Microsoft takes $900 million hit for unsold Surface RTs in 4Q13 earnings

An otherwise healthy earnings statement from Microsoft was overshadowed by a substantial $900 million charge attributed to "Surface RT inventory adjustments." The ARM-powered tablet, Microsoft's first foray into selling computers, recently had its price cut by $150 to $349 amid long-standing reports of poor sales. With this $900 million charge, those poor sales and price cuts are hitting Microsoft's bottom line.

Revenue for the fourth quarter was $19.896 billion, up 10 percent on the same quarter last year. Operating income was $6.073 billion and earnings per share $0.59, both essentially unchanged from a year ago.

As ever, Microsoft also published non-GAAP numbers. The GAAP numbers defer revenue that was taken for Office 2013 and Windows 8 prior to the availability of the software, not booking the revenue until the software is actually delivered. The non-GAAP numbers book the revenue as soon as it's taken. Under that metric, quarterly revenue was $19.114 billion, up three percent year on year. Operating income was $5.291 billion, down 24 percent year on year, and earnings per share were $0.52, down 29 percent on a year ago.

For the full 2013 financial year, revenue was $77.849 billion, up six percent on 2012. Operating income was $26.764 billion, an increase of 23 percent, and earnings per share were $2.58, a 29 percent improvement. Much of this improvement is due to 2012's $6.193 billion write-down over the aQuantive purchase.

Though Microsoft has announced a significant corporate reorganization, its financial reporting uses the same divisional model and could continue to do so even as the reorganization is implemented. Full details of this will be disclosed in September.

Windows division revenue—which includes Surface RT—saw the fourth quarter grow by six percent to $4.411 billion, with operating income down 54 percent to $1.099 billion. For the full year, the division had revenue of $19.239 billion, up 4.6 percent, and an operating income of $9.504 percent, down 18 percent.

The division continues to suffer from the downturn in the broader PC market. OEM revenue was down 15 percent, driven by the decline of x86 sales. Non-OEM revenue was up 22 percent, with double-digit growth in volume licensing. The company says that close to three-quarters of enterprise desktops are now using Windows 7.

The Server and tools division posted quarterly revenue of $5.502 billion, up nine percent year on year. Operating income was $2.325 billion, up 14 percent. For the full year, revenue was $20.281 billion, up nine percent on 2012, and operating income was up 13 percent at $8.164 billion.

Both product revenue and Enterprise Services showed nine percent growth. System Center showed growth of 14 percent, SQL Server increased revenue by 16 percent. The company reports growing Azure momentum, too, with 25 percent more enterprise customers.

Microsoft Business Division had quarterly revenue of $7.213 billion, up 14 percent, with operating income of $4.873 billion, an increase of 18 percent. Over the full year, revenue was up three percent to $24.724 billion and operating income was up two percent to $16.194 billion.

Business revenue, representing about 85 percent of the division's revenue, was up seven percent. Business subscription revenue was up 10 percent, offsetting a one percent drop in license-only transactional revenue. Consumer revenue was hammered, however, falling by 27 percent due to the weakness of the x86 market. Office 365 is now on track to have annual revenue of $1.5 billion, with more than one million users of the consumer-oriented Office 365 Home Premium version. Exchange, SharePoint, and Lync all experienced double-digit growth.

Online Services division revenue for the quarter was $0.804 billion, up nine percent on the same quarter last year. Operating loss was $0.372 billion. The loss a year ago was $6.672 billion, but most of this was due to the aQuantive write-down. Excluding that, the loss has been reduced by $0.107 billion, or 22 percent. Full year revenue was $3.201 billion, up 12 percent.

Entertainment and Services division had quarterly revenue of $1.915 billion, up eight percent on last year. The division posted an operating loss of $0.110 billion, a 57 percent reduction on last year. Full year revenue was $10.165 billion, up six percent on 2012, with operating income of $0.848 billion, up 123 percent from last year.

Even as it heads toward replacement, Xbox 360 is continuing to sell, with the company shifting a million units last quarter. Xbox LIVE revenue was up by about 20 percent. Windows Phone-related revenue, covering both Windows Phone and patent licensing agreements, was up $0.222 billion.

