Wall Street Breakfast: Must-Know News

• Apple: What recession? Apple (AAPL) customers continued to buy up iPhones and Mac computers, seemingly ignoring the recession and helping the company's Q4 results shine. "We are thrilled to have sold more Macs and iPhones than in any previous quarter," Steve Jobs said. Apple easily exceeded analysts' Q4 earnings expectations as back-to-school promotions drove sales: revenue grew 25% to $9.87B versus last year's quarter, while net income surged 47% to $1.67B (see more numbers below). Apple shares rose 7.2% to $203.43 in after-hours trading; the stock has more than doubled this year. Read Apple's earnings call.
• Lehman's Europe unit readies $90B claim. Lehman's European arm, now managed by PricewaterhouseCoopers, is preparing a new $90B claim against the U.S. parent of the failed bank - bringing the unit's total claims against various Lehman entities globally to $208B. PwC fees for managing the wind-down so far: €168M ($253M).
• Icahn targets CIT. Corporate raider Carl Icahn turned up the heat on CIT Group (CIT) Monday, slamming the company for unfairly favoring large bondholders with its revised debt exchange offer and saying he was prepared to offer a better deal by lending the company $6B and saving it $150M in fees. In a letter to CIT's board, Icahn said the proposed alternative $6B loan package is "the latest example of incompetent and unconscionable behavior" from CIT's board. Prospective lenders, he says, would get well in excess of what the current syndicated loan market should dictate, in exchange for voting their debt in favor of the company's reorganization plan.
• Morgan confirms Van Kampen sale to Invesco. Morgan Stanley (MS) confirmed Monday that it's selling its retail asset-management business, including the Van Kampen fund unit, to Invesco (IVZ), for $1.5B in stock and cash, including a 9.4% stake in Invesco. "By taking a minority interest in Invesco, Morgan Stanley will be able to realize significant value in partnership with a world-class player," co-president James Gorman said. The deal, rumored for months and expected to close in mid-2010, will remove some sales limits that Van Kampen managers faced since Morgan's JV with Smith Barney closed.
• Bernanke warns U.S., Asia to mind the gap. Fed chairman Ben Bernanke called on U.S. and Asian leaders to "avoid ever-increasing and unsustainable imbalances in trade and capital flows," saying the U.S. financial system is currently "overwhelmed" by an inflow of capital. Speaking Monday at a San Fran. Fed conference on Asia, Bernanke warned that while the U.S. trade deficits with developing countries are not as onerous as they were two years ago, they are still a threat to the global economy. World leaders believe global economic growth must begin to depend less on the U.S. consumer.
• Fed tests exit tool... As global central banks begin to weigh inflation risks, the Fed confirmed Monday it has begun experimenting with "triparty" reverse repo agreements, but says their actual use is not imminent. In a reverse repo, the Fed pledges mortgage-backed securities and Treasurys it bought as collateral for short-term loans, thereby draining cash from the financial system. Reverse repos are normally the domain of the 18 primary dealers; the experiment involves extending that to deals with the $2.5T money-market mutual fund business.
• ... while Australia says inflation risk looms. The Reserve Bank of Australia believes that the risk to global economic growth is passing, and that the bigger threat is now inflation. "Keeping interest rates at very low levels for an extended period could therefore threaten the achievement of the inflation target over the medium term," according to minutes from its Oct. 6 meeting, released Tuesday. At the meeting, the RBA unexpectedly raised its policy rate by 0.25% to 3.25% - its first such hike since March 2008, and the first in a major developed economy since the start of the financial crisis last year.
• Galleon faces massive withdrawals. Clients of hedge-fund giant Galleon jumped ship Monday after Friday's arrest of co-founder Raj Rajaratnam, forcing Galleon to unload some of its holdings, including tech stocks. So far, investors have requested $1.3B of the total $3.7B Galleon manages, and two of its brokerage firms - Bank of America (BAC) and Barclays (BCS) - have cut off relations with the firm. In a letter to investors and employees Monday evening, Rajaratnam said the charges "are, without exception, entirely baseless," and vowed to defend the firm.
• Financial sector fraud on the rise. Fraud is increasing twice as fast in the financial sector as in other sectors, according to Kroll's annual Global Fraud Report, released Monday. In a survey, senior executives said North America had been particularly hit hard by the financial crisis: the average financial services company lost over $15M to fraud over the past three years. The report comes as sources say investigators plan to charge 10 more securities dealers with insider trading, some linked to Galleon Group, which is at the center of one of the biggest-ever undercover operations into illegal trading (see above).
• Bair speaks up for small banks. FDIC head Sheila Bair warned Monday small community banks are struggling to compete against their too-big-to-fail rivals. "Too big to fail has become worse," she said, "it's become explicit when it was implicit before." Bair contends government guarantees create competitive disparities between large and small banks, because "everybody knows small institutions can fail," making it more expensive for them to raise capital and secure funding.
• China fires new salvo in trade tussle. In the latest in a series of China-U.S. trade disputes, China's Ministry of Commerce took preliminary measures Monday to impose tariffs of as much as 36% on certain nylon imports from the U.S., saying the imports have damaged the domestic industry. The ruling affects imports of Nylon 6, used to manufacture a variety of products, including toothpaste and chiffon. Affected U.S. firms include BASF's (BASFY.PK) U.S. arm and Honeywell (HON).
• Group support for Microsoft/Yahoo tie-up. In an open letter, advertising industry heavyweights urged the Department of Justice to fast-track approval of a Microsoft (MSFT) / Yahoo (YHOO) tie-up, saying the potential benefits for advertisers, marketing services agencies, Web site publishers and consumers are "too important to wait for." Google (GOOG) remained more circumspect, perhaps because it doesn’t want to alienate customers.

