Wall Street Breakfast

by: SA Editors
SA Editors
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Best Buy Announces Record Buyback

Electronics retailer Best Buy surprised investors Wednesday by announcing it will buy back up to $5.5 billion of its shares over the next few years, alleviating concerns the company was going to make a major acquisition. The buyback, which represents about a quarter of the company's outstanding stock, will be funded primarily through the company's cash and cash equivalents, which are currently at about $2.8 billion. The company also announced a 30% quarterly dividend increase, its biggest ever, and plans to open 400 more stores in the U.S. "Our confidence in the company has never been at a higher level," said Best Buy Chairman Richard Schulze. Best Buy holds 20% of the North American market for consumer products, a figure the company says is growing while its competitors are struggling. During April's Q4 conference call, management said they were considering growing the company through acquisitions, a prospect that proved unpopular. "After facing a BBY 28 June 2007nearly continuous barrage of investors concerned about its excess cash position," wrote Bernstein Research analyst Colin McGranahan, "Best Buy moved more aggressively than we had expected." Stifel Nicolaus analyst David Schick said the buyback is important to "assuage investors' fears of potential for massive acquisition." Shares closed up 3.75% at $46.67.
Sources: Dow Jones, Wall Street Journal, Bloomberg, MarketWatch, TheStreet.com
Commentary: Best Buy Badly Misses EPS Estimates, Sending Shares LowerApple/Best Buy Partnership Would Be SpectacularWhy Best Buy Is Looking Good and Eddie Lampert Should Buy Circuit City
Stocks/ETFs to watch: Best Buy Co., Inc. (NYSE:BBY). Competitors: Circuit City Stores Inc. (NYSE:CC), RadioShack Corp. (NYSE:RSH), Wal-Mart Stores Inc. (NYSE:WMT). ETFs: Retail HOLDRs (NYSEARCA:RTH), PowerShares Dynamic Consumer Discretionary (NYSEARCA:PEZ), Vanguard Consumer Discretionary VIPERs (NYSEARCA:VCR)
Conference call transcripts: Best Buy F1Q08

Bed Bath & Beyond's Q1 Profit Squeezed by Housing Slowdown

Home furnishings retailer Bed Bath & Beyond reported a slim 4.2% rise in Q1 profit Wednesday on weaker sales of bedding and curtains, a reflection of the slowdown in the U.S. housing market. BBBY 28 June 2007Q1 net income came in at $104.6 million ($0.38/share) from $100.4 million ($0.35) in the year-ago period. Sales were $1.55 billion, 11% above the $1.4 billion posted in the comparable three-month period a year ago. Analysts were expecting EPS of $0.37 on revenue of $1.54 billion. Same-store sales were up 1.6% versus a 4.9% rise in Q1 2006. Ronald Curwin, SVP of investor relations, warned that full-year profit might decline if the housing slump continues. Analysts had been forecasting full-year EPS of $2.33. Curwin forecasts Q2 net income to be flat to slightly higher than last year's $0.51. Q3 profit is projected at or below last year's $0.50. "[T]he overall retailing environment, especially sales of merchandise related to the home, is challenging,'' said CEO Steven H. Temares. The shares fell 5.22% to $35.60 in AH trading.
Sources: Bed Bath & Beyond F1Q07 Earnings Call Transcript, Bloomberg, MarketWatch, Reuters, RTTNews
Commentary: Bed Bath & Beyond Warns of Weak Profits, Same-Store SalesBed Bath & Beyond: Q1 Earnings DisappointBed, Bath & Beyond: Don't Confuse Social and Shareholder Activism
Stocks/ETFs to watch: Bed Bath & Beyond Inc. (NASDAQ:BBBY). Competitors: Target Corp. (NYSE:TGT), Wal-Mart Stores Inc. (WMT). ETFs: Retail HOLDRS ETF (RTH), PowerShares Consumer Services ETF (PRFS), Consumer Discretionary SPDR ETF (NYSEARCA:XLY)

Diageo Shares Fall On Failure To Raise Earnings Guidance Despite Revenue Growth

The world's top alcoholic beverage maker by sales, Diageo, said Thursday revenue growth accelerated during the second half of its current fiscal year, but the company left its earnings forecast of 8% growth intact, due to rising marketing costs and unfavorable exchange rate movements.deo The company attributed its strong revenue growth to international sales strength of its Johnnie Walker whiskey, Captain Morgan rum and Guinness stout brands. Shares responded negatively to the statement in London trading, down 2.44% as of 11:48 a.m. BST, as investors registered disappointment the company didn't raise its earnings guidance despite its strong revenue growth. Morgan Stanley analyst Jonathan Cook sent a note to clients saying, "A strong and indeed accelerating top-line performance but with no corresponding increase in profit guidance leaves us feeling flat."
Sources: Press Release, Bloomberg, MarketWatch, Reuters, Hemscott/Thomson Financial
Commentary: Constellation Brands Vs. Diageo: A Good Stock Picking StudyThe Power of Multiple Expansion: Diageo - A Case in PointCramer's Take on DEO
Stocks/ETFs to watch: Diageo plc (NYSE:DEO). Competitors: Constellation Brands (NYSE:STZ). ETFs: Europe 2001 HOLDRS