The company also offered guidance for the first quarter of the 2014 financial year. Windows division will continue to suffer from the poor PC market, with OEM revenue (about 65 percent of what the division turns over) expected to decline by the mid teens. Server and Tools revenue is expected to grow by high single digits. Business division enterprise revenue is anticipated to grow by mid-single digits, but consumer revenue will lag the PC market by five percent. The company estimates that Online Services revenue will grow by double digits. Entertainment and Devices revenue will decline by low single digits.

The quarterly and full year results for the Business and Server divisions were both strong. Online Services continues to lose money, though it's losing less each quarter. Entertainment and Devices seemed to perform decently, considering the age of Xbox and the significant seasonal variations it experiences. Setting aside the Surface adjustment, even the Windows division performed reasonably well, considering the general malaise of the PC market.

But that Surface adjustment is huge. The company said that it's for Surface RT and related parts and accessories. We don't know the exact breakdown of the $900 million figure. Worst case, it implies that the company has six million Surface RTs ($900 million divided by $150 price cut per unit) sitting unsold. The true number may be a little lower, due to some of the hit coming from parts and accessories. But Microsoft is still sitting on several million—perhaps as many as five—Surface RTs.

That the company is struggling to sell them is perhaps not so surprising. The value proposition of the Surface RT was never clear. For those who wanted an out-and-out tablet, the Nexus 10 and iPad were in the same price ballpark but with much richer ecosystems. For those who really wanted Windows software, Atom-powered devices provided a lot more compatibility and a bit more performance, again with prices in the same ballpark. Surface RT was stuck awkwardly in the middle.

What is surprising, however, is that the company so grossly overestimated demand for the product that it apparently had its manufacturers build many millions, such that it would then have to write down the value of millions of units of unsold Surface RT stock. That's a spectacular misjudgment.

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Renault reports weak earnings on Iran write off

PARIS (AP) — French carmaker Renault blamed a massive write off on the value of its operations in Iran for a steep drop in its first half earnings.

The maker of the Clio and Megane hatchbacks said Friday it took a 512-million-euro ($680-million) charge to write off the entire value of its Iran operations, which are threatened by international sanctions on the Islamic republic.

Along with other charges, including restructuring of factories in France, that left Renault's first-half earnings at only 39 million euros, down from 734 million euros a year earlier, the carmaker said in a statement Friday.

New car sales continued to fall as international growth couldn't offset poor markets in Europe, especially in France. Renault said a worsening in market conditions would put in doubt its full-year targets, including higher worldwide registrations.

Renault's business in Iran consists of assembling vehicle kits it sends there. Tougher U.S. sanctions on the Islamic regime that came into effect last month mean Renault cannot get its money out of Iran, leading to the charge against its second quarter earnings.

Earlier this month, the European automakers' association ACEA said car sales slumped 6.6 percent in the first half of the year amid signs of continued deep recession and high unemployment in Europe.

To cope with the dwindling market in Europe, automakers have announced factory closures and put off new car launches.

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United Continental boosts 2Q earnings 38 pct.

Higher fares and a lower fuel bill led to a 38 percent profit jump for the parent of United Airlines in the second quarter.

Fewer passengers flew on United from April to June, but those who did paid slightly more. Not just for plane tickets, either. United boosted revenue from add-on charges such as baggage fees and seats with more legroom.

Last spring, United was struggling to merge some of its large computer systems with Continental, resulting in snafus that frustrated passengers and hurt fares.

In the most recent quarter, a key measure of per-seat passenger revenue rose 1 percent as United recovered. The airline projected that per-seat revenue would rise as much as 5 percent in the third quarter.

"We have clearly turned the corner post-merger, and I am confident that we are on a path toward becoming the world's leading airline," said Jeff Smisek, the airline's chairman, president, and CEO, on a conference call.

United sees one path to greater profitability in collecting more money for add-ons. Revenue for its extra-legroom Economy Plus seats jumped 37 percent in the most recent quarter. United hopes to sell more of those seats through the Sabre ticket distribution system next year. Sabre processes sales to large corporate travel clients and online booking sites such as Travelocity, which Sabre owns.

United also sells "subscriptions" for a $500 fee that entitles a passenger to Economy Plus for a year. And it's rolling out satellite-based Internet connections that it will sell to passengers. Revenue from add-ons like that rose by 13 percent to more than $20 per passenger in the second quarter, United said.

