Toll Brothers: Earnings Drop 67%, Beat Estimates
Toll Brothers, the top U.S. luxury homebuilder, said this morning Q1 2007 profits fell 67% from $163.9 million to $54.3m on a 19% drop in revenues from $1.34 billion to $1.09b. EPS were $0.33 vs. $0.98 in Q1 2006, beating analyst estimates of $0.29. The results include land write-downs of $59m and goodwill impairment of $5m (net of which EPS was $0.72, down 27%). In its preliminary earnings on Feb. 8, Toll Bros. said it expected writedowns of up to $160m. For the rest of 2007, the company said it expects to deliver 6,000-7,000 homes, resulting in homebuilding revenues of $4.2-$4.95b -- down from its previous forecast of 6,300-7,300 homes which was itself reduced. It gave 2007 earnings guidance of $1.46-1.85/share, including predicted $60m writedowns in Q2 and Q3. Earlier guidance was for $1.58-2.08/share, down from $4.17 in 2006. CEO Robert Toll: "There are too many soft markets at this stage of the selling season to call a general upturn in the new home market... We believe that pent-up demand is building in many markets as potential buyers bide their time until they are confident prices have firmed."
Sources: Press Release, Wall Street Journal, Bloomberg
Commentary: Has the Homebuilder Rally Run its Course? • For Whom the Bell Tolls: Perchance for a Home-Builder? • Toll Brothers Earnings Conference Call Transcript (later today) • Toll Brothers F1Q07 Preliminary Earnings Results Call Transcript
Stocks/ETFs to watch: Toll Brothers Inc. (TOL). Competitors: KB Home (KBH), D.R. Horton Inc. (DHI), Pulte Homes Inc. (PHM), Hovnanian Enterprises Inc. (HOV), Beazer Homes USA Inc. (BZH), Centex Corp. (CTX), Lennar Corp. (LEN). ETFs: streetTRACKS SPDR Homebuilders ETF (XHB), iShares Dow Jones U.S. Home Construction (ITB), PowerShares Dynamic Building & Construction (PKB)
Apple/Cisco Settle iPhone Suit, Will Explore Interoperability
Apple Inc. and Cisco Systems Inc. said Wednesday they have settled their dispute over Cisco's iPhone trademark, and have agreed to share the iPhone name. The companies said in a statement that they "will explore opportunities for interoperability in the areas of security, and consumer and enterprise communications." Company officials would not comment on how the two companies might work together, and all other terms of the settlement remain confidential. Cisco's Jan. 10 lawsuit claimed Apple's upcoming iPhone infringed on the trademark it obtained in 2000 when it bought Infogear. In its filing, Cisco said Apple first brought up the iPhone trademark issues in 2001, and periodically since then, including several times in 2006. After Cisco refused, it says, Apple created a front company to try and acquire the rights in other ways. Apple's iPhone is slated for a June U.S. launch, will be available on Cingular's network, and will come in two versions: a 4GB model for $499 and an 8GB model for $599.
Sources: Press Release, Wall Street Journal, MarketWatch, CNET News
Commentary: engadget • Cult of Mac • Take a Bite Out of the New Apple
Stocks/ETFs to watch: Apple Computer Inc. (AAPL), Cisco Systems Inc. (CSCO)
Related: Cisco's trademark complaint (.pdf), Infogear iPhone Trademark Registration
GM, AT&T Ink Billion Dollar IT Services Deal
Building on a recently expired contract, AT&T and GM have signed a new pact for nearly $1 billion whereby the nation's largest phone company will oversee the nation's largest automaker's global IT network that involves more than 150 telecom companies worldwide. The five-year contract is part of what WSJ Online and MarketWatch term "AT&T's goal of expanding its corporate-service segment." ComputerWorld quoted GM's CIO and group vice president, Ralph Szygenda, explaining the primary aim of the deal: "It follows the mindset that information technology providers have to work as one in a corporation."