Murdoch: Dow Jones Bid Stays at $60 per Share

Rupert Murdoch is not planning to raise his bid for Dow Jones beyond his original $5 billion offer, he told Reuters Wednesday. Murdoch and the Dow Jones board have reached agreement on the vexed question of editorial safeguards for the Wall Street Journal, but the Bancroft family, which holds a controlling stake in the company, has yet to approve the terms. Murdoch had been expected by some analysts to sweeten his offer to clinch the deal, but he has apparently ruled that out. "Everything is done," Murdoch said. "We are just waiting for a final approval of the Bancroft family...The final approval is in the next two, three weeks' time or not at all." Murdoch's offer represents a 65% premium to the level at which the shares were previously trading. Though the Dow Jones board took over buyout negotiations from the Bancrofts last week, the family and other shareholders still have final say over any proposed transaction, DJ 28 June 2007 NWS 28 June 2007meaning Murdoch's success is by no means assured. Leslie Hill, a Bancroft and a board member, recently turned against the Murdoch offer. A law firm that oversees trusts with 8.9% of Dow Jones voting power will vote in favor, but the Ottaway family, which holds approximately 5%, will vote against. Update: The New York Times reports that the "agreement in principle" reached by the Dow Jones board and Murdoch will give News Corp. exclusive power to hire and fire top editors at the Wall Street Journal. That concession diametrically opposes the position of some members of the Bancroft family as well as other shareholders who have said their first priority is to protect the Journal from Murdoch's influence.
Sources: TheStreet.com, MarketWatch, Reuters
Commentary: Dow Jones Board and Murdoch Agree on Editorial SafeguardsMurdoch and Dow Jones Near Deal -- WSJDow Jones-Murdoch Talks Intensify
Stocks/ETFs to watch: Dow Jones & Company Inc. (DJ), News Corp. (NASDAQ:NWS). Competitors: Reuters Group PLC [ADR] (RTRSY). ETFs: PowerShares Dynamic Media Portfolio ETF (NYSEARCA:PBS)
Conference call transcripts: Dow Jones Q1 2007, News Corporation F3Q07


Apple, Vodafone in Negotiations to Launch iPhone in Europe -- report

Dutch magazine Bright reported late Tuesday that Apple and Vodafone are in talks to bring the iPhone to Europe, but that an agreement hinges on volume guarantees and subsidies. Apple shares gained 1.9% Wednesday to $121.89, while Vodafone ADRs climbed 3.15% to $33.07 and AT&T rose 1.8% to $39.98. Vodafone declined to comment on the report. Analysts have regarded Vodafone as an obvious partner for Apple. Credit Suisse published research saying Vodafone could win exclusive rights in Europe due to its broad market presence. Sales in Europe are expected to total around six million devices in its first three years. A consultant at global telecom research firm Analysys said, "If Apple waits until [the iPhone's] a 3G phone," then Vodafone is "absolutely the frontrunner," calling the two a "perfect match." The report by Bright said France Telecom's Orange had also been in the running, but that Apple prefers Vodafone. Vodafone 28 06 2007 Chart Apple 28 06 2007 ChartAnalysts have named Deutsche Telekom as a possible contender as well. The iPhone goes on sale Friday in the U.S. Bright mentioned December as a possible launch period for the iPhone in Europe.
Sources: Reuters, Silicon.com, Bright magazine [Dutch original]
Commentary: iPhone Reviews: A Brief SummaryWhat Does The iPhone Teach Us About Technology?The iPhone Revolution Will Have to Wait For the Right NetworkVerizon Happily Rejected Chance To Be Sole iPhone Service Provider
Stocks/ETFs to watch: Apple Computer Inc. (NASDAQ:AAPL), Vodafone Group plc (NASDAQ:VOD), AT&T Inc. (NYSE:T), Verizon Communications Inc. (NYSE:VZ). Competitors: France Telecom (FTE), Deutsche Telekom AG (DT), Nokia Corp. (NYSE:NOK), Motorola Inc. (MOT), Telefonaktiebolaget LM Ericsson ADR (NASDAQ:ERIC), Palm Inc. (PALM), Research In Motion Ltd. (RIMM)
Conference call transcripts: Apple F2Q07, Vodafone Group FY 2006, AT&T Q1 2007