"We believe there is considerable room for us to grow in this high-margin space," said Chief Revenue Officer Jim Compton.

The airline is also aiming to bring so-called "revenue management" to more of those fees. Airlines have long sold tickets for different prices depending on how much demand there is for the flight and how far in advance the customer is booking. Now it's doing the same thing with those Economy Plus seats.

The next step will be to make different offers to different customers, Compton said. United deals with 140 million passengers per year, "not all of whom want or value the same thing from us, and not all of whom in return create the same value for the company," Compton said. He said United will beat its earlier goal of raising revenue from add-ons by 9 percent.

United Continental Holdings Inc. earned $469 million, or $1.21 per share, for the quarter. It would have earned $1.35 per share if not for special items. That's a penny better than expected by analysts surveyed by FactSet. A year ago it earned $339 million, or 89 cents per share.

Revenue rose almost 1 percent to $10 billion, about what analysts had expected.

United cut flying by 2 percent compared to a year earlier. Its fuel bill dropped 10 percent on a combination of the reduced flying and an 8 percent drop in the per-gallon price of fuel.

Lower fuel bills helped all of the big airlines in the most recent quarter. But oil prices have risen in recent weeks, likely dampening the relief for airlines.

Shares of Chicago-based United Continental fell 67 cents, or 1.9 percent, to $34.30.

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Wall St. Week Ahead: Stocks face the Fed, jobs and earnings

Traders work on the floor of the New York Stock Exchange, July 26, 2013.

Credit: Reuters/Brendan McDermid

By Caroline Valetkevitch

NEW YORK | Fri Jul 26, 2013 7:18pm EDT

NEW YORK (Reuters) - The coming week on Wall Street could be a summer blockbuster, with the marquee featuring a triple bill: the Fed, jobs and earnings.

Of the three, the Federal Reserve has the most potential to upset the market. The Federal Open Market Committee is expected to release a statement on Wednesday after a two-day meeting.

Fed Chairman Ben Bernanke jolted markets in late May by saying the U.S. central bank planned to ease back on its stimulus efforts once the economy improves. Investors have been glued to his every comment since then.

"The Fed can easily either scare investors or encourage investors without having to say very much," said Bryant Evans, portfolio manager at Cozad Asset Management in Champaign, Illinois.

It "tends to create the biggest knee-jerk reactions out of the market."

As part of its quantitative easing policy, the Fed has been buying Treasury debt and other bonds each month to keep interest rates low and promote growth.

Stocks have rallied for most of this year, with both the Dow and the Standard & Poor's 500 hitting record highs, partly because of the Fed's stimulus efforts.

The market slid after Bernanke's comments on May 22, with the S&P 500 dropping nearly 6 percent in the month that followed.

But remarks from Bernanke and other Fed officials since then have calmed the market and erased those declines.

Bernanke reassured markets last week, saying the timeline for winding down the U.S. central bank's stimulus program was not set in stone.

The S&P 500 is up 18.6 percent for the year so far.

Trading has been more subdued this week, with more focus on earnings. The S&P 500 ended the week with just a slight loss of 0.03 percent, breaking its four-week winning streak.

While some analysts said the CBOE Volatility Index .VIX did not appear to be pricing in a lot of volatility for next week, there could still be a shift in sentiment. On Friday, the VIX fell 1.9 percent to end at 12.72.

"I do expect to see an increase in volatility next week, but that increase is coming after a week of very quiet trading," said WhatsTrading.com options strategist Frederic Ruffy in Chicago.

Some market attention has also shifted to speculation over possible successors to Bernanke, though a senior White House official said on Friday that no announcement is imminent. President Barack Obama has signaled that Bernanke is likely to step down when his second four-year term as Fed chairman ends January 31. Former U.S. Treasury Secretary Lawrence Summers and current Fed Vice Chair Janet Yellen are among names cited.

IT'S ALL ABOUT JOBS

Friday will bring the Labor Department's July employment report.

The job market's recovery is seen as key to the future of Fed policy. The Fed has said it will keep interest rates at historic lows, where they've been for more than four years, until the U.S. unemployment rate drops to 6.5 percent.

