Wall Street Breakfast

by: SA Editors
SA Editors
Seeking Alpha's flagship daily business news summary, gives you a rapid overview of the day's key financial news. It is published before 7:00 AM ET every market day and delivered to over 900,000 email subscribers.


FedEx Guidance Disappoints, Forecasts Slower U.S. Growth

FedEx's stock fell about 2% after the company announced fine results for the quarter ending November 30 but predicted EPS of $1.20-1.35 for its next quarter (FQ3), below the consensus estimate of $1.55. For the quarter just announced (F2Q), revenue was up 10% to $8.93 billion, package volume up 7%, operating income up 6%, net income up 8% to $511 FedEx Chart 20 12 06million, and EPS of $1.64 or $1.98 excluding costs associated with its new pilot labor contract. The consensus was $1.76. On F3Q guidance, CFO Alan Graf said in the press release: "Our earnings guidance for the third quarter recognizes a difficult year-over-year comparison, as last year’s third quarter benefited from the timing lag that exists between when we purchase fuel and when our indexed fuel surcharges automatically adjust. December 2005 fuel surcharges at FedEx Express and FedEx Ground were set during the period fuel prices had spiked following Hurricane Katrina. We remain optimistic that we will continue to improve full-year margins and returns during a period of moderate economic growth." He also said that he expected "somewhat slower" growth in the US during the next six months, particularly in the housing and manufacturing sectors.
• Sources: FedEx Press Release, Bloomberg, WSJ, BusinessWeek.
• Related commentary: Fedex Investors: Some Important Changes to Note, Eye on Transport Sector, Trucker's Guidance Cut is Yet Another Sign Consumer is Running Out of Gas.
• Potentially impacted stocks and ETFs: FedEx (NYSE:FDX) Competitors: UPS (NYSE:UPS) ETFs: iShares Dow Jones Transportation Index Fund (NYSEARCA:IYT), Vanguard Industrials VIPERs (NYSEARCA:VIS), DIAMONDS Trust (NYSEARCA:DIA).


Publicis Proclaims Importance of Interactive Advertising in Digitas Acquisition

French advertising firm Publicis Groupe announced yesterday it will acquire Digitas for $13.50/share ($1.3b in cash). Shares of both firms rose on the news, with Digitas' jumping 22%. Publicis CEO Maurice Levy is leading the firm on an acquisition growth strategy, with Digitas being its 11th deal this year. He commented, "We know this is the market of the future. The combination of Publicis and Digitas will make a world leader in digital marketing services." Digitas-DTAS-Publicis-PUB-1yr-chart-12-20-06 Levy expects the digital and interactive advertising market to grow 26% this year, compared to 5% growth for the overall advertising market. A Piper Jaffray analyst had positive comments on the deal, and said he sees the market growing 20%/year over the next five years. The boards of both firms unanimously approved the deal, which is expected to close as early as Jan. or Feb, depending on results of the cash tender offer. Digitas' CEO said Publicis' offer was the best among several inquiries, emphasizing cultural fit and worldwide growth opportunities. He will say on as an executive. Publicis expects Digitas to add about 4% to its operating margins in '07, and around 6% in '08.
• Sources: Press release (I, II) [pdf], Bloomberg
• Related commentary: Mark Cuban: Online Video Ad Market Will Collapse, Online Ads Steal the Show From Traditional Media, Headlines Aside, Internet Advertising Growth Has Stalled, U.S. Online Ad Revenue Sets New Record; Yahoo's Semel Feels Ad Growth Underestimated, Online Advertising Tops $4 Billion Per Quarter
• Potentially impacted stocks and ETFs: Digitas (OTC:DTAS), Publicis Groupe (NASDAQ:PUB)

AT&T and Verizon to Benefit from New FCC Ruling -- If It Survives Court Challenge

