Hovnanian Reports Q2 Loss; Withdraws 2007 Guidance
Luxury homebuilder Hovnanian Enterprises posted a Q2 loss Thursday, its third consecutive quarterly loss, and is withdrawing its full-year guidance on the "increased uncertainty of housing market conditions." The company posted a net loss of $30.7 million (-$0.49/share) on land impairment and predevelopment write-offs against a profit of $101.0 million ($1.55) in the year-ago quarter. Analysts were expecting a net loss of -$0.48. Excluding the write-offs, Hovnanian had a pretax loss of $7.1 million (-$0.12/share). On May 4, the company forecast a loss of $0.45-0.50 including write-offs and $0.30 excluding them. Total revenues were down 29.4% to $1.1 billion. "We are frustrated to report that the housing market has continued to slip further in many locations in terms of both sales pace and sales prices," said CEO Ara Hovnanian. "We are not confident that we've seen a bottom." The company has withdrawn its March 8 forecast for 2007 EPS of $1.10-1.50 2007 before charges and break-even to $0.40 after charges. Hovnanian shares were off 2.7% to close at $25.26 prior to the earnings announcement Thursday; they fell another percentage point to $25.00 in AH trading.
Sources: MarketWatch, Reuters, TheStreet.com, Bloomberg, Wall Street Journal
Commentary: Hovnanian Says Q2 Loss Will Exceed Forecasts • Holding Onto Hovnanian, With Some Trepidation • Hovnanian: Housing Slump Buy
Stocks/ETFs to watch: Hovnanian Enterprises, Inc. (HOV). Competitors: DR Horton Inc. (DHI), Lennar Corp. (LEN), Pulte Homes Inc. (PHM). ETFs: streetTRACKS SPDR Homebuilders ETF (XHB), iShares Dow Jones US Home Construction (ITB)
Conference call transcripts: F1Q07 (Qtr End 1/31/07), Q2 Earnings Call Transcript (later today)
Dell: Shares Jump on News of Job Cuts, Earnings Beat and Higher Sales
Dell reported preliminary Q1 results late Thursday. An $0.08 EPS beat and a 3% rise in revenues to $14.62 billion (vs. analysts' avg. est. of $13.95b), in addition to news of a 10% reduction to its workforce (8,800 jobs) over the next year, sent Dell's shares 5.9% higher to $28.49 in after-hours trading on volume over 10 million. Dell gained 2.6% in normal trading to $26.91. Q1 net income declined by less than half a percent y/y to $759m, but EPS of $0.34 was a penny better. Dell said it benefited from "a favorable decline in component costs" and a 14% increase in average selling price across the board. Dell's results are preliminary due to ongoing internal and SEC investigations related to its accounting practices. Estimated cost savings from the planned job cuts were not provided, but The Wall Street Journal reports Sanford C. Bernstein estimates $600m. Both Lehman Bros. ("equal-weight" rating maintained) and Robert W. Baird ("neutral" -- maintained) raised their share price targets to $28, from $26 and $25, respectively. Dell didn't provide specific current quarter guidance, but said "operating margins will be under pressure sequentially" due to seasonal weakness, among other things.