Employers are expected to have added 185,000 jobs to their payrolls in June, according to economists polled by Reuters. That's slightly below June's count of 195,000 new positions.

The U.S. unemployment rate is expected to dip to 7.5 percent in July from 7.6 percent in June.

"July historically has been all over the place, in terms of employment. Factories often times do shutdowns in July, and there's turnover in agriculture," Evans said.

Analysts have worried that big gains in jobs numbers could prompt an early end to the Fed's bond buying, but stocks rose sharply earlier this month when June's payrolls far exceeded expectations.

While the jobs report is expected to be the biggest piece of economic news next week, the economic calendar includes data on gross domestic product and the Chicago Fed Midwest Manufacturing Index for June. The Institute for Supply Management's U.S. manufacturing index for July and monthly car sales will also be part of the mix.

EARNINGS SEASON'S SECOND HALF

With results already in from 259 of the S&P 500, the season has entered its second half.

But next week will still be one of the heaviest of the season, with 131 names from a wide range of industries due to report, including Time Warner Cable (TWC.N), Chevron (CVX.N), Coach (COH.N), U.S. Steel (X.N) and Allstate (ALL.N).

Stronger-than-expected results since the start of the season have pushed up the growth estimate for the quarter. Second-quarter earnings are now expected to have increased 4.1 percent, up from an estimate of 2.8 percent a week ago, Thomson Reuters data showed.

Revenue growth, at 1.6 percent as of Friday, has not been strong, but 56 percent of companies so far are beating expectations, above the 48 percent average of the last four quarters.

We are at all-time highs in a lot of these names, and I think this earnings season is supporting that," said Natalie Trunow, chief investment officer of equities at Calvert Investment Management, which has about $13 billion in assets.

But she said that also means the market may be "vulnerable to some profit-taking."

(Wall St Week Ahead runs every Friday. Questions or comments on this column can be emailed to: caroline.valetkevitch(at)thomsonreuters.com)

(Reporting by Caroline Valetkevitch; Additional reporting by Doris Frankel; Editing by Jan Paschal)

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Wall St. Week Ahead: Stocks face the Fed, jobs and earnings

Traders work on the floor of the New York Stock Exchange, July 26, 2013.

Credit: Reuters/Brendan McDermid

By Caroline Valetkevitch

NEW YORK | Fri Jul 26, 2013 7:18pm EDT

NEW YORK (Reuters) - The coming week on Wall Street could be a summer blockbuster, with the marquee featuring a triple bill: the Fed, jobs and earnings.

Of the three, the Federal Reserve has the most potential to upset the market. The Federal Open Market Committee is expected to release a statement on Wednesday after a two-day meeting.

Fed Chairman Ben Bernanke jolted markets in late May by saying the U.S. central bank planned to ease back on its stimulus efforts once the economy improves. Investors have been glued to his every comment since then.

"The Fed can easily either scare investors or encourage investors without having to say very much," said Bryant Evans, portfolio manager at Cozad Asset Management in Champaign, Illinois.

It "tends to create the biggest knee-jerk reactions out of the market."

As part of its quantitative easing policy, the Fed has been buying Treasury debt and other bonds each month to keep interest rates low and promote growth.

Stocks have rallied for most of this year, with both the Dow and the Standard & Poor's 500 hitting record highs, partly because of the Fed's stimulus efforts.

The market slid after Bernanke's comments on May 22, with the S&P 500 dropping nearly 6 percent in the month that followed.

But remarks from Bernanke and other Fed officials since then have calmed the market and erased those declines.

Bernanke reassured markets last week, saying the timeline for winding down the U.S. central bank's stimulus program was not set in stone.

The S&P 500 is up 18.6 percent for the year so far.

Trading has been more subdued this week, with more focus on earnings. The S&P 500 ended the week with just a slight loss of 0.03 percent, breaking its four-week winning streak.

While some analysts said the CBOE Volatility Index .VIX did not appear to be pricing in a lot of volatility for next week, there could still be a shift in sentiment. On Friday, the VIX fell 1.9 percent to end at 12.72.

"I do expect to see an increase in volatility next week, but that increase is coming after a week of very quiet trading," said WhatsTrading.com options strategist Frederic Ruffy in Chicago.

