Toll Brothers Warns of Q2 and Full-Year Shortfall
Luxury homebuilder Toll Brothers Inc. warned Wednesday morning preliminary second-quarter homebuilding contracts fell 25% to $1.17 billion, and said it will miss the quarterly and annual guidance it issued in February. For the last six months, revenues were about $2.26 billion and net signed contracts $1.92 billion, a decline of 19% and 29% respectively. Cancellations fell to 19% from 30% in FQ1 and 37% in FQ4 2006; CEO Robert Toll said in February the company's historical cancellation rate is about 7%. Toll said it continues to face difficult conditions. The company estimated writedowns of $90-130 million. It said it believes less than 2% of its buyers are use sub-prime financing, but that the impact of stricter lending standards arising from subprime problems is "negatively affecting affordability at lower price points. This, in turn, can impact the entire 'housing food chain', including some of our potential customers' ability to sell their existing homes. This, coupled with a lack of buyer confidence, may have served to impede the glimmers of a rebound we had started to see in early February." Toll Brothers plans to report actual Q2 earnings on May 24. Shares are down 5.3% over the last year and 9.4% YTD.
Sources: Press release, MarketWatch, Bloomberg
Commentary: Contrarian Investors Seek Value in Housing • Housing Double Dips Offer Short Opportunities • For Whom the Bell Tolls: Perchance for a Home-Builder?
Stocks/ETFs to watch: Toll Brothers Inc. (NYSE:TOL). Competitors: D.R. Horton Inc. (NYSE:DHI), Pulte Homes Inc. (NYSE:PHM), Lennar Corp. (NYSE:LEN), Hovnanian Enterprises Inc. (NYSE:HOV), KB Home (NYSE:KBH). ETFs: streetTRACKS SPDR Homebuilders ETF (NYSEARCA:XHB), iShares Dow Jones U.S. Home Construction (NYSEARCA:ITB)
U.S. Wholesale Inventories Rise in March, But Sales Gain Even More
Sales at U.S. wholesalers rose in March at their fastest pace in a year and a half, well ahead of a milder-than-expected rise in wholesale inventories, suggesting that production might be picking up. The Commerce Department reported Tuesday that inventories rose by 0.3% in March, led mainly by a 3.1% increase in petroleum inventories, against a revised increase of 0.4% in February. Economists were expecting a rise of 0.6%. Sales at wholesalers rose 1.8% in March versus 1.0% the month before and a decline of 0.9% in January. The inventory-to-sales ratio dipped to 1.14 in March from 1.15 in February. Sales are up 8.4% and inventories a seasonally adjusted 8.1% over the past 12 months. Sales of durable goods increased 2.1% in March -- the sharpest rise since last May -- reflecting rising demand for computer equipment as well as a 1.3% rise in auto sales and a 3.4% gain in machinery sales. Stockpiles shaved 0.3 percentage point from economic growth in Q1, less than the 1.16 percentage-point deduction in the previous quarter.
Sources: MarketWatch, Bloomberg, CNBC
Commentary: The Week Ahead: Walking On Eggshells • Q4 GDP To Be Revised Downwards • Less to Q4 GDP Data than Meets the Eye
Stocks/ETFs to watch: S&P 500 Index (NYSEARCA:SPY), Diamonds Trust Series 1 ETF (NYSEARCA:DIA), iShares Lehman Aggregate Bond (NYSEARCA:AGG)
NAR Lowers Forecast, Some Cities Fare Better
The National Association of Realtors [NAR] lowered its 2007 housing forecast Tuesday: Existing home sales should fall 2.9% to 6.29 million units -- lower than the 2.2% outgoing chief NAR economist David Lereah previously forecast -- and then rise to 6.49 million in 2008. New homes sales will now decline 18%, not 14%, to 864,000 from 2006's 1.05 million, but rise to 936,000 in 2008. Housing starts will fall 20% from 1.80 million in 2006 to 1.46 million in 2007, then rise to 1.52 million in 2008. Blaming speculator shakeouts and tighter lending standards after the subprime mortgage crisis, NAR economist Lawrence Yun indicated national median home prices would decline for the first time in 29 years. Existing home prices will slide 1% to $219,800 with a 1.4% pickup in 2008. New home prices will stay flat at $246,400, rising 2.2% in 2008. Separately, real estate broker ZipRealty said homes-for-sale inventory rose 7% in 18 major cities, vs. the typical 4.5% rise for the strong spring market since 1985. Yun cited low unemployment rates, GDP growth, lower inflation and higher income statistics, saying "If it weren't for a favorable economic backdrop, housing would probably have a hard landing." Despite the gloom, some cities like Seattle, Portland, Houston, Austin and Charlotte are experiencing robust price appreciation. These cities sat out the boom, and are now suffering less from the bust. Prices are rising but still reasonable, as homeowners escape the pricier markets.
