Apple Beats On Strong Mac Sales, Declining Flash Memory Prices; Board Defends Jobs
Apple shares are up in pre-market trading after it reported a stronger than expected quarter. EPS and revenue both topped the company's and analyst estimates by a wide margin, while Apple provided in-line guidance for next quarter. EPS rose 88% to $0.87 (vs. $0.47 last year), revenue rose 21% to $5.26 billion and operating margins jumped to 35.1% from 29.8% a year earlier. Wall Street was expecting EPS of $0.63 on sales of $5.17 billion; operating margins were expected to come in around 30%. Looking to next quarter, Apple said it expects revenue of about $5.1 billion and EPS of $0.66; Wall Street predicts EPS of $0.67 on sales of $5.43 billion. Apple is known for giving conservative guidance; in the just-ended quarter, it predicted EPS of just $0.54-$0.56. Mac sales powered revenue in the quarter, accounting for $2.27 billion in sales on increasing popularity of its notebook computers. iPod sales rose to 10.5 million units from 8.5 million, but total sales revenue dropped 1% to $1.69 billion, as cheaper alternatives like the iPod shuffle accounted for much of the sales volume growth. Margins jumped due to a worldwide memory sales glut which has lowered the cost of NAND flash memory chips that power iPods by as much as 45%. Separately, six independent company directors including former VP Al Gore and Google CEO Eric Schmidt released a statement defending CEO Steve Jobs from any wrongdoing in the company's options backdating scandal; former CFO Fred Anderson has accused Jobs of misleading him on the options issue. The directors statement read: "We have complete confidence in the conclusions of Apple's independent investigation, and in Steve's integrity and his ability to lead Apple." Apple shares are higher by $6.40, or 6.71%, to $101.75 in pre-market action as of 6:15 A.M. ET.
Sources: Apple F2Q07 (Qtr End 3/31/07) Earnings Call Transcript, Press Release, Wall Street Journal, Bloomberg, MarketWatch, Reuters
Commentary: Notes From Apple's Conference Call • Apple EPS Should Climb Higher Yet - Piper Jaffray • Why Apple's Mac ASPs Are Likely To Climb - At Lenovo's And Dell's Expense • Apple To Recognize iPhone, AppleTV Revenue Over 2 Years
Stocks/ETFs to watch: Apple Inc. (AAPL). Competitors: Hewlett-Packard (HPQ), Dell (DELL), Microsoft (MSFT), Lenovo (OTCPK:LNVGY), SanDisk (SNDK). ETFs: Internet Architecture HOLDRs (IAH), Ultra QQQ ProShares (QLD), iShares S&P Global Technology (IXN)
QUALCOMM: Profit and Sales Up Double-digits, Raises Guidance, Shares Higher
QUALCOMM reported Q2 net income rose 22% to $726 million, or $0.43 per share. Excluding certain costs such as stock options, EPS totaled $0.50, ahead of its own projection of $0.49 and analysts' average estimates of $0.47 (Bloomberg) to $0.48 (Thomson). Revenues increased 21% to $2.22b, beating analysts' expectations of $2.16 (Bloomberg) to $2.19 (Thomson). Q3 EPS guidance of $0.50 - $0.52 on sales of $2.2b - $2.3b topped analysts' forecast of $0.46 on $2.19b. It raised its full-year EPS guidance to $1.84 - $1.88 (from $1.72 - $1.77) on sales of $8.4b - $8.7b (from $8.1b - $8.6b). "They are giving tacit guidance for the fourth-quarter and it looks like bad numbers," says a Stifel Nicolaus analyst. QUALCOMM's CFO said Q4 EPS may be $0.42 - $0.43 (excluding $0.04 - $0.05 in royalty payments from Nokia) and did not offer a sales forecast. The firm's CEO said, "there's nothing new to discuss" about licensing agreement negotiations with Nokia. Shares of QUALCOMM gained 2.2% to $45.34 during normal trading and added 0.90% to $45.75 in after-hours activity on volume near 2.6m.