The U.S. Federal Communications Commission has approved new rules that will make it easier for telephone service providers AT&T and Verizon to provide television services, boosting their competitive edge against cable companies that have drawn customers away with their own phone and Internet services. The 3-2 decision was made according to party lines, with the Republicans in favor and Democrats opposed. The Republicans claim the new rules will lower prices for consumers, remove unnecessary local roadblocks, and break a virtual monopoly of cable providers; while the Democrats see them as a means of inappropriately imposing federal power over local governments. The new regulations, which require local authorities to rule on franchise applications within 90 days for phone companies that are already present and within six months for companies that do not yet have wires in the area, are likely to be challenged in court. The regulations also stipulate that local officials stop requiring companies that provide TV service to extend that service to an entire jurisdiction; nor may they continue to demand fees exceeding 5% of the television revenues.
• Sources: Bloomberg, MSNBC, New York Times
• Related commentary: Verizon to Outlay $18 Billion for Upgraded Fiber Optic Network, Cable TV Access, AT&T Won't Bend Further To Get FCC Approval of BLS Deal, AT&T May Buy DirecTV, Says UBS
• Potentially impacted stocks and ETFs: Verizon Communications Inc. (NYSE:VZ), AT&T Inc. (NYSE:T), Telecom HOLDRs (NYSEARCA:TTH), First Trust Morningstar Div Leaders Idx (NYSEARCA:FDL), WisdomTree High-Yielding Equity (NYSEARCA:DHS), WisdomTree LargeCap Dividend (NYSEARCA:DLN)


Rig Shortages Delay Gulf Exploration and Production as Costs Jump

Bloomberg reports a severe shortage of deep-sea oil drilling rig availability is creating delays in exploration and production for oil majors such as Chevron, which is struggling to exploit the "Jack" oil field in the Gulf of Mexico, the deepest well ever tested, announced in September. A Chevron senior drill-site manager comments, "There's a lot of prospects out here we'd like to drill but can't yet because there aren't enough rigs." Amidst the shortage, daily rental fees continue to rise, having doubled over the past 18 months. Transocean, the world's largest rig operator charges as much as $520,000/day. Chevron-CVX-Transocean-RIG-1yr-chart-12-20-06There are only 18 rigs in existence that can reach the deepest discoveries, and there are currently 31 rigs on order globally with such capabilities. Of these, only two will be finished next year and 13 will be ready in '08. Meanwhile, the delay in exploring and producing oil in the Gulf of Mexico means the U.S. will continue to rely on OPEC. Total daily rig operating costs which can exceed $1m/day are seen hurting profits of oil majors. Analysts surveyed by Bloomberg estimate average net income growth of 12% this year, versus 35% in '05. Earlier this month, Chevron announced a 23% increase in capex for '07 to $19.6b.
• Sources: Bloomberg, Transocean Fleet Update [pdf]
• Related commentary: Eye on Chevron, Ceiling Not Yet in View for Big Oil Stocks, Chevron, ConocoPhillips Going Opposite Directions With CapEx in 2007, Barron's: Transocean an Energy LBO Target?, Still Cautious on Gulf of Mexico Driller Stocks Conference call transcripts: Chevron Q3'06, ExxonMobil Q3'06
• Potentially impacted stocks and ETFs: Chevron (NYSE:CVX), Devon Energy (NYSE:DVN), Statoil (NYSE:STO). Rig operators: Transocean (NYSE:RIG), GlobalSantaFe (NYSE:GSF), Ensco International (NYSE:ESV). Competitors: ConocoPhilips (NYSE:COP), Exxon Mobil (NYSE:XOM), Royal Dutch Shell (NYSE:RDS.A), BP (NYSE:BP), Sunoco (NYSE:SUN). ETFs: Vanguard Energy (NYSEARCA:VDE), Energy Select Sector SPDR (NYSEARCA:XLE), iShares Dow Jones US Energy Sector (NYSEARCA:IYE), iShares Dow Jones US Oil & Gas Ex Index (NYSEARCA:IEO), United States Oil Fund LP (NYSEARCA:USO)

With Latest Acquisition, Arcelor-Mittal Becomes Mexico's Largest Steel Producer

Arcelor-Mittal announced yesterday it was purchasing Mexico's Sicartsa, maker of long-steel products such as bars and wires used in buildings.mt The deal was reported to total $1.4 billion - $900 million for the company as well as $540 million in debt. With 176 million tons of iron-ore reserves, Arcelor-Mittal has enough to keep its newly acquired mills operating for 30 years at current rates of 2.7 million tons a year, making it Mexico's biggest steel producer. The Wall Street Journal believes the deal signals a new strategy for the newly-merged Arcelor-Mittal to dominate each market it serves while grabbing precious raw materials on the cheap. It will also provide a jumping off point for the company to cater to the Mexican and southwestern U.S.'s steel needs.
• Sources: Reuters, MarketWatch, Bloomberg, WSJ
• Related commentary: ArcelorMittal - A Sustainable Global Steel Titan?, Big Steel Mergers -- It's About Pricing Power (MT, BHP, RTP), Will Another Iron-ore Price Hike Stop Surging Steel Stocks?, Oregon Steel Mills Buyout Sends U.S. Steel Stocks Skyward
• Potentially impacted stocks and ETFs: Mittal Steel Company N.V. (NYSE:MT). Competitors: United States Steel Corporation (NYSE:X). ETFs: Market Vectors Steel ETF (NYSEARCA:SLX)


