Wall Street Breakfast: Must-Know News

• Bigger profits for BP. BP (BP) reported Q3 results this morning, including a better-than-expected 83% rise in quarterly net profit thanks to higher oil prices. Net profit for Q3 totalled $8.05B, as compared to $4.41B a year earlier, and beat estimates of $6.78B. Revenue rose to $104.8B from $72.8B. The company's underlying rise in production, adjusting for fluctuations in oil price, was 5% on the year. Shares +7.0% pre-market.
• Financial crisis saps SAP. This morning, SAP AG (SAP) released Q3 earnings far short of analyst expectations (see below). The world's largest maker of business-management software also withdrew its 2008 sales forecast and lowered its profit-margin target in light of the global economic downturn. The adjusted operating margin will be around 28% vs. earlier forecasts of 28.5%-29%. SAP will also cut R&D spending, freeze hiring and curb travel expenses. Shares -7.7% in German trading.
• 5,000 layoffs at Whirlpool. Whirlpool (WHR), the world's largest appliance maker, will eliminate 5,000 jobs by the end of 2009 to cut costs amid reduced demand and a global credit crisis. "We are in the midst of a rapidly changing and very challenging economic environment. We have seen a sharp drop in demand in North America and Europe during the third quarter, and we do not expect demand conditions to improve in the near term," CEO Jeff Fettig said. "The global credit crisis has had a profound negative impact on what was already a weakening and very fragile global economy. Declining home values, rising unemployment and very low consumer confidence levels will likely prolong a negative demand environment at least through the middle of 2009." Along with factory closings, the moves will produce $275M/year in savings.
• Banks balk on Huntsman sale. Chemical producer Huntsman (HUN) has been informed by Hexion that its proposed $5.6B, $28/share buyout will not close today because the banks that were to fund the deal - Deutsche Bank (DB) and Credit Suisse (CS) - no longer plan to do so. Hexion is trying to "resolve the banks' concerns and is still seeking to close the merger," Huntsman said. Hexion previously tried to break off the deal, but was ordered by a Delaware court to proceed.
• Government may broker GM/Chrysler deal. There is a push within the government to release some of the $25B in auto-industry-earmarked Treasury funds, sources say, a move that could send ongoing merger talks between GM (GM) and Chrysler into high gear. A possible $5B loan, toward the $10B the pair would need to deal with layoffs and plant closures, would come from a $25B pool of low-interest loans being administered by the Energy Department. The money was originally intended to speed the availability of fuel-saving technologies. On Monday Moody's downgraded the pair, saying "GM's liquidity profile will continue to erode in 2009" even with the government program.
• GE borrows Fed funds. General Electric (GE) tapped the Federal Reserve's new commercial-paper facility, borrowing under $5B yesterday when the facility debuted. With $88B in short-term loans, GE is the largest borrower in the $1.5T commercial-paper market. Though the company has managed to meet its funding needs, market turmoil has forced up GE's borrowing costs, providing GE with a vested interest in making sure the Fed's new facility is effective. GE and its financial services arm are eligible to borrow up to $96B from the new Fed program.
• Volkswagen takes pole position. Volkswagen (VLKAY.PK) surpassed ExxonMobil (XOM) to become the world's biggest company by market cap after Porsche announced plans to raise its stake in the German carmaker to 75% from 42.6%, triggering a short squeeze. Shares rose as much as 93% yesterday, and were up another 55% in Frankfurt this morning, bringing its market value to €296B ($370) vs. Exxon's $343B. As of Oct. 23, almost 13% of Volkswagen's shares were on loan, mostly to short sellers who were forced to swallow massive losses and exit their positions. "Volkswagen has been one of the greatest shorts of hedge funds, and it's been an absolute, absolute disaster," GLG Partner's Emmanuel Roman said. Elsewhere around the globe, carmakers are struggling with plunging sales and a lack of cash.
• Markets rally, Treasurys drop. U.S. Treasurys fell in overnight trading (see below) as global markets rallied, and as it becomes clear the government needs to borrow enormous amounts of money to help pay for its costly financial rescue framework. "Increasing supply will help push up yields," Credit Suisse fixed income strategist Rasmus Rousing said. "We're also seeing a slight reversal of stock-market declines of the last few days (see below) and that's helping to take some buying interest out of Treasurys." Today's record $34B note auction could be a tough sell.
• Rescue plan hits a snag. The $700B financial rescue plan is being delayed due to difficulties in hiring asset managers to oversee the program. On Oct. 3 the Treasury said it would quickly hire asset managers so that the program could be up and running within a few weeks. Sources say hurdles include issues over the fees the government will pay asset managers and a lack of manpower at Treasury. They also say Allianz's (AZ) Pimco will likely be named as an asset manager. Fees could be about 0.15% to 0.20% of assets under management, compared to a more typical 0.35%. The longer the delay, the greater the risk investors will lose confidence in the plan's efficacy.
• Barclays in talks with Russia banks for capital boost. Barclays (BCS) is seeking investments from two state-backed Russian banks - OAO VTB and OAO Sberbank - in an effort to boost its capital. Barclays plans to raise £6.5B ($10.34B) from private sources to meet government capital requirements, rather than accepting government largesse which comes with limitations such as a limit of dividends.
• Google strikes back against Viacom. Google (GOOG) fired back against Viacom (VIA) in its $1B lawsuit by demanding the internal records of copyright police service BayTSP Inc. Google alleges the documents will refute Viacom's assertion it's uncapable of monitoring improper use of its content; will demonstrate Viacom routinely uploaded its own content to Google's YouTube; and that BayTSP "remained silent" about copyright infringement for a months-long period in late 2006, then deluged it with more than 100,000 requests to take down infringing material in a single day as a prelude to Viacom's lawsuit. Viacom is suing Google for more than $1B; Google argues it isn't legally liable for copyrighted material uploaded to YouTube.
• September new home sales rose slightly to 464K/year vs. 450K consensus. Sales are up 2.7% from August's revised data, but are down 33.1% Y/Y.