Red Hat Q1 Income Up 23%, Misses on Cash Flow

Red Hat reported Q1 net income rose 22.7% to $16.2 million, or $0.08/share. Adjusted earnings totaled $33.7m ($0.16/share), beating the Street by a penny. However, shares fell 3.3% to $23.40 in after-hours trading -- giving back almost the entire 3.6% they gained in regular trading -- on news of disappointing cash flow from operations (-4% to $52.3m). CEO Matthew Szulik said in a Bloomberg interview that investors should focus on annual cash flow instead of quarterly results. He said Red Hat has been telling investors "cash flow is not linear" for the past eight years. Sales climbed 42% to $118.9m, beating analysts' average estimate of $117m. Sales of Enterprise Red-Hat-RHT-chart-06-27-07Linux 5 outpaced those of the previous version over a similar period, according to a UBS analyst. Its March launch accounted for some of the firm's higher expenses, noted Szulik. Subscription revenue climbed 44% y/y and 7% q/q to $103m. Total deferred revenue rose to $363.1m. Update: Szulik told Reuters in an interview Red Hat had been in talks last year with Microsoft over a patent accord -- which broke down -- after which Microsoft signed a similar deal with Red Hat rival Novell. As part of the deal, Microsoft agreed not to sue Novell customers for what it claimed this May are 235 patent violations of its source code. It has encouraged other open source vendors to seal similar pacts. But the Free Software Foundation, which is in charge of the General Public License with which Red Hat and other vendors sell their Linux distributions, is about to update that license to Version 3 -- which will forbid companies to distribute Linux code if they enter such strategic pacts, which the foundation believes aids Microsoft. Szulik would not answer when asked if Red Hat was currently in negotiations with Microsoft.
Sources: Red Hat F1Q08 Earnings Call Transcript, Press release, Bloomberg, MarketWatch, Reuters
Commentary: Rethinking Red Hat Through Its 10-K FilingMicrosoft Closes Third Linux Deal: Is Red Hat Next?How Red Hat is Monetizing JBoss
Stocks/ETFs to watch: Red Hat, Inc. (NYSE:RHT), Microsoft Inc. (NASDAQ:MSFT), Novell (NASDAQ:NOVL). Competitors: Oracle (NASDAQ:ORCL), SourceForge, Inc. (LNUX). ETFs: iShares Goldman Sachs Software Index (NYSEARCA:IGV)

PC Sales: Healthy Growth, Thin Margins

Global PC shipments will rise 11.1% in 2007, to over 257 million units, according to data released Wednesday by research firm Gartner. The forecast is up from the firm's prediction of 10.5% growth in March. Analyst George Shiffler says the increase is due to better-than-expected notebook sales, and surging emerging market growth. The firm predicts more than 50% of all computers sold in emerging markets over the next ten years will be to first-timers. The average PC/notebook price will fall to $852, $20 higher than its previous forecast. "I don't think vendors should take comfort in the notion that price (declines) have decelerated a bit," Shiffler said. "We think we'll be back falling at a 7 percent year-over-year rate before long."
Sources: CNET News
Commentary: Six Reasons For Strength In The PC Supply ChainSelling PCs at Wal-Mart? Dell's Had Its Day
Stocks/ETFs to watch: SPDR Technology (NYSEARCA:XLK), iShares Goldman Sachs Technology Index Fund (NYSEARCA:IGM), iShares Dow Jones US Technology Index (NYSEARCA:IYW)


Blockbuster and Netflix Settle Patent Infringement Suit

Video rental giants Netflix and Blockbuster Wednesday settled an April 2006 lawsuit in which Netflix alleged Blockbuster had infringed on its online video rental patent. Terms were not released, but Blockbuster said the settlement wouldn't have a material affect on its earnings. Netflix had no comment, but that didn't deter investors who sent shares higher by 6.45%, after being up nearly 9% at one point. Blockbuster shares fell $0.02 (0.5%). Blockbuster had counter-sued Netflix sayindg that it didn't invent its methods of renting videos online, and that the company was trying to monopolize the online rental business. Blockbuster also said it intends to alter its Total Access membership in order to "strike the appropriate balance between continued subscriber growth and enhanced profitability." Netflix boasts 6.8 million subscribers, to just over three million subscribers for Blockbuster's online rental service. bbinflx
Sources: SEC filing, Wall Street Journal, Bloomberg, Bizjournals.com, MarketWatch, Reuters
Commentary: Blockbuster Hints At Price Rise For Total Access Program; Netflix RisesWill 'Burn On Demand' Eventually Save Blockbuster?Blockbuster Undercuts Netflix with Online-Only Plan
Stocks/ETFs to watch: Blockbuster Inc. (BBI), Netflix, Inc. (NASDAQ:NFLX). Competitors: Amazon.com (NASDAQ:AMZN), Apple (AAPL), Wal-Mart (WMT). ETFs: PowerShares Dynamic Leisure & Entertainment ETF (NYSEARCA:PEJ)
Conference call transcripts: Blockbuster Q1 2007 Earnings Call TranscriptNetflix Q1 2007 Earnings Call Transcript
Related: Netflix vs. Blockbuster Total Access


