Wall Street Breakfast: Must-Know News 21 comments
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- Pfizer-Wyeth goliath? Pfizer (PFE) is in talks to acquire rival Wyeth (WYE) in a deal that could be worth more than $60B. An acquisition of this size would redraw the boundaries of the global pharma industry, creating a drug giant with combined revenue of around $75B and a strong line of blockbuster drugs. However, the move is a potentially risky one for Pfizer which has been hurt by pricey acquisitions in the past. Sources say the talks have been going on for several months and a deal isn't imminent, but an acquisition would be in line with an industry-wide consolidation trend.
- GE says goodbye to a brutal year. General Electric's (GE) profit fell for a fourth straight quarter as the global credit crisis reduced profits at GE Capital. Profits fell 44%, led by a 67% drop at GE Capital and an 86% decline at its lighting and appliance unit. NBC Universal profits fell a moderate 6% (more numbers below). Shares of GE have tumbled about 60% over the past year, bidding farewell to some $200B market cap. Shares +4% premarket.
- Lewis sends Thain packing. John Thain, former CEO of Merrill Lynch, has been shown the door by Bank of America (BAC) CEO Kenneth Lewis. Thain was supposed to take a top spot in the new, combined bank that shareholders approved three weeks ago. However, Lewis began to lose faith in Thain in December, when Lewis learned of Merrill's unexpectedly large Q4 loss from members of his own merger-integration team rather than from Thain himself, and when Merrill moved up large bonus payments to execs to go through before the deal was completed. Thain's departure adds to concerns about employee retention and company integration, while some analysts believe the deal could ultimately cost Lewis his job as well.
- GM settles accounting probe. General Motors (GM) has agreed to settle with the SEC over a probe concerning accounting violations, including disclosures related to pensions, derivatives and precious metals. GM agreed to settle the claims 'without admitting or denying' them, has promised not to violate certain securities rules again and will not have to pay any fines or penalties. The SEC had been investigating GM's accounting practices since 2004.
- FDA gives stem cell approval. Geron Corp. (GERN) has received FDA approval to perform the world's first ever human clinical trial of embryonic stem cell therapy. Geron will begin a trial for patients with acute spinal cord injury. Tests could begin by the summer and while the primary purpose of the trial is to ascertain whether injecting these cells into patients is safe, scientists will also monitor patients for improvements in their injuries. Shares +54% premarket. (Watch a video of how the therapy works.)
- Google earnings beat. Google (GOOG) released better-than-expected Q4 earnings, posting EPS of $5.10 vs. consensus of $4.95 (more details below). Despite an overall gloomy tech sector, the search giant saw strong advertising sales. Aggregate paid clicks increased 18% Y/Y and rose 10% from the previous quarter. CEO Eric Schmidt struck a note of caution, however, warning that Q4 got a boost from the holiday season when many users were searching online for retail bargains. The company also took a $1B writedown on the value of its stakes in AOL and Clearwire.
- Microsoft miss. Microsoft missed earnings expectations (more details below), and said it can't offer quantitative EPS and revenue guidance for the rest of the year. The announcement sent shares down almost 12% to $17.11, close to decade-long lows. In an effort to save $1.5B annually, the company will cut 5,000 jobs over the next 18 months, though it will continue hiring in key areas. CEO Steve Ballmer explained 'we're not used to down markets,' but many analysts think that's an insufficient excuse for not taking tougher action.
- Buyers, board mull Satyam fate. U.S.-listed IT and outsourcing firm iGATE Corp. (IGTE) has expressed an interest in taking over some of Satyam's (SAY) businesses. Other bidders are reportedly interested as well, drawn by Satyam's diversified client roster, including Nestle (NSRGY.PK) and General Electric (GE). Satyam's new government-appointed board has been meeting to discuss how to secure emergency funding to tide the company over, and may announce a new leadership team soon.
- Smooth sailing on Geithner confirmation. Tim Geithner won Senate Finance Committee backing on Thursday, with an 18-5 vote in his favor despite an embarrassing past episode of tax underpayments. Senate Majority Leader Harry Reid said he expected the full Senate to confirm Geithner as Treasury Secretary and hopes to hold a vote on Monday. Geithner got an early start on the job, saying 'a strong dollar is in America's national interest,' and warned China against manipulation of its currency.
- New SEC head. The Senate confirmed Mary Schapiro to the SEC yesterday by a unanimous vote. Schapiro promised to take the 'handcuffs off' the SEC's enforcement division and go full force against anyone who violates investors' trust.