Earnings: Before Open

• Autoliv (ALV): Q3 EPS of $0.36 beats by $0.08. Revenue of $1.33B (-14.2%) vs. $1.28B. Shares -0.4% premarket. (PR)
• Bank of New York Mellon (BK): Q3 EPS of $0.54 beats by $0.06. Revenue of $3.33B (+3.7%) vs. $3.18B. Provision for credit losses goes to $147M from $61M last quarter. (PR)
• Biogen Idec (BIIB): Q3 EPS of $1.12 beats by $0.08. Revenue of $1.12B (+2.8%) in-line. Shares -1.9% premarket. (PR)
• BlackRock (BLK): Q3 EPS of $2.10 beats by $0.17. Revenue of $1.14B (-13.2%) in-line. "Improving investor sentiment was the most important factor in third quarter results. Clients are putting money back to work in the markets, driving inflows in equities and bonds, and outflows in money market funds industry-wide." Shares +0.9% premarket. (PR)
• Brinker International (EAT): FQ1 EPS of $0.17 beats by $0.02. Revenue of $778M (-20.9%) vs. $766M. Cost of sales fell to 28.2% from 28.4% last quarter. (PR)
• Caterpillar (CAT): Q3 EPS of $0.64 beats by $0.58. Revenue of $7.29B vs. $7.49B. "We believe the third quarter marked the low point for Caterpillar sales and revenues in what has been the toughest recession since the 1930s. We are seeing encouraging signs that indicate a recovery may be underway." Shares +4.4% premarket. (PR)
• China Mobile (CHL): Q3 net profit of 28.6B yuan ($4.2B), up 2.6% from 27.9B last year, short of consensus of 29.2B. Sales rose 9% to 114.1B yuan. Ebitda rose 5% to 57.8B yuan, short of 58.1B consensus. (Bloomberg)
• China Telecom (CHA): Q3 profit of 2.39B yuan ($350M), down from 4.6B last year, and well short of consensus of 3.68B. Ebitda profit margin slipped to 41.1% from 42.3%. (Reuters)
• Coach (COH): FQ1 EPS of $0.44 beats by $0.05. Revenue of $761M (+1.1%) vs. $754M. (PR)
• Coca-Cola (KO): Q3 EPS of $0.82 in-line. Revenue of $8.04B (-4.2%) vs. $8.11B. "We expect the consumer to continue facing economic uncertainties into 2010 and for consumer sentiment to recover slowly.: Shares -1.2% premarket. (PR)
• Comerica (CMA): Q3 EPS of -$0.10 beats by $0.43. $311M provision for loan losses, unchanged from Q2. (PR)
• Diamondrock Hospitality (DRH): Q3 FFO of $0.19 beats by $0.02. Revenue of $138M (-14.6%) vs. $134M. (PR)
• DuPont (DD): Q3 EPS of $0.45 beats by $0.12. Revenue of $5.96B (-18.3%) vs. $6.14B. Sees full-year EPS of $1.95-2.05 vs. $1.83. "We see overall sequential improvement in our industrial businesses as market conditions begin to firm." (PR)
• Forest Laboratories (FRX): FQ2 EPS of $0.85 misses by $0.01. Revenue of $963M (+4%) vs. $1B. (PR)
• Great Atlantic & Pacific Tea Company (GAP): FQ2 EPS of -$1.18 misses by $0.47. Revenue of $2.06B (-5.4%) vs. $2.13B. "The current challenging economy continues to impact our business. The macro headwinds including rising unemployment, intensifying price competition and now also deflation are creating an even more difficult short-term economic environment." Shares -9.7% premarket. (PR)