Bed Bath & Beyond Misses, But Rebuts Housing Market Related Pessimism; Stock Up

Home goods retailer Bed Bath & Beyond reported EPS of $0.50 for the quarter ending November 25, below the consensus estimate of $0.52. Guidance for next quarter was $0.78 excluding charges, also below the current consensus of $0.79. But the company announced a $1 billion stock buy-back, and expectations for stocks impacted by the housing market are arguably low, so BBBY's stock rose 2.7% in late trading. For FQ3, net sales rose by 11.8%, same store sales by 4.6%, and Bed Bath and Beyond Chart 21 12 06earnings by 5.8% to $142.4 million. Bed Bath and Beyond plans to open 18 new stores next quarter, resulting in a total of 813 Bed Bath & Beyond stores, 35 Christmas Tree Shops and 39 Harmon Stores open by year end. Rejecting pessimism about the impact of the housing slow down, Co-Chairman Warren Eisenberg said on the call: "Although we are obviously aware of the results being reported by other operators and of the current macro economic environment, we feel strongly that home goods is an attractive retailing sector... while we enjoy a strong position in the sector, our share of home goods market is relatively small and we continue to be successful in our efforts to improve our absolute and our relative positions in the marketplace. Our steady growth should continue for years in the future..."
• Sources: Full Conference Call Transcript, Press Release, Reuters, TheStreet.com.
• Related commentary: Bed Bath & Beyond Post-Earnings: Taxes, Operations and Guidance, Bed Bath & Beyond Earnings: Gross Margins Are Impressive.
• Potentially impacted stocks and ETFs: Bed Bath & Beyond (NASDAQ:BBBY) Competitors: Target (NYSE:TGT), Wal-Mart (NYSE:WMT), Williams-Sonoma (NYSE:WSM). ETFs: Retail HOLDRs (NYSEARCA:RTH), Consumer Discretionary SPDR (NYSEARCA:XLY).

Nike Beats Estimates with Smaller Brands and Tax Benefits

Nike's profit rose 8% and surpassed estimates due to tax benefits and improved sales from smaller brands. The world's largest athletic shoemaker reported a net income $325.6 million compared to $301.1 million y/y, and earnings per share of Nike Chart 21 12 06$1.14, beating estimates of $1.13. Revenue grew 10% to $3.82 billion from $3.47 billion, exceeding forecasts of $3.76 billion. In extended trading, shares fell 1% to $98.39, holding the majority of its gains from the regular session when the stock climbed 4% to $99.78, its highest level in nearly 10 years. Nike's performance was aided by the 50% increase of Converse sales and a 21% rise in sales of non-Nike brands such as Cole Haan and Hurley. A retroactive tax benefit from the Dutch government gave it a boost of $0.13 per share.
• Sources: Nike F2Q07 Earnings Conference Call Transcript, Reuters, The Street.com, Bloomberg
• Related commentary: Nike's Strategy for Winning the Footwear Game, Nike Brand President Comments on the Japanese Market, Nike Reports Lower Earnings but is Optimistic
• Potentially impacted stocks and ETFs: Nike (NYSE:NKE)