Earnings: Tuesday Before Open

• Amedisys (AMED): Q3 EPS of $0.89 beats by $0.07. Revenue of $322M (+77.7%) vs. $312M. [PR]
• Ashland (ASH): FQ4 EPS of -$0.01 misses by $0.31. Revenue of $2.2B (+6.3%) in-line. [PR]
• Boyd Gaming (BYD): Q3 EPS of $0.16 misses by $0.03. Revenue of $426M (-13.0%) vs. $440M. [PR]
• BP (BP): Q3 net profit of $8.05B vs. $6.78B. Revenue of $104.8B vs. $72.8B last year.
• Check Point Software Technologies (CHKP): Q3 EPS of $0.44 beats by $0.01. Revenue of $200M (+8.5%) in-line. [PR]
• EarthLink (ELNK): Q3 EPS of $0.49 beats by $0.09. Revenue of $231M (-22.6%) vs. $230M. [PR]
• Entergy (ETR): Q3 EPS of $2.50 misses by $0.02. Revenue of $3.96B (+20.5%) vs. $3.86B. [PR]
• Health Management Associates (HMA): Q3 EPS of $0.07 misses by $0.01. Revenue of $1.1B (+3.4%) in-line. [PR]
• Interpublic Group of Companies (IPG): Q3 EPS of $0.08 beats by $0.02. Revenue of $1.74B (+11.5%) vs. $1.65B. [PR]
• Masco (MAS): Q3 EPS of $0.10 misses by $0.09. Revenue of $2.5B (-15.9%) in-line. [PR]
• SAP AG (SAP): Q3 EPS of $0.41 misses by $0.16. Revenue of $2.8B (+15.8%) vs. $4.0B. [PR]
• Smith International (SII): Q3 EPS of $1.01 beats by $0.04. Revenue of $2.85B (+26.9%) vs. $2.71B. [PR]
• Whirlpool (WHR): Q3 EPS of $2.15 beats by $0.46. Revenue of $4.90B (+1.3%) vs. $5.0B. [PR]

