U.S. Job Growth According to ADP, Monster
According to Wednesday's ADP National Employment Report (see chart below), private sector employment increased by 106,000 in March. This marks a significant increase from February's (revised) estimate of 65,000 new jobs. Factoring in an average of 24,000 new government jobs created per month, the report foretells payroll growth of 130,000 jobs on Friday's nonfarm payroll report. Economists are projecting job growth of 168,000; February saw just 97,000 new jobs, the smallest number since January 2005. Economist say the March ADP increase suggests the jobless rate should remain steady at 4.5%. Michael Englund of Action Economics says that assuming government data confirms the report, it may help dispel worries over subprime woes bringing the broader market down. By sector, Small Businesses (1-49 emp.) added 81,000 jobs, Medium Businesses (50-499) added 43,000, while Large Businesses lost 22,000. Separately, global online recruiting firm Monster Worldwide said this morning its Employment Index rose to 185 in March from 177 in February and 164 in March 2006. CEO Steve Pogorzelski says the year-over-year figure is "the real story": its growth rate moderated to 13% vs. average y/y growth of 23% last year. "The index reflects a softer U.S. economy compared to 2006," he said. Monster says there is a strong correlation between trends in its index and non-farm payrolls numbers, but that it is a leading indicator for the following month, because employers generally take from 4-6 weeks to hire.
Sources: Press Release, MarketWatch, Reuters
Commentary: Will Subprime Woes Seep Into the Economy ? They Already Have • Subprime Mortgage Problem Contained? Give Me a Break • Job Growth is Clearly Slowing
Stocks/ETFs to watch: S&P 500 Index (SPY), Diamonds Trust Series 1 ETF (DIA), iShares Lehman Aggregate Bond (AGG)
Factory Orders Gain, But Miss Expectations
The Commerce Department reported yesterday that orders for U.S.-made factory goods rose to a two-month high of 1.0% in February, primarily on strong demand for non-defense aircraft. The rise missed economists' forecasts of 1.9%. Orders for new civilian aircraft surged 88.4% after dropping 60.4% in January, but they were offset by a 0.4% decline in factory goods orders in February -- still an improvement over January's 5.7% decline. Core capital equipment orders, which exclude defense goods and civilian aircraft, fell 2.4%. The dollar fell against the euro after the release of this report and a separate report from the Institute from Supply Management that showed its nonmanufacturing index fell to a four-year low in March. Stocks were also under pressure on the news, offsetting gains from declining crude prices following Iran's announcement that it will release 15 captured British naval personnel. Q1 GDP will be reported on April 27.
Commentary: U.S. Services Growth Hits Four-Year Low • ISM Commodities Survey Shows Likelihood of Up-tick in Inflation • Q4: The Third Straight Quarter of Below-Trend Growth
Stocks/ETFs to watch: S&P 500 Index (SPY), Diamonds Trust Series 1 ETF (DIA), iShares Lehman Aggregate Bond (AGG)
U.S. Services Growth Hits Four-Year Low
The Institute for Supply Management [ISM] reported yesterday that in March, the nonmanufacturing sector of the economy slowed to its weakest level in four years, raising concerns that the economy is more vulnerable than originally thought to weakness in the housing and manufacturing sectors. The ISM Services Index fell to 52.4% from 54.3%, its lowest since April 2003. Economists had projected a rise to 55.0%. A reading above 50% indicates expansion, so the decline implies a slowing of growth rather than a contraction. Still, economists are apprehensive about the health of the economy. This concern is magnified by a separate report from the Commerce Department that indicates factory orders rose 1.0% in February, below a 1.9% consensus forecast. Service providers like FedEx have been affected by a rise in prices for fuel and petroleum-based products, which reached their highest level since last August. The high prices have been accompanied by a drop in new orders to a seven-month low.