Some market attention has also shifted to speculation over possible successors to Bernanke, though a senior White House official said on Friday that no announcement is imminent. President Barack Obama has signaled that Bernanke is likely to step down when his second four-year term as Fed chairman ends January 31. Former U.S. Treasury Secretary Lawrence Summers and current Fed Vice Chair Janet Yellen are among names cited.

IT'S ALL ABOUT JOBS

Friday will bring the Labor Department's July employment report.

The job market's recovery is seen as key to the future of Fed policy. The Fed has said it will keep interest rates at historic lows, where they've been for more than four years, until the U.S. unemployment rate drops to 6.5 percent.

Employers are expected to have added 185,000 jobs to their payrolls in June, according to economists polled by Reuters. That's slightly below June's count of 195,000 new positions.

The U.S. unemployment rate is expected to dip to 7.5 percent in July from 7.6 percent in June.

"July historically has been all over the place, in terms of employment. Factories often times do shutdowns in July, and there's turnover in agriculture," Evans said.

Analysts have worried that big gains in jobs numbers could prompt an early end to the Fed's bond buying, but stocks rose sharply earlier this month when June's payrolls far exceeded expectations.

While the jobs report is expected to be the biggest piece of economic news next week, the economic calendar includes data on gross domestic product and the Chicago Fed Midwest Manufacturing Index for June. The Institute for Supply Management's U.S. manufacturing index for July and monthly car sales will also be part of the mix.

EARNINGS SEASON'S SECOND HALF

With results already in from 259 of the S&P 500, the season has entered its second half.

But next week will still be one of the heaviest of the season, with 131 names from a wide range of industries due to report, including Time Warner Cable (TWC.N), Chevron (CVX.N), Coach (COH.N), U.S. Steel (X.N) and Allstate (ALL.N).

Stronger-than-expected results since the start of the season have pushed up the growth estimate for the quarter. Second-quarter earnings are now expected to have increased 4.1 percent, up from an estimate of 2.8 percent a week ago, Thomson Reuters data showed.

Revenue growth, at 1.6 percent as of Friday, has not been strong, but 56 percent of companies so far are beating expectations, above the 48 percent average of the last four quarters.

We are at all-time highs in a lot of these names, and I think this earnings season is supporting that," said Natalie Trunow, chief investment officer of equities at Calvert Investment Management, which has about $13 billion in assets.

But she said that also means the market may be "vulnerable to some profit-taking."

(Wall St Week Ahead runs every Friday. Questions or comments on this column can be emailed to: caroline.valetkevitch(at)thomsonreuters.com)

(Reporting by Caroline Valetkevitch; Additional reporting by Doris Frankel; Editing by Jan Paschal)

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KKR's second-quarter earnings plunge on fund values

By Greg Roumeliotis

NEW YORK (Reuters) - KKR & Co LP said on Friday that its second-quarter earnings declined by 74 percent as a lower appreciation in its private equity funds overshadowed a quadrupling in the cash it received from the profits its funds generated.

With KKR meeting more of the performance hurdles agreed to with fund investors, over 80 percent of its private equity assets could pay carried interest - KKR's entitlement of the fund profits. Carried interest cash jumped to $161.9 million in the quarter from $39.4 million a year ago.

But economic net income (ENI), which takes into account the market value of its assets, dropped to $144.4 million from $546.1 million a year ago, as it private equity portfolio appreciated 0.9 percent compared with 5.1 percent a year ago.

In a statement, Henry Kravis and George Roberts, KKR's co-chief executives who founded the firm in 1976 together with Jerome Kohlberg, focused on the company's dividend following a change in the company's distribution policy last quarter.

"Our realization activity in the second quarter drove the highest cash carry we have reported since going public, contributing to a quarterly distribution of 42 cents per unit," they said.

The second-quarter distribution of 42 cents per share compared with a distribution of 13 cents per share a year ago. This was not just due to a rise in carried interest but also because KKR shared with its shareholders more of its profits from its principal investments coming from its balance sheet.

In April, KKR declared a new payout policy and promised to distribute 40 percent of its balance sheet income as a dividend every quarter. This resulted in $60.1 million in principal investment income being distributed to shareholders in the second quarter of 2013 compared with no such income a year ago.

Huge by industry standards, the size of KKR's balance sheet is the legacy of the firm's merger in 2009 with KKR Private Equity Investors, a fund vehicle whose listing KKR transferred to New York from Amsterdam in 2010.

