Toll Brothers Earnings Drop 79% on Writedowns, Missing Estimates
Toll Brothers said Thursday morning FQ2 net earnings fell 79% to $36.7 million ($0.22/share) -- coming up short of Street estimates of $0.25. In early May the company revised its Q2 forecast down from $0.42-0.57/share. Writedowns of $72.9 million lowered earnings by $0.44/share, vs. just $0.04/share last year. Net signed contracts dropped 25%. Revenue fell to $1.17 billion from $1.44 billion a year earlier, slightly ahead of the $1.12 billion forecasted. Toll said it was not comfortable updating its full-year guidance; in early May it said it would not make its previously forecasted $1.46-1.85: "Given the uncertainty surrounding sales paces, and market direction and, thus, the potential for and size of future impairments, we are not comfortable giving full earnings guidance at this time." It did say it expects to deliver 6,100-6,900 homes in 2007, and gave Q3 revenue guidance of $990 million to $1.28 billion and FY revenue guidance of $4.26-4.88 billion -- analysts had been looking for $1.04 billion and $4.38 billion. Shares are down 7.7% YTD.
Sources: Press release, Wall Street Journal, TheStreet.com
Commentary: Contrarian Investors Seek Value in Housing • A Play on Subprime Woes and Homebuilders: TOL vs. KBH - Barron's • Toll Brothers Warns of Q2 and Full-Year Shortfall
Stocks/ETFs to watch: Toll Brothers Inc. (TOL). Competitors: Lennar Corp. (LEN), D.R. Horton Inc. (DHI), KB Home (KBH), Pulte Homes Inc. (PHM), Hovnanian Enterprises Inc. (HOV), Beazer Homes USA Inc. (BZH). ETFs: iShares Dow Jones U.S. Home Construction (ITB), streetTRACKS SPDR Homebuilders ETF (XHB)
Conference call transcript: Toll Brothers F2Q07 Preliminary
CA Posts Narrower Q4 Loss, Adjusted EPS In-line, Shares Drop on Guidance
CA Inc. reported a Q4 net loss of $20 million ($0.04/share), compared to -$0.07/share last year. Adjusted EPS of $0.20 matched analysts' average estimate, as did revenue of $1.01b. Fiscal '08 guidance for EPS of $0.94 - $0.98 on sales of $4.05b - $4.1b, was below analysts' average forecast of $1.04/share on revenue of $4.12b. Shares of CA fell 6.6% to $26.00 in extended activity on volume of 406,000, after losing 1% to $27.84 during normal trading. Higher revenue from subscriptions and professional services offset weakness in software fees and maintenance revenues. In a press release, CA said it repurchased approximately 51 million shares in FY'07 at an aggregate cost of about $1.2b. It plans to accelerate the repurchase of up to $500m in common stock. Coverage of its earnings by Bloomberg, mentions among 13 analysts covering CA, none rate it "buy", while 11 rate it "hold" and two "sell."
Sources: Computer Associates F4Q07 Earnings Call Transcript, Press release, Bloomberg, MarketWatch, Reuters
Commentary: CA: Cost Cuts Could Top Estimates • Is CA Inc Really Back From the Brink? • The Impact Of Stock Options Backdating On Corporate Cash
Stocks/ETFs to watch: CA, Inc. (CA). Competitors: BMC Software Inc. (BCM), EMC Corp. (EMC), International Business Machines Corp. (IBM). ETFs: Software HOLDRs (SWH), iShares S&P GSTI Software (IGV)
Network Appliance Guides Q1 Below Forecasts; Shares Plummet
Network storage systems manufacturer Network Appliance issued Q1 guidance below Street forecasts on Wednesday, sending its shares down 21% to $30.02 in AH trading -- their steepest drop in over six years. The company is projecting Q1 EPS of $0.14-0.15. Excluding items, earnings are forecast in the $0.24-0.25 range, below a consensus estimate of $0.31. The company is also expecting a 6-7% sequential decline in Q1 sales on lower capital spending by large U.S. companies. That forecast implies revenue of $745.1-753.1 million, short of analyst expectations of $814.4 million. "It just took longer to close deals in the second half of the quarter," said CEO Daniel Warmenhoven. The disappointing Q1 guidance overshadowed the company's Q4 results, which were also reported Wednesday. Q4 net income was up 51% to $89.6 million ($0.23/share) from $59.2 million ($0.15) in the year-ago quarter. Revenue rose 34% to $801.2 million against analyst expectations of $798.1 million. Excluding items, Q4 EPS were $0.30, in line with the company's previous forecast and analyst estimates.
