Companies may cry "uncle" on oil

By Jennifer Coogan

NEW YORK (Reuters) - Oil prices will likely take on more importance for the stock market next week as the summer driving season officially kicks off and as more companies are seen feeling the pinch of higher energy prices on their profit margins.

For the week, the Dow fell 3.9 percent, the S&P 500 shed 3.5 percent and the Nasdaq dropped 3.3 percent. For all three indexes, it was their worst weekly percentage drop in three months.

Pressure from higher energy costs is already being felt, with Kimberly-Clark (KMB.N: Quote, Profile, Research, Stock Buzz) announcing it intends to hike prices on its consumer goods products by 6 to 8 percent in the third quarter. The maker of Kleenex tissues and Huggies diapers said higher energy and raw materials costs were to blame for the price hikes.

Earlier in the week, Ford Motor Co (F.N: Quote, Profile, Research, Stock Buzz) said it no longer expected to return to profitability in 2009, with analysts saying the automaker's recent gains have been overrun by a weak U.S. economy and spiraling oil prices.

With the earnings agenda nearly empty, investors will pay close attention for any other intermittent announcements about energy prices and their impact on profitability.

The industries most likely to downgrade their earnings outlooks are those "which have less elasticity of demand, such as the consumer discretionary sector, restaurants in particular," said Bucky Hellwig, senior vice president at Morgan Asset Management, in Birmingham, Alabama. "All they can do it make portions smaller or raise their prices, neither which are popular."

The Dow Jones U.S. Restaurants & Bars index .DJUSRU fell 4.5 percent this week, its worst five-day percentage decline since the first trading week of the year.

More price hikes are likely to come from staples producers, which could help the individual shares, but may stoke overall inflation fears, said Brandon Thomas, chief investment officer with Portfolio Management Consultants in Chicago, a unit of Envestnet Asset Management.  Continued...