Wall Street Breakfast: Must-Know News

• Goldman is TARP-free at last. Goldman Sachs (GS) became the first major bank to completely shed its bailout ties, paying $1.1B to redeem the government's TARP warrants and calling the Treasury's valuation 'full and fair' given the government's support of the financial system. With the warrant redemption and the $318M Goldman paid in dividends on its $10B TARP aid, taxpayers received a 23% annualized return for the nine-month transaction.
• S&P flip-flops on ratings. Standard & Poor's unexpectedly switched its rating of some bonds backed by commercial mortgages, upgrading the bonds to AAA just days after the same bonds had been sharply downgraded. The unusual move further damaged S&P's credibility and unsettled investors in the $700B market for commercial mortgage-backed securities [CMBS]. The reversal came after S&P realized bonds with a shorter lifespan were less risky than similarly structured bonds with a longer lifespan, a mistake that could reflect a basic misunderstanding of the way cash flows are distributed across CMBS.
• Bristol-Myers buys biotech firm. Bristol-Myers Squibb (BMY) agreed to acquire Medarex (MEDX), the biotech firm it already owns a 2% stake in, for $2.4B in cash. Bristol-Myers said the $16/share deal, which marks a 90% premium to Medarex's closing price on Wednesday, buys it proven antibody discovery technology and rights to an immunotherapy the companies developed. MEDX +89% premarket (7:00 ET).
• Intel fights antitrust fine. Intel (INTC) is fighting back against a record €1.06B ($1.45B) fine levied by EU antitrust regulators in May, saying the fine violates protections granted by European human rights law. Since the EU antitrust body handles both the investigation and judgment of a given case, companies don't have the opportunity to fully defend themselves as they would in a court. However, the appeal is a bit of a long shot as no EU antitrust appeal has ever won on this argument.
• Amazon's shoe-in to online apparel. Amazon (AMZN) will buy online shoe retailer Zappos.com for around $928M, an aggressive expansion into online apparel after Amazon's solo attempts at selling footwear were unsuccessful. Zappos is known for its fiercely loyal customer base, good customer service and free shipping/free returns policy. AMZN +0.6% premarket (7:00 ET).
• Bair wants large firms to pay. FDIC's Sheila Bair is scheduled to testify before the Senate Banking Committee this morning, and will ask lawmakers to impose fees on the country's biggest financial firms. Bair wants Congress to create an industry-supported Financial Company Resolution Fund which will provide working capital and cover unanticipated losses if the government has to wind down a failed firm. In addition to minimizing government outlays, this would also "provide an economic incentive for an institution not to grow too large."
• SEC targets pay-to-play. The SEC voted unanimously to propose rules preventing investment advisers from managing public programs for two years if they make political contributions. The proposal is an attempt to curb pay-to-play practices, in which public contracts are awarded to those who make political contributions.
• Chrysler warns on dealership legislation. Chrysler warned it could face liquidation for a second time if lawmakers move forward with a plan to reinstate terminated dealership agreements. The House of Representatives has already approved a measure to restore contracts with 789 dealerships, but the bill's future in the Senate is less certain.
• Moody's rebuffed in Berkshire sale. Moody's (MCO) fell 10.3% in after-hours trading following a disclosure by Berkshire Hathaway (BRK.A) that it sold 7.99M shares of the ratings company this week. Though Berkshire remains Moody's largest shareholder, the sale reduced its stake by 17%. Moody's has reported a profit decline for seven consecutive quarters.
• Porsche CEO, CFO resign. Porsche's CEO Wendelin Wiedeking and CFO Holger Haerter both resigned from the company with immediate effect, after coming to "the conclusion that the further strategic development of Porsche... is better off, if they are not on board as acting persons," said a company spokesman. The move is expected to facilitate a merger agreement with Volkswagen (VLKAY.PK).
• eBay beats as Paypal, marketplace show signs of life. eBay (EBAY) managed to beat quarterly earnings expectations (see details below), even as profit fell 29% and revenue fell 4%. The company's PayPal online-payments unit continued to grow strongly and a decline in eBay's core marketplace leveled off.
• ING may sell private banking unit. ING Group (ING) reportedly hired JPMorgan Chase (JPM) to advise it on the possible sale of its private banking business in Europe and Asia. A deal could be worth over $1B.
• House prices rise. The FHFA House Price Index was up 0.9% in May vs. -0.2% consensus, after falling 0.3% in April (revised). Nationwide prices are down 5.6% from a year earlier, and 10.7% from the April 2007 peak.