- Mortgage apps drop. Mortgage applications fell 9.8% from a week ago, MBA reported, on a seasonally adjusted basis. The average interest rate on 30-year fixed-rate mortgages increased to 5.24% from 4.89%.
- Housing starts [.pdf]. Housing Starts fell 15.5% in December from a month ago to 550K/year. Permits dropped 10.7% from November to 549K. Completions declined 5.2% to 1.015M/year. From a year ago, the trio are down 45%, 36.2% and 25.7% respectively.
- Jobless claims spike. Initial Jobless Claims soared 62,000 to 589,000, exceeding consensus of 543,000. Continuing claims +97K to 4.607M.
Earnings: Friday Before Open
- GE (GE): Q4 EPS of $0.37 in-line. Revenue of $46.21B vs. $50.07B. Dividend stays. Expects 2009 to be "extremely difficult." (PR)
- Harley-Davidson (HOG): Q4 EPS of $0.34 misses by $0.23. Revenue of $1.29B (-6.8%) in-line. (PR)
- Schlumberger (SLB): Q4 EPS of $1.03 misses by $0.02. Revenue of $6.87B (+9.9%) vs. $6.99B. (PR)
- Xerox (XRX): Q4 EPS of $0.30 misses by $0.04. Revenue of $4.37B (-10.5%) vs. $4.71B. (PR)
Earnings: Thursday After Close
- Advanced Micro Devices (AMD): Q4 EPS of -$0.68 misses by $0.14. Revenue of $1.16B (-33.1%) vs. $1.23B. Gross margin 23%. Sees Q1 revenue down amid very limited visibility and continued corrections in the supply chain. (PR)
- Canadian National Railway Company (CNI): Q4 EPS of $1.21 beats by $0.20. Revenue of $2.2B (+13.3%) vs. $2.04B. Announces 10% dividend hike. (PR) (all figures $Cdn)
- Capital One (COF): Q4 EPS of -$1.59 misses by $19.2. Revenue of $3.17B vs. $4.24B. (PR)
- Consolidated Edison (ED): Q4 EPS of $0.72 beats by $0.04. Revenue of $2.99B vs. $3.27B. (PR)
- Federated Investors (FII): Q4 EPS of $0.51 beats by $0.01. Revenue of $302M (+0.5%) in-line. (PR)
- Google (GOOG): Q4 EPS of $5.10 beats by $0.15. Revenue of $4.22B vs. $4.12B. (PR)
- Intuitive Surgical (ISRG): Q4 EPS of $1.27 in-line. Revenue of $232M (+22.2%) in-line. (PR)
- Microsemi (MSCC): FQ1 EPS of $0.36 in-line by $0.011. Revenue of $131M (+5.7%) in-line. Sees FQ2 EPS of $0.15-0.20 vs. $0.32 and revenue of $104-109M vs $128M. (PR)
- Synaptics (SYNA): FQ2 EPS of $0.84 beats by $0.22. Revenue of $141.5M (+43.5%) vs. $131M. (PR)
- Tempur-Pedic International (TPX): Q4 EPS of $0.17 beats by $0.02. Revenue of $189M (-34.6%) vs. $198M. (PR)
- Werner (WERN): Q4 EPS of $0.26 in-line. Revenue of $491M (-6.7%) vs. $530M. (PR)
- MEMC Electronic Materials (WFR): Q4 EPS of $0.65 beats by $0.04. Revenue of $426M vs. $408M. "The fourth quarter of 2008 saw deteriorating semiconductor and solar market conditions, amid the rapidly weakening global macroeconomic environment." Q1 revenue could decline by as much as 50% from Q4 (Q4 sales=$426M, Q1 consensus=$383M), and gross margin could drop to 20% range. (PR)
Today's Markets
- Asia markets struggled Friday, led by Japan. Nikkei -3.81% to 7,745. Hang Seng -0.63% to 12,579. Shanghai -0.71% to 1,991. BSE Sensex -1.58% to 8,674.
- Europe opened mixed but moved swiftly to the downside, where stocks remain at midday. London -1.2%. Paris -2.2%. Frankfurt -2.3%.
- U.S. futures fell in tandem with Europe's weakness. Dow -2% to 7932. S&P -2.1% to 808.50. Nasdaq -1.9%. Crude -2.6% to $42.55. Gold +1.7% to $873.40. Treasurys are higher: 30-year +0.38%. 10-year +0.47%. 5-year +0.23%. 2-year +0.03%.
