Wall Street Breakfast: Must-Know News

• Buffett buys Burlington for a cool $44B. Berkshire Hathaway (BRK.A) announced it will acquire the 77.4% of Burlington Northern (BNI) it doesn't already own for $100/share in cash and stock - a 30% premium to Monday's close of $76.07. The transaction is worth $44B, including $10B in outstanding debt. Here's what Warren Buffett had to say: "Our country's future prosperity depends on its having an efficient and well-maintained rail system. Conversely, America must grow and prosper for railroads to do well. Berkshire's $34B investment in BNI is a huge bet on that company, CEO Matt Rose and his team, and the railroad industry. Most important of all, however, it's an all-in wager on the economic future of the U.S. I love these bets."
• Stocks slide; futures fall. Global stock markets painted a gloomy picture Tuesday, with bourses in Asia and Europe taking 2%-plus losses as risk appetite took a breather and investors clamored for safe-haven assets, sending the dollar and U.S. Treasurys climbing and futures tumbling (see data below in Today's Markets). "The basis for the correction seems to rest on three legs," Merrill economist Bill O'Neill said. "Worries over prospects for holders of equity in banks; concern that interest-rate hikes are imminent; and paradoxically, that recovery in 2010 will be crippled by a U.S. consumer unwilling or unable to open his or her wallet." Others took the recent downturn as a sign equity prices had gotten ahead of real improvements in the economy.
• Stanley, B&D craft $8.4B merger. Stanley Works (SWK) agreed to buy rival Black & Decker (BDK) for $4.5B in stock, the culmination of a courtship that spanned 27 years and three other attempts. The bid values B&D at about $57.57/share, a 22% premium to Monday's close. "The more we talked, the more we felt like these were two very complementary and unique companies," BDK CEO Nolan Archibald said, adding both CEOs were "totally swayed" by potential synergies of $350M. Stanley shareholders will own about 50.5% of the combined company; B&D shareholders will get 49.5%.
• Lloyds, RBS diverge on aid. Lloyds (LYG) and Royal Bank of Scotland (RBS) unveiled agreements with the U.K. Treasury over their participation in its program to insure toxic assets, and detailed the divestments they will need to make to satisfy EU regulators. Lloyds opted out of the expensive U.K. asset-protection scheme, saying it would raise £21B, including a £13.5B rights issue; the government will maintain its 43% stake in the bank. The move subjects Lloyds to more modest EU demands: Lloyds said it will dispose of "a retail banking business" with a 4.6% market share and about 19% of its mortgage portfolio; sell £180B in noncore assets; and limit acquisitions over the next 3-4 years. RBS will enter the asset-protection scheme to insure £282B of its illiquid loans, with the first £60B in losses borne by RBS. The government will inject another £25.5B into RBS, raising its stake to 84.4%. RBS will sell its RBS retail network in England and Wales and NatWest branches in Scotland; RBS insurance; Global Merchant Services; and its stake in RBS Sempra Commodities. LYG +2.8% premarket. RBS -8%.
