- Philips plummets 14% after profit warning. Shares in Philips (PHG) plunged 13.7% in premarket trading after the conglomerate warned that weak demand in Western Europe will hurt results at its lighting and consumer lifestyle units. Margin pressures and higher marketing spending will result in Q2 EBITA of around €85M ($122M) at the lighting arm, down sharply from €210M a year earlier. An analyst said Philips' margins must have dropped 'massively' to account for such a hefty cut to the firm's earnings outlook, which "are well below estimates."
- Greece's government survives confidence vote. Greek Prime Minister George Papandreou last night won a crucial vote of confidence in parliament that for the time being has settled nerves about the prospect of a default. However, Papandreou now needs to pass unpopular austerity measures as a condition for Greece receiving a €12B ($17.1B) tranche of its €78B bailout from the EU and IMF, and for those organizations to agree to a second rescue package. Due to fears of a Greek default, some U.S. regulators and legislators have become concerned about the $1T of European bank debt held by American money-market mutual funds. Because European banks hold huge amounts of Greek and other European government bonds, they are exposed to massive losses if Greece or other countries default.
- Fed expected to stay the course. The FOMC wraps up a two-day meeting today, when it is likely to keep interest rates at 0-0.25% and confirm that it will end its $600B Treasury buying scheme at the end of this month. In its statement, key words will be 'extended period,' which will signal that the Fed has no plans to raise rates any time soon. The central bank is also expected to reiterate it will maintain its current level of securities holdings at a record $2.6T. In its economic forecast, analysts believe the Fed will trim its growth expectations slightly while predicting that inflation will remain under control.
- Pound down on further possible BOE bond purchases. Although the Fed is unlikely to announce QE3, the Bank of England's Monetary Policy Committee is considering renewing a bond-buying plan. The release of the MPC's minutes from its meeting two weeks ago shows that while members voted 8-1 to keep any program on hold, some could favor further quantitative easing if weak growth were to continue and weigh down inflation, which is 4.5%. The news sent the pound falling 0.7% to $1.6126. The MPC also voted 7-2 to maintain rates at 0.5%, with new member Ben Broadbent voting with the majority.
- G20 faces challenges over food supply measures. G20 farm ministers are meeting today in Paris against a background of rising crop prices due to droughts, flooding and export restrictions, but may find it difficult to agree on new rules to help boost food supply. Over the past year, corn futures have jumped 82%, rice 39% and sugar 65%, with crop shortages also expected this year or next. France has proposed introducing a central database on crops, limits on export bans, international market regulation, emergency stockpiles and a plan to raise global output. However, countries such as India, which limits some food exports to manage prices and supply, are unlikely to agree to interference in this area.
- Hulu receives takeover approach. Online video website Hulu is considering its options after reportedly being approached by a potential buyer. The LA Times said the prospective suitor is Yahoo (YHOO), although TechCrunch reported a source as saying that the search company isn't involved. Hulu is immensely popular with users and expects to nearly double its revenue to $500M this year. However, its owners, which include News Corp. (NWS), Disney (DIS) and Comcast (CMCSA), have come under pressure from cable and satellite broadcasters unhappy about paying large sums for content that is shown for free on the Internet.
- Adobe falls on weak European sales. Shares in Adobe (ADBE) fell 3.2% in post-market trading after the company said it "experienced weaker-than-expected demand in EMEA" even as FQ2 earnings beat analyst expectations. Net profit jumped 54% to $229.4M while revenues increased 9% to $1.02B, with the Japan earthquake having less of an effect than expected. Adobe is developing a new version of its flagship Creative Suite software, which includes Photoshop, and working to sign up more customers for subscriptions to smooth out revenue between releases.
- Nokia combines Navteq with services businesses. Nokia (NOK) plans to merge its Navteq mapping unit with its services business to better exploit the surging demand for location-based services. The company has also finalized an agreement to outsource its Symbian software to Accenture (ACN). Nokia yesterday puzzled analysts after launching the N9 smartphone, the first and last device to run on the MeeGo operating system as it gears up to launch Windows handsets in Q4 2011. Meanwhile, fellow struggler RIM (RIMM) saw its shares jump 10.3% on reports it had started laying off employees and on takeover speculation. "It's a classic bounce off the bottom," said an analyst.
- AstraZeneca sells unit to Dentsply for $1.8B. As expected, AstraZeneca (AZN) has agreed to sell its Swedish dental implants and medical devices unit Astra Tech to Dentsply (XRAY) for $1.8B. The U.S. company beat off bids from rival medical technology groups and private equity firms to win Astra Tech, which last year generated revenue of $535M. Dentsply said the acquisition would increase its revenue by around a quarter and be accretive to earnings immediately. For AstraZeneca, the disposal strengthens its role as a 'pure play' pharmaceuticals company at a time when many rivals are diversifying. However, the price was lower than the $2B figure some analysts had been expecting.
- Companies, states close to deal on tobacco. Philip Morris USA (MO) and other major cigarette makers could keep $2B under a proposed deal with 46 states to settle a dispute over payments required by the landmark 1998 tobacco settlement, sources said. The agreement would allow the firms to keep some of the money they have withheld from states or otherwise disputed under the 1998 pact, whereby they agreed to pay over $200B to help states recover the costs of treating sick smokers. The news is better for tobacco makers than yesterday's ruling from the FDA that they would have to display dead bodies, diseased lungs and other graphic images on cigarette warning labels.
- Ex mortgage boss gets over three years in prison for fraud. Paul Allen, the former CEO of mortgage lender Taylor, Bean & Whitaker, has been sentenced to 40 months in jail for his role in a $3B fraud scheme. The fraud led to the collapse of Taylor Bean in August 2009 and contributed to the failure of Colonial Bank, while Deutsche Bank (DB) and BNP Paribas (OTCQX:BNPQY) lost nearly $2B. However, it appears that the losses could have been limited. A government watchdog said the federal regulator for Fannie Mae and Freddie Mac was alerted to fraud allegations at Taylor Bean in the summer of 2008 but didn't refer the case to authorities.
Earnings: Tuesday After Close
- Adobe (ADBE): FQ2 EPS of $0.55 beats by $0.04. Revenue of $1.02B (+1% Y/Y) beats by $0.07B. Sees FQ3 EPS of $0.50-0.56. Shares -3.2% AH. (PR, earnings call transcript)
- Jabil Circuit (JBL): FQ3 EPS of $0.58 beats by $0.01. Revenue of $4.2B (+22.3% Y/Y) beats by $0.06B. Shares +1.2% AH. (PR, earnings call transcript)
- In Asia, Japan +1.8% to 9629. Hong Kong +0.0% to 21860. China +0.1% to 2649. India -0.1% to 17551.
- In Europe, at midday, London -0.4%. Paris -0.3%. Frankfurt +0.1%.
- Futures at 7:00: Dow -0.3%. S&P -0.35%. Nasdaq -0.4%. Crude -0.6% to $93.57. Gold -0.2% to $1543.10.
Wednesday's Economic Calendar
- Wednesday's economic calendar:
FOMC Meeting, Day 2
7:00 MBA Mortgage Applications
10:00 FHFA Housing Price Index
10:00 Hearing: Small Business Access to Capital (Geithner)
10:30 EIA Petroleum Inventories
12:30 PM FOMC Announcement
2:15 PM Bernanke Press Conference
- Notable earnings before Wednesday's open: FDX, KMX
- Notable earnings after Wednesday's close: BBBY, PAYX, RHT
The SA Currents team contributed to this post.
Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.