Sources: Wall Street Journal, MarketWatch, ComputerWorld
Commentary: AT&T Q4 2006 Earnings Call Transcript • Cramer's Take on GM • Cramer's Take on T
Stocks/ETFs to watch: General Motors (GM), AT&T (T). Competitors: Verizon (VZ)
Google Apps Goes Corporate
Google is set to announce a $50 subscription-based version of Google Apps for corporations today, similar to the free version it launched last year, but more reliable with 99.9% uptime, more storage space and 24x7 tech support. Google executives claim it is not taking on Microsoft, but CEO Eric Schmidt comments, "Our product is so cheap that it's sort of no-brainer to try it out." GE and Procter & Gamble are two early-adopting blue chips. Google said over 100,000 small business and hundreds of universities already use the free Google Apps. An analyst at Nucleus Research says the timing of Google's service "is just brutal for Microsoft" since its low cost could delay corporate purchases of Office 2007. Microsoft's director of the Office suite, meanwhile, says his company welcomes the competition because "It helps keep us on our toes." Microsoft is also expanding online with Windows Live, building online services around its desktop Office software suite.
Sources: Associated Press, InformationWeek, The Wall Street Journal, New York Times, TechCrunch, GigaOM
Commentary: Google Gets More Search Share, Again • The Great Vista-Inspired PC Boom? • Ballmer Says Some Analysts' Vista Estimates 'Overly Aggressive' -- Street Reacts
Stocks/ETFs to watch: Google (GOOG), Microsoft (MSFT). Competitors: Salesforce.com (CRM), IBM (IBM). ETFs: Software HOLDRs (SWH), Technology Select Sector SPDR (XLK), iShares Goldman Sachs Technology (IGM)
Related: Google Apps homepage
Google Increases Lead on Yahoo in Search Market Share
ComScore Networks Inc. reported yesterday that Google's share of January search queries in the U.S. was 47.5%, up 0.2% from the previous month, while Yahoo's fell 40 basis points to 28.1%. Google's figure is 44% above its year-ago result, a "significant" decline from its 50% December growth rate, according to Bear Stearns analyst Robert Peck. U.S.-based search is slowing down across the board, possibly reflecting a "general industry trend as the industry growth also decelerated in the recent months," says Peck. Google's shares dropped 0.8% to $475.86 and Yahoo's 1.1% to $31.67 on the report. Analysts suggest that Google's shares have also been affected by media speculation on the possible collapse of the company's negotiations with CBS to provide the network's content on YouTube. The Dow Jones Internet Index closed off 0.1% to 105.55 and the Nasdaq Composite gained 0.2% to 2,517.88.
Sources: Press release, MarketWatch
Commentary: Google Gets More Search Share, Again • Is Natural Language Search a Google Killer? • Yahoo and Microsoft: Poor Blog Indexing Hurts in Search
Stocks/ETFs to watch: Google Inc. (GOOG), Yahoo! Inc. (YHOO). ETFs: First Trust Dow Jones Internet Index (FDN), First Trust IPOX-100 Index (FPX), iShares S&P Global Technology (IXN)
Whole Foods to Consume Wild Oats
Natural-foods grocer Whole Foods gained 5% in late trading yesterday on the news that it will acquire rival Wild Oats for $18.50 a share, or about $565 million, representing an 18% premium over the shares' Wednesday close. Whole Foods will take on about $106 million in Wild Oats debt. Whole Foods also reported a drop in Q1 EPS to $53.8 million ($0.38/share) from $58.3 million ($0.40/share) a year earlier, missing analyst expectations of $0.41/share. This was the first time profit had fallen in five quarters. Revenue rose to $1.87 billion from $1.66 billion, with a same-store sales increase of 7%. Analysts were expecting $1.89 billion in sales. Wild Oats will be Whole Foods' largest-ever acquisition, giving it new stores in all 11 of its operating regions. Whole Foods recently characterized 2007 as a "transition year" with slower anticipated growth, a forecast that caused Wall Street to hammer the stock. Whole Foods plans to remodel the Wild Oats stores and eventually rebrand them as Whole Foods. Wild Oats shares surged 17% to $18.43 on news of the acquisition.
Sources: Whole Foods F1Q07 Earnings Conference Call Transcript, Press release, MarketWatch, TheStreet.com, Reuters, Bloomberg
Commentary: How Whole Foods' Wild Oats Deal Is Unhealthy for Rivals [WSJ] • Whole Foods, Whole Portfolio? • Whole Foods Faces A Wall Of Worry
Stocks to watch: Whole Foods Market, Inc. (WFMI), Wild Oats Markets, Inc. (OATS). Competitors: WalMart Stores Inc. (WMT), The Kroger Co. (KR)
Best Buy to Open 130 Stores in U.S., Canada, China
Electronics chain Best Buy will open approximately 130 stores in the U.S., Canada and China in the new fiscal year (starting March 4), representing a 10% increase in global retail square footage, the company announced yesterday. About 90 of those stores will be in the U.S. In China, the company will open about 23 Five Star stores this year and two or three Best Buys within a year and a half, with the goal of generating $100 billion in annual sales in that country by 2010. Best Buy is aiming for more than 5 million square feet of retail square footage in China by the end of the new fiscal year. About 14 new stores in Canada will be equally divided between the two brands. In December, the company opened its first store outside North America, in Shanghai. The 130 new stores are expected to add 12,000 retail jobs, which will give Best Buy a payroll of over 140,000 by the end of fiscal 2008.