• Outflows continue to plague UBS. Shares of UBS (UBS) are -7% premarket after the Swiss bank said it doesn't expect client inflows to recover anytime soon due to its mangled reputation as a result of its tax dispute with the IRS. UBS posted a fourth straight quarterly loss of 564M francs (-$552M), worse than the 207M loss expected by the Street. Total client outflows rose to 36.6B francs ($35.8B), led by a doubling of outflows at its Americas wealth-management division. On a media call, CFO John Cryan cited UBS's "residual reputational issue" along with "some morale issues among advisers" that it needs to face, and said UBS expects "modest outflows from Swiss clients until we return to profit."
• EU sees gradual recovery. The EU lifted its 2010-2011 growth forecast to 0.75% and 1.5% respectively, but cautioned its outlook is "highly uncertain" given that "significant fiscal and monetary policy measures" are supporting the recovery. Predicting government deficits will swell to 7.5% of GDP, the Commission said a "protracted period of fiscal consolidation will have to follow at some stage to put public debt back on a sustainable footing."
• RBA hikes rates again. Australia's central bank, the first G-20 member to break from super-loose monetary policy, raised interest rates for the second time in two months - to 3.5% - amid a rapidly improving economic outlook. The bank hinted it may not boost rates again in December, saying the rises in October and November would work to temper inflation and ensure a sustainable upswing in the economy, which sent the Aussie dollar (ETF: EWA) lower. The central bank has never hiked rates three months in a row.
• CRE breaks death spiral. Prices of investment-grade commercial real estate rose 4.4% in Q3, according to the MIT CRE's transaction-based index, possibly signaling an end to the sector's year-long downward spiral. "One quarter does not a trend make and we are still well below normal trading volume," David Geltner, director of research at MIT/CRE, said. "Nevertheless, this is the strongest sign of a bottom that we've had in two years." The positive news comes in stark contrast to gloomy remarks from the Fed's John Greenlee, who said Monday (.pdf) that regional banks building up "unprecedented concentrations of CRE loans" will suffer the impact of worsening conditions in real estate markets, and warned, "Poor loan quality, subpar earnings, and uncertainty about future conditions raise questions about capital adequacy for some institutions."
• Hat trick of upside surprises. U.S. manufacturing activity hit its highest level in 3.5 years and pending home sales contracts unexpectedly surged, reducing fears the economy's budding recovery would falter. ISM's manufacturing index climbed 3.1 points to 55.7 (vs. 53.3 consensus) as companies began rebuilding inventories. "Overall, it appears that inventories are balanced and that manufacturing is in a sustainable recovery mode," ISM said. Pending home sales rose for the eighth straight month, the longest streak on record, with NRA's index gaining 6.1% (vs. +0.7% consensus) to 110.1. The index is now at its highest since Dec. 2006. And construction spending (.pdf) rose 0.8% (vs. -0.3% consensus) to an annual $940B, though the gain was offset by a large downward revision to August's number.
• Pensions bulge while market caps shrink. Pensions rose an average of 19% for top executives in 2008, even as their companies' stock prices fell by 37% amid a global downturn, according to an analysis of SEC filings. The growth was largely due to arcane pension formulas that have received little scrutiny.