Earnings: Monday After Close

• Atheros Communications (ATHR): Q3 EPS of $0.37 beats by $0.02. Revenue of $138M in-line. Shares +3.8%. (PR)
• Buffalo Wild Wings (BWLD): Q3 EPS of $0.25 misses by $0.06. Revenue of $106M vs. $104M. Shares -13.9%. (PR)
• Choice Hotels International (CHH): Q3 EPS of $0.57 beats by $0.01. Revenue of $179M vs. $191M. Shares -2.9%. (PR)
• Parexel International (PRXL): FQ1 EPS of $0.23 beats by $0.01. Revenue of $320M vs. $274M. Sees FQ2 EPS of $0.18-0.20 vs. $0.27. Shares -13.1%. (PR)
• Rent-A-Center (RCII): Q3 EPS of $0.44 misses by $0.48. Revenue of $709M vs. $700M. Sees Q4 revenue of $698-713M vs. $721M. Shares -9.6%. (PR)
• Texas Roadhouse (TXRH): Q3 EPS of $0.12 misses by $0.01. Revenue of $218M in-line. Shares -4.6%. (PR)
• Universal Health Services (UHS): Q3 EPS of $0.73 misses by $0.04. Revenue of $1.24B in-line. (PR)
• Wausau Paper (WPP): Q3 EPS of $0.08 beats by $0.02. Revenue of $312M in-line. (PR)
• WMS Industries (WMS): FQ1 EPS of $0.27 beats by $0.02. Revenue of $151M vs. $148M. (PR)

Today's Markets

• Asia markets posted a strong comeback, led by Hong Kong +14.35% to 12,596. Nikkei +6.41% to 7622. Shanghai +2.81% to 1772. BSE Sensex closed.
• In Europe at midday, gains across the board. London +2.4%. Paris +2.6%. Frankfurt +5.8% led by Volkswagen.
• U.S. futures are back at yesterday's pre-late-day-selloff levels. Dow +4.3% to 8353. S&P +4.5%. Nasdaq +4%.
• Crude +11.9% to $64.42. Gold +0.2% to $743.
• 30-year bond -0.77%. 10-year not -0.61%. 5-year -0.36%. 2-year -0.08%.

Tuesday's Economic Calendar

• FOMC meeting begins
  7:45 ICSC Retail Store Sales
  8:55 Redbook
  9:00 S&P/Case-Shiller Home Price Index
  10:00 Consumer Confidence
  10:00 Richmond Fed's Manufacturing Index
  10:45 Treasury's Paulson speaks on capital markets
  5:00 PM ABC Consumer Confidence Index
• Notable earnings before Tuesday's open: AMED, ASH, BP, BYD, CHKP, CVG, EL, ELNK, ETR, FMER, HMA, IPG, KSU, MAS, MHP, OXY, RCL, SAP, SCHN, SEPR, SII, TIN, UA, USG, VLO, VSH, WDR, WHR, X
• Notable earnings after Tuesday's close: ACE, ALGN, AMX, APOL, ARRS, BMRN, BXP, CBI, CEPH, CPHD, CTX, DRIV, DWA, EAC, FISV, FLS, FMC, LNC, MCK, MOLX, MTW, NLC, PMTC, RFMD, STM, WLT, WRB, XRAY

Seeking Alpha editor Rachael Granby contributed to this post.

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Comments

[axelrod608:]

>The money was originally intended to speed the availability of fuel-saving technologies > Great. Now we're taking funds designed to promote green fuel improvements and using them to bail out the global leader in the production of gas guzzlers. What next ? A preschool for every pedophile ?

