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.
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MACRO AND HOUSING

D.R. Horton Posts 85% Plunge in Q2 Earnings; Misses Street

U.S. homebuilder D. R. Horton yesterday posted an 85% drop in profits and said it had slashed a quarter of its workforce. The report followed last week's warning by the company that orders had fallen by 37%. Net income for the quarter dropped to $51.7 million ($0.16/share) from $352.8 million ($1.11) a year ago. Those figures reflect charges of $81.2 million ($0.16/share) for impairments and land option writedowns, 80% of which were in California. Analysts were expecting EPS of $0.27 excluding charges. Homebuilding revenue fell 26%, to $2.62 billion from $3.53 billion, missing Street forecasts of $2.79 billion. The company's backlog of homes under contract has shrunk to 16,885 homes worth $4.8 billion from 24,017 homes worth $7.1 billion a year ago. CEO Donald J. Tomnitz said he expects the weak market to continue into 2008.
Sources: MoneyCentral (I, II), MarketWatch
Commentary: D.R. Horton: Q2 Orders Dropped 37%D.R. Horton's 37% Decline In New Orders: Bad News For HousingTen Stock Picks From Barbara Marcin of Gamco Investors
Stocks/ETFs to watch: D.R. Horton, Inc. (NYSE:DHI). Competitors: Centex Corp. (CTX), Lennar Corp. (NYSE:LEN), Pulte Homes Inc. (NYSE:PHM). ETFs: iShares Dow Jones US Home Construction (NYSEARCA:ITB)

INTERNET

Google's Billion Dollar Quarter Beats Estimates, Sending Shares Higher

Google reported its first quarter earnings after yesterday's close, topping both the Street's EPS and revenue estimates. Shares rose 3.2% in after hours trading to $486.80 on strong volume of 11.2 million shares.goog Excluding one-time items, EPS came in at $3.68 (net of $1 billion), while revenue was $3.7 billion, or $2.53 billion after subtracting advertising commissions and other payments to its partners. Both numbers beat consensus analyst forecasts, which called for EPS of $3.30 on revenue of $2.49 billion. The company's billion dollars in net income was largely derived from search advertising revenue. According to researcher eMarketer, Google will account for an estimated 75% of all U.S. search ad revenue this year, versus just 16% for rival Yahoo. According to American Technology Research analyst Rob Sanderson, as quoted by the AP, "Google's quarter wouldn't have been as impressive without a favorable tax rate of 26% during the first quarter - below the company's projected rate of roughly 30% for the entire year." Sanderson believes Google's EPS would have actually fallen $0.18 had its first quarter tax rate been 30%. On the conference call, CEO Eric Schmidt said he was "ecstatic about our results." Google also announced that in addition to his duties as CEO, Schmidt would now also serve as Chairman of the Board.
Sources: Google Q1 2007 Earnings Call Transcript, Press Release, AP, Wall Street Journal, USA Today
Commentary: Google "Ecstatic” On Q1 ResultsBullish on Google: Consistent Growth, Deserving of a High PremiumStifel: Google Is Now A Value StockGoogle Continues to Dominate Internet Search
Stocks/ETFs to watch: Google, Inc. (NASDAQ:GOOG), Microsoft Corp. (NASDAQ:MSFT), Yahoo! Inc. (NASDAQ:YHOO), IAC/InterActiveCorp (IACI). ETFs: First Trust Dow Jones Internet Index (NYSEARCA:FDN), Internet HOLDRs (NYSE:HHH), First Trust IPOX-100 Index (NYSEARCA:FPX)

TECHNOLOGY

AMD Reports Huge Q1 Loss, but Shares Trade Higher on CEO Comments

AMD reported a Q1 net loss of $611 million, or $1.11/share (-$0.90 excluding ATI acquisition related costs), far worse than analysts' average estimate of -$0.48/share, and a reversal from the $0.38/share it earned last year. Revenues of $1.23b were in-line with AMD's revised forecast last Tuesday (-7.4% y-o-y). AMD-chart-04-19-07 After initially falling as much as 9% to $12.99 in after-hours trading, AMD last traded up 1.5% to $14.50 on volume of nearly 7.3 million -- it had gained 2.7% to $14.28 during normal trading. The upside catalyst was CEO Hector Ruiz responding to an analyst's question about speculation of private equity interest in AMD, saying, "... we have absolutely no prejudice or bias towards the source of capital as long as it makes sense for us, and we are very open to any of those ideas." Gross margins plummeted to 28.1% from 58.5% last year. AMD forecast Q2 revenue to be "flat to slightly up" q-o-q, versus analysts' estimate of a 2.5% increase.
Sources: Advanced Micro Devices Q1'07 Earnings Call Transcript, Press release, Bloomberg, BusinessWeek
Commentary: AMD Is In Real TroubleAdvanced Micro Devices Warning Brings Out BuyersWhy I'm Betting on Advanced Micro Devices - For Now
Stocks/ETFs to watch: Advanced Micro Devices (NASDAQ:AMD). Competitors: Intel Corp. (NASDAQ:INTC). ETFs: iShares S&P Global Technology (NYSEARCA:IXN), PowerShares FTSE RAFI Telecom & Tech (PRFQ)