Its balance sheet profits, referred to as net realized principal investment income, halved compared with a year ago to $150.3 million, as KKR's own investments failed to match the profit growth seen by its funds.

This resulted in total distributable earnings - money available to pay dividends - falling slightly in the second quarter to $403.8 million from $406.1 million a year ago.

Fee-related earnings, mostly reflecting fees it charges to investors and portfolio companies that are not based on KKR's performance, rose to $98.2 million from $69.8 million a year ago, on the back of new capital raised as well as the acquisition of hedge fund investor Prisma Capital Partners LP.

KKR's earnings contrasted with Blackstone's results released last week. Blackstone's second-quarter earnings more than tripled as the value of its private equity and real estate funds rose more than 5 percent and it cashed out on parts of its portfolio, including SeaWorld.

KKR, however, was reversing a trend seen in the second quarter of 2012, when its earnings jumped 73 percent while Blackstone's fell 74 percent, underscoring the volatile and lumpy nature of the earnings of these complex investment firms when viewed on a quarterly basis.

KKR, whose investments include retailer Toys R Us Inc, Internet domain registration company Go Daddy Group Inc and payment processing company First Data Corp, said assets under management rose to $83.5 billion at the end of June from $78.3 billion at the end of March. Besides private equity, the assets include credit investments, hedge funds and infrastructure.

KKR also unveiled progress in real estate, a new initiative for the firm. A property fund with investor commitments of $500 million appeared in KKR's earnings statement for the first time, with 40 percent of the capital coming from KKR itself.

(Reporting by Greg Roumeliotis in New York; Editing by Chris Gallagher)

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Nasdaq likes Facebook's surge, but earnings curb Dow, S&P

By Alison Griswold

NEW YORK (Reuters) - The Nasdaq climbed on Thursday, led by a rally in Facebook a day after its earnings, but the broader market's advance was modest after another round of mixed earnings reports.

Facebook Inc shares scored their biggest daily percentage gain ever - soaring 31.6 percent to a session high of $34.88 a day after the online social network company reported a huge jump in mobile advertising revenue. The stock closed at $34.36, up 29.6 percent, and topped the Nasdaq's list of most actively traded names.

Disappointing earnings in the cyclical sector limited the gains in both the Dow and the S&P 500.

Caterpillar Inc was the biggest drag on the Dow, falling 1.6 percent to $82.14. The stock slid for the second day, extending a selloff that began on Wednesday after the world's largest maker of mining and construction equipment cut its 2013 earnings forecast.

General Motors and Dow Chemical reported profits that exceeded expectations, but that was not enough to help the S&P 500 make a big push into positive territory. GM's stock fell 0.2 percent to $37.08, after touching a two-year high of $37.70. Dow Chemical rose 1.8 percent to $34.99.

Still, the market managed to advance slightly, with nine of the 10 S&P 500 industry sector indexes ending the day higher. Material and utility shares were the best performers, after being among the weakest in Wednesday's session.

"The trend in the market is upward unless there's some active piece of bad news. No news is good news, in that sense," said Brian Gendreau, market strategist with Cetera Financial Group in Gainesville, Florida.

"The earnings aren't really surprising anybody. The corporate sector is strong, and the earnings sector is still pretty strong."

Shortly after the bell, Starbucks released its third-quarter results and its stock jumped 6.8 percent in extended-hours trading. Starbucks ended the regular session at $68.17, up 2.3 percent.

Shares of Amazon.com Inc dropped 2.3 percent in extended-hours trading after the world's largest Internet retailer reported second-quarter earnings and gave a cautious forecast for the third quarter. During regular trading, Amazon's stock rose 1.5 percent to close at $303.40.

The Dow Jones Industrial Average <.dji> rose 13.37 points, or 0.09 percent, to end at 15,555.61. The Standard & Poor's 500 Index <.spx> added 4.31 points, or 0.26 percent, to 1,690.25. The Nasdaq Composite Index <.ixic> gained 25.59 points, or 0.71 percent, to close at 3,605.19.

The major U.S. stock indexes have advanced steadily this year. The S&P 500 has climbed 18.5 percent in 2013 after hitting a number of record closing highs along the way. For July, the benchmark index has added 5.2 percent.