Sources: NAR Press Release, Wall St. Journal I, II, III, MarketWatch, CNBC, Pacific Business News, Chicago Tribune
Commentary: PIMCO: We're in the Middle of Housing Downturn • Housing Bubble and Real Estate Market Tracker • 2006 Second Home Sales Decline: Doesn't Surprise NAR Economist • Consumer Slowdown? Retail Conference Calls Say Not Yet
Stocks/ETFs to watch: D.R. Horton (DHI), Centex (CTX), Lennar (LEN), Pulte Homes (PHM), Toll Bros. (TOL). ETFs: iShares Dow Jones U.S. Home Construction (ITB), SPDR Homebuilders (XHB), PowerShares Dynamic Building & Construction (NYSEARCA:PKB)
Related: All Real Estate Is Local, by David Lereah
Cisco's Q3 Beats, But Street Vexed by Lower Revenue Guidance; Shares Drop
Computer-networking equipment manufacturer Cisco Systems reported a 34% jump in fiscal Q3 profit on strong sales to corporate clients and ISPs. Though the report edged analyst expectations, investors were hoping for a greater upside surprise and were put off by the company's guidance of slowing revenue growth. The company's shares shed 5% in AH trading Tuesday. Cisco posted net income of $1.9 billion ($0.30/share) versus $1.4 billion ($0.22) in the year-ago period. Excluding items and stock option costs, Cisco would have earned $2.1 billion ($0.34/share). On that basis, analysts were expecting EPS of $0.33. Revenue gained 21% to $8.9 billion against analyst expectations of $8.76 billion. Revenue from cable set-top box maker Scientific-Atlanta, acquired by Cisco last year, rose 30% over Q3 last year. CEO John Chambers forecast fiscal Q4 revenue growth of 15-16%, behind the 19-20% level of growth the company has posted the last few quarters. Analysts projected growth of 16% to $9.23 billion, and one analyst had estimated growth of 18%.
Sources: Cisco Earnings Call Transcript F3Q07, Press release, MarketWatch, Reuters, Bloomberg, 24/7 Wall Street, Wall Street Journal
Commentary: Cisco Gives Market a Reality Check • Cisco: Confidence Building Ahead Of FY Q3 Report Tuesday • Cisco: Goldman Advises To Buy Ahead Of FY Q3 Report
Stocks/ETFs to watch: Cisco Systems, Inc. (NASDAQ:CSCO). Competitors: Avaya Inc. (NYSE:AV), Juniper Networks, Inc (NYSE:JNPR), Nortel Networks Corp. (NT). ETFs: Internet Architecture HOLDRs (NYSE:IAH), iShares S&P Global Technology (NYSEARCA:IXN), iShares KLD 400 Social Index (NYSEARCA:DSI)
SAP Buys OutlookSoft in Oracle Counter-Tack
German business software maker SAP AG announced it plans to buy business-intelligence software maker OutlookSoft Corp; OutlookSoft's product line centers around budgeting and financial forecasting. Analysts remarked it was no accident that the announcement follows rival Oracle's recent acquisition of Hyperion Solutions Corp., whose products cover some of the same areas. The companies have dueled recently as Oracle has accused SAP of stealing customers. OutlookSoft CEO Phil Wilmington is a former PeopleSoft Inc. executive who participated in an (unsuccessful) effort to prevent it from being acquired by Oracle. Terms of the deal weren't released, but analysts said SAP was spending in the area of $200 million, less than a tenth of the $3.3 billion Oracle shelled out for Hyperion. OutlookSoft has about 700 customers and 250 employees. SAP AG shares are down 11.3% YTD and 16.2% over the last year.