Sources: MarketWatch, Bloomberg
Commentary: Factory Orders Gain, But Miss Expectations • ISM Commodities Survey Shows Likelihood of Up-tick in Inflation • Q4: The Third Straight Quarter of Below-Trend Growth
Stocks/ETFs to watch: ETFs: S&P 500 Index (SPY), Diamonds Trust Series 1 ETF (DIA), iShares Lehman Aggregate Bond (AGG)
Micron Posts Q2 Loss, Misses Estimates, but Shares Up on Bullish Forecast
Micron lost $52 million, or $0.07/share in Q2, compared to earnings of $193m, or $0.27/share in the same period last year, missing analysts' EPS estimates of -$0.01 to $0.03. Revenue increased 16% to $1.43b, but also missed analysts' estimates ($1.46b to $1.47b). Its shares rallied however, on comments by the firm's VP of Worldwide Sales in a conference call. The VP pointed to a very recent stabilizing of both DRAM and NAND prices after a challenging Q2, and said, "We are quite bullish on demand prospects for the balance of this year as electronic equipment unit sales continue to be robust and a variety of factors are leading to strong content growth for both DRAM and NAND flash." Shares of Micron lost 1.3% to $12.07 in normal trading yesterday, but gained 3.6% to $12.50 in after-hours activity on volume of more than 3.3 million. Micron has traded between $11.22 - $18.65 over the past year.
Sources: Micron Technology F2Q07 Earnings Call Transcript, Press release [pdf], Bloomberg, Reuters
Commentary: A New View On Micron Ahead of Tonight's Report • Micron: Estimates Adjusted Ahead Of Quarterly Results Wednesday • Semis Get Weak February Data Report; Estimates on Micron Too High?
Stocks/ETFs to watch: Micron Technology (MU). Competitors: OmniVision Technologies (OVTI), Qimonda AG (QI), SanDisk (SNDK), Sony (SNE), STMicroelectronics NV (STM), Toshiba (OTCPK:TOSBF). ETFs: iShares Goldman Sachs Semiconductor (IGW), Semiconductor HOLDRs (SMH), SPDR Semiconductor (XSD)
Nintendo Ups Full Year Guidance on Robust DS Sales and Forex Gains
Nintendo expects fiscal year (ended Mar. 31) sales to be 7% higher to ¥966 billion ($8.2b) than it previously forecast in January. Also, instead of a ¥10b forex loss, Nintendo now forecasts a ¥20b ($170m) gain, which will boost earnings, but it did not provide updated income estimates. This is Nintendo's fourth upward revision for its fiscal year just ended. A poll by Reuters shows analysts on average expect Nintendo's sales totaled ¥929b. Its 9-month net income (through Dec.) of ¥132b already exceeds its revised net income forecast of ¥120b from earlier in January. Nintendo's ordinary shares reversed weakness in morning trading to close 1.6% higher to ¥34,300 ($36.12 ADR equiv. at ¥118.7/$1). A report by FISCO Japan says HSBC Securities initiated coverage of Nintendo at "overweight" with a target share price of ¥39,500 ($41.60 ADR equiv.) Nintendo's DS handheld and Wii console are both outselling rival Sony's PSP and PlayStation 3. Nintendo reports FY earnings on April 26.
Sources: Press release [pdf], Bloomberg, Reuters
Commentary: Nintendo To Announce Upside Surprise? • Sony Cuts PSP Price in U.S.; Sales of PS3 Fall in U.K. • Microsoft vs. Sony vs. Nintendo: Demand Doesn’t Lie
Stocks/ETFs to watch: Nintendo (OTCPK:NTDOY) (JP: 7974). Competitors: Sony (SNE), Microsoft (MSFT). Gaming software publishers: Electronic Arts (ERTS), Activision (ATVI), Konami (KNM), Take Two (TTWO), THQ (THQI)
Monster Shares Plummet on Q1 Sales Warning
Shares of Internet job-site Monster Worldwide plunged 13% to $42.10, their lowest level since August 2003, after the company warned it will miss its Q1 sales forecast. Monster announced yesterday that Q1 revenue rose to $328-329 million, a gain of up to 28% -- but shy of both the company's February forecast of $330-338 million and analyst consensus expectations of $331.8 million. The culprit appears to be a decline in U.S. online employment classifieds since the beginning of 2007. The Conference Board issued a report this week indicating that online job ads fell 2% in March from February. Tomorrow, the U.S. Labor Department will issue a survey that economists anticipate will show an acceleration of jobs growth -- though it was conducted prior to Monster's report and to this morning's release of the ADP Employer Services report, which showed additions of 106,000 jobs against a forecast 135,000. Monster is betting on rising international demand and new alliances with newspapers like the New York Times to compensate for slowing U.S. growth. The company is maintaining its full-year 2007 sales forecast of $1.36-1.41 billion and will report final Q1 results April 26.