Friday's Economic Calendar
- 10:30 EIA Natural Gas Report
- Notable earnings before Friday's open: GE, HOG, SLB, XRX
Seeking Alpha editor Eli Hoffmann contributed to this post.
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This article has 21 comments:
Apple anyone? Who wants... another bite? Ken Lewis took a bite, see it's SAFE...go on....take a bite. It won't hurt you.
This seems to me to be more important as a reflection on Ken Lewis' judgment than much of a revelation on the character of John Thain!
Thain did a remarkable job of salesmanship that would do any used-car shill proud in selling Ken Lewis a colossal white elephant. Ken Lewis fell for it hook, line and sinker, and now is flip-flopping like a fish out of water.
Lewis seems to be struggling to propel BAC deeper into the super-conglomerate banking model at taxpayer expense, when the proper direction should be to trim the bank down into something 'workable' rather than be hunting for more and more acquisitions!
At the end of the day, history will not be kind to Ken Lewis, if in fact it remembers him at all!
If a man with a proven background of personal fiscal irresponsibility is allowed into an office requiring great national fiscal responsibility, then our disgraceful gov't is going even one step further than finding that a crook is in office and did wrong and then allowing him to stay....they are placing one in office already knowing he has done wrong before he even got into office! Incredible.
"We know the guy is bad before he even got into office, but hey, so what? We can do what we want. Maybe he can teach us a few new tricks to put over on you little taxpayers."
While working as an accounting manager at a branch of one of the nation's biggest companies I discovered the "too big to audit" concept. Corporate HQ hid all sorts of irregularities in their labyrinth of ledgers, all with the rationalization that nobody would ever catch it.
We have GM - which has received $Billions in bailouts - being probed for accounting capers, Thain sacked for misleading financial info, and a neverending litany of "discoveries" made by buyers of failing companies once they have time to examine their books.
Let's face it, the size and complexity of megacorporate books make it easy to hide all manner of nasty surprises. Add to that their level 2 and 3 assets held off the books, and you have a recipe for a Pandora's box.
Thoreau makes points re KPMG, yet the question remains - are those records auditable ? Heck, are the records they're given even the REAL books ? Both questions are pertinent today.
One reason for putting failing businesses thru bankruptcy is the requirement that records be scoured by forensic accountants to see what skeletons are buried in the books.
Accounting and auditing need to keep pace with the trend toward megacompanies. We see clearly now what happens when they don't.
We need a program similar to the drug laws, 20 years for any fraud case, life for anything over $10 million and the death penalty for $1 Billion and up. Corruption is a larger danger to our society than terrorism and it needs to be treated appropriately.
COF was downgraded by SunTrust.
COF set aside another $1B for future loan losses. It seems likely that this will not be enough.
S&P revised its outlook on COF to negative from stable. This may mean its credit ratings will go down in the near future. This is likley not good news for COF.
Joseph Sherman and Anjan Chhetry
World Mediterranean MBA
Euromed Marseille
Economies of scale are good to a point, but when these "economies" freeze out competition, the resulting behemoths can become anchors on the economy because lack of competition allows them to become obese and prone to manipulation by the few for their own benefit.
Apparently the European banks are responsible for 40-50% of these emerging growth country loans. The US is responsible for far fewer. Still this cold is going to effect us too. A prime recent example is Aflac. Others will soon be getting hit too. The market indices in Europe are near or below their recent lows of late last year. It looks like they are heading lower in the near term. We are likely to follow. The Republicans in the Senate are said to be fighting the US stimulus package. In this vein, New York just appointed another Republican senator to replace Democrat Hillary Clinton. The hope of jobs from the stimulus package may be the only thing that is stopping a US markets meltdown. HOG and COF had terrible news today. Others weren't that much better. GE did okay, but there was still continuous bad news about their finance arm pulling them down.
The trend in the US markets is still downward at the moment. Unless there is some very positive news out of Washington soon, it looks like it will soon pass through the DJIA 8000 support.
I dont know KPMG, but the big accounting firms arent much better than the bond raters. They are simply whores bought off to defraud investors. Whare can I get access to the alleged memos that "ends the email by saying: “freedom is just another word for nothing left to lose”. ???
Bobbobwhite,
youre right, Gunthier is a crook, just like the rest of the government and big business. If the government were to let these guys fail and the big companies go bankrupt and get broken up then the little guy might have a chance and the country could experience an innovation revolution.