2008 Oct 28 08:21 AM

[eddie6442:]

A month ago, we were told the economy would collapse if Congress didn't pass a $700B [$850B PORKMARKED] within days........ Since our corrupt and self serving government still can't agree what to commit the funds for!
America has been CONNED again...........all while our savings & retirements have been descimated $3 Trillion!!!!!!!!!!!
Seems like there is no limit to the amount of dung Americans are willing to swallow..................
GREED & DESCEPTION AT ITS BEST!!!!!!!!!
IMHO

2008 Oct 28 08:45 AM

[ggillin:]

The govt. pushes Chrysler and all of it's legacy costs down GM's throat just to keep the 'HYDROCARBON FUEL TAX STRUCTURE' alive and going to the last drop in a losing game.

GM needs Chrysler and all of it's legacy costs like a driver needs four flat tire's, they already have enough tax loss carry forwards to protect any hoped for perceived profits (ha ha) for the next two hundred years!

Profits? Did I say profits, I must be getting delusional, nobody makes any profits if they make products nobody wants except the govt, which only wants that 'fuel tax dollar' hence the payoff of tax payer billions.

Cerberus gets a free bailout on the tax payers dollar for making a greedy, stupid, wrong investment decision. A 'get out of jail' free card, if you know the right pol's. This is nothing short of a huge crime!

The tax payers get stuck with this first 25 billion with many more billions to follow under the phony guise of retooling for the coming electric car.

Once again other car manufacturer's will eat Detroit's lunch by giving the world the car's the public needs and demands.

Read these these words well, this game is coming to a fast end.

All of the American auto manufacturers are going bankrupt, got that BANKRUPT!!!!!!! and if you have anything in the form of their securities you the 'little guy' are going to lose everything. The govt is just sucking you in before they take everything and that includes YOU the auto worker, you can kiss it all good-by, securities, pension's - GONE!

The American people and the pol's don't have the gut's to do the right thing, so the wrong thing is done until the house of cards collapses.

However 99% of the time, unwittingly the right thing is done by someone in the market place by the process of manufacturer/seller/bu...

The only question remaining is, when is the U.S.A. going to do the right thing! Is it going to be only after all is lost? Why? to what end, for what purpose?

LORD, help us please, because we are way to dumb to help our self's otherwise, how could anybody lose a combined market share of 99.98%.

2008 Oct 28 09:20 AM

[NotinMarket:]

Paulson, Greenspan, Buffet, Goldman Sachs, Bernacke, SEC Chairman, FDIC, Bush, Frank, Pelosi, Wamu, Wachovia, Lehman, AIG, Fannie, Freddie, ACORN, Morgan Stanley ...

Why would anyone put money back into the hands of the people who destroyed your life ? Stole your future.

Their response.."We're sorry, Really we are ". "Now give us more money
to play with". "Gas is way to cheap !"

There is a no confidence vote from all the individual investors. "WE do not buy into your fundamentals analysis anymore". Just tell me WHEN the Street ever told the truth.

IRA's & 401k's made it sooo easy for these thieves to take money right out of your paycheck into credit swaps and mortgage backed securities.

No one said a thing. Greeny, Bernie, Lehman...except this : "INVEST IN YOUR FUTURE" , "Buy this stuff", "Be an American", "we'll take care of everything"

Greenspan was the start of all our problems. First he made interest rates at 3.75 %, had millions of losers buy homes, sold the MB securities on Wall Street, then...he raised the mortgages to 7-8 %.

I still can't understand how this guy got his degree.. Is he in on it some how, ( like Goldman-Paulson ).

We don't need more rules, just make the penalties for screwing up banks and securities a death sentence. Then only honest people will ask to be the CEO's. Greenspan should hand over all his money and make him work in Walmart.

The 700 Billion dollar infusion only made interest rates go up. What is with this ?

Oil went from 147 to 62 as soon as the money ran out. It did not go down because of demand issues. No WAY. a 10% correction would have been the most.

Doing market analysis is the greatest waste of time you can possibly if you want to make money. The data is worthless and mostly lies.