Sources: Bloomberg, Chron.com
Commentary: Monster: Q1 Warning Produces Monstrous Sell-Off • Monster: Lots of Reasons To Like This Stock Right Now • New York Times and Monster Worldwide Forge Strategic Alliance
Stocks/ETFs to watch: Monster Worldwide, Inc. (MNST). Competitors: Yahoo (YHOO), Kforce Inc. (KFRC). ETFs: First Trust Dow Jones Internet Index (FDN), First Trust NASDAQ-100 Equal Weight Idx (QQEW)
Conference call transcripts: Q4 2006
Disney, Time Warner Cable Ink Content Agreement
Walt Disney Co. and Time Warner Cable announced Wednesday comprehensive distribution agreements that will see Time Warner take on more networks from Disney as part of renewing their existing contract. Time Warner Cable will carry sports channels ESPN2 HD and ESPNU later this year; it will begin to offer some Disney channels such as ESPN and ABC Family in high definition; Disney agrees to make certain shows available on Time Warner Cable's Start Over platform (which gives Time Warner Cable digital cable subscribers the ability to restart live programs without in-home recording devices); and it will provide content from certain networks to Time Warner's Quick Clips platform (which offers 2-10 minute clips that provide additional video and/or real time updates to in-progress content). Neither company would say how many years the deal covers or disclose other details. In trading yesterday Disney shares were down 0.8% to $34.64, and Time Warner Cable shares lost 0.3% to $37.10.
Sources: Press Release, Variety, Los Angeles Times, Cable Digital News, TV Week
Commentary: 7 Studios That Will Get You Invested In Hollywood • Time Warner Cable: Stock in Steady Slide
Stocks/ETFs to watch: Time Warner Cable Inc. (TWC), Walt Disney Company (DIS). ETFs: PowerShares Dynamic Media Portfolio ETF (PBS), PowerShares Dynamic Leisure & Entertainment (PEJ)
Borders Cancels Debt Sale on Shareholder Objections
Borders Group Inc., the second-largest bookseller in the U.S., announced yesterday that it is "reevaluating" a proposed offering of $250 million in convertible senior notes intended to pay down debt. The company had announced the offering of the seven-year notes fifteen hours earlier, but ran into opposition from several unidentified investors. David Dreman, whose Dreman Value Management LLC is Borders' largest shareholder, speculated that investors may be concerned that the issuance of debt will lower the odds of an LBO for the company, which posted an unanticipated Q4 loss last month. Dreman says he is not one of the investors who objected to the offering. Borders CEO George Jones said last month that investors should "not waste time thinking'' about an LBO. Some investors are known to favor a merger with Barnes & Noble, Borders' biggest rival. Borders is planning to close half its Waldenbooks stores and is considering selling most of its international operations. The company's shares rose $0.40, or 2%, to close at $20.94.
Sources: Wall Street Journal, Business Week, Bloomberg
Commentary: Borders Reports Q4 Loss, Announces Long-term Strategic Plan • Will Borders and Barnes and Noble Become Book Buddies? • Pershing Square Capital's William Ackman: Buys, Sells, Portfolio
Stocks/ETFs to watch: Borders Group, Inc. (BGP). Competitors: Barnes & Noble Inc. (BKS), Books-A-Million Inc. (BAMM), Amazon.com Inc. (AMZN)
TRANSPORT AND AEROSPACE
The Chrysler Saga Continues: Is Magna the Favorite?
DaimlerChrysler CEO Dieter Zetsche would do no more than confirm his company was in negotiations to sell its N. American Chrysler unit, frustrating the more than 8,000 shareholders at the company's annual meeting in Germany, and leading shares lower by 1.4% at yesterday's open (shares recovered to finish down just .5% by the close). The New York Times described the atmosphere at the annual shareholder meeting as "tense" adding that it appears "Daimler’s marriage to Chrysler is already finished — except for the ink on the divorce papers." Meanwhile, with Zetsche tight-lipped, the Wall Street Journal is speculating that DaimlerChrysler management may prefer Canadian auto parts maker Magna International over the private equity companies that have formally bid for Chrysler. The reason: management would like to sell to a partner interested in making Chrysler "profitable on a sustainable basis" while finding "the best possible option for the employees." More than private equity, Magna, which already does as much as a third of its business with Chrysler, is interested in boosting its auto-making operations, leading it to gain at least some union support. As a parts maker, the company also has industry knowledge the private equity firms lack. Magna refused to comment on the speculation.