Earnings: Thursday Before Open

• 3M (MMM): Q2 EPS of $1.20 beats by $0.26. Revenue of $5.7B (-15%) vs. $5.4B. Adjusts guidance for FY '09 - sees EPS of $4.10-4.30 vs. prior guidance of $3.90-4.30. Shares +1.3% premarket (7:40 ET). (PR)
• Alexion Pharmaceuticals (ALXN): Q2 EPS of $0.20 beats by $0.04. Revenue of $92M (+55%) vs. $89M. Shares +1.9% premarket (8:00 ET). (PR)
• AT&T (T): Q2 EPS of $0.54 beats by $0.03. Revenue of $30.7B (-0.4%) in-line. Shares +2.9% premarket (7:45 ET). (PR)
• Bristol-Myers Squibb (BMY): Q2 EPS of $0.56 beats by $0.09. Revenue of $5.4B (+3.5%) vs. $5.3B. Issues upside EPS guidance for FY '09 of $1.95-2.05 vs. prior guidance of $1.85-2.00. (PR)
• Bunge (BG): Q2 EPS of $2.28 beats by $1.57. Revenue of $11B (-23.5%) vs. $12B. (PR)
• Celestica (CLS): Q2 EPS of $0.11 beats by $0.01. Revenue of $1.4B (-25%) in-line. (PR)
• Celgene (CELG): Q2 EPS of $0.46 in-line. Revenue of $629M (+10%) vs. $621M. Shares +8.9% premarket (7:45 ET). (PR)
• CME Group (CME): Q2 EPS of $3.37 beats by $0.14. Revenue of $648M (+15%) vs. $652M. (PR)
• Danaher (DHR): Q2 EPS of $0.89 beats by $0.01. Revenue of $2.7B (-19%) vs. $2.8B. (PR)
• Diamond Offshore Drilling (DO): Q2 EPS of $2.79 beats by $0.15. Revenue of $946M (-0.8%) vs. $942M. (PR)
• EMC (EMC): Q2 EPS of $0.18 beats by $0.01. Revenue of $3.3B (-11%) vs. $3.2B. Sees FY '09 EPS of $0.82 vs. &0.78 consensus. Shares +4.8% premarket (7:30 ET). (PR)
• EnCana (ECA): Q2 EPS of $1.22 beats by $0.25. Revenue of $3.8B (-49%) vs. $4.4B. (EnCana news release (.pdf))
• Fifth Third Bancorp (FITB): Q2 EPS of $1.15 vs. consensus of -$0.34 (may not be comparable). Tier 1 ratio of 12.9%. Shares +7% premarket (7:30 ET). (PR)
• FLIR Systems (FLIR): Q2 EPS of $0.35 in-line. Revenue of $278M (+6.5%) vs. $297M. Shares +1.9% premarket (7:50 ET). (PR)
• Ford Motor (F): Q2 EPS of -$0.21 beats by $0.27. Revenue of $27.2B (-34%) vs. $24.8B. (PR)
• Goodrich (GR): Q2 EPS of $1.15 beats by $0.04. Revenue of $1.7B (-8%) in-line. (PR)
• Hershey (HSY): Q2 EPS of $0.43 beats by $0.08. Revenue of $1.2B (+6%) vs. $1.1B. (PR)
• Huntington Bancshares (HBAN): Q2 EPS of -$0.40 misses by $0.22. Increased provision for credit losses 42% from Q1 to $413.7M. Tier 1 capital ratio of 11.86%. Shares -3.1% premarket (7:50 ET). (PR)
• ITT Educational Services (ESI): Q2 EPS of $1.87 beats by $0.14. Revenue of $317M (+29%) vs. $307M. (PR)
• JetBlue Airways (JBLU): Q2 EPS of $0.05 beats by $0.03. Revenue of $807M (-6%) vs. $800M. (PR)
• Kimberly-Clark (KMB): Q2 EPS of $1.16 beats by $0.22. Revenue of $4.7B (-5.6%) vs. $4.6B. Issues upside FY '09 EPS guidance of $4.10-4.25 vs. $4.12 consensus. (PR)
• Newmont Mining (NEM): Q2 EPS of $0.43 misses by $0.04. Revenue of $1.6B (+7%) in-line. (PR)
• NII Holdings (NIHD): Q2 EPS of $0.79 beats by $0.23. Revenue of $1.1B (-4%) vs. $1B. (PR)
• Omnicom Group (OMC): Q2 EPS of $0.75 beats by $0.01. Revenue of $2.9B (-17%) in-line. (PR)
• PNC Financial Services Group (PNC): Q2 EPS of $0.14 vs. consensus of $0.45 (may not be comparable). Revenue of $4B (+95.5%) vs. $3.65B. (PR)
• Potash Corp. (POT): Q2 EPS of $0.62 misses by $0.07. Revenue of $856M (-67%) vs. $981M. Issues downside Q3 EPS guidance of $0.80-1.20 vs. $1.56 consensus. Issues downside FY '09 EPS guidance of $4.00-5.00 vs. $5.24 consensus. Shares -2.3% premarket (6:50 ET). (PR)
• Raytheon (RTN): Q2 EPS of $1.24 beats by $0.11. Revenue of $6.1B (+4%) vs. $6.2B. (PR)
• Starwood Hotels & Resorts Worldwide (HOT): Q2 EPS of $0.22 beats by $0.05. Revenue of $1.2B (-23%) in-line. Issues downside guidance: sees Q3 EPS of $0.06-0.10 vs. $0.21 consensus, FY '09 EPS of $0.65 vs. $0.76 consensus. (PR)
• Terra Industries (TRA): Q2 EPS of $0.81 misses by $0.10. Revenue of $453.5M (-46%) vs. $568M. (PR)
• Thermo Fisher Scientific (TMO): Q2 EPS of $0.74 beats by $0.08. Revenue of $2.5B (-8%) vs. $2.4B. (PR)
• Wyeth (WYE): Q2 EPS of $0.94 beats by $0.09. Revenue of $5.7B (-4%) vs. $5.6B. Issues upside FY '09 EPS guidance of $3.48-3.58 vs. prior guidance of $3.33-3.53. (PR)
• Xerox (XRX): Q2 EPS of $0.16 beats by $0.05. Revenue of $3.7B (-18%) in-line. (PR)

