U.S. Service Industry Growth Revs Up to Highest in Year
Treasury-bond prices fell and yields rose Tuesday after the Institute for Supply Management [ISM] reported that U.S. service industries grew in May more than they have in a year [see table], an indicator that the housing slowdown has not yet seeped into the overall economy. The ISM's non-manufacturing business index, which includes banking, retailing and construction, rose to 59.7 last month from 56.0 in April. Economists had forecast 56.0. (A reading above 50 indicates growth.) Non-manufacturing industries constitute about 90% of the U.S. economy. "It does look like growth is accelerating in the second quarter,'' said economist James O'Sullivan. "It certainly argues against the Fed easing any time soon." Goldman Sachs has stated it no longer expects the Fed to cut rates from 5.25%, and futures activity on the Chicago Board of Trade indicated that traders' expectation of a cut by the end of the year fell from 18% Monday to 12% Tuesday. The ISM's employment gauge rose to 54.9 from 51.9, inventories rose to 61 from 52, and backlogs fell to 48 from 50 in April. New orders were up to 57.4 from 55.5. Prices paid rose to 66.4 from 63.5 on "outrageously high" food and gas prices. Last week, the ISM reported a jump in the factory index to 55, the highest in over a year. Economist Julia Coronado: "The economy is returning to a strong expansionary mode."
Sources: Press release, Bloomberg, AFX News Limited, Wall Street Journal
Commentary: Goldman's Chief Economist Now Believes a Rate Cut is Unnecessary • Sideways Trading More Likely Than Downward Correction For U.S. Markets This Summer • Cognitive Dissonance Redux: Difficult To Get a Handle On An Economy in Transition
Stocks/ETFs to watch: S&P 500 Index (NYSEARCA:SPY), Diamonds Trust Series 1 ETF (NYSEARCA:DIA), iShares Lehman Aggregate Bond (NYSEARCA:AGG)
Nintendo Wii/DS Outsell Sony PS3/PSP 5-1 in Japan
Japanese video game magazine publisher Enterbrain says Nintendo's Wii outsold Sony's PlayStation 3 more than five-to-one in May: 251,794 units vs. 45,321 units. A KBC Securities analyst cited a lack of good game titles for the PS3, resulting in the soft demand. The analyst said it's too early in the console cycle to say "game over", but added "it's not very encouraging" for Sony. Only 11,082 units of Microsoft's Xbox 360 were sold. Nintendo's handheld DS console outsold Sony's PlayStation Portable 620,670 versus 123,673 units. Sony president Ryoji Chubachi said his firm "does not rule out the possibility of lowering the price" of the PS3, in an interview with the Daily Yomiuri. Sony already cut its price by 20% before launching in Japan. Separately, Microsoft appears to be using a Nintendo-esque strategy as it has revived Pac-Man in a new high-definition (but still 2-D) version, available now via download as part of Pac-Man Championship Edition for the Xbox 360, according to a report by Bloomberg.
Sources: AFP newswire, Bloomberg [I, II], Reuters
Commentary: Nintendo to Dominate Portable Gaming Market • Gaming Wars: Microsoft's Early Halo 3 Release To Provide Added Upside • Sony And Video Games: $100 Price Cut For PS3 Would Be Too Little, Too Late
Stocks/ETFs to watch: Nintendo (OTCPK:NTDOY) (JP: 7974), Sony (NYSE:SNE) (JP: 6758), Microsoft (NASDAQ:MSFT). Gaming software publishers: Electronic Arts (ERTS), Activision (NASDAQ:ATVI), Konami (NYSE:KNM), Take Two (NASDAQ:TTWO), THQ (THQI)
Google Buys Multicore Optimizer PeakStream
Google has acquired software start-up PeakStream, whose software unlocks the power of multicore processors in order to maximize time-on-task and power efficiency. Financial terms were not disclosed. Google, which runs thousands of servers, stands to benefit from incremental gains to the time/energy its network expends to analyze search queries and serve up their responses. PeakStream's website is now shut down; a cached version says the company offers "the first commercially available software application platform that makes it easy to program new high performance, multi-core and parallel processors, and convert them into radically powerful computing engines for computationally intense applications." The company was inspired by Stanford's Brook Project on stream programming; its development team derives from Sun Microsystems, NVIDIA, VMware and and Network Appliance. The two-year-old company received $17 million in funding from Kleiner Perkins Caufield & Byers, Sequoia Capital and Foundation Capital; Kleiner Perkins and Sequoia were the original backers of Google. The acquisition was first reported on The Register. Foundation Capital partner Adam Grosser: "We believe that PeakStream will change the way processors are programmed. PeakStream has the management team, the technology expertise and market position to solve the classic challenges of parallel programming."