Sources: Wall Street Journal, New York Times
Commentary: DaimlerChrysler CEO Admits To Negotiating Sale of Chrysler • Toyota Continues To Gain U.S. Market Share At Expense of Big 3 • DailmerChrysler: In The Firm Embrace of Magna International
Stocks/ETFs to watch: DaimlerChrysler (DCX), Magna International (MGA). Competitors: General Motors (GM), Ford (F), Toyota (TM), Honda (HMC), Nissan (OTCPK:NSANY)
Ford's Mulally: We'll Do 'Whatever It Takes' To Succeed
During a question and answer session at the New York Auto Show yesterday, Ford CEO Alan Mulally said his company must do "whatever it takes" to make its cost structure competitive heading into talks with the United Auto Workers Union this summer, adding "If there is not a competitive Ford, it's not going to be OK for anyone." Ford mortgaged its factories to secure a $23.4 billion loan in order to fund its restructuring plan, which Mulally claims is "going pretty well," and cover losses the company expects to accrue through 2009. Mulally called the loan "the biggest home improvement loan in the history of mankind," while reassuring the Ford faithful "It’s going to be OK." Ford did worst among Detroit's Big 3 in March sales, reporting a 9% decrease yoY. Mulally believes Ford will "stabilize around 14% to 15% market share, and then we’ll see a new lineup of cars and trucks and then we’ll start to grow again." Ford shares are up 7% so far in 2007.
Sources: Reuters, AP, Detroit Free Press
Commentary: March Light Vehicle Sales: Discrepancy Between Media and Reality • Toyota Continues To Gain U.S. Market Share At Expense of Big 3 • Will Partnership with Microsoft Save Ford?
Stocks/ETFs to watch: Ford (F). Competitors: General Motors (GM), DaimlerChrysler (DCX), Toyota (TM), Honda (HMC)
ENERGY AND MATERIALS
ConocoPhillips Warns of Lower 1Q Output, Says Refining Margins Improved
ConocoPhillips warned investors yesterday that its 1Q output may not be up to current expectations sending shares slightly lower in both regular and after hours trading. Blaming OPEC production cuts and lower crude prices, the company does not expect to have averaged the 2.05 million barrels a day it produced during 4Q06. On the plus side, the company said higher natural gas prices and "significantly higher" global refining margins should help out its 1Q profits. Still, the company warned that "narrowing crude differentials and the periodic pricing of Brent at a premium to WTI during the quarter are expected to moderate realized margins at some of the company's domestic refineries." The company is set to report on April 25.
Sources: Press Release, MarketWatch, AP, Wall Street Journal
Commentary: Why ConocoPhillips is a Buy and Hold • Refined Oil Price Points Up • ConocoPhillips Q4 Output Below Forecast
Stocks/ETFs to watch: ConocoPhillips (COP). Competitors: Exxon Mobil (XOM), Chevron (CVX), Sunoco (SUN), BP plc (BP). ETFs: Energy Select Sector SPDR (XLE), Vanguard Energy ETF (VDE), PowerShares Dynamic Energy Exploration & Production Port (PXE)
Shell: Full Output Expected from Nigeria
A year after shutting down over half its Nigerian operations amid militant violence, Royal Dutch Shell has reached an agreement with local communities in the Niger Delta and expects to resume full production in the area within six months. A rebel group called Movement for the Emancipation of the Niger Delta [MEND] attacked several Shell facilities in the western delta in early 2006, forcing shutdowns that resulted in the loss of 500,000 barrels a day in production. The group, which demands a chunk of the country's oil revenue for the region, has targeted foreign oil companies and kidnapped their workers, holding them for ransom. The violence has pushed up oil prices and curtailed Nigeria's plans to bolster its oil production. Shell's arrangement with local communities entails the company's provision of "significantly" more work for villagers and businesses in contracts ranging from catering to boat leasing to maintenance work. Basil E. Omiyi, Shell's managing director for Nigeria, claims he has not negotiated with MEND nor received any security guarantees. “What has changed is that the level of violence in that particular region has gone down,” he said.
