semiconductors for wireless phones said it received increased production orders from Motorola.

* General Motors, the world’s largest auto maker, surged $3.50 to $91.06 amid optimism about car sales. Ford Motor, the second-biggest, said U.S. car and light-truck sales rose 14% in March, beating expectations. Ford set record truck sales as rising incomes boosted consumer confidence. Its shares dipped 6 cents to $58.25.

Market Roundup, C7