• Illinois Tool Works (ITW): Q3 EPS of $0.60 beats by $0.07. Revenue of $3.58B (-19.8%) in-line. Operating margin 13.5% up from 9.9% last quarter. (PR)
• Invesco (IVZ): Q3 EPS of $0.24 in-line. Revenue of $706M vs. $687M. Shares +3.6% premarket. IVZ announced yesterday it would acquire Morgan Stanley's (MS) retail asset management business, including Van Kampen Investments." (PR)
• Jefferies Group (JEF): Q3 EPS of $0.42 beats by $0.14. Revenue of $M (+154.5%) in-line. Shares +6.1% premarket. (PR)
• Journal Communications (JRN): Q3 EPS of $0.02 misses by $0.06. Revenue of $105M (-22.9%) vs. $108M. (PR)
• LaBranche (LAB): Q3 EPS of -$0.22 misses by $0.27. Revenue of $M in-line. Shares -4.9% premarket. (PR)
• Lockheed Martin (LMT): Q3 EPS of $2.07 vs. consensus of $1.83. Revenue of $11.06B (+4.5%) vs. $11.4B. (PR)
• Lexmark (LXK): Q3 EPS of $0.65 beats by $0.20. Revenue of $958M (+6%) vs. $901M. Gross margin 32.7% vs. 32.5%. Sees Q4 EPS of $0.50-0.60 vs. $0.47, revenue "up slightly." Stronger than expected customer demand drove better than expected growth. (PR)
• Marshall & Ilsley (MI): Q3 EPS of -$0.68 in-line. Average loans and leases fell 6% to $47.1B. "There are some encouraging early signs that credit quality is improving, but we realize it will take a few more quarters to fully address our problem loans." Announces $775M common stock offering. Shares -10.2% premarket. (PR)
• Parker-Hannifin (PH): FQ1 EPS of $0.45 beats by $0.28. Revenue of $2.24B (-27%) vs. $2.17B. Shares +4.9% premarket. (PR)
• Peabody (BTU): Q3 EPS of $0.49 beats by $0.26. Revenue of $1.67B (+24.6%) vs. $1.42B. Shares +4.2% premarket. (PR)
• Pfizer (PFE): Q3 EPS of $0.51 beats by $0.03. Revenue of $11.62B (-2.9%) vs. $11.41B. Sees full-year EPS of $2.00-2.05 vs. $1.98. (PR)
• Precision Castparts (PCP): FQ2 EPS of $1.54 misses by $0.09. Revenue of $1.3B (-27.6%) vs. $1.4B. "From a top-line perspective, overall sales declines seem to be bottoming out in the second quarter." Shares -3.1% premarket. (PR)
• Regions Financial (RF): Q3 EPS of -$0.37 misses by $0.12. Revenue of $1.62B (-20.3%) vs. $1.58B. Allowance for credit losses +2.9% to $1.025B. Shares +0.35% premarket. (PR)
• Sherwin Williams (SHW): Q3 EPS of $1.51 beats by $0.16. Revenue of $2B (-12%) in-line. Sees Q4 EPS of $0.35-0.55 vs. $0.61, and revenue down 8-12% Y/Y. (PR)
• State Street (STT): Q3 EPS of $1.05 beats by $0.01. Revenue of $2.24B (-19.3%) in-line. Shares -0.75% premarket. (PR)
• UAL (UAUA): Q3 EPS of -$0.43 beats by $0.51. Revenue of $4.43B (-20.3%) in-line. Shares +8.1% premarket. (PR)
• UnitedHealth (UNH): Q3 EPS of $0.89 beats by $0.12. Revenue of $21.7B (+7.6%) vs. $21.56B. (PR)
• United Technologies (UTX): Q3 EPS of $1.14 beats by $0.02. Revenue of $13.38B (-11.3%) in-line. "Order rates for most of our businesses have largely stabilized, although the shape of recovery is still uncertain." (PR)
• Western Union (WU): Q3 EPS of $0.33 beats by $0.01. Revenue of $1.31B (-4.6%) in-line. Says recent stabilization trends are encouraging. (PR)

