- Bernanke defends Fed independence. Bernanke gave his semi-annual monetary policy testimony in the House of Representatives yesterday, and continues today with testimony to the Senate. Bernanke stressed the importance of central bank independence, warning against the dangers of too much political scrutiny of the Federal Reserve, and told lawmakers they should focus on cutting 'unsustainable' budget deficits. In terms of the economy, Bernanke pointed to 'notable improvements' in recent months, although financial markets 'remain stressed,' and downplayed the risk of inflation. Supportive policies will continue to be necessary to prevent rising unemployment from hurting a recovery. (Read Bernanke's testimony)
- Apple shines on profit beat. Apple (AAPL) reported better-than-expected quarterly earnings (see details below) as price cuts helped attract more first-time buyers for Macintosh computers. Mac sales rose 4% in the quarter, compared to an industrywide decline of 3.1%. iPhone sales beat estimates as well, increasing sevenfold to 5.2M units. iPod sales slipped, as executives noted "we expect our traditional MP3 players to decline over time as we cannibalize ourselves with the iPod Touch and the iPhone."
- China plans buying spree. China plans to use its foreign exchange reserves, the largest in the world, to speed overseas expansion and acquisitions by Chinese companies. Premier Wen Jiabao said the reserves should be used to "hasten the implementation of our ‘going out’ strategy," the first time an official has publicly articulated a policy of getting Chinese companies, particularly large state-owned industrial groups, to buy offshore assets.
- Reining in the credit raters. The Treasury released its plan to reform credit rating agencies, sending a draft bill to Congress where financial overhaul efforts are being slowed by growing doubts among lawmakers. The plan tries to limit conflicts of interest by preventing consultation between rating agencies and the companies they rate, and by requiring companies to disclose 'pre-ratings' to investors to limit companies' ratings shopping. The Treasury also wants to empower the SEC to set up a special office for overseeing rating agencies. (Read the Treasury's fact sheet)
- Now you C-it, now you don't. CIT Group (CIT) unveiled more of its restructuring plan that will significantly shrink the company's size, including the possible sale of its Utah bank, its rail-car and aircraft-leasing arm and its credit/cash-advance business. However, the company warned in an SEC filing that failure to complete any of the outlined steps could still land the lender in bankruptcy court. CIT received an expensive $3B emergency loan from bondholders but faces another $7B in debt coming due in the next year. In a further setback, some companies have already begun to cut ties with CIT, including Microsoft (MSFT), which terminated a vendor-financing agreement with CIT yesterday. (Read CIT's 8-K filing)
- P&G closes in on drug unit sale. Procter & Gamble (PG) is reportedly moving closer to the sale of its prescription-drug unit, and is in late-stage discussions with several firms, including specialty drug maker Warner Chilcott (WCRX) and Cerberus Capital Management. The unit could fetch around $3B. In a sign that acquisition financing may be easing, sources say Cerberus has already lined up preliminary financing from several Wall Street banks.
- Recession hurts Yahoo earnings. Yahoo (YHOO) reported quarterly earnings Tuesday evening (see details below), posting a 13% fall in overall revenue amid steep declines in both display ads and graphical ads. Cost-cutting allowed the company to post a year-on-year profit gain of 7.8%, which CFO Timothy Morse said was "not too bad in this type of environment," though he admitted the future looks cloudy as the recession exacerbates some long-standing Yahoo problems related to its search business and flagging brand. Separately, Yahoo is reportedly looking to sell HotJobs and Yahoo Small Business as part of its efforts to shed non-core assets.
- Exelon moves on. Exelon (EXC) dropped its $7.7B hostile bid to acquire NRG Energy (NRG) after shareholders rejected Exelon's slate of directors. The four directors nominated by NRG gained 75% approval. Exelon CEO John Rowe said "the NRG shareholders have spoken, and Exelon will move on."
- New Freddie CEO, again. Freddie Mac (FRE) confirmed Charles E. Haldeman Jr. will be the company's new chief executive, becoming Freddie's fourth CEO in less than a year.
- MBA apps rise. Mortgage applications rose 2.8% last week, MBA said. The average interest rate on 30-year fixed-rate mortgages rose to 5.31% from 5.05%.