Earnings: Tue. Before Open

• Alpha Natural Resources (ANR): Q3 EPS of $0.47 beats by $0.09. Revenue of $729M (+5.9%) in-line. Shares -0.9% premarket. (PR)
• American Tower (AMT): Q3 EPS of $0.17 in-line. Revenue of $444M (+8.5%) vs. $430M. (PR)
• AmerisourceBergen (ABC): FQ4 EPS of $0.44 beats by $0.04. Revenue of $18.27B (+9.7%) vs. $18.06B. Shares +5.5% premarket. (PR)
• Archer Daniels Midland (ADM): FQ1 EPS of $0.77 beats by $0.20. Revenue of $14.9B (-29.5%) vs. $17.9B. Shares +0.1% premarket. (PR)
• Cameron International (CAM): Q3 EPS of $0.58 beats by $0.05. Revenue of $1.23B (-18.1%) in-line. Shares -0.3% premarket. (PR)
• Cognizant Technology Solutions (CTSH): Q3 EPS of $0.45 beats by $0.04. Revenue of $853M (+16.2%) vs. $806M. Sees Q4 EPS of $0.45 vs. $0.42 and revenue of at least $880M vs. $830M. Shares +6.9% premarket. (PR)
• Emerson Electric Company (EMR): FQ4 EPS of $0.67 beats by $0.07. Revenue of $5.32B (-20.5%) in-line. Sees 2010 revenue of $19.45-19.87B vs. $20.21B. "We are well positioned for economic recovery, but the shape and speed of the recovery remains unknown and we expect weakness to continue in the near-term." Shares -1% premarket. (PR)
• Expeditors International of Washington (EXPD): Q3 EPS of $0.27 misses by $0.02. Revenue of $1.04B (-33.7%) in-line. "There certainly were significant challenges during the latter part of this quarter as both air and ocean carriers imposed capacity reductions in order to implement very aggressive price increases. While we wouldn't call it 'The Perfect Freight Storm,' the rapidity of these carrier moves created a pricing environment that resulted in our experiencing single digit airfreight yields out of Asia during the first several weeks of September. Ocean yields were also significantly impacted." (PR)
• Frontier Communications (FTR): Q3 EPS of $0.17 beats by $0.02. Revenue of $527B (-5.6%) in-line. Shares -0.3% premarket. (PR)
• Gaylord Entertainment (GET): Q3 EPS of -$0.32 misses by $0.21. Revenue of $199M (-12.2%) vs. $202M. (PR)
• IntercontinentalExchange (ICE): Q3 EPS of $1.18 beats by $0.03. Revenue of $256M (+27.3%) in-line. Shares +0.2% premarket. (PR)
• Marathon Oil (MRO): Q3 EPS of $0.61 beats by $0.04. Revenue of $14.48B (-37.9%) vs. $13.7B. Shares +1.3% premarket. (PR)
• Marvel Entertainment (MVL): Q3 EPS of $0.26 beats by $0.02. Revenue of $106M (-42.1%) vs. $92.5M. Disney (DIS) is due to acquire Marvel by year-end. (PR)
• MasterCard (MA): Q3 EPS of $3.48 beats by $0.54. Revenue of $1.36B (+1.9%) in-line. Gross dollar volume +0.3%. Purchase volume +0.4%. Shares +3.3% premarket. (PR)
• Medco Health Solutions (MHS): Q3 EPS of $0.75 beats by $0.03. Revenue of $14.79B (+17.8%) in-line. Shares +2.5% premarket. (PR)
• Northgate Minerals (NXG): Q3 EPS of $0.03 misses by $0.01. Revenue of $120M. (PR)
• Oshkosh Truck (OSK): FQ4 EPS of $0.27 beats by $0.11. Revenue of $1.49B (-19.8%) vs. $1.4B. "We expect to be solidly profitable in fiscal 2010, led by significant revenue growth in our defense business, which should more than offset anticipated low demand at our construction-related businesses." Shares +3.8% premarket. (PR)
• Petroquest Energy (PQ): Q3 EPS of $0.07 misses by $0.06. Revenue of $50.3M (-35.8%) vs. $52.2M. Shares -6.5% premarket. (PR)
• Polo Ralph Lauren (RL): FQ2 EPS of $1.75 beats by $0.44. Revenue of $1.37B (-3.8%) vs. $1.31B. "We are raising our sales expectations for the remainder of the year, but we continue to be cautious with our outlook and are planning accordingly." Shares +2.7% premarket. (PR)
• Rockwell Collins (COL): FQ4 EPS of $0.84 misses by $0.03. Revenue of $1.19B (-7%) in-line. Shares -2.7% premarket. (PR)
• Royal Caribbean Cruises (RCL): Q3 EPS of $1.07 beats by $0.07. Revenue of $1.8B (-14.5%) in-line. Sees "a slight loss" in Q4 vs. consensus of +$0.04. "Like many other travel companies, we saw more strength than we expected during our peak season but have been experiencing more pricing pressure on some of our traditionally softer fall season sailings." Shares -3.2% premarket. (PR)
• St. Joe Company (JOE): Q3 EPS of -$0.08 misses by $0.02. Revenue of $43.2M (+30.1%) vs. $28.9M. (PR)
• Teva Pharmaceutical Industries (TEVA): Q3 EPS of $0.89 beats by $0.01. Revenue of $3.55B (-7.6%) vs. $3.63B. Shares -2% premarket. (PR)
• Viacom (VIA): Q3 EPS of $0.69 beats by $0.12. Revenue of $3.32B (-2.7%) in-line. Shares +0.7% premarket. (PR)
• Vornado (VNO): Q3 FFO of $1.25 beats by $0.08. Revenue of $671M (-0.7%) vs. $637M. Shares -0.5% premarket. (PR)