Sources: QUALCOMM F2Q07 Earnings Call Transcript, Press release [pdf], Bloomberg, MarketWatch
Commentary: QUALCOMM's Conference Call: All the Hot Air We Expected • Qualcomm: Sound Business Entering Period Of Uncertainty • QUALCOMM Sues Nokia Again as License Contract Set to Expire
Stocks/ETFs to watch: QUALCOMM (QCOM). Competitors: Nokia (NOK), Samsung Electronics [not traded in U.S.; see iShares S. Korea (EWY)], Texas Instruments (TXN). ETFs: Broadband HOLDRs (BDH), Wireless HOLDRs (WMH), iShares Goldman Sachs Networking (IGN)
Related: QUALCOMM earnings presentation [pdf]
Proxy Firms Divided on Icahn Board Seat at Motorola
Institutional Shareholder Services has advised Motorola shareholders to elect Carl Icahn to the Board of Directors at their annual meeting on May 7. Rival advisory firm Glass Lewis, however, says Icahn has not provided a sufficiently detailed plan for Motorola to warrant election to the board. Icahn controls 2.9% of Motorola stock. "[W]e believe the presence of a new viewpoint may help to ensure that shareholder value is preserved," stated ISS. Glass Lewis claims management has acknowledged "previous errors in judgment" and should be given a chance to turn the company around. "We believe Mr. Icahn rightly identifies a number of problems with Motorola's business and misjudgments by its managers and board," the group said. "However, we feel the dissident's plan for improving Motorola's current position is short on details." Motorola's management, led by CEO Ed Zander, is opposed to Icahn's election on the grounds that he is overcommitted elsewhere and has insufficient experience in the wireless industry. The company's shares have lost a third of their value since October on poor high-end handset sales and the loss of a price premium on the Razr line.
Sources: Bloomberg, MarketWatch, Reuters
Commentary: Icahn Pushes for Motorola Board Seat; Urges Postponement of Buyback • Shareholder Activism At Motorola: The Power Of Free Markets • Analysts Believe Motorola Hasn't Yet Hit Bottom
Stocks/ETFs to watch: Motorola Inc. (MOT). Competitors: LM Ericsson Telephone Co. (ERIC), Nokia Corp. (NOK). ETFs: Broadband HOLDRs (BDH), Wireless HOLDRs (WMH), PowerShares FTSE RAFI Telecom & Tech (PRFQ)
Conference call transcripts: Q1 2007
Akamai: Shares Tumble on Disappointing In-line Earnings and Guidance
Akamai reported Q1 net income climbed 67% to $19.2 million, or $0.11/share, but excluding certain items, totaled $0.28/share, in-line with Street estimates. Revenues grew 53% to $139.3m, compared to analysts' estimates of $138.8 - $139m. Its shares fell 10.3% to $48.97 during normal trading and last traded down 0.35% to $48.80 in the after-hours, having dropped as low as $46.46 (-5.1%), on volume of more than 1.1m. Analysts noted very high expectations, especially with Akamai beating in the several quarters prior. Akamai forecast Q2 EPS of $0.29 - $0.30, on sales of $149m - $153, compared to analysts' consensus estimate of $0.31 on revenues of $150.3m. In a conference call, Akamai reiterated its full-year revenue growth guidance of 42% - 46% to $610m - $625m. A WR Hambrecht analyst commented: "Everyone is going to downgrade: You have taken all of the expectations out of the stock. When it gets down to around $47, the stock gets interesting again."
Sources: Akamai Technologies Q1 2007 Earnings Call Transcript, Press release, Bloomberg, Reuters
Commentary: Akamai: Cowen Sees “Buying Opportunity” • Akamai: Lift from Online Video Growth
Stocks/ETFs to watch: Akamai Technologies Inc. (AKAM). Competitors: SAVVIS Inc. (SVVS). ETFs: Internet Infrastructure HOLDRs (IIH), First Trust Dow Jones Internet Index (FDN), First Trust NASDAQ-100-Tech Index (QTEC)
Related: Additional Akamai Metrics [pdf]
TheStreet.com Buys Remaining Stake in Stockpickr
Online financial news site TheStreet.com has announced it will acquire the remaining 50.1% of investment website Stockpickr it did not previously own. Financial terms of the purchase were not disclosed. Stockpickr is a Web 2.0 offering on which users can meet in a forum environment to share investment strategies and watch movements in the portfolios of famous investors like Warren Buffett and George Soros. James Altucher, president of Stockpickr.com, says his site will now be able to integrate "our ever-increasing content with TheStreet.com's news, blogs, video and data" to enhance the user experience. Stockpickr, which Altucher says "attracts the Facebook and 401K audiences and everyone in between," provides idea-generating tools like model portfolios and a proprietary recommendation algorithm. TheStreet.com's free editorial content will complement those tools to create "an end-to-end resource unlike any other offering currently available," according to a TheStreet.com press release. Thomas J. Clarke Jr., chairman and CEO of TheStreet.com: "With social networking being the fastest growing part of the Web and from our experience with Stockpickr, the time was right for us to own the entire site."