Ford's Internal Projections: Toyota Will Be #2 Within Months

The New York Times reports that according to internal projections Ford Motor Co. expects Toyota Motor Corp. (NYSE:TM) to unseat it as the #2 car-maker behind General Motors Corp. (NYSE:GM) -- a position that has been Ford's since the 1920s -- as soon as January, 2007, a much faster shift than Ford had originally anticipated. Ford expects its market share to bottom within two years at 14-15%; its current market share is 16.2%, down from highs of 25% just six years ago. The projections also show that Ford expects Toyota market share to grow when it introduces the new model of its Ford Chart 21 12 06Tundra full-size pickup in February; Ford's drop and Toyota's gain will put the Japanese company ahead. Ford's chief sales statistician declined to comment on the internal projections, but did say, "Unless you think Toyota is going to go backwards, it’s a good possibility that they will gain market share.” Ford officials are also watching the Chrysler Group, which is implementing its most recent restructuring plan after seeing car and truck inventories balloon this year. Chrysler has heavily increased rebates and other deals -- if this continues into 2007, and Chrysler picks up the rental-car sales lost by Ford's discontinued Taurus, Ford’s projections show it could wind up fourth. Ford's new CEO, Alan Mulally, has said Ford needs to pay more attention to cost-cutting and transforming its business model than to measurements like market share.
• Sources: New York Times
• Related commentary: GM, Ford And Clean Car Hype, No Tough Times For Toyota, DaimlerChrysler's New Marketing Strategy: The Beginning of the End for Car Dealerships?, Toyota Comments on U.S. Sales Outlook, Denies Tundra Production Cut. Conference call transcripts: Ford Q3 2006DaimlerChrysler Q3 2006, General Motors Q3 2006
• Potentially impacted stocks and ETFs: Ford Motor Co. (NYSE:F), Toyota Motor Corp. (TM), DaimlerChrysler (DCX), General Motors Corp. (GM)

CarMax Thoroughly Beats Earnings Estimates

CarMax's third quarter profit nearly doubled and it raised its forecast for the third time in two months as consumers opt for more expensive vehicles. The largest used-car retailer in the U.S. reported an increase of $0.42 a share over $0.22 last year, beating Street estimates of $0.25. Net income soared to $45.4 million from $22.9 million y/y, and sales rose 24% to $1.77 CarMax Chart 21 12 06billion from $1.42 billion. CarMax raised its 2007 forecast from $1.75 to $1.85 a share as customers are purchasing more luxury cars and pick-up trucks. On the news of CarMax's healthy performance, shares rose 11% to $54, just short of its 52-week high of $55.19.
• Sources: Carmax F3Q07 Earnings Conference Call Transcript, Bloomberg, Business Week Marketwatch, MSN Moneycentral
• Related commentary: Carmax: Fast Earnings, Huge Turnover, Carmax's Impressive Growth
• Potentially impacted stocks and ETFs: CarMax (NYSE:KMX).Competitors: United Auto Group (NYSEARCA:UAG), Auto Nation (NYSE:AN)

Highland Capital Challenges Delphi's Current Reorganization Plan

In counterbalance to the $3.4 billion reorganization plan announced by auto parts company Delphi Corp. on Monday, the company's second largest shareholder (8.9%), hedge fund Highland Capital, is offering shareholders its own reorganization plan, valued at $4.7 billion.dphiq The former General Motors spinoff is currently filed for chapter 11 bankruptcy; any reorganization deal is predicated on Delphi reaching a deal with the United Auto Workers Union by January 31, 2007.
• Sources: Press Release, WSJ, CNN Money
• Related commentary: Cerberus Capital Eyes Delphi's Plants, Demands Lower Wages
• Potentially impacted stocks and ETFs: Delphi Corporation (OTC:DPHIQ). Competitors: TRW Automotive Holdings Corp. (NYSE:TRW), Visteon Corporation (NYSE:VC)

DaimlerChrysler: New Mexican Freightliner Plant In the Works

DaimlerChrysler's truckmaking unit, Freightliner LLC, announced that they will build a $300 million factory in Mexico, in order to meet increased demand expected in 2009. The new plant will create 1600 jobs and produce up to 30,000 vehicles per year. This news follows a previous announcement that Frieghtliner is laying off approximately 4,000 North DCX chartAmerican factory workers next year. The industry anticipates a market downturn for heavy trucks starting next year due to recent environmental regulations on truck engines. Frieghtliner has received a glut of orders this year ahead of the deadline for compliance with the new regulations. The company expects the market to pick up in 2008, as companies become more comfortable with the regulations. Analysts are surprised by this move and conjecture that Freighliner "may also be easing out of one relatively high-cost area in North America in favor of a lower-cost one." DaimlerChrysler stock climbed 32 cents to $61.59 yesterday.
• Sources: Bloomberg, AP, Todaystrucking.com, WSJ
• Related commentary: Chrysler's Woes Continue To Weigh on DaimlerChrysler Stock, Auto Retailers Should Approach the Vendor as a Resource Center, Chrysler Extending Plant Closures Over Christmas in Bid to Shrink Inventory Conference call transcripts: DaimlerChrysler Q3 2006
• Potentially impacted stocks and ETFs: DaimlerChrysler AG (DCX) Competitors: Ford Motor Company (F), General Motors Inc. (GM), Toyota Motor Corp. (TM) ETFs: iShares MSCI Germany Index (NYSEARCA:EWG)


