Wall Street Breakfast: Must-Know News

• Obama considers mortgage subsidies. Obama is working on a new plan to stem foreclosures using mortgage subsidies. In a major departure from existing programs, the initiative would aim to help homeowners before they fall behind on their payments. Sources say the plan, which is still evolving, would see homes undergo a standardized reappraisal and then homeowners would face a uniform eligibility test. The administration may also lower the threshold for relief eligibility; currently, loans are reworked if borrowers spend more than 38% of their gross income on mortgage payments.
• Weeding out the failed banks. A growing body of research by economists and finance experts suggests some of the country's largest banks are essentially insolvent and the banking system will need significantly more aid. Without a cure for the problem of bad assets, the credit crisis dragging down the economy will continue. The answer, according to these economists and experts, is a much larger and more direct government role than the one outlined by Treasury this week. Instead of a private-public investment fund, the government needs to roll up its sleeves, get rid of the weakest banks, sell off bad assets and pour money into the surviving banks. The researchers point to the success of similar plans in Japan and Sweden, and in the U.S. during the savings and loan crisis.
WSB Sponsor
Attention Wall Street Breakfast Readers: Gain invaluable insight from some of the world's most successful investors. Register by 2/15 and save $400 off the Early Bird rate!

Join us at the 4th Annual Value Investing Congress West (May 5&6 in Pasadena, CA) to find out how some of the world's best investors are recouping losses and finding great values in this tumultuous market. To see a full list of speakers, click here.

Seeking Alpha readers save $400 off the Early Bird rate - a total savings of $1600 - when you register by 2/15 using discount code P09WSB1. Register today! Your next great investment idea could be waiting in Pasadena.



• Toyota trims payroll, compensation. Toyota (TM) is offering job buyouts to 18,000 U.S. workers, will cut pay for executives and blue-collar workers in North America, and is cutting the workweek at some of its American plants by 10% to bring down costs. An analyst warns the company may soon cut working hours in Japan as well. The world's No. 1 automaker, with a corporate philosophy of employment preservation, said the North American moves are meant to keep as many of its North American workers on the payroll as possible.
• Nat-gas fire sale. Parallel Petroleum Corp. (PLLL) will turn over half its interest in a natural gas field rather than pay to drill wells, underscoring how falling oil and gas prices have left smaller energy producers desperate for cash. Parallel will give half of its 35% stake in a Texas gas field to Chesapeake Energy (CHK), which already owned most of the remaining 65%. Parallel will get no cash for the deal, but will avoid paying $51.5M to cover its share of this year's drilling costs. According to Parallel CEO Larry Oldham, the company has been hit so hard by falling prices that "we're just going to hunker down."
• Coming soon to a mall near you... In a targeted effort to catch up with rival Apple's (AAPL) retail business, Microsoft (MSFT) announced plans to open up its own chain of branded stores. The company hired David Porter, a former Wal-Mart executive and most recently the head of global product distribution at DreamWorks Animation, to be corporate vice president of retail stores. Microsoft didn't specify a timeline, how many stores it plans to open, or which products would be on sale. Though the retail store model has been very successful for Apple, the strategy has failed for other tech companies and it remains to be seen whether Microsoft can sufficiently jazz up its unfashionable image to make these stores worthwhile.
• Instant Starbucks. As part of a continued effort to shake its expensive image, Starbucks (SBUX) will unveil an instant coffee brand called Via which will be available starting next month. According to the company, Via has been in the works for over 20 years and replicates the taste of its coffee. Starbucks will come up against some well-established competitors in the $17B global instant coffee market, including Nestle's (NSRGY.PK) Nescafe and Kraft's (KFT) Sanka. Three single-serve Via packets will sell for $2.95, and 12 packets will be $9.95.
• Aussies okay stimulus. Australia's parliament has approved a stimulus plan worth A$42B ($28B) after initially rejecting the plan. The package, which includes A$12.7B in payments to low and middle income earners and A$28.8B for schools, bicycle paths and environmental projects, is aimed at preventing the country's first recession in 18 years.
• Retail sales beat expectations. January Retail Sales beat expectations, coming in at +1% vs. -0.8% consensus. However, the numbers are still -9.7% from a year ago. December's sales were revised to -3% from -2.7%. Net of auto sales, +0.9% vs. -0.4% consensus. Gasoline sales are -35.5% from last year.
• More joblessness. Initial Jobless Claims were 623,000 vs. consensus of 610,000. Last week's numbers were revised to 631,000 from 626,000. Continuing claims up 11,000 to 4,810,000. Unemployment numbers are going to be bad for a while, says Huntington's Peter Sorrentino. "The market is deeply cynical of what's going on, and no one in Washington has any more idea than a goat what they're doing."
• Biz inventories fall. Business Inventories fell 1.3% in December (vs. -0.8% consensus), but remain 0.9% higher Y/Y, the Census Bureau reported. Combined sales fell 3.2% to $1.017T, and are down 11.8% Y/Y.