Sources: CNBC, Business Week, MSNBC
Commentary: Bank of America Upgrades Best Buy • Best Buy and Toys 'R Us Enter China - What to Expect? • Best Buy, Circuit City Surprise Analysts with Strong December Sales. Conference call transcript: F3Q07
Stocks/ETFs to watch: Best Buy Co., Inc. (BBY). Competitors: Circuit City Stores Inc. (CC), Dell Inc. (DELL), Wal-Mart Stores Inc. (WMT). ETFs: Retail HOLDRs (RTH)
TRANSPORT AND AEROSPACE
GM To Buy Chrysler? At Least It Hasn't Been Ruled Out
Reports in both the Wall Street Journal and NY Times indicate the following are not interested in buying Chrysler: Nissan/Renault, Fiat, Volkswagen and Hyundai. DaimlerChrysler's shares fell $2.04, or 2.8%, to $70.85 yesterday as more auto companies rejected the possibility of buying the company's North American unit. So who is interested? GM hasn't ruled out the possibility of buying its long-time rival, according to today's Journal. But the Street, as well as many industry observers, view such a possibility as unlikely, citing GM's current focus on streamlining its own operations, heavy worker health care costs which would only be exacerbated by a Chrysler acquisition and the overlap between the two companies' product lines (especially trucks). According to Bear Stearns' Peter Nesvold, GM's objective right now "is to make its business less complex, not more complex." Goldman Sachs has called the possible merger "illogical." According to the Journal, advantages to such a deal include eliminating a major competitor and increasing its bargaining position with the United Auto Workers Union.
Sources: Wall Street Journal, New York Times
Commentary: Renault CFO: 'We Want No Part in Chrysler' • DaimlerChrysler Is Disclosing Chrysler's Financial Information to Suitors • New Direction for DaimlerChrysler?
Stocks/ETFs to watch: DaimlerChrysler (DCX), General Motors (GM)
ENERGY AND MATERIALS
Gold Rallies as CPI Beats Estimates; Crude Rises Ahead of Supply Data
Gold futures hit a 7-month high yesterday on higher-than-expected CPI data, while crude futures topped $60 a barrel ahead of the week's inventory tally. The Labor Department reported inflation at the retail level went up 0.2% in January, ahead of economist forecasts of 0.1%; while the core CPI, which excludes food and energy, went up 0.3%, beating economists' 0.2% expectation. Gold, which is considered an inflation hedge, rallied on the news; April-delivery gold contracts closed up $23 at $684 an ounce. Last week, Fed Chair Ben Bernanke said he expects core inflation to decline, but stated the Fed will raise rates if necessary -- an inflation warning bell that analysts say usually reins in the gold price. The subsequent upward movement of gold, they add, suggests the CPI data have greater credibility than the Fed among gold traders. The resurgence of crude also lifted gold: light, sweet crude for April delivery closed up $1.23 at $60.07 a barrel on belligerent nuclear talk from Iran, a cold snap that traders hope caused a supply drawdown, and problems at U.S. refineries. The weather is expected to warm up across the U.S. through March, and April is forecast to be unusually warm. Crude inventory figures will be released today.