Earnings: Mon. After Close

• Anadarko (APC): Q3 EPS ex-items of $0.40 may not compare to estimate of -$0.33. Gains that may affect comparability, including reversed accrual and unrealized derivatives loss, of $0.51/share. Revenue of $2.7B (-55%) vs. $2B. Shares +0.7% AH. (PR)
• Avis Budget Group (CAR): Q3 EPS of $0.54 misses by $0.01. Revenue of $1.5B (-14%) vs. $1.6B. Shares +6.5% AH. (PR)
• Axis Capital (AXS): Q3 EPS of $1.05 beats by $0.33. Revenue of $452M (-29%) vs. $581M. (PR)
• Chesapeake Energy (CHK): Q3 EPS of $0.70 beats by $0.05. Revenue of $1.8B (-76%) vs. $2B. Shares -1.1% AH. (PR)
• Forest Oil (FST): Q3 EPS of $0.48 misses by $0.04. Revenue of $177M (-50%) vs. $252M. Shares -1.8% AH. (PR)
• Hecla Mining (HL): Q3 EPS of $0.09 beats by $0.09. Revenue of $95.2M (+39%) vs. $68.7M. Shares +2.4% premarket. (PR)
• Kinross Gold (KGC): Q3 EPS of $0.00 misses by $0.12. Revenue of $582M (+16%) vs. $578M. Shares +0.4% AH. (PR)
• MannKind (MNKD): Q3 EPS of -$0.42 beats by $0.06, on no revenues. "While we continue to be fully engaged in the task of navigating our NDA through the FDA review process, we are continuing to run additional studies of AFRESA." Shares +4.5% AH. (PR)
• Republic Services (RSG): Q3 EPS of $0.32 misses by $0.04. Revenue of $2.07B (+149%) in-line. Sees full-year EPS of $1.46-1.48 vs. $1.46. Shares -0.2% AH. (PR)
• Principal Financial Group (PFG): Q3 EPS of $0.74 beats by $0.09. Revenue of $2.3B (-9%) vs. $2.5B. Shares +2.4% AH. (PR)
• St. Mary Land (SM): Q3 EPS of $0.23 beats by $0.03. Revenue of $186M (-43%) vs. $187M. (PR)

Today's Markets

China was the lone gainer on an otherwise dismal Tuesday in Asia. Europe shares are getting pummeled. Stock futures are under severe pressure. Treasurys and the dollar are up strongly.

• Asia: Nikkei -2.3% to 9803. Hang Seng -1.8% to 21240. Shanghai +1.2% to 3114. BSE -3.1% to 15405.
• Europe at midday: FTSE -2.2% to 4993. CAC -2.2% to 3560. DAX -1.8% to 5335.
• Futures: Dow -1% to 9637. S&P -1.15% to 1027. Nasdaq -1%. Dec. crude -1.4% to $77.06. Gold +0.4% to $1058.20. Dec. 30-year Tsy +0.42% to 120-10. 10-year +0.26%. 5-year +0.18%. 2-year +0.06%. Euro -0.8%. Yen +0.3%. Pound -0.7%.

Tuesday's Calendar

• 7:45 ICSC Retail Store Sales
  8:55 Redbook Chain Store Sales
  9:30 Markup: Investor Protection Act
  10:00 Factory Orders
  10:00 Results of $25B, 70-Day TAF Auction
  10:00 Peter Orszag: Rescue, Recovery, and Reining in the Deficit
  12:00 PM FOMC begins two-day meeting
  12:00 PM Oct. Auto Sales
  5:00 PM ABC Consumer Confidence Index
• Notable premarket earnings: ABC, ACOR, ADM, AMT, ANR, CAM, COL, CTSH, EMR, EXPD, FTR, GET, HCP, HNT, ICE, JOE, JRCC, LPX, MA, MHS, MRO, MVL, NXG, OSK, PER, PKD, PQ, RCL, RDC, RL, SNH, TE, TEVA, THC, TLM, VIA, VNO
• Notable postmarket earnings: ACAS, ANH, AUY, CBL, CCI, CNW, DISCA, DRIV, EXM, HIG, KFT, ONXX, PXD, STEC, UNM, VVUS, XCO

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Comments

[Michael Clark:]

Ultrashort ETF's seem to be making long-term bottom here. This is not good news for stocks.

seekingalpha.com/insta...