I stopped doing that after the dot coms, Enron, and MCI died. People buy and sell stocks strictly based on hysteria and fear. That is all you need to know.

-Math Analyst, real degree from real university
Cramer, The Street, CNBC, when did they ever call it right. Statistically speaking, every choice you make has a 50-50 chance of winning anyways. Why both bringing in "phony fundamentals" . Just do the opposite of whatever the brokers and banks say. They haven't been right yet. They are broke and getting loans from you. Why would you listen to losers. Right ?

2008 Oct 28 10:17 AM

[notsosmart:]

the usa govt. is never going to do the right thing.the sheeples have been fleeced for so long & it will go on as long as they keep reelecting te same people.just look at the poor choices for pres.its downhill for us now that the world has discovered even the paper we export is worthless as the ratings(AAA) were all phony.we make hardly anything anymore & our financial system is corrupt.does any contributor on this site make anything?furniture,lea... goods,etc,anything?china & india are the new usa.

2008 Oct 28 10:21 AM

[axelrod608:]

I get the feeling that all our policy makers in DC are fearful of "what will happen" if we just allow market forces to operate normally and let the weak companies fail and the strong survive. Allowing a dinosaur like GM to keep sinking deeper and deeper into the tar pit while force feeding it neverending billions or trillions of dollars is NOT going to change the eventual outcome. Why not use the funds to develop alternative industries that have a future ?

They keep pouring money into 20th century behemoths that are not ready to compete in the 21st century. Keeping the aging dinosaurs on life support takes money from young dynamic new companies that could change our national economy.

We tried an economy fueled by consumption based on unlimited cheap credit and the financial institutions to deliver the unlimited cheap credit. It clearly didn't work. It's time to try something else.

Here's a thought - let's go back to MAKING THINGS. Useful things. Things that use very little fuel. Things that collect and distribute solar, wind, tide, geothermal energy. Let's find ways to grow food that don't require vast inputs of energy.

There's so much to be done. GM and Goldman Sachs aren't going to do it. Let's fund the folks who can.

2008 Oct 28 11:21 AM

[M. J. Docl:]

I am unable to refute the logic of those who suggest that it is flawed policy for Chrysler to be enabled to escape bankruptcy by a shotgun marriage with GM facilitated by the Federal goverment However I beleive the pessimism about the lack investment in petro chemical infrastructure is a bit over done.
With a half full investor additude I am drawn to the logic that the buyout of Chrysler by a Investor group who have benefited in the past by accepting risk , Now the shoe is on the other foot and these investors will adjust their behavior and benefit from the experience . Vechile investors where long on Porche, short on VW trading, Now VW is @100 X 2009 earnings, so the insainity continues or fundemental restructuring in the automobile industry is underway. Time and strategic realingment will play out over the next several years
As a economy and a political entity our committment to an energy independence is reflected in the articulated position of both major parties, althougn playing catch up with W Europe where tax policy and energy policy reflected their historical lack of oil resources. The accelerating empahsis on alternatives sources of energy, (nuclear, wind solar geothermal) the big oil firms are and have been reflecting this ultimately unavoidable day of flat to decreasing demands in developed economies for cpapcity increaees as some of these substitute sources come on line over the next decade.
I am cautiously optimisitc but not a foolish beleiving that big oil will be the leaders in this move to mutliple new streams of energy. But they aren't foolish either Exxon is the 25th largest oil company in the world in terms of proven reserves. With less secuity of supply why would they invest incrementally in additional capacity to process someone elses resources?
Troubling times if you are only willing to beleive in opportunity only if the world looks like yesterday. With that perspective however how do you swallow that Japanese auto makers are reporting significantly lowers earnings as the yen strengthens Also likely that you should be buying the US dollar and trust that it's 13% rise this year reflects in some part the fact that our diminished manufacturing base is properly hedged against raw materials bought in non US markets with local currency and utilizing it's increased productivity to continue to grow the base.
The mattress isn't going to cut it. Government meddling is inevitable given voter activism and outrage, Reflect and invest yourself and your capital in what the new realities and demogrpahic forces will produce in new technological applications, expectations and participation of global populations.
US and G-7 economies have exploited our historical postion to our benefit because of the ecomomic model of yesterday. Differentiation and benenfit in the future will not look like or be static because of our own past actions. How our government, business community and general population (now mobilized) take on the challenge of this new competeive landscape and expectations. Investors with human financial and political capital will be challenged to evolve . . . . are you up to it!