With 47 percent of the S&P 500 companies having reported earnings so far, about 68 percent have topped profit forecasts, above the historical average of 63 percent. About 56 percent have reported better-than-expected revenue, a rate that is below the historical average.

TripAdvisor Inc shares vaulted 16.3 percent to $71.10 a day after the company reported a jump in quarterly profit and revenue from its travel website. The stock was the S&P 500's second-biggest percentage gainer.

Natural gas processor Oneok Inc leaped 25.5 percent to $53.77. The stock was the S&P 500's best performer on the day after the company said it would separate its gas distribution business into a standalone publicly traded company called ONE Gas Inc.

On the flip side, homebuilders' shares tumbled and weighed on the S&P 500 after Pulte Group and D.R. Horton reported earnings. Shares of Pulte Group sank 10.3 percent to $16.55, while D.R. Horton's dropped 8.6 percent to $19.38. An index of housing stocks <.hgx> fell 2.5 percent.

In the latest economic snapshot, initial claims for U.S. jobless benefits rose to 343,000 in the latest week from 334,000 in the previous week, the Labor Department said. Economists were looking for a read of 340,000.

New orders for durable goods rose 4.2 percent in June, far stronger than the forecast for a growth rate of 1.3 percent.

About 6.4 billion shares changed hands on U.S. exchanges, on par with the daily average.

Advancers outnumbered decliners on the New York Stock Exchange by a ratio of 17 to 13. On the Nasdaq, about two stocks rose for every one that fell.

(Editing by Jan Paschal)

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Renault reports weak earnings on Iran write off

PARIS (AP) — French carmaker Renault blamed a massive write off on the value of its operations in Iran for a steep drop in its first half earnings.

The maker of the Clio and Megane hatchbacks said Friday it took a 512-million-euro ($680-million) charge to write off the entire value of its Iran operations, which are threatened by international sanctions on the Islamic republic.

Along with other charges, including restructuring of factories in France, that left Renault's first-half earnings at only 39 million euros, down from 734 million euros a year earlier, the carmaker said in a statement Friday.

New car sales continued to fall as international growth couldn't offset poor markets in Europe, especially in France. Renault said a worsening in market conditions would put in doubt its full-year targets, including higher worldwide registrations.

Renault's business in Iran consists of assembling vehicle kits it sends there. Tougher U.S. sanctions on the Islamic regime that came into effect last month mean Renault cannot get its money out of Iran, leading to the charge against its second quarter earnings.

Earlier this month, the European automakers' association ACEA said car sales slumped 6.6 percent in the first half of the year amid signs of continued deep recession and high unemployment in Europe.

To cope with the dwindling market in Europe, automakers have announced factory closures and put off new car launches.

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Total earnings slip on lower oil, gas prices

PARIS (AP) — Total SA said core earnings slid 3 percent in the second quarter as lower oil and gas prices offset slightly higher production.

The French oil giant's adjusted net income slipped to 2.7 billion euros from 2.8 billion euros a year earlier.

The average price of Brent crude oil fell 5 percent in the quarter to $102.40 per barrel. Total's oil and gas production meanwhile rose 1 percent to 2.29 million barrels a day.

Total's actual net profit — including one-off charges and profits or losses on the value of held assets — rose 67 percent to 2.54 billion euros in the second quarter. The gain was attributed to a lower after-tax inventory effect as well as a large gain on the sale of its stake in an Italian oil field.

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Wall St. Week Ahead: As Fed takes a backseat, earnings rule market

Wall Street is written on a building in New York's financial district, March 4, 2013.

Credit: Reuters/Brendan McDermid

By Alison Griswold

NEW YORK | Fri Jul 19, 2013 5:56pm EDT

NEW YORK (Reuters) - Wall Street is experiencing its best month since January and looks poised to extend the rally with a deluge of earnings next week, though significant gains may be harder to come by with major indexes at record highs.

Eight Dow components and Apple (AAPL.O) are among the companies that will report in one of the busiest weeks of the earnings season. Some 157 companies in the S&P 500 index will release results.