- Retail sales. Chain store sales fell 1.7% in the first two weeks of July, Redbook said, worse than the -0.9% expected. According to ICSC, weekly sales were up 0.5%, with the increase spread across most segments.
- Chicago Fed index still negative. The Chicago Fed's National Activity Index was -1.8 in June, vs. -2.3 in May and -2.27 in April. All four broad categories of indicators continued to make negative contributions to the index, with employment and housing-related indicators leading the laggards.
- Consumer confidence. ABC's Consumer Confidence Poll came in at -50, up from last week's -51 but on its fifth week at -50 or below. Just 22% of Americans say it's a good time to buy things.
Earnings: Wednesday Before Open
- Air Products & Chemicals (APD): FQ3 EPS of $1.05 beats by $0.07. Revenue of $2B (-28.1%) vs. $2.1B. (PR)
- AirTran (AAI): Q2 EPS of $0.34 beats by $0.02. Revenue of $604M (-12.9%) vs. $601M. (PR)
- Allegheny Technologies (ATI): Q2 EPS of $0.03 in-line. Revenue of $710M (-51.4%) vs. $817M. (PR)
- Altria Group (MO): Q2 EPS of $0.50 beats by $0.03. Revenue of $6.7B (+32.9%) vs. $5.35B. (PR)
- Bank of New York (BK): Q2 EPS of $0.46 misses by $0.07. Revenue of $3.2B (-17.7%) vs. $3.3B. (PR)
- Boeing (BA): Q2 EPS of $1.41 beats by $0.20. Revenue of $17.15B (+1.1%) in-line. Shares +2.2% premarket (7:45 ET). (PR)
- Delta Air Lines (DAL): Q2 EPS of -$0.24 beats by $0.05. Revenue of $7B (+27.3%) in-line. (PR)
- Eli Lilly & (LLY): Q2 EPS of $1.12 beats by $0.10. Revenue of $5.3B (+0.8%) in-line. Raises FY '09 EPS guidance to $4.20-4.30 vs. $4.00-4.25 previous guidance. (PR)
- Entegris (ENTG): Q2 EPS of -$0.20 in-line. Revenue of $83M (-44.2%) vs. $74M. (PR)
- Gentex (GNTX): Q2 EPS of $0.09 beats by $0.04. Revenue of $117M (-31.2%) vs. $115M. (PR)
- Host Hotels & Resorts (HST): Q2 FFO of $0.27 beats by $0.03. Revenue of $1.1B (-23.3%) in-line. (PR)
- Illinois Tool Works (ITW): Q2 EPS of $0.36 beats by $0.02. Revenue of $3.4B (-25.5%) in-line. (PR)
- KeyCorp (KEY): Q2 EPS of -$0.69 vs. consensus of $0.41 (may not be comparable). Loss largely stems from increase in loan loss provisions, which rose to $2.5B (3.53% of total loans) in Q2 vs. $1.4B (1.87% of total loans) in the year-ago period. (PR)
- Knight Capital Group (NITE): Q2 EPS of $0.52 beats by $0.12. Revenue of $314M (+65.4%) vs. $259M. (PR)
- Morgan Stanley (MS): Q2 EPS of -$1.37 misses by $0.88. Revenue of $5.4B (-11.3%) in-line. Shares -4.9% premarket (8:20 ET). (PR)
- Northern Trust (NTRS): Q2 EPS of $0.95 beats by $0.40. Revenue of $1B (-4.5%) in-line. (PR)
- PepsiCo (PEP): Q2 EPS of $1.06 beats by $0.06. Revenue of $10.6B (-3.2%) vs. $11B. (PR)
- Pfizer (PFE): Q2 EPS of $0.48 beats by $0.01. Revenue of $11B (-9.4%) in-line. (PR)
- SEI Investments (SEIC): Q2 EPS of $0.22 beats by $0.01. Revenue of $252M (-23.5%) vs. $250M. (PR)
- St. Jude Medical (STJ): Q2 EPS of $0.63 in-line. Revenue of $1.2B (+4.2%) in-line. (PR)
- Suncor Energy (SU): Q2 EPS of C$0.20 misses by C$0.13. Cash flow from operations C$342M vs. C$1.4B in Q2 2008. (PR)