Earnings: Mon. After Close

• Apple (AAPL): FQ4 EPS of $1.82 beats by $0.40. Sales of $9.87B vs. $9.2B. Sees FQ1 EPS of $1.70-1.87 vs. consensus of $1.91 on sales of $11.3-11.6B, in line. Sold 3.05M Macs, 10.2M iPods, and 7.4M iPhones during quarter. Gross margin 36.6%. Shares +5.9% AH. (PR)
• Atheros Communications (ATHR): Q3 EPS of $0.46 beats by $0.08. Revenue of $157M (+13%) vs. $147M. Shares +2.1% AH. (PR)
• Boston Scientific (BSX): Q3 EPS of $0.19 beats by $0.05. Revenue of $2.03B (+3%) vs. $2.04B. Sees Q4 EPS of $0.17-0.21 vs. $0.17. Expects full-year adjusted EPS of $0.75-0.79 vs. $0.56. Shares -7% AH. (PR)
• JDA Software Group (JDAS): Q3 EPS of $0.40 beats by $0.04. Revenue of $96M (-3%) vs. $92M. Shares -2.8% AH. (PR)
• Lincare (LNCR): Q3 EPS of $0.53 beats by $0.01. Revenue of $393M (-3%) vs. $391M. Shares -0.8% AH. (PR)
• Packaging Corp. of America (PKG): Q3 EPS of $0.25 in-line. Revenue of $554M (-11%) vs. $549M. Sees Q4 EPS of $0.13 vs. $0.17. Shares -7.4% AH. (PR)
• Steel Dynamics (STLD): Q3 EPS of $0.30 beats by $0.07. Revenue of $1.2B (-54%) vs. $1.1B. Shares +2.6% AH. (PR)
• Texas Instruments (TXN): Q3 EPS of $0.42 beats by $0.03. Revenue of $2.9B (-15%) vs. $2.8B. Sees Q4 EPS of $0.42-0.50 vs. $0.40. "Our balance sheet is strong and has allowed us to opportunistically make investments in Analog and Embedded Processing throughout this downturn that should provide returns for years to come." Shares +2% AH. (PR)
• UDR Inc. (UDR): Q3 FFO of $0.31 beats by $0.01. Rental income of $150M (+2%) vs. $149M. Lowers full-year FFO guidance to $1.14-1.20 from $1.23-1.35, vs. consensus of $1.27. Shares -0.5% AH. (PR)
• Volterra Semiconductor (VLTR): Q3 EPS of $0.19 misses by $0.01. Revenue of $29.7M (-3%) in-line. Shares -10.3% AH. (PR)
• Werner (WERN): Q3 EPS of $0.26 beats by $0.06. Revenue of $429M (-27%) vs. $428M. Shares +3.3% AH. (PR)
• Zions Bancorp (ZION): Q3 EPS of -$1.41 misses by $0.17. Revenue of $753M (+29%) vs. $633M. Shares -1.1% AH. (PR)