Sources: The Register, CNET News. com, Reuters, PeakStream funding release
Commentary: Google: Once a Week • Google buys PeakStream Inc. [ars technica] • Google Gets Superfast [Red Herring]
Stocks/ETFs to watch: Google Inc. (NASDAQ:GOOG). Competitors: Yahoo! Inc. (NASDAQ:YHOO), Microsoft Corp. (MSFT), IAC/InterActiveCorp (IACI)
Conference call transcript: Google Q1 2007
EBay to Auction Radio Ads
EBay said it will start brokering radio advertisements Wednesday, in a partnership with privately held start-up Bid4Spots Inc., using its Media Marketplace website, which is presently used for cable TV ad brokering. This follows rival Google's announcement in April to broker ads for Clear Channel Comm., the largest radio station owner in the U.S. Reuters reports an eBay spokeswoman said available inventory includes prime time spots, of which 90% are during morning and afternoon commuting hours. EBay said its ad brokering system includes both terrestrial and online radio, and includes all of the 300 top-ranked markets. The Wall Street Journal mentions reluctance among radio stations to give up blocks of advertising, since it would essentially result in heightened competition for their own sales forces. There's also concern about downward price pressure. An eBay spokeswoman told the Journal the company's radio exchange is separate from its cable TV initiative, and "will likely appeal to a different type of advertiser" interested in last-minute ads for purchase on the web.
Sources: Associated Press, Reuters, The Wall Street Journal
Commentary: Oxygen Media, Microsoft to Resuscitate eBay's Ad Exchange • Google and Clear Channel Set to Announce Advertising Deal • Clear Channel to Launch Ad-Supported Radio/Cellphone Platform • Offline Media Won't Save Google's Growth
Stocks/ETFs to watch: eBay Inc. (NASDAQ:EBAY), Google Inc. (GOOG), Clear Channel Communications Inc. (NYSE:CCU). ETFs: Internet HOLDRs (NYSE:HHH), First Trust Dow Jones Internet Index (NYSEARCA:FDN), NASDAQ 100 Trust Shares ETF (QQQQ)
Conference call transcripts: eBay Q1 2007, Google Q1 2007
Related: eBay Media Marketplace beta
Ron Burkle to Work with Dow Jones Union on Alternatives to Murdoch Bid
Dow Jones shares touched a six-year high of $61.62 Tuesday after union representative Steven Yount said supermarket mogul Ron Burkle has agreed to assist the union in "exploring alternatives" to Rupert Murdoch's $60-per-share bid. Murdoch met with the controlling Bancroft family Monday in attempt to assuage their concerns about Dow Jones's editorial integrity under his stewardship. The Independent Association of Publishers' Employees [IAPE], which represents 2,000 Dow Jones employees, strongly opposes the Murdoch offer and is pursuing other potential suitors. Earlier this year, Burkle and Eli Broad tried to buy the Tribune Company but lost out to Sam Zell; and last year, Burkle's investment firm, Yucaipa, was involved in an unsuccessful bid for twelve Knight Ridder dailies. In what is widely viewed as a long shot, the union also approached Warren Buffett, who has already expressed reluctance to bid for Dow Jones in view of the steep premium Murdoch is offering. There is also speculation that Buffett, whose Berkshire Hathaway owns financial press release service Business Wire, does not want to risk a possible conflict of interest. Some analysts believe it is unlikely any other suitor, including Burkle, will be able to outbid Murdoch. "The union is understandably nervous but it looks like they're grasping for straws," said Hal Vogel, CEO of investment advisory company Vogel Capital. "These people aren't being realistic about what is happening in technology and print journalism."