Sources: Press release, TheStreet.com, TMCnet
Commentary: Stockpickr Acquired By TheStreet.com [TechCrunch] • TheStreet.com Acquires Stockpickr: A Web 2.0 Success Story • TheStreet.com Beats the Street on Ad Revenue Strength
Stocks/ETFs to watch: TheStreet.com, Inc. (TSCM). ETFs: Internet HOLDRs (HHH), First Trust Dow Jones Internet Index (FDN)
Conference call transcript: TheStreet.com Q4 2006
Lincoln Financial Explores Selling Its Media Unit for About $1.5 Billion -- WSJ
Insurer/investment manager Lincoln National Corp. is hiring advisers to help it sell its broadcast/media unit (Lincoln Financial Media) for about $1.5 billion, according to an unsourced Wall Street Journal report. The unit is comprised of 18 radio stations, three TV stations and a television-production company that creates and distributes programming for Southeastern Conference and Atlantic Coast Conference college football and basketball. The Journal says the time is ripe for such a sale: private-equity firms are looking for media assets and are willing to pay healthy cash-flow multiples, as witnessed by last week's LBO of Clear Channel Communications for about 13x cash-flow. Some college conferences have begun creating their own broadcast networks, such as the Mountain West Conference last year and the Big Ten's channel scheduled to launch before football season this year. Southeastern Conference, whose deals with Disney's ESPN and CBS expire in 2009, has publicly stated it would consider launching its own network. The Journal concedes it remains possible nothing will come of this, but, it says, "the action is the strongest sign yet that the insurer is deeply considering getting out of the business that isn't core to its operations."
Sources: Wall Street Journal, Reuters
Commentary: Jim Cramer's Take on LNC • Lincoln Financial Media on Wikipedia
Stocks/ETFs to watch: Lincoln National Corp. (LNC), Walt Disney Company (DIS), CBS Corp. (CBS), Clear Channel Communications Inc. (CCU). Competitors: American International Group, Inc. (AIG), Prudential Financial Inc. (PRU). ETFs: iShares Dow Jones US Insurance (IAK), PowerShares Dynamic Financials (PFI), PowerShares Dynamic Insurance (PIC)
NutriSystem Beats Street With 70% Rise in Q1 Profits
NutriSystem's revenues soared 62% to $238 million in Q1'07 vs. $146m in Q1'06. Net income rose 70% to $38m, or $1.04/share in Q1'07, vs. $22m or $0.60/share in Q1'06, handily beating analyst's expectations of $0.91 on $213m in sales. Operating income almost doubled from $35m in Q1'06 to $60m in Q1'07. Despite a 92% rise in marketing costs, revenue per customer grew and returning customers should bring in $93m in 2007 compared to $38m in 2006. NutriSystem grew its online market and its men's market grew faster than the traditional woman's market. Cash flow increased-- NutriSystem used $66m of cash for part of $76m in share repurchases. Q1's traditional strength comes from New Year's weight loss resolutions, and rival Herbalife also raised guidance to $0.60-$0.61 vs. a Street expectation of $0.56. NutriSystem forecasts Q2 EPS at $0.82-$0.86/share on revenues of $190-$200m, a 43% increase. Full year revenues are expected between $790-$805m, or EPS of $3.34-$3.46/share as NutriSystem continues to focus on the men, women and senior markets, returning customers and new products. Shares rose $7.41 to $65.65 after hours Wednesday.
Sources: Press Release, Reuters, The Street I & II, Forbes, 24/7 Wall St.
Commentary: NutriSystem's Strong Top Line Growth To Continue• Expecting Buy Interest in NutriSystem Folowing Bullish CIBC Call • Does NutriSystem Game the Market? • NutriSystem: Capitalize On America's Obesity Problem
Stocks/ETFs to watch: NutriSystem (NTRI), Herbalife (HLF)
Anheuser-Busch Posts Q1 Profit Miss
Anheuser-Busch shares fell 2.8% to close at $50.90 yesterday, their biggest drop in almost two years, after the company posted a Q1 profit miss on advertising expenses for Bud Light and imported beers. Net earnings were $517.5 million ($0.67/share) in the quarter, up 3.7% from $499.2 million ($0.64) a year ago. Net revenue rose 2.7% to $3.86 billion from $3.76 billion in the year-ago quarter. Analysts were expecting EPS of $0.69 on revenue of $3.94 billion. Marketing and administration expenses were up 8.1% to $665.7 million in a bid to keep consumers away from rival Miller Lite. Advertising costs were also increased by marketing for InBev NV's European brands Bass and Beck's, for which Anheuser-Busch took over distribution in February. Sales were up 2.7% to $3.86 billion for Q1 from $3.76 billion a year earlier. The company's U.S. market share dropped to 50.2% from 50.9% a year ago. Shipments to U.S. wholesalers rose a scant 0.5% from a year ago, but international shipments to wholesalers were up 8.7% to 5.2 million barrels, primarily on sales to China and Canada.