Today's Markets

Asian markets were mostly higher Tuesday, while Europe stocks were mostly lower. Nasdaq futures are well higher on the strength of Apple's (AAPL) blowout Q4; other indexes are flat.

• Asia: Nikkei +0.98% to 10,337. Hang Seng +0.83% to 22,385. Shanghai +1.52% to 3,085. BSE -0.59% to 17,223.
• Europe at midday: London -0.1%. Paris -0.1%. Frankfurt flat.
• Futures at 7:00: Dow flat at 10016. S&P +0.1% to 1092.50. Nasdaq +0.7%. Crude -0.4% to $79.66. Gold +0.65% to $1,065. 30-year Tsy +0.18%. 10-year +0.11%. 5-year +0.07%. Euro +0.2% vs. dollar. Yen +0.6%. Pound +0.3%.

Tuesday's Economic Calendar

• Tuesday's economic calendar:
  7:45 ICSC Retail Sales
  8:30 PPI
  8:30 Housing Starts
  8:55 Redbook Chain Store Sales
  9:30 Hearing: State of the Housing Market
  10:00 Results: $75B, 28-Day TAF Auction
  2:00 PM Markup: Consumer Financial Protection Act
  5:00 PM ABC Consumer Confidence Index
  7:00 PM Romer: State of the Economy
  8:00 PM Plosser: Monetary Policy in a Tough Environment
• Notable pre-market earnings: ALV, BK, BIIB, BLK, BTU, CAT, CMA, COH, DGX, DRH, DD, EAT, FRX, GAP, ITW, JEF, JRN, KO, LXK, LMT, MTB, PCP, PH, PFE, RF, SHW, STT, SVU, UAUA, UNH, UTX, WU
• Notable post-market earnings: AMLN, CHRW, CNI, CREE, GILD, INFN, ISRG, NBR, PLCM, SNDK, SLM, STX, STM, SYK, TUP, WLT, YHOO

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Comments

[AndrewBaker:]

The authorities complain about a rise in financial fraud: what are they talking about? They are perpetrating the biggest financial fraud of all time with their quantitative easing and use of tax dollars to support an oligarchy and make everyone else suffer, as we will, by inflating away in due course the value of our wealth and savings, whilst ensuring they preserve their own wealth and interests..

Oct 20 08:06 AM

[doubleguns:]

"World leaders believe global economic growth must begin to depend less on the U.S. consumer."

That's because we are toast!! With govt run healthcare, cap n trade and possibly VAT we will be "Milk Toast".

Oct 20 08:08 AM

[robert.b.fe...:]

Step right up every one's a winner. All the big boys beat consensus handily on negative numbers. Sheila finally figured out that too big too fail banks that failed and are propped up by the government have a unfair competitive advantage. Gee ya think? BK says that every thing is great while nearly tripling their loss preparations to $147B. I'm sure that's a clue. Does any one want to buy a vowel here?