Sources: Press release, MarketWatch
Commentary: SAP's Q1 Results: Did the Company Clean Out the Drawer? • Is SAP Gaining or Losing Market Share? • SAP: Putting Its Customers Ahead Of Its Stock Price
Stocks/ETFs to watch: SAP AG (NYSE:SAP). Competitors: Oracle Corp. (NASDAQ:ORCL), Cisco Systems Inc. (CSCO), Business Objects S.A. (BOBJ), Microsoft Corp. (NASDAQ:MSFT), Lawson Software Inc. (NASDAQ:LWSN). ETFs: Software HOLDRS Trust ETF (NYSE:SWH), WisdomTree International Technology Fund (DBT), iShares MSCI Germany Index Fund (NYSEARCA:EWG)
Conference call transcript: SAP Q1 2007
Alltel Meets With Private Equity Groups -- WSJ
The Wall Street Journal reports at least three private-equity groups are pursuing a purchase of wireless carrier Alltel Corp. Each group has met with management, which has indicated it is interested in 'pursuing strategic alternatives,' people familiar with the matter say. The $22.4 billion company carries about $2.7 billion in debt, about equal to its cash flow. Competitor Sprint Nextel's debt is twice its cash flow. Sources say Alltel has asked potential buyers to keep its debt levels below seven times cash flow, meaning buyers could take on a maximum $20 billion in debt; the rest would have to come from within. Two of the sources said the chances of a deal going through were about "50-50." Shares are up 7.8% this year on strong earnings and buyout speculation. Alltel reported a surprise 237,000 net subscriber increase in Q1, its best ever churn rate, and boosted average revenue per customer -- a key wireless metric. It now has 12 million customers, mostly in small Midwest, West and South markets. Large competitors include AT&T, Verizon Wireless (a Verizon/Vodafone JV), and Sprint Nextel. Smaller rivals include Leap Wireless and MetroPCS. Private-equity groups named include Blackstone Group with Providence Equity Partners; TPG Capital LLC (formerly Texas Pacific) with the private-equity arm of Goldman Sachs; and Carlyle Group with KKR. Shares jumped as much as 3% Tuesday after president of operations Kevin Beebe cancelled an investment conference appearance, spurning speculation that a deal is in the making.
Sources: Wall Street Journal
Commentary: Alltel Courting Potential Buyers • Alltel Still A Pricey Buy • Verizon CEO: Buy Out Vodafone, Forget About Alltel
Stocks/ETFs to watch: Alltel Corp. (NYSE:AT), Goldman Sachs Group Inc. (NYSE:GS). Competitors: AT&T Inc. (NYSE:T), Verizon Communications Inc. (NYSE:VZ), Vodafone Group plc (NASDAQ:VOD), Sprint Nextel Corp. (NYSE:S), Leap Wireless International Inc. (LEAP), MetroPCS Communications Inc. (PCS). ETFs: PowerShares Dynamic Telecom & Wireless ETF (PTE), iShares Dow Jones U.S. Telecom Sector Index ETF (NYSEARCA:IYZ), Vanguard Telecom Services ETF (NYSEARCA:VOX), Telecom HOLDRS ETF (NYSEARCA:TTH)
Conference call transcript: Alltel Q1 2007 Earnings Call Transcript
Hewlett-Packard Updates Guidance, Sending Shares To Six-Year High
The world's top PC maker, Hewlett-Packard, was forced to update its guidance for the next two quarters Tuesday, after someone at the company inadvertently leaked sensitive financial information to an outside party. Wall Street took kindly to the company's strong forward guidance, sending shares higher by $1.21, or $2.76, to $45.01 - HPQ's highest trading price since October 2000. The company expects EPS in the second quarter (ended April 30) to be between $0.64 and $0.65 cents; excluding acquisition costs, EPS will be $0.69 to $0.70 on revenue of $25.5 billion to $25.55 billion. The previous target was for net income of $0.57-$0.58 (EPS excluding items of $0.63-$0.64) on revenue of $24.5 billion. For the third quarter, H-P projects EPS of $0.59 to $0.61 (EPS excluding acquisition costs of between $0.63 and $0.65) on revenue of $23.7 billion to $23.9 billion. Thomson Financial consensus estimates projected 3Q EPS of $0.56 on revenue of $23.61 billion. The company experienced a major shake-up in the last year over its investigation techniques over information leaks.