Sources: Press release, Bloomberg, MarketWatch, newratings.com, The Wall Street Journal
Commentary: Round Two From Round Rock: Dell's New Layoffs and Stock Price Outlook • Dell Pleasantly Surprises: Still Can't Trust the Numbers • Dell To Cut Workforce By 10%; Shares Jump On FY Q1 Results
Stocks/ETFs to watch: Dell Inc. (DELL). Competitors: Hewlett-Packard Co. (HPQ), Gateway Inc. (GTW), International Business Machines Corp. (IBM), Sun Microsystems Inc. (SUNW), Lenovo Group Ltd. (OTCPK:LNVGY). ETFs: Internet Architecture HOLDRs (IAH), iShares Goldman Sachs Technology Indx (IGM)
Five Telecoms Chosen for Government Contract; Sprint Makes Cut
AT&T, Level 3, Sprint Nextel, Qwest and Verizon have been awarded a telecommunications contract from the federal government worth up to $20 billion over 10 years. The contract is the second part of the General Services Administration's comprehensive overhaul of voice, data, telecom and Internet services for over 135 federal agencies and offices. The first contract, dubbed Networx Universal, required bidders to demonstrate they could provide 36 mandatory services. The second contract, Networx Enterprise, required proof of nine such services. Networx Universal, worth up to $48 billion, was awarded in March to AT&T, Verizon and Qwest, but snubbed Sprint -- a surprise to analysts, since Sprint has provided telecom services to the government for almost 20 years. "[The second contract award] is clearly welcome news for the five companies, particularly Sprint," said Stifel Nicolaus & Co. analyst Blair Levin. Enterprise will offer fewer services than Universal, but will be less expensive. Agencies will be obliged to choose one or the other, and technology consultant Warren Suss has speculated that Sprint could face "an uphill battle" if most agencies opt for Universal.
Sources: Reuters, Chron.com, Bloomberg, TheStreet.com
Commentary: Is Sprint Next In Line For A Buyout After Alltel? • Sprint/Nextel: The Next Data Wireless Kings? • Bill Nygren on the Long Case for Sprint-Nextel
Stocks/ETFs to watch: Sprint Nextel Corp. (S), Level 3 Communications (LVLT), AT&T Inc. (T), Verizon (VZ), Qwest Communications International Inc. (Q). ETFs: Wireless HOLDRs (WMH), Telecom HOLDRs (TTH), iShares Dow Jones US Telecom (IYZ)
Conference call transcripts: Q1 2007
Activision Quarterly Loss Widens, Full Year Sales Guidance Tops Estimates
After Thursday's close, video game maker Activision Inc. reported an increased net loss in its latest quarter (4Q07), but increased revenue guidance to above Street expectations. The company reported a preliminary net loss of $14.4 million ($0.05/share), vs. a loss of $0.03 cents a share in the year-earlier period. Excluding stock-options related charges, EPS was -$0.04. The company is currently delinquent in its regulatory filings due to options backdating misconduct. Revenue jumped 66% to $313 million. Thomson Financial consensus estimates were for EPS of -$0.02 on sales of $305.4 million. Looking ahead to its next fiscal year (2008), Activision expects its operating income to more than double, with EPS coming in at $0.55 before expenses, or $0.45 after, on revenue of $1.8 billion. Consensus estimates had been for EPS of $0.55 on sales of $1.72 billion. Shares fell $0.20, or 1.01%, to $19.59 in after-hours action.
Sources: Activision F4Q07 (Qtr End 3/31/07) Earnings Call Transcript, Press Release, MarketWatch, TheStreet.com, AP, Reuters
Commentary: Activision: Stock Slips Despite Expected Huge FY Q4 Revenue Beat • The Impact Of Stock Options Backdating On Corporate Cash • Cramer's Take on ATVI
Stocks/ETFs to watch: Activision (ATVI). Competitors: Electronic Arts (ERTS), Midway Games (MWY), Take-Two Interactive Software (TTWO), THQ Inc. (THQI)
Related: ATVI Investor Relations
Brocade Posts Sharp Drop in Q2 Profit
Data storage equipment manufacturer Brocade Communication Systems reported a 94% drop in Q2 profit Thursday on writedowns related to its $973 million acquisition of McData Corp. in January. Net income came in at $843,000 ($0.00/share) versus $13.5 million ($0.05) in the year-ago quarter. Excluding items, earnings were $46.6 million ($0.11), ahead of analyst expectations of $0.09. Revenue was up 89% to $345.3 million, in line with Street forecasts of $345.2 million. Brocade is forecasting Q3 EPS before items of $0.10-0.12 on revenue of $330-340 million. Analysts had been expecting $0.11 EPS on revenue of $348.0 million. In related news, the SEC reported Thursday that Brocade has agreed to pay a $7 million penalty to settle fraud charges. The company was accused of backdating "tens of millions" of stock options, manipulating compensation expenses and falsifying documents. The charges will be settled with the company neither admitting nor denying wrongdoing. Also Thursday, Brocade announced it is "introducing a new family of server connectivity products," including Host Bus Adapters and Intelligent Server Adapters, that are "designed to simplify the management and sharing of business-critical information." Shares were off 1.53% to $9.05 in AH trading.