Airbus Gets First A380 Orders Since June

Airbus has finally won more orders for its A380, the world's largest commercial airliner, six months after announcing a two year production delay. Still, Boeing has widened its lead in '06 orders in the meantime, and Airbus' breakeven point is considerably higher than before. In consecutive days, Qantas Airlines and Singapore Airlines announced orders for the 555-seater. Qantas ordered eight additional A380s on top of its original order of twelve. Singapore Airlines added nine orders and six options to its original order of ten. EADS-vs-Boeing-BA-1yr-chart-12-21-06 A London-based Morgan Stanley analyst who rates Airbus' parent EADS "overweight," commented that the Singapore order is "further confirmation that Airbus is on its way back." Also, orders for Airbus' A320 were announced by Singapore Airlines' regional carrier and Israir Airlines. Airbus said the A380 is not expected to breakeven until delivery of the 420th plane, compared to 270 based on a business plan last year. Year-to-date through Dec. 12, Airbus has received 635 orders, versus Boeing's 865.
• Sources: Press release (I, II), Bloomberg, Seattle P-I
• Related commentary: Boeing Continues To Succeed at Airbus' Expense, Boeing Lands Big Lufthansa Order, Again Besting Airbus, Boeing and Airbus Project Future Direction of Their Industry, EADS Takes an 'Early Loss' On Airbus Delay. Conference call transcripts: Boeing Q3'06
• Potentially impacted stocks and ETFs: EADS (Paris: 005730), Boeing (NYSE:BA). ETFs: iShares Dow Jones US Aerospace & Defense (NYSEARCA:ITA), PowerShares Aerospace & Defense (NYSEARCA:PPA)


Hedge Funds of Funds: Lousy Deal for Investors, Great Deal for I-Banks

Securities firms will collect about $1 billion in fees for managing hedge funds of funds this year, and those fees are boosting earnings at the major banks. Hedge funds of funds are highly lucrative, partly because they require fewer investment professionals than hedge funds. The top 50 operators of hedge funds of funds, which manage $140 billion, include the major investment banks -- Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citigroup Inc., UBS AG, Societe Generale SA, Credit Suisse Group, Credit Agricole SA and Royal Bank of Scotland Group Plc, according to Institutional Investor. Deutsche Bank owns Europe's largest securities firm and has about $4 billion in fund of fund assets, and (as of June 30) Goldman Sachs managed $15.8 billion in funds of funds and Morgan Stanley $6 billion. Morgan Stanley acquired five hedge funds this year. However, funds of funds are a lousy deal for investors because they layer asset-based and performance-based fees on top of the fees charged by the hedge funds themselves (typically 1.5% and 20% respectively). That partly explains why funds of funds have returned an average of only 6.5% this year, according to Hedge Fund Research Inc., not much more than T-bills which have returned 3.6% with zero risk. Despite that, pension funds directed 62% of the $7.6 billion they allocated to hedge funds this year to funds of funds, and (as of June 30) Goldman's assets in its funds of funds were up 11.6% year over year and it reported a 19% increase in money-management revenue in its most recent quarter.
• Source: Bloomberg
• Related commentary: Goldman Seeking Alpha -- Hires Amaranth Traders, Hedge Fund Replication Strategies: What's Under the Hood?
• Potentially impacted stocks and ETFs: Goldman Sachs (NYSE:GS), JPMorgan Chase (NYSE:JPM), Morgan Stanley (NYSE:MS), Citigroup (NYSE:C), Credit Suisse Group (NYSE:CS), Deutsche Bank (NYSE:DB), UBS (NYSE:UBS).