Dell Brings Back XP PCs on Customer Outcry

PC maker Dell Inc. said on its website Thursday it is scrapping its decision to sell all new Windows PCs with Microsoft's Vista OS. Dell stopped offering XP on most desktops and laptops soon after January's Vista launch. But on the company's IdeaStorm website, where customers can post suggestions and complaints, a thread entitled "Don't eliminate XP just yet" received more than 10,000 positive votes. "We heard you loud and clear on bringing the Windows XP option back to our Dell consumer PC offerings," Dell said. It will now offer XP on four of its Inspiron notebooks and two Dimension desktops. Microsoft product manager Michael Burk argued in an email Microsoft 20 04 2007 Chartresponse that the move was due to a "small minority of customers." But Michael Gartenberg of JupiterResearch says many customers don't want the 'latest and greatest' when shopping for an OS, opting instead for what in their eyes is familiar and stable: "Microsoft is going to have to work hard to make sure that even if companies like Dell are offering XP, their customers don't want it." Analysts say Dell's move is not a good sign for Windows Vista. Research firm Gartner said this week that Vista's launch "had very limited impact on overall worldwide shipment demand on a quarterly basis."
Sources: Don't eliminate XP just yet, AP, CNET News.com
Commentary: Customers to Dell: "We want XP" (SlashGear)Windows XP Again an Option for Some Dell Consumer PCs (RealTechNews)10 Reasons Why Microsoft's Vista Has Missed The Mark
Stocks/ETFs to watch: Microsoft Corp. (MSFT), Dell Inc. (NASDAQ:DELL). Competitors: Apple Computer Inc. (NASDAQ:AAPL), Novell Inc. (NASDAQ:NOVL), Sun Microsystems Inc. (NASDAQ:SUNW)

TRANSPORT AND AEROSPACE

Harley Shares Zoom Forward On Earnings and Revenue Beat

Harley-Davidson's 1Q profits fell 18% due to a three-week strike at its biggest production facility, but still managed to beat the Street's estimates, sending shares higher by more than 3%.hog EPS came in at $0.74, $0.02 better than consensus estimates, which had factored in the strike as well as sagging U.S. motorbike sales. Revenue for the quarter also topped estimates, coming in at $1.18 billion, versus expectations of $1.1 billion in sales. Despite revenue falling 8.3% due to the strike, CEO Jim Ziemer said the company expected to return to a revenue growth rate range of 11%-17% in 2008 and 2009. Sticking with its forward outlook, Ziemer added that in 2007, Harley-Davidson "expects EPS growth in the range of 4% to 6% compared to 2006 based on moderate revenue growth, lower operating margin, and the benefits of our strong free cash flow."
Sources: Press Release, Reuters, AP, MarketWatch,
Commentary: Disturbing Trends at Harley-Davidson: Why It's Time to SellHow Harley Could Kick Back Into GearCramer's Take on HOG
Stocks/ETFs to watch: Harley-Davidson, Inc. (NYSE:HOG). Competitors: Polaris Industries Inc. (NYSE:PII)