Earnings: Wednesday After Close

• Alliance Data Systems (ADS): Q2 EPS of $0.95 misses by $0.07. Revenue of $460M (-9%) vs. $481M. Sees Q3 EPS of $1.34 in-line. Maintains 2009 EPS guidance of $5.15 vs. $5.00. (PR)
• Amdocs (DOX): Q3 EPS of $0.53 beats by $0.05. Revenue of $690M (-16%) vs. $679M. Sees Q4 EPS of $0.47-0.51 vs. $0.48. Sees Q4 revenue of $670M-690M vs. $668M. (PR)
• Citrix Systems (CTXS): Q2 EPS of $0.39 beats by $0.01. Revenue of $393M (+0%) vs. $387M. Sees Q3, FY09 revenues flat vs. 2008. (PR)
• Covanta Holding Corp. (CVA): Q2 EPS of $0.21 beats by $0.01. Revenue of $376M (-11%) vs. $391M. Reaffirms 2009 EPS $0.65-0.80 vs. $0.71 and adjusted EBITDA of $500M-540M. (PR)
• C.R. Bard (BCR): Q2 EPS of $1.23 beats by $0.02. Revenue of $625M (+1%) vs. $634M. (PR)
• eBay (EBAY): Q2 EPS of $0.37 beats by $0.01. Revenue of $2.1B (-4%) vs. $2B. Sees Q3 EPS of $0.34-0.36 vs. $0.35. Sees Q3 revenue of $2.05B-2.15B vs. $2B. (PR)
• Equifax (EFX): Q2 EPS of $0.57 in-line. Revenue of $455M (-9%) vs. $453M. Sees Q3 EPS of $0.52-0.57 vs. $0.59. (PR)
• Equinix (EQIX): Q2 EPS of $0.44 beats by $0.11. Revenue of $213M (+7%) vs. $209M. Sees Q3 revenue of $221M-225M vs. $220M. Sees FY09 revenue of $860M-$875M vs. $861M. (PR)