Oct 20 09:03 AM

[Dave M.:]

andrew baker said..""The authorities complain about a rise in financial fraud: what are they talking about? They are perpetrating the biggest financial fraud of all time with their quantitative easing and use of tax dollars to support an oligarchy and make everyone else suffer>""

Not to mention the notorious ponzi scheme known as the social security trust fund in which there is no trust and there are no funds.

doubleguns said..""That's because we are toast!! With govt run healthcare, cap n trade and possibly VAT we will be "Milk Toast". ""

Then there is the new soda tax, beer tax, increased state sales tax. It almost makes you want to take up smoking to calm your nerves and go for a leisurely drive in the country...but wait..arn't there new taxes on gas and tobacco too?? Republicans borrow and spend, Democrats tax and borrow and spend...like crazy

Oct 20 09:32 AM

[a. palmer jr.:]

You people didn't really think things would be cheaper with the Democrats in power, did you? Not that the Republican borrowers were much better. Maybe Ron Paul as an Independent??

Oct 20 09:41 AM

[User 493435:]

Sounds more like Burnt Toast!!!

Oct 20 10:15 AM

[notsosmart:]

wall st is all ponzi/casino.been saying it for years.they ruined this country.the lying ceos,the self serving boards,the joke of the SEC,the bought congress,the lack of ethics & transparency all put this country on the downhill slide & it may never recover.china owns us & more & more we will have to dance to their tunes.this granite counter society may have to eat them.

Oct 20 12:43 PM

[bbowen7:]

If there are two or three heroes/heroines in the government in the Wall Street mess, Sheila Bair is one of them. Maybe if they ever get around to reform of the financial system, they'll listen to her.

Oct 20 02:41 PM

[ebworthen:]

[Fed chairman Ben Bernanke called on U.S. and Asian leaders to "avoid ever-increasing and unsustainable imbalances in trade and capital flows," saying the U.S. financial system is currently "overwhelmed" by an inflow of capital.]

LOL! Sure Ben, and you are buying Treasuries and the bailed out financials are buying stocks and commodities with taxpayer money.

We are overwhelmed with greed, corruption, and hopium!

And...the Chinese are putting tariffs on some U.S. goods. Farmers have been rioting in the EU for more tariffs as well.

Cap and tax and healthcare that benefits the pharmaceuticals and corporations and increases government largesse.

Hmmm...aren't we waltzing down the path that led to Great Depression I and WWII?

Oct 20 02:47 PM

[ebworthen:]

Apple Profits: as long as people aren't hungry or cold, entertainment luxury items will sell well. Besides - Apple takes Visa, Master Card, and American Express.

Oct 20 03:11 PM

[PainfullyAware:]

"We are overwhelmed with greed, corruption, and hopium!" - eboworthen

Ahhh, The Stupor Of "Hopium". (He He He; Oh Dang !!!)

I have to agree with bbowen7 that Sheila Bair has actually showed some fortitude of recognition and attempts to warn. Bummer she is, by position, like the swimmer on the beach watching the incoming tidal wave from the low tide mark.

Higher "Fraud Rates" always happen when things become "Uncertain" and more scrutiny is paid to Enforcement. Law Suits and "Workouts" are starting to Balloon. If "Mark To Myth" is ever repealed we will have records within this stat.

Oct 20 04:23 PM

[NEOCON47:]

how can a subsidiary sue its parent company?

Also as to PwC isn't that a form of extortion or racketeering to have those kind of charges already?

Oct 20 06:56 PM

[Tejus Trivedi:]

For a look at Regions Financial governance scorecard check out
www.invesguard.com/com....

For Apple's governance scorecard go here:
www.invesguard.com/com....

Oct 21 10:15 AM

[absolute re...:]

As earnings reports are released this week, I continue to remain short-term cautious, in spite of Apple’s glowing report. There are still high quality stocks selling at reasonable prices, but be prepared for a pullback from this technically important level, especially due to our concerns about unemployment and financial underpinnings.

This is a quote from Monday's article on Seeking Alpha by David Brown of Sabrient Systems. Given todays action in the last half hour and analyst change on Wells Fargo I think it was a good forecast. $5.1 Billion in bad debt on top of what BofA gave us last week.

I am the first to admit that I never know where the market is headed but I think those on CNBC that keeping jumping around over Dow 10,000 are missing some of the serious problems in Banks that are still to come. I have heard as many as 300 banks may still be closed.

Oct 21 05:26 PM