Sources: Conference call transcripts: Q1 2007, Press release, MarketWatch, MoneyCentral, Bloomberg
Commentary: From Vice to Virtue: Study Indicates Sin Stocks Outperform the Market • Outlooks for Select S&P Dividend Aristocrats • Anheuser Busch Sets Up Bud.TV For Internet Reach
Stocks/ETFs to watch: Anheuser-Busch Companies, Inc. (BUD). Competitors: Molson Coors Brewing Company (TAP). ETFs: Consumer Staples Select Sector SPDR (XLP), Vanguard Consumer Staples ETF (VDC), PowerShares Dynamic Consumer Staples (PSL)
Wendy's Mulling Sale; Posts Sharp EPS Drop; Beats Street
Shares of number-three U.S. burger chain Wendy's International jumped 14% to $37.05 in AH trading yesterday after the company announced it has formed a special committee to explore strategic options, including a possible sale. The company also posted a steep drop in quarterly earnings to $14.9 million ($0.15/share) versus $51.2 million ($0.45) a year ago. Analysts were expecting EPS of $0.13. Income from continuing operations came in at $14.5 million ($0.15/share) against a loss of $5.9 million (-$0.05) a year earlier. Sales were up 2% to $590.2 million. Q1 U.S. same-store sales were up 3.8%, largely on new products like cold deli sandwiches, a 99-cent chicken sandwich and a vanilla Frosty. The company is under pressure from activist shareholders, including Nelson Peltz, to take action to boost the stock price. Peltz's Trian funds held approximately 9.7 million shares as of December, making it the company's largest investor. Wendy's, which is currently valued at $2.8 billion, spun off coffee-and-doughnut chain Tim Hortons in September and the Baja Fresh chain in November.
Sources: Press release, Bloomberg, Reuters
Commentary: 4 Themes To Note In This Week's Restaurant Earnings • The Bar Mitzvah Portfolio: Five Long Term Winners
Stocks/ETFs to watch: Wendy's International (WEN). Competitors: Burger King Corp. (BKC), McDonald's Corp. (MCD), Yum! Brands Inc. (YUM). ETFs: Consumer Discretionary SPDR (XLY), PowerShares Dynamic Food & Beverage (PBJ)
ENERGY AND MATERIALS
ConocoPhillips Shares Rise Despite Earnings Miss
ConocoPhillips, the U.S.'s third largest oil company by market cap, reported earnings yesterday that missed the Street's expectations, but its shares managed to climb higher by 1.7%. Boosted by asset dispositions that added $355 million to its bottom line, Conoco saw its net income rise 7.7% to $3.55 billion. On a per-share basis, earnings fell to $2.12 from $2.34 in the year earlier period as the company saw its total number of outstanding shares increase over the last year. The company's asset sales tacked on $0.29 to EPS, which was $1.83 after one-time items; analysts polled by Thomson Financial expected EPS of $1.90. Revenue at ConocoPhillips fell to $41.3 billion. Improved refining margins helped offset a fall in refining capacity to 2.73 million bbl/day from 2.9 million bbl/day a year earlier. The company declined to give numbers-specific forward guidance. Shares closed higher by $1.18, or 1.69%, to $70.82. Also yesterday, Venezuela's oil minister threatened to seize ConocoPhillips operations there after Conoco refused to agree to start formal talks over a planned state takeover of its Orinoco assets. All other foreign companies have agreed to begin talks, except for Conoco.
Sources: ConocoPhillips Q1 2007 Earnings Call Transcript, Press Release, Wall Street Journal, Reuters (i), (ii), MarketWatch
Commentary: Why ConocoPhillips is a Buy and Hold • Refined Oil Price Points Up • Cramer's Take on COP
Stocks/ETFs to watch: ConocoPhillips (COP). Competitors: Exxon Mobil (XOM), Chevron (CVX), BP (BP), Royal Dutch Shell (RDS.A), Total (TOT), Occidental Petroleum Corp. (OXY). ETFs: SPDR Oil & Gas Exploration & Production ETF (XOP), iShares Dow Jones U.S. Oil & Gas Exploration/Production (IEO)
NYSE Euronext Misses on Earnings, Revenue, Despite Strong Gains
NYSE Euronext said Thursday morning its Q1 net income more than doubled on increased trading volume and cost cuts, but failed to meet analyst forecasts. EPS of $0.43 ($67.6 million) on revenue of $185.6 million (+33%) fell short of Wall Street projections of $0.50 on revenue of $356 million. The exchange saw 72 new listings in the quarter, and results did not include operations from Euronext, which was acquired by NYSE earlier this month in a $14 billion deal. Bloomberg says NYSE 11% share decline this year makes it the worst performing stock among the 22 publicly traded exchanges. CEO Nelson Chai: "NYSE Euronext is committed to providing exceptional shareholder value while expanding upon our position as the first global marketplace group, further evidenced by this quarter’s announcements of our purchase of a 5% stake in India’s National Stock Exchange and our strategic alliance with the Tokyo Stock Exchange." Shares were up Wednesday 2.3% to $86.43.