ENERGY AND MATERIALS

Peabody Energy Misses Forecasts; Mulls Spin-Off of Appalachian Assets

Peabody Energy Corp., the largest coal producer in the world, posted a 32% drop in Q1 net income on lower shipments, higher expenses and acquisition costs. The company countered its disappointing report with news that it is considering spinning off its assets in Appalachia to focus on the western U.S., China and Australia. Profit fell to $88.5 million ($0.33/share) from $130.2 million ($0.48) a year earlier. Revenue was up 4.1% to $1.37 billion on an output gain in Australia and contracts that predated last year's decline in the coal markets. Analysts were expecting EPS of $0.40 on revenue of $1.55 billion. The company is forecasting Q2 EPS of $0.35-0.55 against Street expectations of $0.52. For the full year, Peabody is maintaining an EPS forecast of $2.10-2.75 against analyst expectations of $2.57. Q1 sales fell to 60.9 million tons from 61.4 million after severe weather shut down deliveries from Wyoming's Powder River Basin and port congestion in Australia held up shipments. Q1 operating expenses were up 6.8% from a year ago to $1.09 billion. The cost of last year's acquisition of Australian miner Excel Coal cut into profits, while earnings do not yet reflect the contribution of the acquired mines. Peabody's shares closed down 1.3% yesterday at $45.59.
Sources: Reuters, Business Week, MarketWatch, Bloomberg
Commentary: Peabody Energy: There's Green in CoalPeabody Energy Corp.: Old King Coal Still ReignsAlternative Energy Boom Has Its Limits
Stocks/ETFs to watch: Peabody Energy Corp. (BTU). Competitors: Arch Coal Inc. (ACI), CONSOL Energy Inc. (NYSE:CNX), Massey Energy Co. (NYSE:MEE). ETFs: PowerShares WilderHill Clean Energy ETF (NYSEARCA:PBW), PowerShares WilderHill Progressive Energy ETF (NYSEARCA:PUW)

FINANCIAL

American Express Exceeds Forecasts, Posts Record Q1 Profit

Number four U.S. credit card issuer American Express yesterday posted a 21% rise in Q1 profit and beat Street estimates on the back of higher spending by cardholders and a reduction of the cost of customer loyalty rewards. Q1 net income rose to a record $1.1 billion ($0.87/share) from $873 million ($0.69) in the year-ago period. Total revenue was up 14% to $7.63 billion from $6.72 billion last year. Analysts were expecting EPS of about $0.80 on $7.17 billion in revenue. After interest expense, revenue came in at $6.67 billion, up 10% from $6.05 billion in the year-ago period. Cardholders spent $146.2 billion around the world in the quarter, a 15% increase, while worldwide marketing and reward costs were trimmed by 4%. This quarter marks the first time AmEx's net income has topped $1 billion since the Ameriprise spin-off in September 2005. AmEx is trading at about 19x trailing earnings while rival MasterCard, which went public in May, is trading at 28x.
Sources: A.P., Reuters, Bloomberg
Commentary: Joel Greenblatt: Buys, Sells, PortfolioA Forensic Accountant's Winners and Losers from Pending LitigationAmeriprise Financial Easing Baby Boomers into Retirement
Stocks/ETFs to watch: American Express Co. (NYSE:AXP). Competitors: Mastercard Inc. (NYSE:MA). ETFs: HealthShares Emerging Cancer (HHJ), iShares KLD Select Social Index (NYSEARCA:KLD), Financial Select Sector SPDR (NYSEARCA:XLF)

HEALTHCARE/BIOTECH

Schering-Plough Soundly Beats Q1 Forecasts

Schering-Plough posted better-than-expected Q1 results yesterday on the back of strong sales of rheumatoid-arthritis drug Remicade and allergy medication Nasonex. Its shares gained 8.6% to $31.00, their biggest one-day percentage gain in seven years. The company reported Q1 net income of $543 million ($0.36/share) versus $350 million ($0.24) in the year-ago quarter, a 55% gain and ahead of analyst expectations of $0.29. Excluding charges, the company would have reported EPS of $0.42. Revenue surged 17% to $2.98 billion from $2.55 billion, again beating analyst expectations of $2.74 billion. Remicade sales grew 34% to $373 million in the quarter, and Nasonex was up 24% to $284 million. Sales of all of the company's top nine products were up at least 10%. The company's cholesterol-drug JV with Merck generated $1.2 billion in revenue, with Vytorin up 66% to $616 million and Zetia up 31% to $544 million. Schering-Plough announced a month ago that it will buy Akzo Nobel's Organon unit -- the third-largest maker of birth control pills as well as several experimental medicines -- which should help it lessen its dependence on revenue from cholesterol drugs.
Sources: Press release, Reuters, Bloomberg, MarketWatch
Commentary: HealthShares Founder: Buy Biotech Stocks and ETFs, Avoid Big PharmaBiotech Day in Review: Schering-Plough Buys Organon for $14.4 BillionSearching for Value Investments in the Drug Stock Universe
Stocks/ETFs to watch: Schering-Plough Corp. (SGP), Merck & Co. (NYSE:MRK). Competitors: Glaxosmithkline plc (NYSE:GSK), Johnson & Johnson (NYSE:JNJ), Sanofi-Aventis (NYSE:SNY). ETFs: iShares Dow Jones US Pharmaceuticals (NYSEARCA:IHE), PowerShares FTSE RAFI Health Care (PRFH), Pharmaceutical HOLDRs (NYSEARCA:PPH)