Sources: Press Release, Wall Street Journal, Bloomberg, MarketWatch, Reuters
Commentary: HP Stock Price Targets Rising on Pre-announcement • HP: Unscheduled Guidance Update Comes After Leak • Cramer's Take on HPQ
Stocks/ETFs to watch: Hewlett-Packard (NYSE:HPQ). Competitors: Lenovo (OTCPK:LNVGY), Dell (NASDAQ:DELL), Gateway (GTW), Apple (NASDAQ:AAPL). ETFs: Internet Architecture HOLDRs (IAH), Vanguard Information Technology ETF (NYSEARCA:VGT), iShares S&P Global Technology (IXN)
Conference call transcripts: Hewlett-Packard F1Q07 (Qtr End 1/31/07) Earnings Call Transcript
Related: H-P Official Blogs
Electronic Arts Beats Expectations, Shares Drop on Weak Guidance
Electronic Arts Inc. said Tuesday afternoon it lost $25 million ($0.08/share) in its FQ4, outdoing last year's $16 million ($0.05) loss. But excluding items, the company made $0.06/share, triple the $0.02 analysts expected. Revenue was flat at $613 million; analysts were calling for $585 million. The world's #1 video game publisher said profits in the coming year may fall short of analyst expectations: It expects to lose $0.50-0.66/share in FQ1 2008 ($0.34-0.40 after items) on revenue of $330 million. It expects to lose $0.23-0.77 on the year, and to earn $0.90-1.20 after items. Analysts had been looking for a Q1 loss of only $0.09 and a full year profit of $1.34. Janco Partners analyst Mike Hickey notes EA is prone to under-promise and over-deliver. In its conference call, CEO John S. Riccitiello said the company was redirecting its focus towards improving execution and predictability: "EA is blessed with a team that is unmatched in creativity and professionalism. Our intent is to lead this team to deliver on our obligations to our consumers and our shareholders." Shares gained 3% during regular trading and gave it all back after-hours.
Sources: Electronic Arts F4Q07 Earnings Call Transcript, MarketWatch, Bloomberg
Commentary: Profiting From the Love of Gaming • Will Electronic Arts Benefit From Expanding Its Nintendo's Wii Lineup? • Electronic Arts Is A Compelling Play - Barron's • PC Games Making a Comeback
Stocks/ETFs to watch: Electronic Arts Inc. (ERTS). Competitors: Activision Inc. (NASDAQ:ATVI), TakeTwo Interactive Software Inc. (NASDAQ:TTWO), THQ Inc. (THQI). ETFs: iShares Goldman Sachs Software Index Fund (NYSEARCA:IGV)
Amazon Agrees To Pay IBM e-Commerce Licensing Fee; Calls Amount 'Immaterial'
Before the patent infringement case filed by IBM against Amazon.com could go to trial, Amazon agreed to pay unspecified licensing fees to IBM making a court date unnecessary. Amazon, which had countered IBM was also infringing on its patents, also reached a long-term cross-licensing agreement with Big Blue. The issue at hand involved IBM's claim that Amazon had infringed on five 'seminal' patents to e-commerce, involving the back-office mechanics of how internet shopping works. Amazon responded that if how it operates constitutes patent infringement, than any business conducting commerce online would essentially have to pay IBM for the privilege to do so. The amount of the settlement was not disclosed; Amazon said the amount is immaterial to its earnings. IBM generally brings in about $1 billion a year in licensing fees for the broad portfolio of patents it controls.