Sources: IAPE press release, MarketWatch (I, II), Reuters, MoneyCentral, Bloomberg, Wall Street Journal, 24/7 Wall Street
Commentary: Murdoch: Meeting with Bancrofts Was "Constructive" • Smoking Out Suitors for Dow Jones [BW] • Newspaper War? Burkle vs . Murdoch [Newsweek]
Stocks/ETFs to watch: News Corp. (NASDAQ:NWS), Dow Jones & Company, Inc. (DJ). ETFs: PowerShares Dynamic Media Portfolio ETF (NYSEARCA:PBS)
Conference call transcripts: Dow Jones Q1 2007, News Corporation F3Q07
Related: IAPE website, Ron Burkle on Wikipedia
Wal-Mart to Introduce Prepaid Cards
In a move targeting the 80 million Americans who do not have a bank account, Wal-Mart is planning to launch the Wal-Mart MoneyCard, a prepaid payment card. The card will be branded Visa and have a $3,000 limit. Wal-Mart has given up its attempt to create an "industrial-loan company," a form of bank, in the face of vociferous opposition from the banking industry. The company hopes the card will be used by customers as a "quasi-bank account" through which they can access a variety of other financial services the retailer offers to lower-income individuals, including low-cost check-cashing and money transfers. The card will be modeled on the Visa Prepaid card, which permits holders to have their salaries credited to the card or add to it in supermarkets or convenience stores. The cards are also expected to appeal to the country's 12 million undocumented workers. In addition to launching the card, Wal-Mart plans to add to the 170 MoneyCenter locations -- dedicated financial service desks -- it currently operates in its stores. Camden Fine, president of the Independent Community Bankers of America, believes Wal-Mart will have to add regulated services like banking or mortgage lending to generate significant revenue. "I think they're going to want to be more robust in terms of commercial financial services," he said.
Sources: MoneyCentral, Reuters, Wall Street Journal
Commentary: Retail Madness: Dump Wal-Mart, Buy Target and Costco • Goldman: Investors Waiting for Wal-Mart to Address Its Capex and Growth Plans • Ad Agency Report Criticizes Wal-Mart
Stocks/ETFs to watch: Wal-Mart Stores Inc. (NYSE:WMT). Competitors: Costco Wholesale Corp. (NASDAQ:COST), Target Corp. (NYSE:TGT). ETFs: Retail HOLDRs (NYSEARCA:RTH), PowerShares FTSE RAFI Consumer Services (PRFS), Vanguard Consumer Staples ETF (NYSEARCA:VDC)
Conference call transcripts: F1Q08
Anheuser-Busch Jumps on Shake Out Rumors
An article appearing in Tuesday's New York Post set off speculation that William Ackman, general partner of the Pershing Square Capital Management hedge fund, was targeting Anheuser-Busch with an activist shareholder campaign, sending shares higher by 0.96% during regular trading and an additional 0.63% in after hours action to $54, their highest point in three years. The Post reported Ackman raised $2 billion and has possibly already been buying up shares of the company, which the Post hinted at, but didn't mention by name. According to CNBC's David Faber, the hints dropped by the Post point to Anheuser, including references to 'an iconic company.' The Post went on to quote Ackman as saying: "One division has 'to have its value unlocked,' one division is to be sold and one division 'is misunderstood.'" This likely refers to Anheuser's three divisions: beverages, bottling and real estate (mainly theme parks). $55 June, July and September call options have traded many times their normal volume in recent days. Ackman and Pershing Square have gone after brand name companies in the past including, most famously, McDonalds. Other possible targets include Starwood Hotels & Resorts Worldwide, Marriott International and Kraft Foods.
Sources: New York Post, CNBC.com, Bloomberg, Reuters
Commentary: Anheuser-Busch Shares Higher On Ackman Activist Target Speculation • Anheuser-Busch Posts Q1 Profit Miss • Merger Speculation Sends Anheuser-Busch Shares to Two-Year High
Stocks/ETFs to watch: Anheuser-Busch Companies, Inc. (NYSE:BUD), Starwood (NYSE:HOT), Marriott (NYSE:MAR), Kraft (KFT), McDonald's Corp. (NYSE:MCD). Competitors: Molson Coors Brewing Company (NYSE:TAP). ETFs: Consumer Staples Select Sector SPDR (NYSEARCA:XLP), Vanguard Consumer Staples ETF (VDC), PowerShares Dynamic Consumer Staples (NYSEARCA:PSL)
Conference call transcripts: Anheuser-Busch Q1 2007
Whole Foods/Wild Oats to Challenge FTC Opposition to Merger
Shares of Whole Foods shed 2.9% to close at $40.48 Tuesday after the Federal Trade Commission said it will block the company's pending $565 million takeover of competitor Wild Oats Markets. The two companies plan to challenge the FTC's suit, which follows a request in March for additional information on the $18.50-per-share deal. The FTC claims the transaction will result in an unacceptable limitation on competition in the natural and organic food market. "The FTC has failed to recognize the robust competition in the supermarket industry, which has grown more intense as competitors increase their offerings of natural, organic and fresh products, renovate their stores and open stores with new banners and formats resembling Whole Foods Market," said Whole Foods Chairman and CEO John Mackey. Shares of Wild Oats fell 5% to $16.00 before rebounding to close up 1.4% at $17.16.