Second-quarter earnings have been above forecasts so far, but analysts' estimates have dropped precipitously since the start of the year. Earnings for S&P 500 companies are seen rising 2.9 percent, according to Thomson Reuters data, down from an 8.4 percent growth expected at the start of the year. Revenue is seen growing 1.1 percent.

Still, stronger-than-expected reports spurred gains in IBM (IBM.N), General Electric (GE.N) and others. In addition, Wall Street banks Citigroup, Goldman Sachs and Morgan Stanley reported strong earnings.

For this week, the Dow rose 0.5 percent, the S&P added 0.7 percent and the Nasdaq fell 0.3 percent. The benchmark S&P is up 18.6 percent for the year.

On the other side of the ledger, Microsoft (MSFT.O) was a big disappointment, and its shares fell 12 percent on Friday. Both Microsoft and Google (GOOG.O) fell short of Wall Street expectations, causing their shares to slump.

Of the 104 companies in the S&P 500 that have reported through Friday, 65.4 percent had earnings above analyst expectations, while 51 percent topped revenue estimates.

EYES ON APPLE

Apple, the second-largest U.S. company by market capitalization, will be watched to see if it can reverse the trend of weaker-than-expected tech sector earnings. The company, which is due to report on Tuesday after the market's close, is expected to show a drop of more than 21 percent in quarterly profit and revenue growth of 0.2 percent.

The Federal Reserve has been the primary driver of the market for a long time. But that should change, at least for a time, after investors were reassured that the Fed would be flexible in the timing of its withdrawal of stimulus measures and would keep interest rates ultra-low for an extended period.

The Fed's stimulus played a major part in the S&P's advance so far this year. Investors now speculate earnings will be the next catalyst to push stocks higher.

"So far it's been about the Fed supporting the movement upwards, but at a certain point there's a handoff, and earnings will have to take over," said Kristina Hooper, head of investment and client strategies at Allianz Global Investors in New York. "Earnings are going to be so critical to the future of the stock market recovery."

Analysts have generally been bullish on 2013's second half, though they have been slowly lowering estimates for the third and fourth quarters to reflect concerns about the economy's growth.

Per-share earnings growth is expected to be 7.8 percent in the third quarter and 12.4 percent in the fourth quarter. That compares with a July 1 estimate of 8.5 percent growth and 13 percent growth, respectively, according to Thomson Reuters data.

NEED FOR REVENUE GROWTH

"Revenue growth is especially important," said David Joy, chief market strategist at Ameriprise Financial in Boston. "If revenues aren't increasing, it's going to be awfully tough for the bottom line to increase."

Joy, who helps oversee about $708 billion in assets, added that it was encouraging to see revenue coming in slightly ahead of expectations.

"My sense is that the markets can hang in there next week," he said. "The trend is to the upside."

General Electric Chief Executive Jeff Immelt said he was bullish on the outlook for the rest of the year, a sentiment echoed by other executives.

But Nick Heymann, an analyst at William Blair & Co, which trades GE shares, said for GE to achieve its goal of boosting 2013 margins by 0.7 percent would "require Herculean improvement in the second half.

With 21 percent of the S&P components having reported, roughly two-thirds have beaten profit expectations, slightly above the historical average. About half of the companies have topped revenue forecasts, a rate better than the average over the past four quarters.

Next week's earnings roster includes Dow components AT&T (T.N), McDonald's (MCD.N) and Boeing Co (BA.N). Ford Motor Co (F.N), Visa (V.N) and United Parcel Service (UPS.N) are also due. UPS, which is viewed as a proxy for business activity, recently cut its outlook, citing a weak U.S. economy and overcapacity in the global air freight market.

Economic indicators next week include sales of new and existing homes. Sentiment among builders remains bullish, though housing starts and permits for future homes hit a 10-month low in June.

"Obviously a big surprise there to the downside will cause a lot of caution," said Andrew Yorks, chief investment officer at Four Wood Capital Partners in New York. "The housing sector's been a core part of what the Fed is focusing on."

June existing-home sales, which are due Monday, are seen rising 0.6 percent compared with a 4.2 percent jump in the previous month. New-home sales for June are also seen rising, according to Thomson Reuters estimates.

(Wall St Week Ahead runs every Friday. Comments or questions on this one can be sent to alison.griswold(at)thomsonreuters.com)

(Reporting by Alison Griswold; Editing by Kenneth Barry)

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