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Tickers in this Article: GD, MRK, RAI
It's called earnings season and you can expect it four times a year. Late October is when third-quarter results start coming in; the 10-Qs are popping out and with that comes higher volume in stocks as the market adjusts to the information. In times like these it is important to check the fundamentals and future guidance in an attempt to determine the outlook of the company. With out further ado here are three companies with earnings reports from Wednesday, October 22.

General Dynamics Beats Estimates
General Dynamics
(NYSE:GD) reported better than expected earnings coming in at $1.59 per share versus the First Call estimate of $1.51. The company had $7.1 billion in sales compared with $6.8 billion in the third quarter of 2007. General Dynamics mainly focuses on technology used in military applications from marine systems to aerospace. Its strongest performing divisions were ship building and information technology. General Dynamics is continuing to see strong earnings thanks in part to the continued heavy defense spending. This is a positive sign for the company, allowing it to deliver consistently strong earnings. Long term, it would not be surprising to continue to see the company do well. Shares of General Dynamics closed Wednesday trading at $56.49 up $1.01.

Merck Slashes 7,200 Jobs
Meanwhile, the pharmaceutical and vaccine company Merck (NYSE:MRK) reported net income for its fiscal 2008 third quarter of $1.09 billion which is earnings per share of 51 cents, down 27% from the same quarter last year. This included a $612 million restructuring charge. When added back, earnings came to 80 cents per share, one cent better than Wall Streets expectations. The company also said it would cut 7,200 jobs in effort to increase profit and lower costs. They were cautious on long range outlook due to slowing sales and a weak economic environment. Chairman, President and CEO Richard Clark said, "Our current sales trends for key products, compounded by known industry and emerging economic factors, have led us to reassess the environment in which we expect to be operating between now and 2010." What this means is that Merck is continuing to take write offs and restructure to increase its overall bottom line. While this will help the company over the long term. In the short term this could pose some challenges for the stock. Merck closed Wednesday trading at $28.01 down $1.96. (Discover how to evaluate pharmaceutical companies in Measuring The Medicine Makers.)

Reynolds American

Revenue of the second largest tobacco company in the U.S., Reynolds American (NYSE:RAI), fell 1.1% to $2.27 billion, net income took a 41% hit to $211 million. According to the company, earnings were depleted due to write downs from its menthol Kool brand of cigarettes and costs associated with cutting jobs. Excluding some costs, net income beat analysts estimates coming in at $1.29 versus the estimate of $1.20 by analysts polled by Bloomberg. Sales of lower priced brands such as Pall Mall were 34% higher as smokers refused to quit but traded down in the face of an economic downturn. The company also raised its 2008 earnings outlook to the low single-digits compared with previously flat guidance. The earnings report demonstrates that Reynolds can provide products that perform well in a weak economy and we can expect this to continue. Tobacco can be considered a defensive play, meaning that as the economy slows and many reduce consumption, cigarette and smokeless tobacco sales tend not to be hit as hard. This is indeed the case with Reynolds, and it would not be surprising to see the company continue to do well in the uncertain economic environment. Shares of Reynolds American closed Wednesday trading at $45.16, down 6 cents. (For more about tobacco companies and other sin stocks, read A Prelude to Sinful Investing.)

Bottom Line
By watching the news that comes out we can gain an insight into those companies that will continue to well and those who won't. However, it is important watch and see how the stock trades during the day to determine if it is a good trading opportunity. If shares can hold their initial gains or losses then it could be a good sign that volatility caused by the release will slow down. On the other hand, if the stock can not hold that level then it would be prudent to watch and see what happens with the stock.

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