EUM, Short Emerging Markets Stock Index ETF, is also finally turning positive. India, Indonesia, Russia, Turkey indices are point lower.

Nov 03 07:42 AM

[doubleguns:]

"that recovery in 2010 will be crippled by a U.S. consumer unwilling or unable to open his or her wallet." Others took the recent downturn as a sign equity prices had gotten ahead of real improvements in the economy"

Have these guys been asleep somewhere.

Hello!!! Rip Vanwinkle, time to wake up!!!

Nov 03 08:01 AM

[spald_fr:]

[CFO John Cryan cited UBS's "residual reputational issue" along with "some morale issues among advisers" that it needs to face, and said UBS expects "modest outflows from Swiss clients until we return to profit."]

Swiss banking privacy concerns drive Swiss investors out.

Nov 03 08:25 AM

[spald_fr:]

For my 300th post, I'd like to ask Eli how Rachel Granby fares.

Nov 03 08:30 AM

[ScroogeMcduck:]

Yea, I miss Rachel. Don't get me wrong Eli, your doing a great job your just not as pretty.


On Nov 03 08:30 AM spald_fr wrote:

> For my 300th post, I'd like to ask Eli how Rachel Granby fares.

Nov 03 08:55 AM

[AndrewBaker:]

At long last and not before time, reality is starting to creep into the pricing of bank and financial stocks. They are way overpriced, and many will now stop crowing as they see the illusory profits they thought they had made recently, fade away.

Short financial ETF are the place to be, and for those racier investors amongst us, FAZ is looking good. It needs to be respected, but big profits can reward an investor quickly, and at this time it's worth a look. It looks to have bottomed and started the climb up recently, and for a short term and day trader offers good returns potential. Plus the RSI is looking good too.

Don't want so much leverage as three times? Then SKF at 2x is there, and if no leverage is wanted, then SEF will assist.

Nov 03 09:32 AM

[AndrewBaker:]

Pensions: just another way for the CEO and other ranking employees to overpay themselves whilst their company's profits dive and the inflated stock price falls. That and over-generous salaries and bonuses are some of the ways that this elite have contributed to the current financial crisis, that the rest of us will be paying for for many years to come.

Nov 03 09:35 AM

[bottoms-up:]

Don't worry... We are sure to see another "interday pump and dump" engineered by Ben and Tim. The dump will continue until about 2:15 to 2:30 Eastern, then the pump will start as the Fed comes out with a statement that changes the language on interest rates just a bit, with wording that is vague enough to have plausible deniability, but also just enough for the hypemasters on CNBC, CNN Money, Bloomberg, etc. to pick it out and run with the ball, all be it deflated.

This is a government bubble... Just like the tech bubble... Remember that? We had a bunch of companies giving away services for "free" and getting $$$$ from investment firms to keep building the bubble. These so-called internet start-up companies, of course, were not making any money, but it the newspeak of tech, it didn't matter. When these firms actually had to stand on their feet and make a profit, they fell in mass. Same thing with the Fed and the trillions that are $$$$$ flowing to build company profits and equity markets... When the free stuff and zero rates stop, so does the economy and the government bubble will have burst.

Nov 03 09:47 AM

[SA Editor E...:]

Rachael's doing great. In case you missed it, she's out on maternity leave. And no offense taken - believe me, no one misses her more than yours truly.


On Nov 03 08:30 AM spald_fr wrote:

> For my 300th post, I'd like to ask Eli how Rachel Granby fares.

Nov 03 09:55 AM

[Old Trader:]

"We are well positioned for economic recovery, but the shape and speed of the recovery remains unknown and we expect weakness to continue in the near-term."

Investors are starting to echo Tom Cruise's line..."Show me the money!!!"

Nov 03 10:22 AM

[Boxed Merlot:]

…EU sees gradual recovery. The EU lifted its 2010-2011 growth forecast to 0.75% and 1.5% respectively…

What’s so “gradual” about a 100% increase YOY? Maybe they need some of the US’ Cramer boys to tout the magnificent job government intervention is causing to create such wild expansion of economic activity!