Amgen Shares Gain on Aranesp Results

Amgen shares gained 3.9% to close at $62.32 yesterday after the company reported its Aranesp antianemia treatment has been shown not to reduce chances of survival among lung cancer patients. The "145" study of 600 patients with small-cell lung cancer receiving chemotherapy showed no significant difference in death risk between those on Aranesp and those on placebo. It did indicate a lower risk of blood transfusions in Aranesp users, which is what the drug is intended for. "We view the neutral outcome as a positive for Amgen that calms investors' fears," said William Blair analyst John Sonnier. The shares have been under pressure recently on data showing that Aranesp is linked to a higher risk of death and heart problems under certain circumstances. Aranesp is Amgen's best-selling drug; sales were up 26% in 2006 to $4.1 billion. Aranesp is approved by the FDA to treat anemia in patients with kidney disease or undergoing chemotherapy, but last month, the agency strengthened the safety warning for Aranesp's class of drugs (erythropoiesis-stimulating agents, or ESAs) to discourage "off-label" uses. Meanwhile, Amgen has sued Roche Holding for copyright infringement in the hope of stopping its pending sale of a rival antianemia treatment, Mircera, in the U.S.
Sources: Wall Street Journal, MarketWatch, New York Times, Business Week
Commentary: Stifel Likes Amgen From a Valuation StandpointAmgen: Bad News Priced In, Growth On The HorizonSEC Queries Amgen on Aranesp Anemia Medication
Stocks/ETFs to watch: Amgen, Inc. (NASDAQ:AMGN), Johnson & Johnson (JNJ). Competitors: Roche Holding Ltd. [ADR] (OTCQX:RHHBY), Novartis AG (NYSE:NVS), Baxter International Inc. (NYSE:BAX). ETFs: Biotech HOLDRs (NYSEARCA:BBH), PowerShares Buyback Achievers (NYSEARCA:PKW), PowerShares Dynamic Large Cap Growth (NYSEARCA:PWB)
Conference call transcripts: Q4 2006

Sanofi Aventis's Blood Thinner 43% More Effective -- Study

Ischemic stroke patients, who are at high risk of getting a blood clot in their legs, will do better with Sanofi-Aventis's Lovenox drug than with the cheaper heparin, according to a Lancet medical journal study released Thursday. Researchers compared Lovenox's (produced generically as enoxaparin) once-daily injections with unfractionated heparin, a cheaper, twice-daily injection derived from pig tissues. In a study of 1,762 patients paralyzed by an ischemic stroke, they found enoxaparin was sanofi-aventis 20 04 2007 Chart43% more effective at preventing leg and lung blood clots than the older heparin treatment. Rates of internal bleeding -- a concern with blood thinners -- were similar for both drugs, although Lovenox did show a slightly higher rate of external brain bleeding. David Sherman of the University of Texas Health Science Center, who led the study, commented: "I think that Lovenox will become the standard of care." In a February ruling, a California judge found Aventis' Lovenox patent unenforceable.
Sources: Reuters, Lovenox ruling (.pdf)
Commentary: Amphastar and Teva Prevail Over Aventis in Generic Lovenox TrialIs Momenta's Stock Plunge Justified?Searching for Value Investments in the Drug Stock Universe
Stocks/ETFs to watch: sanofi-aventis (SNY). Competitors: Eli Lilly and Company (NYSE:LLY), Momenta Pharmaceuticals Inc. (NASDAQ:MNTA), Teva Pharmaceutical Industries (NYSE:TEVA), GlaxoSmithKline plc (GSK), Novartis AG (NVS), Pfizer Inc. (NYSE:PFE), Merck & Co. Inc. (MRK). ETFs: Pharmaceutical HOLDRs (PPH), iShares Dow Jones US Pharmaceuticals (IHE)
Related: Heparin on Wikipedia, Enoxaparin on Wikipedia