Sources: Network Appliance F4Q07 Earnings Call Transcript, MarketWatch, Bloomberg, Forbes, Reuters
Commentary: Network Appliance: Choosing Growth Over Earnings • NetApp Acquires Topio To Complement Its Enterprise Data Storage Business
Stocks/ETFs to watch: Network Appliance, Inc. (NTAP). Competitors: EMC Corp. (EMC), Hewlett-Packard Co. (HPQ), International Business Machines Corp. (IBM). ETFs: PowerShares Dyn Hardware&Con Electronics (PHW), Internet Architecture HOLDRs (IAH)
Amazon Buys Brilliance Audio
Amazon.com announced Wednesday that it will purchase Brilliance Audio, the country's largest independent audiobook publisher, for an undisclosed sum. Brilliance Audio sells books on audio or MP3-based CD formats and as digital downloads. The purchase follows Amazon's agreement last week to offer DRM-free music downloads. Amazon, which also sells downloadable movies, currently offers about 100,000 audiobooks on its site, of which 1,000 were produced by Brilliance Audio. Amazon's CustomFlix subsidiary, which ships CDs and DVDs, will support audio book formats, allowing publishers to add titles without having to pay up-front inventory costs and to keep books in print that might otherwise have disappeared. Amazon plans to work with publishers to increase the number of books published in audio formats. Last month, Amazon reported a more-than-doubling of Q1 profit as sales surged 32%. Amazon shares hit a 52-week high of $73.31 Wednesday but closed up only $0.12 at $69.00.
Sources: Wall Street Journal, MarketWatch, Forbes
Commentary: Amazon: A Case of Irrational Exuberance At Current Valuations • Amazon.com's DRM-Free Music Store May Reshape Market • Amazon: Back in the Limelight and Ready to Roll
Stocks/ETFs to watch: Amazon.com Inc. (AMZN). Competitors: Barnes & Noble Inc. (BKS), eBay Inc. (EBAY), Apple Computer Inc. (AAPL). ETFs: Internet HOLDRs (HHH), First Trust Dow Jones Internet Index (FDN), Rydex S&P 500 Pure Growth (RPG)
Conference call transcripts: Q1 2007
Gymboree Surges on Earnings Beat, Improved Guidance
Children's clothing retailer Gymboree Corp. boosted its Q1 earnings and raised its full-year forecast and offered second-quarter earnings guidance above Wall Street's expectations, causing shares to jump 8.45% in after-hours trading. Q1 earnings were up 17% to $20.9 million ($0.67/share), while revenue grew 14% to $209.3 million; analysts were looking for $0.63/share. Same-store sales were up 3% on the quarter. The company raised its fiscal-year guidance from $2.36-2.40/share to $2.42-2.46. Analysts had been looking for full-year income of $2.40/share. It set Q2 EPS guidance at $0.10-0.12/share, and foresaw same-store sales growth in the "low-to-mid single digits." Analysts had been projecting Q2 earnings of $0.09. In a May 10 note, CIBC World Markets said the company "seems to be more effectively matching various customer events/promotions to capture traffic and also attract new customers," and said Gymboree was "the way to play the trend... toward increased spending on kids' clothes." Shares are up 1.4% YTD and 12.6% over the past year.
Sources: Press release, AP I, II
Commentary: Four Undervalued Retailers • Gymboree: Tumbling Out the Profits • Riding The New Baby Boom
Stocks/ETFs to watch: Gymboree Corp. (GYMB). Competitors: The Children's Place Retail Stores Inc. (PLCE), Under Armour Inc. (UA)
Abercrombie & Fitch Posts 7% Rise in Q1 Profit
Young-adult apparel retailer Abercrombie & Fitch reported higher Q1 sales at all its brands, especially Hollister and Ruehl, but missed Street revenue expectations. The company posted Q1 net earnings of $60.1 million ($0.65/share), up 7% from $56.2 million ($0.62) in the year-ago period. Revenue was up 13% to $742.4 million from $657.3 million. Analysts were expecting EPS of $0.65 on revenue of $751 million. Same-store sales were down 4% in the quarter. Abercrombie & Fitch backed its fiscal 2007 EPS forecast of $1.47-1.52 and capex forecast of $395-405 million. The company, encouraged by what CEO Michael Jeffries called "astounding" sales at its London store, is planning to expand into Japan and other international locations; Jeffries anticipates opening a Tokyo store in 2009. Hollister, which targets teenagers, and Ruehl, which serves the post-college market, both outperformed Abercrombie & Fitch stores in the quarter. Of the more than 100 stores the company plans to open this year, most will be Hollisters. Abercrombie Kids stores will increase from 180 to up to 220. In Q1, online sales rose 43%, with an especially strong showing in the U.K. The company plans to introduce a fifth chain next year. Shares were up 1.7% to $82.18 in after-hours trading.
