Discount brokerage firm Charles Schwab Corp. on Tuesday signaled it won't meet analysts' second-quarter earnings expectations because customers are hesitant to trade stocks.
Schwab Chief Financial Officer Chris Dodds said an 11-cent-a-share average estimate of analysts is too high. He blamed investors' reluctance to trade and lower commission rates that Schwab put into effect Tuesday.
The San Francisco-based firm hopes to match its 2003 second-quarter profit of 9 cents a share when it reports earnings in late July, he said.
He made the forecast after Schwab said daily average trades on which it collects commissions fell 15 percent in May from April and that it attracted 45 percent fewer new accounts last month. Things haven't improved in June, Dodds told Dow Jones Newswires.
"As the markets have softened and appear to be adrift, trade counts have declined again in June," he said. "It's disappointing after such a great start in the year. Unless conditions improve dramatically over the next couple of weeks, with the emphasis on 'dramatically,' we do not see ourselves doing better than last year's 9 cents" a share.
Schwab's first-quarter net income more than doubled from a year earlier to $161 million, or 12 cents a share.
The deteriorating outlook for revenue has revived an expense-cutting campaign that Schwab hoped to ease after jettisoning about 25 percent of its employees since the second quarter of 2001.
Schwab, which earlier this year held more than $1 trillion in customer assets, expects to reduce costs by about $150 million by the end of this year through a variety of actions, including more employee cuts, Dodds said.
In midday trading, shares of Schwab climbed 25 cents, or 2.8 percent, to $9.30 on the New York Stock Exchange.
Although stock trading accelerated early in the year, it has declined in recent months. Share volume on the Nasdaq Stock Market fell 14 percent in May from April and 1 percent on the New York Stock Exchange.
Schwab said it attracted fewer than 36,000 new customers in May, down from over 66,000 in April. It also has said its new commission rates, which reduce fees for some customers to $9.95 a trade from more than $29, will reduce revenue by about 2 percent to 3 percent through next June.
Schwab's rivals have been giving similar signals about a decline in trading. Ameritrade Holding Corp. last week said it expects its fiscal third-quarter earnings ending this month to be at the lower end of its forecast of 14 cents to 22 cents a share after client trades fell 8 percent in May from April.
Knight Trading Group Inc., a large market-maker that executes trades for discount brokers and institutional investors, said Tuesday that May trading volume fell nearly 25 percent from April.