• E*TRADE Financial (ETFC): Q2 EPS of -$0.22 beats by $0.09. Total loan loss allowance was flat at $1.2B, or 5% of gross loans receivable. (PR)

• F5 Networks (FFIV): Q3 EPS of $0.40 beats by $0.03. Revenue of $158M (-4%) vs. $154M. Sees Q3 EPS of $0.40-0.42 vs. $0.39. Sees Q3 revenue of $160M-164M vs. $159M. (PR)
• Intersil (ISIL): Q2 EPS of $0.05 misses by $0.10. Revenue of $147M (-32%) in-line. Sees Q3 revenue of $156M-162M vs. $154M. (PR)
• Intuitive Surgical (ISRG): Q2 EPS of $1.62 beats by $0.37. Revenue of $261M (+19%) vs. $230M. (PR)
• Jarden (JAH): Q2 EPS of $0.60 beats by $0.05. Revenue of $1.3B (-7%) in-line. (PR)
• Knight Transportation (KNX): Q2 EPS of $0.15 in-line. Revenue of $144M (-7%) vs. $160M. (PR)
• LaSalle Hotel Properties (LHO): Q2 FFO of $0.70 beats by $0.12. Revenue per available room of $134.15. (PR)
• Mosaic Company (MOS): Q4 EPS of $0.33 beats by $0.23. Revenue of $1.6B (-54%) in-line. (PR)
• Newfield Exploration (NFX): Q2 EPS of $1.28 beats by $0.18. Revenue of $287M (-58%) vs. $483M. EPS adjusted to exclude $1.58/share net unrealized loss on commodity derivatives. (PR)
• Noble (NE): Q2 EPS of $1.49 misses by $0.01. Revenue of $868M (+11%) vs. $900M. (PR)
• Omniture (OMTR): Q2 EPS of $0.13 beats by $0.01. Revenue of $88M (+22%) in-line. Sees Q3 EPS and revenue "approximately the same as" Q2. (PR)
• OSI Pharmaceuticals (OSIP): Q2 EPS of $0.28 misses by $0.05. Revenue of $99M (+3%) vs. $100M. (PR)
• Qualcomm (QCOM): Q3 EPS of $0.54 beats by $0.02. Revenue of $2.75B (unchanged) in-line. (PR)
• Raymond James Financial (RJF): Q3 EPS of $0.36 beats by $0.14. Revenue of $625M (-16%) vs. $637M. (PR (.pdf))

• SanDisk (SNDK): Q2 EPS of $0.36 beats by $0.52. Revenue of $731M (-10.4%) vs. $710M. Says return to profitability was driven by increased pricing and higher royalty revenue. (PR)

• Skyworks Solutions (SWKS): Q3 EPS of $0.16 beats by $0.02. Revenue of $191M (-11%) vs. $183M. Sees Q4 adjusted EPS of $0.19 vs. $0.17. Sees Q4 revenue of $210M vs. $196M. (PR)
• Steel Dynamics (STLD): Q2 EPS of -$0.08 beats by $0.03. Revenue of $792M (-67%) vs. $740M. (PR)
• Terex (TEX): Q2 EPS of $0.78 misses by $0.50. Revenue of $1.3B (-55%) vs. $1.5B. Results include a $0.32/share restructuring charge and $0.08/share SEC penalty. (PR)
• TriQuint Semiconductor (TQNT): Q2 EPS of $0.08 beats by $0.05. Revenue of $169M (+33%) vs. $146M. Sees Q3 adjusted EPS of $0.08-0.10 vs. $0.08. Sees Q3 revenue of $170M-180M vs. $159M. (PR)
• VMware (VMW): Q2 EPS of $0.20 beats by $0.01. Revenue of $456M (unchanged) vs. $452M. Sees Q3 revenue of $465M-480M vs. $471M. Sees FY09 revenue up 1-3% vs. FY08. (PR)
• Walter Energy (WLT): Q2 EPS of $0.21 beats by $0.26. Revenue of $169M (-38%) vs. $164M. (PR)

Today's Markets

Asian markets closed broadly up, but European markets are trending down and U.S. futures are just barely in positive territory.