Sources: FTC release, Whole Foods release, Bloomberg, Reuters, MarketWatch, TheStreet.com
Commentary: Knowledge Problem: Whole Foods - Wild Oats Merger : An Antitrust Concern? • Brand Autopsy: Whole Foods / Wild Oats Merger Implications• Whole Foods to Consume Wild Oats
Stocks/ETFs to watch: Whole Foods Market, Inc. (WFMI), Wild Oats Markets, Inc. (OATS). Competitors: WalMart Stores Inc. (WMT), The Kroger Co. (NYSE:KR). ETFs: Consumer Staples Select Sector SPDR (XLP), Vanguard Consumer Staples ETF (VDC), PowerShares Dynamic Consumer Staples (PSL)
Conference call transcripts: Whole Foods Market F2Q07
TRANSPORT AND AEROSPACE
Raytheon, Computer Sciences Corp. Ink Deal With Army For Up To $11.2B
Raytheon Co. and partner Computer Sciences Corp. said Tuesday the two companies won an initial army training contract worth $3 billion, with the possibility for contract extensions worth up to a total of $11.2 billion. The 10-year contract, the largest ever issued by the U.S. Army's virtual and constructive training operations and support systems, is for a program dubbed The Warfighter Field Operations Customer Support. It will consolidate operations, maintenance and engineering support services on all Army training programs. Raytheon Chairman and CEO William H. Swanson said he was "honored the Army has selected the WTA for this historic training consolidation initiative." [The Warrior Training Alliance [WTA] is an alliance of member companies dedicated to providing integrated training support to the warfighter.] Raytheon shares gained 1.2% in Tuesday trading while Computer Sciences shares were up 2.8% on the news.
Sources: Press Release, Bloomberg, Dow Jones Newswires, AP
Commentary: Defense Stocks: P/E Isn't the Only Consideration • Cramer's Take on RTN • Covansys, Computer Sciences: IT Outsourcing Merger Update
Stocks/ETFs to watch: Raytheon Co. (NYSE:RTN), Computer Sciences Corporation (NYSE:CSC). Competitors: Lockheed Martin (NYSE:LMT), Boeing (NYSE:BA), General Dynamics (NYSE:GD), Northrop Grumman (NYSE:NOC), Armor Holdings (AH), SAIC (SAI). ETFs: iShares Dow Jones US Aerospace & Defense ETF (NYSEARCA:ITA), PowerShares Aerospace & Defense ETF (NYSEARCA:PPA)
Related: Military Training Technology Online • Warrior Training Alliance [WTA]
Interim Results of Glaxo's Avandia Study: No Increased Heart Attack Risk
An interim report on a company-run study of GlaxoSmithKline's diabetes drug Avandia (rosiglitazone), published Tuesday in the New England Journal of Medicine [NEJM], suggests that the drug does not increase the risk of heart attack or death. The trial showed patients on the drug to be twice as likely to develop congestive heart failure (a risk to Avandia use that was already known), but they demonstrated no increased risk of developing other kinds of heart disease. "Patients and physicians should find these data reassuring," said Moncef Slaoui, Glaxo's chairman of R&D. In May, Dr. Steven Nissen of the Cleveland Clinic -- the doctor who initially expressed apprehensions about Merck's Vioxx, which was eventually withdrawn from the market on concerns over heart risks -- published a meta-analysis (an analysis of other studies), also in the NEJM, indicating that Avandia increased the risk of heart attack by 43%. "Unfortunately, because of the way the trial was designed, it appears that it will be inconclusive even when completed in 2009," Nissen said about the Glaxo study. Avandia brought in $3.04 billion in revenue last year, or approximately 7% of Glaxo's total. A U.S. House of Representatives committee will hold a hearing Wednesday to discuss Avandia's approval by the FDA. The FDA will hold its own meeting of outside specialists on July 30 to evaluate Avandia's heart risks. Shares dropped a combined 1% in regular and AH trading Tuesday.
Sources: Press release, Reuters, Bloomberg
Commentary: GlaxoSmithKline Defends Avandia Against Charges of Cardiovascular Risks • GlaxoSmithKline's Avandia: Trouble or Not? • Glaxo's Shares Fall on NEJM Report of Avandia Risk
Stocks/ETFs to watch: GlaxoSmithKline plc [ADR] (NYSE:GSK). Competitors: Novartis AG (NYSE:NVS), Pfizer Inc. (NYSE:PFE), Sanofi-Aventis (NYSE:SNY). ETFs: WisdomTree International Health Care (DBR), WisdomTree International Consumer NonCyclical (DPN), Europe 2001 HOLDRs (NASDAQ:EKH)
Related: GlaxoSmithKline response to New England Journal of Medicine editorials
Have Wall Street Breakfast emailed to you every morning before the market opens.