2008 Oct 28 11:23 AM

[NotinMarket:]

I agree.
And...Stop using "Experts" from Harvard and Yale.
If one of the critters enters the room; leave immediately.

The rotten companies must fall. We need something new.
Most importantly is not to let Wall Street take them public. Kiss of Death.
Suddenly stock profit at all costs is the motto and people and product are worthless.

Image, Image, Fancy talk, CNBC pundits, Hollywood, bright colors, poofed up fundamentals, EPS.. Total Horse Crap.

Remember that once something goes public: it's all about stock price.
and let the BS begin.

2008 Oct 28 11:35 AM

[NotinMarket:]

Hi M. J.

The people were outraged by the pundits only to give money back to the criminals in order to rescue their personal gambling debt. It was not an honest anger. If you put money on a stock to make big profits its your problem.

Punishing the investment bankers for what they did is another topic.

Everyone must suffer if you want real change. NO HEDGING YOUR BETS.

Not on my dime anyways.

2008 Oct 28 12:01 PM

[bbowen7:]

We are approaching the third period:
1. Financial system meltdown - seems that governments are largely doing the right things;
2. Realization that the recession will be long and deep - hopefully already largely discounted by the markets;
3. Restructuring the world financial system to take the punchbowl away from Wall Street and the fiscally irresponsible US government. Unfortunately, we will have a rookie at the table, with a short stack.

2008 Oct 28 12:41 PM

[NotinMarket:]

My approach to settling the world financial crisis is to let it all fall down.

There is no direct rational relationship between stock price and company health. It is all about leveraging BS and hedging. Do not invest in companies that use stock values to exist. A very bad business model and fake. It is not based on the company's charter !

Let's reprice the world using real values. It is so much easier. Make investing something that anyone can understand. Having complicated derivatives is there to deceive and take money away from stupid investors and old people.

I'll buy back into stock investing when the DOW stays at 7000 for more than a week. The true bottom, ( still a bit over priced but WTF )

2008 Oct 28 03:41 PM

[davemcc3300:]

"Making things", says axelrod. I agree 100%. See what our "service" economy has done for us: left us dependent on the rest of the world. We are witnessing the USA slumping into second place. Who's in FIRST? No single country. We'll see more international alliances, with USA being just one of the players.

Should we shovel taxpayer money into losers like GM? Or how about a multi-time loser like Chrysler? Helloooo ...? Is it just that some flag-wavers want Toyota to fail? Guess what: businesses that do things the smart way will ALWAYS be succcessful.

And when you look at the flag-wavers very closely you see that the little buttons on their collars aren't American flags, they're "Vote Union" or the UAW or Steelworkers -- the unions that bullied management into sucking their employers into fundamentally and internationally uncompetitive postures.

What do we do now? Buy the best cars at the best price = value. Need steel? Go to Nucor -- a new breed of corporation -- not US Steel. Want to build good North American businesses? Let the private sector, including the investment bankers of the future, make the investment decisions. NOT the government!

It might take Americans another 4 years -- with the lemmings putting Obama into the presidency -- until we learn that we can't spend money we don't have, import things that take too much fuel to get to us, buy twice the house we need to live in, subsidize weak industries, vote union representation to talk to management or look to anybody else but ourselves to provide faithfully for us.

We Americans are self-satisfied, slow learners.

Which reminds me: where are the engineers and scientists that will help us recover? Maybe some will be graduating in 4 years.

Dave

2008 Oct 28 06:24 PM