Earnings: Friday Before Open

• Abercrombie & Fitch (ANF): Q4 EPS of $1.10 beats by $0.10. Revenue of $998M (-18.8%) in-line. Comps fell 25%. No guidance due to unclear outlook. (PR)
• Cognizant (CTSH): Q4 EPS of $0.41 beats by $0.03. Revenue of $753M (+25.5%) vs. $743M. Sees Q1 EPS of $0.41-0.42 vs. $0.38, and full-year EPS of at least $1.72 vs. $1.58. (PR)
• PepsiCo (PEP): Q4 EPS of $0.88 in-line. Revenue of $12.73B (+3.1%) vs. $12.8B. (PR)
• Wyndham Worldwide (WYN): Q4 EPS of $0.47 beats by $0.07. Revenue of $911M (-11.7%) vs. $989M. (PR)

Earnings: Thursday After Close

• Amkor Technology (AMKR): Q4 EPS of -$3.40 including goodwill impairment charge of $3.67 vs. consensus of $0.00. Revenue of $549M (-26.5%) vs. $546M. Sees Q1 EPS of -$0.49 to -$0.34 vs. -$0.34. Shares -9.4% AH. (PR, earnings call transcript)
• Cephalon (CEPH): Q4 EPS of $1.46 beats by $0.10. Revenue of $535M vs. $528M. Shares +0.3% AH. (PR, earnings call transcript)
• Cheesecake Factory (CAKE): Q4 EPS of $0.15 beats by $0.01. Revenue of $400M (-1.5%) vs. $403M. Shares -8.4% AH. (PR, earnings call transcript)
• Embarq (EQ): Q4 EPS of $1.34 beats by $0.09. Revenue of $1.48B in-line. (PR)
• Gardner Denver (GDI): Q4 EPS of $0.74 beats by $0.12. Revenue of $524M (+2.7%) vs. $517M. Shares +14.7% AH. (PR)
• McAfee (MFE): Q4 EPS of $0.53 in-line. Revenue of $424M (+18.9%) vs. $421M. Shares +4.1% AH. (PR)
• Netgear (NTGR): Q4 EPS of -$0.08 misses by $0.15. Revenue of $161.4M (-18.6%) vs. $157.2M. Sees Q1 revenue of $135-145M vs. $154M. Shares -8.1% AH. (PR, earnings call transcript)
• Panera Bread Company (PNRA): Q4 EPS of $0.86 beats by $0.02. Revenue of $358M (+18.9%) vs. $353M. Shares -0.1% AH. (PR)
• RealNetworks (RNWK): Q4 EPS of -$0.10 misses by $0.07. Revenue of $152.6M (-2.7%) vs. $153.8M. Expects 2009 to be a challenging year for consumer spending, online advertising and corporate IT spending. (PR, earnings call transcript)
• Sunstone Hotel Investors (SHO): Q4 FFO of $0.76 beats by $0.16. Revenue of $256M (-7.4%) vs. $251M. Won't give guidance amid economic uncertainty. Shares +2.5% AH. (PR)
• ValueClick (VCLK): Q4 EPS of $0.23 beats by $0.08. Revenue of $150M (-14.6%) vs. $142M. Sees Q1 EPS of $0.17-0.18 vs. $0.13. Shares +10.1% AH. (PR, earnings call transcript)
• Wells Fargo (WFC): Lowers Q4 EPS to $0.70 from $0.75 after realizing a loss on securities that were carried at fair value at year-end. Shares -3.2% AH. (PR)

Today's Markets

• Asia markets moved higher Friday led by China, which continues to outperform. Nikkei +0.96% to 7,779. Hang Seng +2.47% to 13,555. Shanghai +3.23% to 2,321. BSE Sensex +1.78% to 9,635.
• Europe stocks are higher at midday, set to post their first gain in four sessions. London +1.3%. Paris +2.2%. Frankfurt +1.6%.
• U.S. stock futures traded in a tight range overnight. Dow -0.3% to 7910. S&P -0.3% to 833. Nasdaq +0.1%. Crude +0.3% to $34.10. Gold -1.1% to $938.80.
• Treasurys move lower overnight after a volatile session Thursday that saw substantial gains evaporate in extended trading when stocks began climbing. 30-year -0.94% to 128-02. 10-year -0.45%. 5-year -0.24%. 2-year -0.08%.

Friday's Economic Calendar

• 9:55 University of Michigan Consumer Sentiment
• Notable earnings before Friday's open: ANF, BAM, CTSH, PEP, WYN
• Notable earnings after Friday's close: CCJ, SPF

Seeking Alpha editor Eli Hoffmann contributed to this post.

Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.

After you finish reading Wall Street BreakfastSeeking Alpha's Market Currentswill keep you current all day long.