• In Asia, Nikkei +0.7% to 9,793. Hang Seng +3% to 19,818. Shanghai +1% to 3,328. BSE +2.6% to 15,231.
• In Europe at midday, London -0.2%. Paris -0.7%. Frankfurt -0.2%.
• Futures: Dow +0.1%. S&P +0.1%. Nasdaq +0.2%. Crude -0.8% to $64.88. Gold flat.

Thursday's Economic Calendar

• 8:30 Jobless Claims
  9:30 FDIC's Bair and SEC's Schapiro testify on regulatory reform
  10:00 Mass Layoffs
  10:00 Existing Home Sales
  10:30 EIA Natural Gas Inventory
  4:30 PM Fed Balance Sheet
  4:30 PM Money Supply
• Notable earnings before Thursday's open: ALXN, BG, BLL, BMY, CBE, CELG, CLS, CME, DHR, DO, ECA, EMC, ESI, ESV, F, FITB, FLIR, GR, HBAN, HOT, HSY, IGT, JBLU, KMB, LCC, LLL, MMM, NCR, NEM, NIHD, NOC, NUE, NYT, OMC, ORI, OXY, PLD, PM, PNC, POT, R, RAI, RS, RTN, RX, SIAL, SPNC, T, TIN, TMO, TRA, UNP, UPS, WYE, XRX, ZMH
• Notable earnings after Thursday's close: AMP, AMZN, AXP, BIDU, BLUD, BNI, BRCM, BUCY, CA, CAKE, CB, CENX, CNW, COF, COG, CPWR, DDR, DDUP, EMN, FII, INFA, JNPR, KLAC, LEG, MSFT, NFLX, PMCS, RFMD, RMBS, RVBD, SNV, SPWRA, STAR, TCO, WFR, WRE

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[doubleguns:]

Goldman stills has over 12 billion of tarp funds washed through the AIG money laundry scheme.

S&P slip slopping on duration of loan. BS flag all the way up. That would be one of the first thinks looked at. Who do they think falls for this BS and more importantly why do they think is will float.

More like they came through with a bit more money for the "proper" bribe. Ratings agency activities mean nothing any more. Why bother.

I am for Bair getting a HUGE fee on the to big to fail firms forcing them to scale down. The sooner the better.

Jul 23 07:50 AM

[spald_fr:]

[Chrysler warns on dealership legislation. Chrysler warned it could face liquidation for a second time if lawmakers move forward with a plan to reinstate terminated dealership agreements. The House of Representatives has already approved a measure to restore contracts with 789 dealerships, but the bill's future in the Senate is less certain.]

If every dealership had $5MM worth of inventory in cars and parts, aggregate would be about $4B in total. This is a travesty for the small business families.

Jul 23 07:59 AM

[Old Trader:]

Taking a quick scan of earnings, it sure does appear that tech is faring much better than the economy, generally speaking. UPS came out with REALLY bad numbers, and guidance isn't good, either.

Jul 23 08:31 AM

[ScroogeMcduck:]

How is the goverment allowed to reinstate contracts for Chrysler?
This doesnt sound like free market capitalism to me.

Jul 23 08:38 AM

[robert.b.fe...:]

Great GS is free of government interference. Now if we can free the government of GS interference we would all be better off. I don't see what Chrysler is whining about. Those dealerships don't cost them anything wether they suceed or not. In fact it would appear that the more indipendant franchises there are the more volume you could move. Go figure.

Jul 23 08:49 AM

[RECON605:]

GOLDMAN SACHS IS NOT A BANK.

THEY SHOULD TAKE IT'S DESIGNATION AWAY FROM THEM AFTER THE PAYOFF OF THE TARP FUNDS SO THAT US TAXPAYERS SHOULD NOT BE LIABLE IN THE FUTURE FOR THEIR ACTIONS.

Jul 23 08:50 AM

[AndrewBaker:]

Goldman Sachs and the Treasury sleep in the same bed. Whatever either does, they take care of their own and cronies first. So many now seem ready to believe the nonsense that gets reported that I can only sit it out and wait, taking a bite here and there if a long or short opportunity presents. The market now is a casino because true figures and positions are not easily available, if at all. Perhaps after summer when volume is up, we may start to get some reality based price moves.