Sources: Wall Street Journal, AP, TheStreet.com, Reuters
Commentary: Do We Really Need Patent Reform? Ask Amazon and IBM • Will IBM's Project LEAN Really Fatten Up Shares? • Amazon's Most Profitable Business: Buying Back Its Own Shares
Stocks/ETFs to watch: Amazon.com (NASDAQ:AMZN), International Business Machines (NYSE:IBM). ETFs: Internet HOLDRS (NYSE:HHH), Internet Architecture HOLDRS (IAH)
Conference call transcripts: Amazon.com Q1 2007 Earnings Call Transcript • International Business Machines Q1 2007 Earnings Call Transcript
Expedia Misses Street on Q1 Adjusted Income; Shares Tumble
Shares of online travel services provider Expedia fell over 8% Tuesday after the company reported Q1 adjusted income shy of expectations. Net earnings were up to $34.8 million ($0.11/share) from $23.3 million ($0.06) in the year-ago quarter. Excluding one-time items, the company earned $0.18 per share against $0.15 in Q1 2006. On that basis, analysts had forecast EPS of $0.20. Operating expenses were higher in the quarter, especially selling and marketing costs, which rose 10.6%. Expedia posted total bookings of $5.02 billion, up 8% from Q1 of last year. European bookings were up 32%. Revenue gained 11% to $550.5 million from $493.9 million, due in part to higher hotel and advertising revenue. Analysts had forecast revenue of $531.5 million. Expedia Chairman Barry Diller: "With accelerating transaction growth, a 32% increase in European bookings, 11% revenue growth and the very beginning echoes of resurgence at Expedia.com, we are seeing the early results of the reinvestments and reorganizations that made last year so challenging."
Sources: Expedia Earnings Call Transcript Q1 2007, MarketWatch, Reuters, Forbes
Commentary: Expedia Enters Partnership With The NY Times • Stocks I (Possibly) Sold Too Soon • Expedia: Travel Far With This Spin-off
Stocks/ETFs to watch: Expedia, Inc. (NASDAQ:EXPE). Competitors: Travelzoo Inc. (NASDAQ:TZOO), Priceline.com Inc. (NASDAQ:PCLN). ETFs: First Trust NASDAQ-100 Ex-Tech Sector (NASDAQ:QQXT), First Trust NASDAQ-100 Equal Weight Idx (NASDAQ:QQEW)
Disney Posts 27% Rise in Q2 Net Income
Media giant Walt Disney Company reported a 27% surge in Q2 profit on the back of surprise hit movie "Wild Hogs" and steeper ad rates at ABC TV. The company posted net income of $931 million ($0.44/share) versus $733 million ($0.37) in the year-ago quarter. Sales came in at $8.07 billion against $8.03 billion last year. Analysts were expecting EPS of $0.36 on sales of $8.13 billion. The profit jump appears to vindicate CEO Robert Iger's strategy of putting out fewer films, although that strategy also held back revenue. The company's movie studios generated a 60% rise in operating profit. Earnings at the broadcast unit, including ABC, rose 33% to $212 million on higher ad rates and the elimination of expensive sports programming. The company's cable networks saw a 19% rise in operating income to $963 million on a 7% rise in sales to $1.9 billion. Disney shares fell 2.1% to $35.80 in AH trading.