Huntington Bancshares to Acquire Sky Financial, Deepening Midwest Presence

Ohio-based bank Huntington Bancshares will significantly broaden its Midwest presence by acquiring rival Sky Financial for $3.6 billion in stock and cash. Each share of Sky is thus valued at $30.22, a 25% premium to its $24.17 close on December 19. The deal is expected to immediately add to Huntington's 2007 earnings and to result in annual savings of $115 million. The consolidation will catapult the bank ahead of competitor Keycorp as Ohio's third-largest bank, and will make Huntington the 24-largest U.S. regional bank. Regional bank consolidation is being driven by the need to shed costs as higher interest rates and waning demand for home loans diminish profits.The Huntington-Sky deal has been approved by both boards and should close in Q3 2007.
• Sources: Press Release, Bloomberg, Reuters, MSN Money
• Related commentary: Mixed Outlook for Regional Banking Sector, Tom Brown's Financial Services Picks
• Potentially impacted stocks and ETFs: Sky Financial Group Inc. (OTCPK:SKYF), Huntington Bancshares Inc. (NASDAQ:HBAN) Competitors: FirstMerit Corp. (NASDAQ:FMER), National City Corp. (NCC), Fifth Third Bancorp (NASDAQ:FITB) ETFs: iShares Dow Jones US Regional Banks Index Fund (NYSEARCA:IAT) • iShares Dow Jones US Financial Sector Index Fund (NYSEARCA:IYF) • iShares Dow Jones US Financial Services Index Fund (NYSEARCA:IYG) • Regional Bank HOLDRs Trust (NYSEARCA:RKH) • Vanguard Financials ETF (NYSEARCA:VFH) • Select Sector SPDR Financial (NYSEARCA:XLF)

NYSE-Euronext Merger All But a Done Deal

The first-ever trans-Atlantic stock exchange is all but a done deal after the NYSE Group's board approved a $14 billion merger with the Euronext. nyse euronextThe new company, which will go by the name NYSE Euronext will have a combined market cap of $29 billion and will list companies with a total market cap of $25.8 trillion. The merger was approved by an estimated 99.7% of the NYSE Group as well as by Euronext shareholders in a major win for NYSE CEO John Thain and Euronext CEO Jean-Francois Theodore. Pending approval by the SEC and European regulators, the merger will close in three months. Next for the NYSE: the group will now likely turn its attention to Asia, with hopes to create the first truly global stock exchange. "Between China, Japan and India, one of those places will be the source of some type of transaction,'' Mr. Thain said on yesterday.
• Sources: Bloomberg, NY Times, MSN/FinancialTimes, Reuters
• Related commentary: M&A Roundup: Harrah's Hits the Jackpot, NYSE Gets the Nod, Morgan Stanley's Discovery">M&A Roundup: Harrah's Hits the Jackpot, NYSE Gets the Nod, Morgan Stanley's Discovery, A Unified, Global Stock Exchange May Be Approaching, NYSE/Euronext Merger Gets Crucial Support, Cramer's Take on NYX »
• Potentially impacted stocks and ETFs: NYSE Group (NYSE:NYX). Competitors: Nasdaq Stock Market Inc. (NASDAQ:NDAQ).


Serious Contradictions in Eli Lilly Zyprexa Data -- NY Times

The New York Times reports that for at least a year Eli Lilly provided information to doctors about the blood-sugar risks of its schizophrenia drug Zyprexa that contradicts data circulated within the company when it first reviewed its clinical trial results. The original results, according to a February 2000 memo, show that patients on Zyprexa were 3.5x more likely to experience high blood sugar levels as those on a placebo. But doctors were given a very different picture until at least late 2001; that Zyprexa patients were only Eli Lilly 21 12 06 21 12 06slightly more likely to suffer high blood sugar. A November 1999 report shows that 16% of patients taking Zyprexa for a year gained more than 66 pounds; Lilly chose instead to focus on data from a different, smaller group of clinical trials that showed 30% of patients gaining 22 pounds. The memos were provided to The New York Times by a lawyer in Alaska representing mentally ill patients. Weight gain and high blood sugar are risk factors for diabetes, and whether Zyprexa causes diabetes has been a subject of scientific debate for several years. Lilly says no link has ever been proven. In a statement yesterday Lily said its reports were accurate, and that the Feb. 2000 data was taken out of context and preliminary, although the document, labelled "Confidential," makes no such mention. The 2000 memo implies that it was prepared when Lilly considered changing Zyprexa’s label to provide doctors with more information about the drug’s potential to raise blood-sugar levels -- the change was never made. Zyprexa is by far Lilly’s best-selling product, with $4.2b in 2005 sales; 30% of its overall revenue.
• Sources: New York Times
• Related commentary: Eli Lilly ZYPREXA LIES
• Potentially impacted stocks and ETFs: Eli Lilly & Co. (NYSE:LLY), ICOS Corp. (ICOS). Competitors: GlaxoSmithKline plc (NYSE:GSK), Pfizer Inc. (NYSE:PFE), Teva Pharmaceutical Industries Ltd. (NYSE:TEVA), Johnson & Johnson (NYSE:JNJ), sanofi-aventis (NYSE:SNY), Novartis AG (NYSE:NVS), Abbott Laboratories (NYSE:ABT), Merck & Co. Inc. (NYSE:MRK), Bristol-Myers Squibb Co. (NYSE:BMY). ETFs: iShares Dow Jones US Pharmaceuticals (NYSEARCA:IHE), iShares Dow Jones US Healthcare (NYSEARCA:IYH), PowerShares Dynamic Pharmaceuticals (NYSEARCA:PJP), Pharmaceutical HOLDRs (NYSEARCA:PPH), Vanguard Health Care VIPERs (NYSEARCA:VHT), Health Care Select Sect SPDR (NYSEARCA:XLV), SPDR Pharmaceuticals ETF (NYSEARCA:XPH)