Jul 23 09:13 AM

[User 381980:]

Sorry to be a grammar Nazi, but the expression is "shoo-in," not "shoe-in." Otherwise, a great summary of the markets as always.

Jul 23 09:32 AM

[anon345:]

Dear Grammar Nazi,
Due to the high quality work Rachael produces every day I feel confident defending her that she knows the correct spelling and rather was playing on the word 'shoe' since Zappos is a shoe retailer.

Great work as usual Rach

Jul 23 09:42 AM

[JCCIII:]

"[Chrysler warns on dealership legislation. Chrysler warned it could face liquidation for a second time if lawmakers move forward with a plan to reinstate terminated dealership agreements. The House of Representatives has already approved a measure to restore contracts with 789 dealerships, but the bill's future in the Senate is less certain.]

If every dealership had $5MM worth of inventory in cars and parts, aggregate would be about $4B in total. This is a travesty for the small business families. " Quote, spald_fr above.

I have an old master's degree (1975) in economics and have given the reductions in dealerships some thought. While it is true that the dealerships do not cost Chrysler and GM directly, they compete against each other and, therefore, lower the average cost paid by the average US new car buyer and, therefore, lower the amount every dealer can pay and that Chrysler and GM can demand for each new car. Arbitrarily reducing the number of dealerships is a way to reduce dealership competition and increase the cost of a new car beyond what it needs to be by, you figure, something in the 2% to 10% range and increase profitability at Chrysler and GM and subsequently raise union wages; it is a transfer of wealth from ordinary new car buyers to Chrysler and GM to union wages to democrats via campaign contributions, accomplished by restricting trade/free competition. Do you really think a democrat congress is going to force Chrysler and GM to recognize the now or soon to be shut down dealerships?

Jul 23 10:20 AM

[Larrysyr:]

I'm shocked, shocked, that a rating agency would not understand that shorter durations are less risky than longer durations. Wow. Next we'll find out that treasuries are less risky than corporate bonds.

The FT article also indicated that the Fed will only buy AAA paper. Any connection? Can't be. The raters would never compromise their integrity. They would never give a rating to a deal they don't understand. And they would never engage in a rating where they have a conflict of interest.

Have they been downgraded to junk yet? When will they be abolished?

Jul 23 10:26 AM

[DavyJ:]

I especially liked "Saved just before CIT hit the fan" on Monday.


On Jul 23 09:42 AM anon345 wrote:

> Dear Grammar Nazi,
> Due to the high quality work Rachael produces every day I feel confident
> defending her that she knows the correct spelling and rather was
> playing on the word 'shoe' since Zappos is a shoe retailer.
>
> Great work as usual Rach

Jul 23 12:39 PM

[notsosmart:]

just forget the rating agencies.they are bought by the people they rate.

Jul 23 01:33 PM

[mr_subprime:]

I think Rachel Granby is a DISH! What a classy looking babe! Love your new picture! Best Wishes!

Jul 23 03:33 PM

[bbowen7:]

At one time the rating agencies were compensated by adding a small fee to each bond transaction - thus the compensation actually came from the people who benefited from objective assessments. Why this isn't part of the proposed regulatory reform is anybody's guess.

Jul 23 03:43 PM

[ebworthen:]

The giant squid called "trillions in debt" is still stalking the nautilus; don't break out the champagne yet.

Oh yeah, and Captain Nemo says don't worry, he's perfectly sane and loves all investors, please climb aboard!

Delusional fantasies do work better if you recruit more converts.

I concur with "Old Trader"; UPS numbers were AWFUL and they ship a LOT of consumer goods. Lots of others down too. Can we please not open that champagne on the "2% not as bad as the -46% we were expecting" headline.

Really people. Positive thinking is one thing, smoking the hookah another.

Jul 24 02:17 AM

[Anthony Alfidi:]

Congrats to GS on throwing off their TARP. Now if only they'll come clean on whether they're front-running.

Jul 24 09:14 AM

[Avooch:]

GS is of course front running - Where are the customer's yachts ?

gudovac1941.blogspot.c...

Jul 24 11:14 AM