- SunTrust Banks (STI): Q2 EPS of -$0.41 beats by $0.11. Revenue of $2.2B (-15.6%) in-line. (PR)
- TCF Financial (TCB): Q2 EPS of $0.08 misses by $0.02. Revenue of $297M (+8.3%) vs. $264M. (PR)
- US Bancorp (USB): Q2 EPS of $0.12 beats by $0.02. Revenue of $4.2B (+7.1%) vs. $4B. (PR)
- USG (USG): Q2 EPS of -$0.41 misses by $0.04. Revenue of $829M (-33.7%) vs. $956M. Shares -5.9% premarket (8:45 ET). (PR)
- Wells Fargo (WFC): Q2 EPS of $0.57 beats by $0.23. Revenue of $22.5B (+28%) vs. $20.5B. Shares -7.1% premarket (8:20 ET). (Wells Fargo News Release (.pdf))
- Whirlpool (WHR): Q2 EPS of $1.04 beats by $0.53. Revenue of $4.2B (-17.9%) in-line. (PR)
Earnings: Tuesday After Close
Advanced Micro Devices (AMD): Q2 EPS of -$0.62 misses by $0.15. Revenue of $1.18B (-13.1%) vs. $1.13B. Gross margin was 37%, down from 43% in Q1. "While we increased cash, exceeded our revenue plan and reduced operating expenses in the second quarter, gross margin was disappointing." (PR)
Amylin Pharmaceuticals (AMLN): Q2 EPS of -$0.36 misses by $0.01. Revenue of $209M (-6%) vs. $205M. (PR)
Apple (AAPL): FQ3 EPS of $1.35 beats by $0.18. Revenue of $8.34B (+11.7%) vs. $8.2B. Gross margin 36.3% up from 34.8% Y/Y. Sees FQ4 EPS of $1.18-$1.23 vs. consensus of $1.30, and revenue of $8.7-8.9B vs. $9.05B (note: Apple consistently lowballs its guidance). Sold 2.6M Macs in FQ3 (+4%). 10.2M iPods (-7%). 5.2M iPhones (+626%). More than 1.5B downloads from its App Store. Gross margin of 36.3% vs. consensus of 34.3%. (PR)
SLM (SLM): Q2 adjusted EPS of $0.31 vs. consensus of $0.06. Results included $325M ($0.44/share) gains on debt repurchases, $362M provision for private credit losses, $105M ($0.13/share) reduction caused by commercial paper market dislocation. (PR)
Starbucks (SBUX): FQ3 EPS of $0.24 beats by $0.05. Revenue of $2.4B (-6%) in-line. Operating margin of 10.6% vs. 6.9% in 2008. Delivered $175M in cost savings, exceeding its FQ3 target of $150M. Comps fell 5% vs. an 8% decline in FQ2. (PR)
Asian markets closed mixed. European markets and U.S. futures are down modestly.
- In Asia, Nikkei +0.7% to 9,723. Hang Seng -1.3% to 19,248. Shanghai +2.6% to 3,297. BSE -1.5% to 14,843.
- In Europe at midday, London -0.1%. Paris -0.7%. Frankfurt -0.3%.
- Futures: Dow -0.5%. S&P -0.5%. Nasdaq -0.2%. Crude -1.2% to $64.80. Gold -0.1% to $946.30.
Wednesday's Economic Calendar
- 7:00 MBA Mortgage Applications
10:00 Bernanke delivers second day of semi-annual monetary policy testimony
10:00 FHFA House Price Index
10:30 EIA Petroleum Status
- Notable earnings before Wednesday's open: AAI, APD, ATI, BA, BK, DAL, ENTG, GENZ, GNTX, HST, ITW, KEY, LLY, MO, MS, NITE, NTRS, PDS, PEP, PFE, SEIC, STI, STJ, SU, TCB, USB, USG, WFC, WHR
- Notable earnings after Wednesday's close: ADS, BCR, CTXS, CVA, DOX, EBAY, EFX, EQIX, ETFC, FFIV, ISIL, ISRG, JAH, KNX, LHO, LOGI, MOS, NE, NFX, OMTR, OSIP, QCOM, RJF, RRC, SNDK, STLD, SWKS, TEX, TQNT, VMW, WLT
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.