Sources: Brocade Communications Systems F2Q07 Earnings Call Transcript, Press release, Reuters, Forbes, MarketWatch (I, II)
Commentary: Brocade Communications Systems: There's Still Time To Get In • Did Brocade Buy a Lemon in McData? • Nine Takeaways From Goldman Tech Conference
Stocks/ETFs to watch: Brocade Communications Systems, Inc. (BRCD). Competitors: Cisco Systems, Inc. (CSCO), Emulex Corp. (ELX), QLogic Corp. (QLGC). ETFs: PowerShares Dynamic Networking (PXQ), PowerShares Dynamic Aggressive Growth (PGZ), PowerShares Dynamic MagniQuant (PIQ)
Dow Jones' Bancroft Family Backtracks -- Says It Will Meet With News Corp.
The Bancroft family, which controls 64% of Dow Jones Co.'s voting shares, has abandoned its outright opposition to a $60/share offer from Rupert Murdoch's News Corp., it said in a statement late Thursday, sending shares soaring. The family said it would meet with News Corp., and that it would consider additional bids and other options. "After a detailed review of the business of Dow Jones and the evolving competitive environment in which it operates, the family has reached consensus that the mission of Dow Jones may be better accomplished in combination or collaboration with another organization, which may include News Corp.," it said. The meeting with News Corp., the statement said, was to determine whether "it will be possible to ensure the level of commitment to editorial independence, integrity and journalistic freedom that is the hallmark of Dow Jones," should any deal take place. The Wall Street Journal, quoting people close to the board, says some family members were unhappy with and confused by the statement's contents, "not quite realizing that they were effectively saying they were willing to explore a sale." At a board meeting there was discussion of changing or even withdrawing the statement, "but just then, The Wall Street Journal posted a draft of the statement online. That ended the discussion." Still, "there can be no assurance that the dialogue with News Corporation or any other party will result in the negotiation, or the desire of family members to pursue the negotiation," the statement said. Other courters may include GE (CEO Jeffrey Immelt said previously he wasn't interested), Pearson plc, and privately held Hearst Corp. and Advance Publications. In after-hours trading shares rose 12% from $53.31 to $59.79, indicating traders believe a deal is likely, perhaps at a higher price.
Sources: Family statement, Wall Street Journal, Reuters
Commentary: Dow Jones: The End Is Near • Bancrofts: By The Third Generation, The Brains Are Bred Out • The Bancrofts Soften: Journalistic Integrity Claims Are A Red Herring
Stocks/ETFs to watch: Dow Jones & Company Inc. (DJ), News Corp. (NWS), General Electric Co. (GE), Pearson plc ADR (PSO). ETFs: PowerShares Dynamic Media Portfolio ETF (PBS)
Earnings call transcripts: Dow Jones Q1 2007, News Corporation F3Q07, General Electric Q1 2007
J. Crew Blows Past Expectations on Q1 Net Profit; Shares Rise
Clothing retailer J. Crew Group posted a more-than-tripling of Q1 profit Thursday on strong sales and high margins. The company's shares climbed 7.7% to close at $44.87 and then tacked on another 4.2% to reach $46.75 in AH trading. Q1 net income came in at $24.6 million ($0.39/share), up from $4.4 million ($0.12) in the year-ago quarter. Total revenue surged 24% to $297.3 million on a 13% rise in same-store sales. (After adjusting for a shift in the retail calendar, comps were up 8%.) Analysts were expecting $0.30 EPS on sales of $271 million. Gross margin increased to 46.6% of revenue from 45.5% last year. J. Crew is forecasting same-store sales growth in the mid-single digits. The company has raised its full-year EPS guidance to the $1.37-1.41 range, up from $1.27-1.31. Analysts had been expecting $1.32. J. Crew is also forecasting Q2 EPS of $0.26-0.28, in line with Street forecasts of $0.28. The company has beat expectations in every quarter since its IPO last June.