Comments

[Worried?:]

Rachael,

With many governments around the globe providing bailout packages to its banking system, I'm curious as to what effect all this addition money in their reserves has effect on INFLATION and whether or not the value of each country's currency is RELATIVE to one another.... meaning that in the "big picture" since everyone is pumping more money into this global crises, then INFLATION "globally" would not be that much of an issue.

Feb 13 08:05 AM

[AndrewBaker:]

We don't want people losing their homes, the banks are probably insolvent under any strict accountancy measures, and the low price of oil right now is making it hard for small energy companies to keep going, while a lot of us just aren't spending. Yes, it's bad and getting worse because no-one really knows what to do. So, find a way to let people stay in their homes rather than put another property on the market, which could be by rolling up and capitalizing interest payments, that could be counted as assets on lenders' balance sheets helping the solvency criteria of financials, to ensure a more liquid banking system; and lend to small companies some of the money that we're not spending as consumers so they can keep going. We need to turn what is not good to our advantage: this would help, and is a way forward.

Feb 13 08:18 AM

[Jake Berzon:]

I love these summaries.

As much as I hate the government subsidizing anybody or anything, at least the new Obama mortgage subsidies plan you refer to would apply equally to both overspenders and savers and that's a move in the right direction!

Starbucks instant coffee - three single-serve Via packets for $2.95, and 12 packets will be $9.95 can do nothing to "to shake its expensive image." Don't they realize that $1 / cup is expensive for self serve instant coffee?!

Feb 13 09:21 AM

[hanson001:]

"Parallel Petroleum Corp. (PLLL) will turn over half its interest in a natural gas field rather than pay to drill wells, underscoring how falling oil and gas prices have left smaller energy producers desperate for cash."

Chesapeake was paying some landowners in Louisiana (the Haynesville Shale) last year up to 22K per acre bonus and agreeing to 1/4 interest. This was when NG was trading around $14 per million Btu. Now it's under $5 and the little players might be good shorts. Heck, Parallel just gave their field away. That's some pain.

I hear the shale in Dallas can supply 6% of our nation's NG demand. The shale in Louisiana is four times that size and they are choking down the wells down here. And there are many other shales such as the Mercellus that could hold more gas than the Hanynesville Shale.

Chesapeake has a great deal of production hedged as does XTO. But I think unless a great deal of producers go out of business, NG prices will stay under $5 for longer than people think. Chesapeake's CEO stated months ago that the smaller and underfunded should start having real problems in the shales at the $5.50 price level.

Feb 13 09:36 AM

[FreeRange:]

Hillarious! Microsoft to open retail stores. And who do they hire to help? Someone from Wal-mart! They've got to be kidding! Must be planning to have in-store "blue screen" specials!

Feb 13 10:17 AM

[brewer:]

Microsoft Retail store will be an epic failure. Gateway country had a better chance, and you probably remember how that turned out.

The main sticking point is they have absolutely no products that anyone likes.

Feb 13 11:07 AM

[whenmusicstops:]

Perhaps Microsoft retail stores are a 'loss-leader' type strategy to aid in branding and general product education for layman consumers while also hoping to sway the crowds in any direction other than Apple. Partnering with Dell or HP to sell their computers will certainly offset part of the costs associated with this effort.

Feb 13 11:50 AM

[Drew Horn:]

If I were Bill Gates, I would sell ASAP! The of software isn't MS Office or Windows, its cloud computing. Look at the freeware that is out there, open office, Google's apps, Yahoo, etc. Except for security concerns, who needs it. All the software an average person needs is free. Even the success of Apple computer will have a limited life. With cloud computing and a high speed ISP you don't need a lot of computer.

Feb 13 12:27 PM

[bbowen7:]

One can only hope that this mortgage abatement program is a trial baloon that will get quickly punctured. Lets agree on the problem, and solve that - not find another way to give our tax dollars to anybody who owns a house. How much distortion can the economy stand - people getting bigger homes than they can afford; maximizing the size of their mortgage; minimizing their reported income? Continue to do some foreclosure mitigation; get the ninjas (no income/no job/no assets) people back into apartments; continue to let the air out of the pricing bubble; don't build homes until prices for the housing stock are back in line with prudent personal financial guidelines. We are more than half way there.

Feb 13 01:12 PM

[kalasend:]

I don't know about yours, but it would be a 100 years before my corp will use open office or Linux on desktops.
Unless you believe those single family or student copies make up big chunk of MS revenues....which is just not true.


On Feb 13 12:27 PM Drew Horn wrote:

> If I were Bill Gates, I would sell ASAP! The of software isn't MS
> Office or Windows, its cloud computing. Look at the freeware that
> is out there, open office, Google's apps, Yahoo, etc. Except for
> security concerns, who needs it. All the software an average person
> needs is free. Even the success of Apple computer will have a limited
> life. With cloud computing and a high speed ISP you don't need a
> lot of computer.

Feb 14 12:39 AM

[PeteK:]

Love the way you put the summaries together.
Ecellent display and easy to read and understand.
Thanks so much.

Feb 14 05:41 AM