Sources: MarketWatch (I, II), TheStreet.com (I, II)
Commentary: Gold Rally: Who In Their Right Mind Would Be Selling? • Analysts Dead On In Their Predictions For Gold and Crude in 2007 • Oil, Inflation, and Gold
ETFs to watch: streetTRACKS Gold Trust ETF (GLD), United States Oil Fund ETF (USO)
Citigroup Has Decisions to Make Amidst Nikko Cordial Uncertainty
Nikko Cordial, Japan's third-largest securities firm, faces delisting from the Tokyo Stock Exchange due to an accounting scandal. Citigroup owns a 4.9% stake in Nikko Cordial and 49% of the Nikko Citigroup investment bank joint-venture. There has been speculation Mizuho Financial Group, which owns a similar 5% stake in Nikko Cordial, might be willing to make an investment in the troubled brokerage, but only once its legal issues are resolved. Citigroup could also make an investment, but it is probably more concerned with determining what to do with its joint-venture, while working on plans to expand its domestic banking footprint and pursuing a Tokyo Stock Exchange listing. The former head of investment banking at Merrill Lynch Japan and current co-CEO and President of NIS Group comments, "As Nikko's reputation worsens, Citigroup may want to buy Nikko's stake in the joint venture to continue investment-banking operations in Japan on its own. It would be a waste just to sell the business to someone else."
Commentary: Eye on the Prize: Citigroup and Mizuho Battle for Nikko Cordial • Examining the Mizuho-Nikko Relationship • Citigroup: Japan Expansion and M&A Could Bring Tokyo Exchange Listing
Stocks/ETFs to watch: Citigroup (C), Nikko Cordial (OTC:NIKOY). Competitors: Mizuho Financial Group (MFG), Mitsubishi UFJ Financial Group (MTU), ABN Amro Holding N.V. (ABN). ETFs: iShares S&P Global Financial Index Fund (IXG), iShares Dow Jones US Financial Services (IYG), Financial Select Sector SPDR (XLF)
NovaStar Shares Plummet 42% on Q4 Loss
Shares of subprime mortgage lender NovaStar Financial plunged 42% to $9.81 yesterday after the company posted a whopping Q4 loss and warned that its dividend might fall to $4 in 2007 from $5.60 in 2006. NovaStar also announced it might generate no taxable income at all from 2007 through 2011, which might precipitate the dropping of its REIT status in 2008. The news dragged down shares across the sector, with New Century falling 7% to $17.46. NovaStar posted a Q4 loss of $14.4 million (-$0.39/share) versus a year-earlier profit of $28.1 million ($0.84). Surging delinquencies and lower loan volumes are hammering subprime lenders, more and more of which are selling themselves, closing down or seeking bankruptcy protection as housing prices have stagnated and interest rates have climbed. They are also being crunched by large investors, including Wall Street investment firms, that are obliging them to repurchase bad loans.
Sources: TheStreet.com, Reuters, MarketWatch (I, II, III)
Commentary: NovaStar Heading for Fall? • NovaStar: Trouble in Subprime Land? • Major Banks Try to Offload Subprime Portfolios
Stocks to watch: NovaStar Financial Inc. (NFI), Hanover Capital Mortgage Holdings Inc. (HCM), New Century Financial Corp. (NEW), Wells Fargo & Co. (WFC)
Genentech to Appeal Cabilly Patent Rejection
Genentech announced yesterday the U.S. Patent and Trademark Office rejected the patentability claims of the Cabilly, '415 patent. This was great news for licensees including MedImmune, Abbott Laboratories, Johnson & Johnson and ImClone Systems, but the millions of dollars of savings on royalty payments might have to wait since Genentech says it plans to appeal. In a brief statement, Genentech reports "the '415 patent remains valid and enforceable through the appeals process," which it says could take one to two years, or longer. A Sanford Bernstein analyst says the impact of the decision "is greater for the companies paying royalties on Cabilly than it is for Genentech." There have been a number of accusations, all of which Genentech denies, including one that Cabilly II represented a double patenting of the same invention, potentially providing Genentech with unlawful protection until 2018. Genentech shares royalties with former research partner City of Hope medical center, and says it earned $0.06/share or $105 million in 2006 pre-tax income from the Cabilly patent, which was supposed to expire last year. Genentech earned $2.23/share last year.
Sources: Press release, The New York Times
Commentary: Biotech Generics: Who Stands Where? - Barron's • Genentech's Beat and Raise Quarter Wows Analysts • MedImmune vs. Genentech: Supreme Court Ruling Facilitates Patent Challenges
Stocks/ETFs to watch: Genentech (DNA), MedImmune (MEDI), Abbott Laboratories (ABT), Johnson & Johnson (JNJ), ImClone Systems (IMCL). Competitors: Bristol-Myers Squibb (BMY), Novo Nordisk (NVO), Amgen (AMGN). ETFs: Biotech HOLDRs (BBH), PowerShares Dynamic Biotech & Genome (PBE), SPDR S&P Biotech (XBI)
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