Sources: Reuters (I, II), MarketWatch, TheStreet.com
Commentary: J. Crew Pre-Earnings Runup: Sagacious or Merely Sequacious? • Stocks To See You Through Current Inflation Levels • Gap's Identity Crisis vs. J. Crew's Smooth Sailing
Stocks/ETFs to watch: J. Crew Group, Inc. (JCG). Competitors: Gap Inc. (GPS), Abercrombie & Fitch Co. (ANF), AnnTaylor Stores Corp. (ANN). ETFs: Retail HOLDRS ETF (RTH), SPDR S&P Retail (XRT), PowerShares Dynamic Retail (PMR)
Foot Locker Ends Pursuit of Genesco
Foot Locker announced Thursday it will cease its efforts to purchase footwear retailer Genesco Inc. The decision is based on Genesco's rejection of Foot Locker's sweetened buyout offer of $51 per share. Genesco, the operator of the Journeys, Johnston & Murphy, Hatworld and Lids chains, has elected to pursue other strategic alternatives. Foot Locker shares closed up 4% at $21.94, while Genesco shares dipped 1.8% to $51.36 before recovering to close at $52.35.
Commentary: Foot Locker Posts Sharp Drop in Q1 Net Income • Jim Cramer's Wall Street Confidential Picks, May 21
Stocks/ETFs to watch: Foot Locker, Inc. (FL), Genesco Inc. (GCO). Competitors: Finish Line Inc. (FINL), Stride Rite Corp. (SRR). ETFs: Retail HOLDRS ETF (RTH), SPDR S&P Retail (XRT), PowerShares Dynamic Retail (PMR)
ENERGY AND MATERIALS
BP Likely to Lose Russian License, But Decision May Be Delayed
BP plc will likely lose its license for the giant Kovykta gas field on Friday, although the Russian government may postpone the recall until after the G8 Summit in St. Petersburg on June 10. The state licensing agency is set to meet at 8:00 GMT to review the issue. "We believe the delay in a final decision is plausible, but ultimately the license is likely to be recalled," said Steven Dashevsky from Aton brokerage. The Vedomosti daily newspaper quoted a source as saying that the licensing agency (Rosnedra) might postpone its decision on Kovykta until the end of the Russian Economic Forum. The $20 billion Kovykta field holds enough gas to supply the entire world for a year. Earlier this year, Russia's environmental agency accused TNK-BP of underproduction; BP was to export its production to China, but was forced to reduce its production after state-run Gazprom banned the plan, which conflicted with its own project to supply China. BP has tried to save the massive project by ceding control to Gazprom, but Gazprom says the field is too risky for its interests. "Even though the chances for a precedent-setting license repeal... are high, we still hope that TNK-BP and Gazprom can find a last minute solution," said Oleg Maximov from Troika Dialog.
Commentary: The New Seven Sisters: Today's Most Powerful Energy Companies • BP : Trouble On Two Shores • With So Much Negativity, BP 's Worth a Look
Stocks/ETFs to watch: BP plc (BP)
Specialist Exodus Poses Problem for New ETFs -- WSJ
The Wall Street Journal writes that the rapid decimation of elite traders known as 'specialists' is proving problematic to ETF firms, who in the past relied on specialists to seed new ETFs. Over the past year, specialists on the NYSE have declined by over 30% as floor traders are phased out in deference to electronically cleared trading. Exchange traded funds [ETFs], which resemble mutual funds but trade on the open market like stocks, use seed capital to create shares (usually between 100,000 and 500,000) so that the ETF can begin trading with a big enough float to keep flow liquid. As recently as two years ago, specialists were offering ETF firms $50 million to seed promising ETFs. Now, many ETFs are launching with as little as $3 million, making them unattractive to institutional investors who need the ability to move in and out of large share blocks with minimal slippage. Case in point: In late 2006, Claymore MacroShares Oil Up and Down Tradeable Shares, which track crude oil prices, were hit with an unusually large order, causing share prices to fluctuate to over 10% premiums and discounts to its net asset value. The Journal says ETFs may in some way be a victim of their own success [see chart]: with more than 300 slated to launch in 2007, the lack of seed funding may prove to be a serious concern.