Sources: Walt Disney Earnings Call Transcript F2Q07 (Qtr End 03/31/07), MarketWatch, Bloomberg
Commentary: Earnings Preview: Martin Marietta, Foster Wheeler, Disney Could Issue Positive Surprises • Disney: Iger’s Arrowheads Now Pointing Right • Tracking Money Flow in Dow Jones Industrial Stocks
Stocks/ETFs to watch: The Walt Disney Company (NYSE:DIS). Competitors: Time Warner Inc. (NYSE:TWX). ETFs: PowerShares Dynamic Media Portfolio ETF (NYSEARCA:PBS), PowerShares Dynamic Leisure & Entertainment (NYSEARCA:PEJ), Vanguard Consumer Discretionary ETF (NYSEARCA:VCR)
ENERGY AND MATERIALS
Rio Tinto Denies BHP Buyout Rumor, Shares Jump
Shares in miner Rio Tinto jumped by up to 11% in Wednesday trading on rumors BHP Billiton would make a hostile $100 billion-plus bid for the company. Rio supposedly rebuffed a friendly offer of A$100-110/share on Tuesday -- an up-to 23% premium on Tuesday's close. Rio Tinto was slow to address the rumor, but did eventually deny it after the close of the Australian market: "Rio Tinto is not aware of any takeover approach from BHP Billiton Ltd.," it told the Exchange. Still, Rio Tinto shares were up 7% in London trading, where mining stocks overall were up 2%. Credit-default swaps on $10 million of Rio debt rose to $19,500 from $17,000. BHP shares traded up as much as 4.5% in Australia, closing up 2.5%, and were up 2.1% in London. Citigroup said in a research note this week that Rio's healthy cashflow made it an attractive takeover target, naming BHP as a likely bidder given the companies' synergies. It said the two could cut $500 million in costs. It also said BHP could pay off the debt required in a takeover in 5-6 years. The two compete in iron ore, aluminum, copper and uranium; they are also partners in the Chilean Escondida copper mine.
Sources: Reuters, Bloomberg
Commentary: Private Equity Eying BHP Billiton Buyout • Citigroup Analyst: Rio Tinto 'Well Into Leveraged Buyout Territory' • BHP Billiton: "Where Opportunity Meets Preparation"
Stocks/ETFs to watch: BHP Billiton Limited (NYSE:BHP), Rio Tinto plc (RTP). Competitors: Anglo American plc ADR (AAUK), Alcoa Inc. (NYSE:AA), Arcelor Mittal (NYSE:MT), Alcan Inc. (NYSE:AL). ETFs: SPDR Metals & Mining (NYSEARCA:XME), Market Vectors Steel (NYSEARCA:SLX), Claymore/BNY BRIC ETF (NYSEARCA:EEB), BLDRS Asia 50 ADR Index Fund (NASDAQ:ADRA)
Antitrust Concerns Will Likely Nix Mittal Takeover of AK Steel
Shares of Ohio-based AK Steel Holding Corp. leaped to $39 Tuesday after the Financial Times's Alphaville website reported that Arcelor Mittal, the world's largest steelmaker, was considering buying the company. The Wall Street Journal says a Mittal bid is unlikely, however, since the combination would ring antitrust bells in the U.S., particularly with regard to the manufacture of auto quality steel. Alphaville's unsourced report claimed a deal could value AK at up to $40/share, or about $4.5 billion. AK Steel is a manufacturer of flat-rolled carbon steel and stainless and electrical steel used in cars and appliances. Neither company has commented on the speculation, but the Wall Street Journal, citing an individual close to Mittal, says antitrust regulators would likely look askance at a deal that consolidates two main suppliers of auto steel. J.P. Morgan concurs with the Journal: it is "skeptical about this deal going through" since it would shrink the number of coated-sheet auto suppliers from three to two. AK Steel's market cap is approximately $3.4 billion. Mittal will complete its merger with Arcelor SA of Luxembourg this summer, creating a company that is triple the size of its closest rival.
Sources: FT Alphaville, Briefing.com, Wall Street Journal, MarketWatch, 123Jump, Chron.com, Reuters
Commentary: Steel Yourself: The Metal is Down But the Stocks Are Up • What's Next for the Global Steel Industry? • Arcelor Mittal Profit Falls, DoJ Orders Company To Sell Maryland Mill
Stocks/ETFs to watch: AK Steel Holding Corp. (NYSE:AKS), Arcelor Mittal [ADR] (MT). Competitors: United States Steel Corp. (NYSE:X), Nucor Corp. (NYSE:NUE), Rio Tinto (RTP), Companhia Vale do Rio Doce (NYSE:RIO), BHP Billiton (BHP). ETFs: Market Vectors Steel ETF (SLX), iShares Morningstar Small Value Index (NYSEARCA:JKL), SPDR S&P Metals & Mining (XME), iShares Russell 2000 Growth Index (NYSEARCA:IWO)
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