INTERNATIONAL

SAP: Q1 Profit and Sales Rise, but Miss; FY Guidance Reaffirmed

SAP reported Q1 net income increased 10% to €310 million ($422m), or €0.26/share, compared to analysts' average estimates of €309m (Thomson) to €320m (Bloomberg). Sales rose 6.1% to €2.17b, short of analysts' average estimate of €2.23b (Bloomberg). SAP reiterated '07 operating profit margin guidance of 26% - 27% (vs. 27.3% in '06) and said it sees software and related services sales rising 12% - 14%. SAP-chart-04-19-07 Q1 operating profit margin was flat at 20%. SAP reported its market share of business-management software increased to 25.1% for the year-ended Mar. 31, compared to 24.5% on Dec. 31. SAP's ADRs lost 0.34% to $49.18 in normal trading yesterday and were up a penny in the after-hours on volume of 291,000 shares in what appears to be a large block trade. SAP's ordinary shares were up as much as 3% to €37.17 this morning in Frankfurt.
Sources: Press release, Bloomberg, MarketWatch
Commentary: Is SAP Gaining or Losing Market Share?SAP: Putting Its Customers Ahead Of Its Stock PriceSAP Post-Agassi: Under The MicroscopeSAP Earnings Conference Call Transcript (later today)
Stocks/ETFs to watch: SAP AG (SAG). Competitors: Oracle (NYSE:ORCL), Microsoft (MSFT), International Business Machines (NYSE:IBM). ETFs: Software HOLDRs (NYSE:SWH), Vanguard Information Technology (NYSEARCA:VGT), iShares MSCI Germany Index (NYSEARCA:EWG)

Lenovo to Cut 2.5% of Workforce in Global Realignment

Lenovo announced yesterday it plans to reduce its workforce by 1,400 or about 5%, but half of those positions will be "transitioned into emerging markets closer to Lenovo’s suppliers and manufacturing operations" over the next twelve months. It expects savings of approximately $100 million through its fiscal year ending next March. Lenovo said it will take a $50m - $60m restructuring charge for the quarter ending in June. Lenovo-LNVGY-chart-04-19-07 Separately, a newswire report carried on Forbes.com said Lenovo led Q1 PC sales in Asia ex-Japan, with a 24.3% y-o-y increase for 17.8% market share, followed by HP at 15.4%, Dell at 8.1% and Acer at 6.5%, according to preliminary data from IDC. Another newswire said data from Gartner showed Acer (6.8% market share) overtook Lenovo (6.3%) to become the world's 3rd ranking PC vendor in Q1 (#1 HP 17.6%, #2 Dell 13.9%). Lenovo's ADRs trading on the pink sheets closed yesterday unchanged at $7.25, on about 3x normal volume of 135,000 shares.
Sources: Press release, Forbes.com XFN-Asia newswire [i, ii], The Wall Street Journal
Commentary: Dell #1 PC Seller for 2006Chinese Tech Stock Weekly -- Lenovo Expects Higher Q4 Revenues from Vista LaunchLenovo to Pre-load Microsoft Live Tools
Stocks/ETFs to watch: Lenovo (OTCPK:LNVGY). Competitors: Hewlett-Packard (NYSE:HPQ), Dell (DELL), Gateway (GTW)

MUST-READS ON SEEKING ALPHA TODAY

U.S. Market: What Would Create a Repeat of 1973?
Housing: Housing Bubble and Real Estate Market Tracker
Long Idea: International Royalty Corporation: Capitalize on the Commodities Boom
Short Idea: ODAC Member Raises Concerns About Dendreon's Provenge
Internet: All Over But the Yodeling: Comparing Yahoo's and Google's Conference Calls
Telecom: ECI Telecom: Wait on the Sidelines
Networking: Nortel Launches 'My Business' Program
Hardware: Computer Hardware: BCA Research Advises To Stay Underweight
Chips: AMD Is In Real Trouble
Software: The Short Case on Salesforce - Risk Not Priced Into Stock
Consumer Electronics: Conference Calls Get to the Heart of the Matter for Mobile Makers
Media: Finance Blogs Beating Mainstream Media To The Punch
Healthcare: Negative CAD Research Shouldn't Impact Hologics, iCAD
Biotech: Idera, Coly Pharmaceuticals: Chemistry is the Name of the Game
Retail: Altria Is Smokin'
Transport: GM's Shift to Emerging Markets: Still a Long Way to Go
Gold: Silver Wheaton: A Pure Play Against the Falling US Dollar
Energy: Building a Climate Change Portfolio
Financial: Unusually High Institutional Ownership Stocks
Asia: Japanese ADR Earnings Schedule
ETFs: Hedging a Weakening Dollar With Currency ETFs
Hedge Funds: Hedge Fund Clients Confused - With Good Reason
Small-Caps: Why I'm Selling Palm and Buying ClickSoftware
Sound Money Tips: Watch Me If You Can
Jim Cramer: Latest stock picks
Conference Call Transcripts: Logitech F4Q07Nokia Q1 2007Fairchild Semiconductor Q1 2007Arbitron Q1 2007Merck Q1 2007Gannett Q1 2007The New York Times Q1 2007Merrill Lynch Q1 2007Google Q1 2007Total System Services Q1 2007Stamps.com Q1 2007Molex F3Q07Advanced Micro Devices Q1 2007
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