Sources: Press release, Bloomberg, AP
Commentary: “Intrinsic Value” of Euronext Merger Should Boost NYSE Group Shares • Time To Take A Closer Look at the NYSE Group • NYSE/EuroNext Merger Opens a World of Possibilities
Stocks/ETFs to watch: NYSE Euronext (NYX). Competitors: Nasdaq Stock Market Inc. (NDAQ), IntercontinentalExchange Inc. (ICE), Chicago Mercantile Exchange Holdings (CME), CBOT Holdings Inc. (BOT). ETFs: streetTRACKS KBW Capital Markets (KCE), iShares Dow Jones US Broker-Dealers Index Fund ETF (IAI)
ABN Amro Now Seeking Rival Bids for LaSalle
ABN Amro has announced it is now "actively engaged in soliciting alternative bids'' for LaSalle Bank, the Chicago-based holding it agreed to sell to Bank of America for $21 billion on April 23. It will also open its books to a three-bank consortium led by Royal Bank of Scotland [RBS], which has submitted a rival bid for the Dutch bank of $98.5 billion against Barclays' earlier $91 billion offer. The sale of LaSalle to BoA, which was intended to dissuade the consortium from bidding for ABN, was agreed to without the imprimatur of ABN's shareholders. It has resulted in a demand by activist investor TCI Fund that the sale be terminated and a threat by Dutch investor group VEB to take legal action against ABN. Analysts speculate that RBS could bid up to $23 billion for LaSalle -- but BoA can likely match that offer, and other banks might enter the fray. In related news, ABN announced it will take a €365 million provision for a probe by the U.S. Department of Justice into its money transfer activities. Including this provision, Q1 net profit was restated to be up 3.2% to €1.035 billion (€0.56/share) from €1 billion (€0.53) a year earlier.
Sources: Bloomberg, Reuters
Commentary: ABN Amro Takeover: Rival Trio Tops Barclays with $98.5 Billion Bid • ABN-Barclays Merger: Rival Bidders and Investors Query LaSalle Sale • ABN Amro Agrees to Sell Itself to Barclays for $91 Billion
Stocks/ETFs to watch: ABN Amro Holding N.V. (ABN), Barclays PLC (BCS), Royal Bank of Scotland Group plc [ADR] (RBSPY), Fortis NV [ADR] (FORSY), Bank of America Corp. (BAC). Competitors: HSBC Holdings plc ADR (HBC), Deutsche Bank AG (DB), UBS AG (UBS). ETFs: First Trust Morningstar Div Leaders Idx (FDL), PowerShares Intl Dividend Achievers (PID), iShares MSCI Netherlands Index (EWN)
State Street's Two New ETFs: International Small Cap and World ex-US
State Street said Wednesday morning two new international ETFs, based on S&P/Citigroup Global Equity Indices, will begin trading Thursday April 26. SPDR S&P International Small Cap ETF includes companies with market caps under $2 billion domiciled in developed countries outside the U.S. It will trade under the ticker (GWX) and carries a 0.60% expense ratio. SPDR S&P World ex-US ETF includes more than 5,000 companies domiciled in developed countries outside the U.S. including Canada. It will trade under the ticker (GWL) and carries a 0.35% expense ratio. "The new SPDRs offer investors precise, low-cost access to developed international markets, including the first capitalization-weighted vehicle covering international small cap equities... these two new SPDRs are powerful additions for investors looking to build well-diversified portfolios," the company said in a press release. This brings State Street's ETF count to 53 -- including 16 offering access to international and emerging markets.
Sources: Press release
Commentary: International Diversification Should Not Be Done Blindly • Diversifying Your Portfolio Using ETFs -- It Ain't So Simple • Exposure to International Stocks: A Challenge for Investors
Stocks/ETFs to watch: State Street Corp. (STT), SPDR S&P International Small Cap ETF (GWX), SPDR S&P World ex-US ETF (GWL)
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