Sources: Abercrombie & Fitch Q1 2007 Earnings Call Transcript, Press release, MarketWatch, TheStreet.com, Bloomberg, Reuters
Commentary: Aeropostale and Abercrombie & Fitch: Are Teen Retailers Immune to Easter? • April Same-Store Sales Roundup • Keeping Up with the Teens: Aeropostale and Abercrombie & Fitch
Stocks/ETFs to watch: Abercrombie & Fitch Co. (ANF). Competitors: American Eagle Outfitters Inc. (AEO), Gap Inc. (GPS), J. Crew Group, Inc. (JCG). ETFs: MidCap SPDRs (MDY)
Limited Brands Posts 47% Q1 Net Income Drop; Lowers Guidance
Limited Brands reported a 47% drop in Q1 net income Wednesday and forecasts continued weakness, particularly at its Victoria's Secret lingerie chain. The company posted Q1 net earnings of $52.9 million ($0.13/share), down from $99.4 million ($0.25) in the year-ago quarter. Revenue was up to $2.31 billion from $2.08 billion. The results were in line with analyst expectations of $0.13 EPS on $2.31 billion in revenue. Net sales were up 11%. Same-store sales were up 4% in the quarter, but the company is forecasting May same-store sales in the negative single-digits against its previous forecast of positive low single-digits. The company also announced it has authorized a $500 million share buyback, up from $200 million. Limited Brands is forecasting Q2 EPS of $0.20-0.24 against $0.28 in the year-ago Q2 and has cut its full-year EPS guidance to $1.55-1.65, excluding items, from $1.75-1.90. These forecasts do not reflect the impact of the buyback, the pending sale of a majority stake in the Express chain or the exploration of strategic alternatives for Limited Stores. Shares fell 4% to $25.40 in after-hours trading.
Sources: MarketWatch, Wall Street Journal, Reuters, TheStreet.com
Commentary: Limited Brands to Sell Express Unit and Explore Options for Namesake Stores; Shares Plummet on Lowered Guidance • Earnings Preview: Expecting Negative Surprises From Pacific Sunwear, Limited Brands • Follow Up To 'Winners and Losers in Tuesday's Sell Off'
Stocks/ETFs to watch: Limited Brands, Inc. (LTD). Competitors: Gap Inc. (GPS), American Eagle Outfitters Inc. (AEOS), J. Crew Group, Inc. (JCG). ETFs: Retail HOLDRS ETF (RTH), SPDR S&P Retail (XRT), PowerShares Dynamic Retail (PMR)
Conference call transcripts: Q4 2006
Foot Locker Posts Sharp Drop in Q1 Net Income
Athletic shoe and apparel retailer Foot Locker reported a 71% drop in net income Wednesday on markdowns at U.S. stores and lower same-store sales. Q1 net income fell to $17 million ($0.11/share) from $59 million ($0.38) a year ago. Same-store sales dropped 5.1%. Q1 net sales were down 3.6% to $1.32 billion from $1.365 billion in the year-ago quarter. Analysts were expecting EPS of $0.11 on revenue of $1.32 billion. The company has provided EPS guidance of $0.15-0.20 for Q2 and $1.15-1.25 for the full year. CEO Matthew Serra: "Because of the disappointing sales at our U.S. stores, we increased our promotional posture to help clear older goods and reduce inventory levels...As a result, our gross margin in our U.S. store businesses fell significantly short of our plan." The company's shares traded down 1.9% to $21.82 in AH trading.
Sources: Press release, MarketWatch, MoneyCentral
Commentary: Jim Cramer's Wall Street Confidential Picks, May 21 • Is A Finish Line Inc. Turnaround Approaching?