Nov 03 10:32 AM

[bottoms-up:]

I want to make one comment about "Buffett buys Burlington for a cool $44B." And I say this with all due respect to all of you who follow Mr. Buffett...

To me he has become nothing but a dog and pony that is rolled out whenever they need something pumped... Yesterday the pumping sector was financials, now it is transportation, tomorrow??? My other concern is when I see Mr. Buffett sitting at the same table as Bush or Obama, helping to develop government policy during this crisis.

If you go to this link on the US Security and Exchange Commission website, I think a lot of this fits insider trading (and not just with Mr. Buffett, there are a lot of them in this boat and no level playing field=no confidence).

www.sec.gov/answers/in...

Examples of insider trading cases that have been brought by the SEC are cases against:

* Corporate officers, directors, and employees who traded the corporation's securities after learning of significant, confidential corporate developments;

* Friends, business associates, family members, and other "tippees" of such officers, directors, and employees, who traded the securities after receiving such information;

* Employees of law, banking, brokerage and printing firms who were given such information to provide services to the corporation whose securities they traded;

* Government employees who learned of such information because of their employment by the government; and

* Other persons who misappropriated, and took advantage of, confidential information from their employers.

Nov 03 10:43 AM

[Joseph Sherman:]

Wall Street Journal - "Pensions bulge while market caps shrink. Pensions rose an average of 19% for top executives in 2008, even as their companies' stock prices fell by 37% amid a global downturn" - This is a great way to kill the heart of a tribe. To lead with a cause, the tribe needs to know that the executives are supporting them, not taking everything for themselves. Massive benefits during falling stock prices kills the cause of a tribe.

Nov 03 12:39 PM

[Igneous:]

For sure !!


On Nov 03 08:55 AM ScroogeMcduck wrote:

> Yea, I miss Rachel. Don't get me wrong Eli, your doing a great job
> your just not as pretty.

Nov 03 01:39 PM

[bbowen7:]

How can the EU be predicting 7.5% budget deficits when the Euro Zone target is a maximum of 3%? But then, we're pushing 10% - Obama has gotten us to be more European than the French!

Nov 03 04:02 PM

[Old Trader:]

bottoms-up,

I'm not certain I agree that this was an exercise in "market pumping" for a couple of reasons.

First, Buffet has held a substantial position in BNI for a while, and it "fits" his style and "comfort zone". We're talking about the guy who sat out the whole internet bubble because he didn't understand computers and the internet. It doesn't get much simpler than railroads.

Secondly, given the size of BRK, it takes a BIG deal to move the needle...lets say he threw a couple of hundred million into buying a biotech, or "social networking" site, and it turns out to be a 5 bagger...so now he's got one more billion...BFD!


On Nov 03 10:43 AM bottoms-up wrote:

> I want to make one comment about "Buffett buys Burlington for a cool
> $44B." And I say this with all due respect to all of you who follow
> Mr. Buffett...
>
> To me he has become nothing but a dog and pony that is rolled out
> whenever they need something pumped... Yesterday the pumping sector
> was financials, now it is transportation, tomorrow??? My other concern
> is when I see Mr. Buffett sitting at the same table as Bush or Obama,
> helping to develop government policy during this crisis.
>
> If you go to this link on the US Security and Exchange Commission
> website, I think a lot of this fits insider trading (and not just
> with Mr. Buffett, there are a lot of them in this boat and no level
> playing field=no confidence).
>
> www.sec.gov/answers/in...
>
> Examples of insider trading cases that have been brought by the SEC
> are cases against:
>
> * Corporate officers, directors, and employees who traded the corporation's
> securities after learning of significant, confidential corporate
> developments;
>
> * Friends, business associates, family members, and other "tippees"
> of such officers, directors, and employees, who traded the securities
> after receiving such information;
>
> * Employees of law, banking, brokerage and printing firms who were
> given such information to provide services to the corporation whose
> securities they traded;
>
> * Government employees who learned of such information because of
> their employment by the government; and
>
> * Other persons who misappropriated, and took advantage of, confidential
> information from their employers.

Nov 03 09:11 PM