JNJ: New Labelling Could Reduce Tylenol Sales

Johnson & Johnson said that Tylenol sales might drop following new FDA labeling regulations for the OTC analgesic. Tylenol labels will be required to to warn patients about the risk of liver damage when taken in high doses JNJ chartor with alcohol. Previously, the drug had been considered safer than its competitors Advil (ibuprofen) and aspirin, especially after the FDA determined that they might have the same cardiovascular risks as Vioxx. Tylenol sales increased about 10% in 2005 from the previous year. The new labeling will also affect generic forms of acetaminophen, Tylenol's main ingredient. Analysts are still not sure how the new labeling will affect Tylenol sales. McNeil Consumer Healthcare, the JNJ subsidiary that markets Tylenol, was responsible for $2.1 billion of company's overall $47 billion in 2004 sales. Therefore, analysts don't expect a sales drop to dramatically impact JNJ's performance.
• Sources: AP, Time, International Herald Tribune
• Related commentary: Johnson & Johnson and Coke: How Much Is A Brand Worth?, Big Pharma's Big Decision: Diversify Or Focus?, JNJ: A Healthy Blue-Chip Opportunity
• Potentially impacted stocks and ETFs: Johnson & Johnson (JNJ) Competitors: Bayer AG (BAY), Wyeth (WYE), Abbott Laboratories (ABT), Bristol Myers Squibb (BMY), Merck (MRK), GlaxoSmithKline (GSK) ETFs: PowerShares Dynamic Pharmaceutical (PJP), iShares Dow Jones U.S. Pharmaceuticals (IHE)


U.S. Markets: Dow 16,000 By December '07? The Election Cycle Might Support It
Housing: Vornado Realty Trust: Pleasing Shareholders For Over 30 Years
Long Idea: ADESA Inc: A Spin-off With Drive
Short Idea: Fallout From The Vitesse Debacle: Distributors Nu Horizons, Avnet and Arrow
Internet: eBay's Exit From China Opens The Door For News Corp.
Networking: Juniper Taking $900 Million Charge On Options Backdating
Hardware: Seagate Buying EVault To Access Online Storage Market
Software: Red Hat Earnings Preview: Eye on Competition, Cash Flow
Consumer Electronics: Sony Admits It Made the PS3 Too Expensive
Media: A Quick Guide to the Major Gambling Stocks
Healthcare: More On UnitedHealth Re-Imagining Stock Compensation
Biotech: Biotech Stocks Day-in-Review: Genentech Buys Altus' Pipeline
Retail: Green Mountain Coffee Roasters: The Best Investment I Ever Made
Transport: FedEx Earnings Held Down By Kinkos - Time to Unload?
Energy: Crude Oil Fundamentals Weak, But Technicals Remain Firm
Asia: Chinese Blue Chips Soar to the Stratosphere
ETFs: Lipper, Morningstar and Benchmarking Alpha
Hedge Funds: 20 Stocks Owned By Top Activist Funds
Small-Caps: KMG America Corp.: An Insurance Small Cap With Great Potential
IPO Analysis: Emergent BioSolutions: Investment Advice For the War on Terror
Sound Money Tips: Picking Perfect Presents
Jim Cramer: Latest stock picks
Earnings Conference Call Transcripts: Nike F2Q07, 3Com F2Q07, Jabil Circuit F1Q07, Cognos F3Q07, Accenture F1Q07, Bed Bath & Beyond Q3 2006, Family Dollar Stores F1Q07, Darden Restaurants F2Q07, CarMax F3Q07, Palm F2Q07, Circuit City F3Q07

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