Stocks/ETFs to watch: Foot Locker, Inc. (FL). Competitors: Finish Line Inc. (FINL), Wal-Mart Stores Inc. (WMT). ETFs: Retail HOLDRS ETF (RTH), SPDR S&P Retail (XRT), PowerShares Dynamic Retail (PMR)
TRANSPORT AND AEROSPACE
GM to Offer $1.1 Billion in Convertible Debt
General Motors announced Wednesday it will offer approximately $1.1 billion in convertible debt securities. The unsecured notes will mature on June 1, 2009. The object is to replace $1.1 billion in convertible securities put to the company two months ago and to "bolster liquidity." The underwriters will be granted a 13-day option to purchase up to an additional $165 million in securities. In addition, GM has received a commitment for a revolving credit facility of about $4.1 billion that will expire in one year. The revolver will be secured by the company's 49% stake in GMAC Financial Services, its former finance arm. GM is trying hard to boost liquidity ahead of talks with the United Auto Workers union, scheduled for July. The company has cut $9 billion in fixed costs since 2005 and will likely press the UAW for savings in its long-term health-care expenditures, but might have to spend billions to fund a deal. GM has also put its profitable Allison Transmission division up for sale.
Sources: Press release, Wall Street Journal, MarketWatch, Reuters
Commentary: GM Unit Pursued by Private Equity • General Motors: A Work in Progress • Subprime Fallout Hits General Motors
Stocks/ETFs to watch: General Motors Corp. (GM). Competitors: Ford Motor Co. (F), Toyota Motor Corp. (TM), Daimlerchrysler AG (DCX). ETFs: PowerShares FTSE RAFI Consumer Goods (PRFG), Rydex S&P Equal Weight Consumer Discr (RCD), Rydex S&P 500 Pure Value (RPV)
Conference call transcripts: Q1 2007
ENERGY AND MATERIALS
Alcoa Stays Put on Alcan Bid, Shares Surge on Bid War Speculation
Alcoa said late Wednesday it would not raise its $27.6 billion, $74.60/share (as of May 22 close) offer to acquire rival aluminum maker Alcan ($58.60 in cash and 0.4108 of a share), saying they have "already met with a significant number of Alcan’s shareholders and are pleased to have received strong support for the combination." The price represents a 35% on Alcan's average share price 30-days prior to the offer, and a 22% premium on its May 4 close (its all-time high) before the offer was announced. Late Tuesday, Alcan urged shareholders to reject Alcoa's offer, calling it too low, and because the merger was unsettled due to regulatory and other hurdles. There was speculation Alcoa might respond with a higher offer. Analysts expect the effort will attract rival bids from other global miners such as BHP Billiton, Rio Tinto, CVRD and Anglo American. BHP recently said it was interested in "the upstream part of the value chain where sustainable supplies of low cost bauxite and power are key considerations;" Alcan has low-cost power, while Alcoa has low-cost bauxite (used to make aluminum), according to the Wall Street Journal. BHP is considered a front-runner, although some consultants say a bid would meet significant regulatory concerns. Anglo CEO Cynthia Carroll was a senior Alcan executive before joining the company. Investors are guessing Alcoa's (presently) $75.18 bid will be a starting point for any future overtures. Alcoa shares were up 3.7% to $40.37 Wednesday; Alcan shares jumped 6% to $85.89.
Sources: Press release, Wall Street Journal, MarketWatch
Commentary: Alcan Rejected Marriage Proposal; Now Alcoa Has Something to Prove • UBS: Alcan Worth More Than Alcoa Offering • Alcan's Board Advises Rejecting Alcoa's Bid; BHP in Talks with Alcan -- report
Stocks/ETFs to watch: Alcoa Inc. (AA), Alcan Inc. (AL), Rio Tinto plc (RTP), BHP Billiton Limited (BHP), Anglo American plc ADR (AAUK), Companhia Vale do Rio Doce (RIO). ETFs: Vanguard Materials VIPERs (VAW), iShares Dow Jones US Basic Materials Index (IYM), PowerShares FTSE RAFI Basic Materials ETF (PRFM)
Conference call transcript: Alcoa Q1 2007
Amex to Allow Plastic Mortgage Payments; Citi Moves Customers from Visa to Amex
American Express announced Wednesday it is initiating the first program that allows cardholders to pay monthly mortgage payments with their credit cards -- and earn rewards doing so. In the past the idea has been shunned by lenders, who were unwilling to pay credit card companies to process the transactions. Amex said American Home Mortgage Investment and IndyMac Bancorp -- both top-10 residential lenders -- were the first two to sign on with the program. Enrolling carries a one-time $395 fee. Assuming a $2,500 monthly payment, a Blue Cash cardholder would recoup $385 in cash rewards during the first year. Customers who don't pay off their bills monthly will be hit by an additional 15-18% interest charge. Spokesman Bill Glenn said the company expected more lenders to join the program. Separately, Wall Street Journal reports Citigroup is moving thousands of Visa/AAdvantage [American Airlines] cardholders to Amex cards. "Through a careful analysis of our customer portfolio, Citi Cards has identified a select group of Citi/AAdvantage cardmembers who may benefit from a conversion to the Citi/AAdvantage American Express card, with additional features and benefits and the opportunity to earn additional miles," Citigroup said. Letters were mailed to affected cardholders, who have the right to opt-out of the switch by calling the bank. The change is part of what the Journal calls Citigroup's effort to "pump up its relationship with American Express." Amex shares are up 5.5% YTD and 22.5% over the past year.