Sources: New York Times, MarketWatch, News Observer
Commentary: Royal Dutch Shell: Growing Investor Interest? • The New Seven Sisters: Today's Most Powerful Energy Companies • Barron's: Oil Guru Art Smith's Picks for 2007
Stocks/ETFs to watch: Royal Dutch Shell plc [ADR] (RDS.A). Competitors: Exxon Mobil Corp. (XOM), BP plc (BP), Total SA (TOT). ETFs: WisdomTree International Energy (DKA), iShares S&P Global Energy (IXC), iShares MSCI United Kingdom Index (EWU)
Monsanto Profit Up 23% on Corn-Based Ethanol Demand
Monsanto shares gained over 6% yesterday after the company reported a 23% rise in Q2 net income on soaring demand for corn-based ethanol. The shares reached $59.66, their highest since the company began trading its shares publicly in 2000, before closing at $57.79. Monsanto posted a Q2 profit of $543 million ($0.98/share) on a 19% increase in revenue to $2.6 billion. Analysts were expecting $0.94 EPS on revenue of $2.44 billion. The company has boosted its full-year 2007 profit forecast to $1.60-1.65/share from $1.50-1.57. Corn prices have soared on forecasts of strong demand from ethanol refineries, which has in turn prompted farmers to sow a greater proportion of their land with corn -- particularly higher-margin "biotech" seed. Monsanto's corn seed sales surged 47% to $1.19 billion from $811 million. Monsanto forecasts its "triple-stack" biotech corn seed will be planted on 16 million acres in the U.S. this year, up from 6 million last year and far outperforming the triple-stack product of rival Dupont. Monsanto's strong biotech corn sales were offset slightly by lower sales of soybean and cotton seed. Corn price futures topped $4.49 a bushel in March, up 66% from September 1.
Sources: Bloomberg, MarketWatch, Mercury News
Commentary: Followup Folder: Monsanto [Briefing.com] • Barron's 2007 Analyst Roundtable, Part 1
Stocks/ETFs to watch: Monsanto Co. (MON). Competitors: DuPont (DD), BASF AG (BF), Syngenta AG (SYT). ETFs: Materials Select Sector SPDR (XLB), Vanguard Materials ETF (VAW), Rydex S&P Equal Weight Materials (RTM), PowerShares FTSE RAFI Basic Materials (PRFM)
Conference call transcript: Monsanto Company Earnings Conference Call Transcript (later today)
People's Bank of China to Raise Reserve Requirements Again
On April 16, commercial banks in China will have a 0.5% higher reserve requirement at 10.5% and smaller lenders will have a reserve ratio of 11%. This is the sixth reserve increase by the People's Bank of China in less than a year. Analysts reportedly estimate it will remove about 170 billion yuan (~$22 billion) in liquidity from the banking system. This move by the PBoC comes after a 0.27% hike last month to the bank's benchmark lending and deposit interest rates, which are now 6.39% and 2.79%, respectively and the highest in almost eight years. In a statement, the PBoC commented it "will continue with prudent monetary policy, using a policy combination to enhance bank liquidity management, maintain the proper level of liquidity, prevent the excessively fast growth of money and credit (and) guide financial institutions to improve their credit structures and promote good and fast economic growth." The Chinese economy achieved its fastest growth in more than a decade last year and also recorded its largest trade surplus ever at $177.5 billion.
Sources: Bloomberg, Forbes AFX newswire, Reuters
Commentary: China as an Economic Superpower: 'Watch Out Below' • China Criticizes U.S. Anti-Subisidy Tariffs; Dollar Weakens • The Shanghai Stock Index Bubble
Stocks/ETFs to watch: iShares Trust FTSE-Xinhua China 25 Index Fund (FXI), PowerShares Golden Dragon Halter USX China Portfolio (PGJ). Bonds: iShares Lehman 1-3 YR Treasury Bond (SHY), iShares Lehman 7-10 YR Treasury Bond (IEF), iShares Lehman 20+ YR Treasury Bond (TLT). Currency: PowerShares DB G10 Currency Harvest Fund (DBV), Euro Currency Trust (FXE)
Have Wall Street Breakfast emailed to you every morning before the market opens.