Sources: Wall Street Journal
Commentary: ETFs Gaining Ground On Mutual Fund Industry • Amex Patent Paves the Way for Actively Traded ETFs • Most Mutual Funds Are Missing the ETF Train
Stocks/ETFs to watch: State Street Corp. (STT), WisdomTree Investments Inc. (WSDT.PK), Amvescap plc (AVZ), Barclays plc (BCS), Merrill Lynch & Co. Inc. (MER), Bank of New York Company Inc. (BK) [ETF issuers]
Raymond James CEO Denies Buyout Speculation
Shares of regional retail brokers shot up Thursday in response to an announcement that Wachovia Corp. agreed to buy A.G. Edwards for $6.8 billion, creating the U.S.'s #2 regional broker. Speculation as to which firm would be the next takeover target sent shares of Raymond James higher by 7.3% on seven times the daily average volume, while shares of Jefferies Group and Piper Jaffray gained 4.7% and 5.7% respectively. While Raymond James seems especially ripe for a takeout move - the CEO of one regional firm who spoke anonymously believes "in the end, there will be four or five firms. You don't need 30 choices," - Raymond James CEO Tom James denied his company had plans to be acquired, saying, "Raymond James has consistently proven that remaining independent has rewarded our clients, employees and shareholders." James believes "the long-term benefits [to shareholders] will be achieved by staying the course." That likely won't end speculation for which regional firm will be the next A.G. Edwards, with a "revenue story for banks in general [that] is a lot more challenged than it was even a year ago, given the interest-rate environment and turn in credit quality," according to Oppenheimer & Co. analyst Jennifer Thompson.
Sources: TheStreet.com (1), (2), SmartMoney.com
Commentary: Wachovia To Buy A.G. Edwards, Forming Second Largest U.S. Retail Broker • Bank Shot: Jefferies’s Compelling Valuation
Stocks/ETFs to watch: Raymond James Financial (RJF), Jefferies Group (JEF), Piper Jaffray Companies (PJC), A.G. Edwards (AGE), Wachovia Corp. (WB). ETFs: iShares Dow Jones US Broker-Dealer Index (IAI), streetTRACKS KBW Bank (KBE), Regional Bank HOLDRS (RKH)
FDA to Accept Interim Data on Provenge; Dendreon's Shares Soar
Shares of biotech company Dendreon rocketed 93% Thursday before closing up 27% at $8.55 on news the FDA will accept interim trial data as the "additional information" it had requested on Provenge, the company's experimental prostate-cancer medication. The news implies the drug, a potential blockbuster, could reach the market before final trial data is released in 2010. "The FDA indicated that either a positive interim or final analysis of survival...would address their request for the submission of additional clinical data in support of our efficacy claim," said CEO Mitchell H. Gold. Dendreon expects to complete enrollment in the trial this year and forecasts that interim survival results will be available next year. Provenge is the first active cellular immunotherapy drug: it enlists the body's immune system to fight cancer rather than attack the cancer cells directly. In May, the FDA asked Dendreon to provide additional clinical data on Provenge, which sent its shares down 60% on fears that a three-year trial would need to be completed before the drug could be brought to market.
Sources: Reuters, Business Week, Wall Street Journal
Commentary: Small-Cap Spotlight: A Look at Crocs and Dendreon [TheStreet.com], Dendreon: Are the Provenge Prayers Being Answered? • Dendreon's Provenge: Looking Past The Noise • Dendreon Shares Plunge on FDA Request for More Data
Stocks/ETFs to watch: Dendreon Corp. (DNDN). Competitors: Biomira Inc. (OTCPK:BIOM), Cell Genesys, Inc. (CEGE). ETFs: HealthShares Emerging Cancer (HHJ), iShares Russell Microcap Index (IWC)
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