Sources: Press release, Wall Street Journal I, II
Commentary: Navigating New Card Rewards [WSJ] • American Express: Watch the Dividend • Buying MasterCard Pre-Earnings: The Precedent of Capital One and AmEx
Stocks/ETFs to watch: American Express Company (AXP), Citigroup Inc. (C), IndyMac Bancorp Inc. (NDE), American Home Mortgage Investment Corp (AHM), AMR Corp. (AMR). Competitors: MasterCard Inc. (MA), Capital One Financial Corp. (COF)
Greenspan Warns of 'Dramatic Contraction' in Chinese Stocks, Moves Markets
Former Federal Reserve Chairman Alan Greenspan told a conference in Madrid by satellite that he thinks Chinese stocks might undergo a "dramatic correction," calling the rise in equities "clearly unsustainable." His comments pushed U.S. stocks into negative territory erasing earlier gains. Indices went on to trade lower across Asia, including a 0.54% loss in Shanghai. Nouriel Roubini, chairman of Roubini Global Economics LLC in New York, made similar comments, saying, "The Chinese have lost control of monetary policy and now it has reached the stock markets. There's a bubble, and eventually it's going to collapse." In recent weeks Goldman Sachs analysts, Li Ka-shing (the richest man in Asia and a closely watched investor) and the Governor of the People's Bank of China, have all made public comments about concerns over a Chinese stock bubble. Despite Greenspan's negative outlook for China, he said he is not worried about the overall global financial system.
Sources: Bloomberg, MarketWatch
Commentary: Greenspan: "China's Market Good For At Least Another 2000 Points" • Is the Chinese Market Heading Towards a Bubble or Solid Fast Expansion? • Goldman Warns China Correction Possible
Stocks/ETFs to watch: iShares FTSE/Xinhua China 25 Index (FXI), PowerShares Gld Drg Haltr USX China (PGJ), The China Fund (CHN), The Greater China Fund (GCH), JF China Region Fund (JFC), First Trust ISE ChIndia Index Fund (FNI)
U.S.-China Strategic Dialogue Concludes, Both Parties Cite 'Tangible Results'
The second biannual U.S.-China Strategic Economic Dialogue ended Wednesday and appears to have yielded better results than initially expected. However, despite agreements reached in areas such as aviation and financial services, main points of contention including the trade imbalance and the yuan will likely persist. Treasury Secretary Henry Paulson said "tangible results" were achieved and his counterpart, Vice Premier Wu Yi, called the talks a "complete success." Perhaps the most significant outcome of the meeting is an increased cap on investments in Chinese stocks by foreign investors to $30 billion (from $10b); and permission for overseas banks to enter China's securities industry and issue yuan-denominated credit/debit cards. Ahead of the Dialogue, the People's Bank of China raised its benchmark lending rate and banks' reserve requirement ratio. Also, the daily trading band of the yuan was expanded to 0.5% (from 0.3%). Some are calling these token actions, but interested parties will be watching closely, as the PBoC's Governor is pledging increased flexibility in yuan trading.
Sources: Bloomberg, MarketWatch [i, ii]
Commentary: Pressuring China On Exchange Rate Policy: Even When You Win, You Lose • U.S-China Strategic Dialogue Begins, Expectations Reportedly Low • Greenspan Warns of 'Dramatic Contraction' in Chinese Stocks, Moves Markets
Stocks/ETFs to watch: iShares Trust FTSE-Xinhua China 25 Index Fund (FXI), PowerShares Golden Dragon Halter USX China Portfolio (PGJ). Bond ETFs: iShares Lehman 1-3 YR Treasury Bond (SHY), iShares Lehman 7-10 YR Treasury Bond (IEF), iShares Lehman 20+ YR Treasury Bond (TLT). Currency ETFs: PowerShares DB G10 Currency Harvest Fund (DBV), Euro Currency Trust (FXE), CurrencyShares Japanese Yen Trust (FXY)
Related: U.S. Dept. of Treasury -- Fact Sheet: Second Meeting of the U.S.-China SED
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