Paychex Net Up 12%; Weak Guidance

Paychex Inc., a provider of human resource and payroll services, reported fiscal Q4 net income increased 12% to $137.2 million ($0.36/share), in-line with consensus estimates. Revenues rose 11% to $487.3m, missing analysts' average forecast of $496m. Shares fell 3% to $39.02 in AH trading on disappointing guidance. Paychex-PAYX-chart-06-27-07 Paychex forecast fiscal year 2008 net income growth of 14% to 16% [$606m-$617m, $1.59-$1.62] and for sales to increase 11% to 13% [$2.11b-$2.15b]. Analysts on average had been forecasting $1.61/share on sales of $2.12b. Paychex projected fiscal 2008 revenue growth of 9% to 10% for Payroll services and 20% to 23% for Human Resource services. Shares have traded in a range of $32.98 to $42.50 over the past year.
Sources: Press release (.pdf), Associated Press, MarketWatch, RTTNews
Commentary: Paychex Earnings Conference Call Transcript (later today) • Unlucky Number Seven: Sideways Performers Since 2000 Who Stand To Gain32 Big Dividend Payers: Buy Now, Profit LaterS&P 500 Furthest Below 50-DMA, With Money Flows
Stocks/ETFs to watch: Paychex Inc. (NASDAQ:PAYX). Competitors: Administaff Inc. (ASF), Ceridian Corporation (NYSE:CEN), Automatic Data Processing, Inc. (NASDAQ:ADP)

Capital One to Cut Jobs in Restructuring Initiative

Credit card company Capital One will cut 2,000 jobs, or about 6% of its workforce, as part of a restructuring plan designed to rein in costs as loan losses climb and the mortgage industry slows. COF 28 June 2007The company will take a $300 million pretax charge this year to pay severance and other costs related to the layoffs. That charge will shave about $0.15 from Q2 EPS and $0.33 for the year. "Disciplined expense management is essential to maintaining and enhancing a strong competitive position," said CEO Richard D. Fairbank. Capital One will also streamline management and trim back-office expenses. The company expects the restructuring to generate pretax savings of about $700 million through 2009. Capital One was squeezed in Q1 by record high foreclosure levels after it acquired GreenPoint Mortgage Funding Inc. as part of its $13.6 billion purchase of North Fork Bank in December. The company suffered a 24% drop in Q1 profit to $675.1 million and missed analyst expectations in April. The restructuring "signifies an attempt to better rationalize the cost structure," said UBS analyst Eric Wasserstrom. The company will report Q2 earnings on July 19; analysts are forecasting EPS of $1.75.
Sources: Press release, AP, Dow Jones, Bloomberg, 24/7 Wall Street, TheStreet.com,
Commentary: Capital One, Commerce Bancorp: Benefit From a Positive Sloping Yield CurveCapital One Financial Reduces Guidance on Mortgage WeaknessEye on Capital One Financial
Stocks/ETFs to watch: Capital One Financial Corp. (NYSE:COF). Competitors: American Express Company (NYSE:AXP), Bank of America Corp. (NYSE:BAC). ETFs: Financial Select Sector SPDR ETF (NYSEARCA:XLF), PowerShares Financial Preferred Portfolio (NYSEARCA:PGF), iShares Dow Jones US Financial ETF (NYSEARCA:IYF)

People's Bank to Acquire Chittenden for $1.9 Billion

Shares of Vermont-based bank Chittenden Corp. skyrocketed 24.5% to close at $35.15 Wednesday after People's United Financial announced it will acquire it for $1.9 billion. The combined entity will have assets of approximately $22 billion. Chittenden shareholders will be able to choose either cash or People's United shares valued at $20.35 plus 0.8775 of the shares' five-day average closing price. The offer values Chittenden shares at $37.00, a 31% premium to Tuesday's close. People's CEO John Klein said the acquisition of Chittenden, which has branches in Vermont, New Hampshire, Massachusetts and Maine, will help People's broaden its New England presence and will provide a combined rate of return greater than People's cost of capital. "We believe we are buying a superior performing company," he said. PBCT 28 June 2007 CHZ June 2007"This deal conforms to all the strategic and financial objectives that we set forth during the second-step conversion" from a state-chartered bank to a federal thrift. S&P has affirmed its credit ratings on both banks; Fitch will maintain its rating on People's but will downgrade Chittenden's A- rating. The transaction has been approved by both boards of directors and is expected to close in Q1.
Sources: Press release, TheStreet.com, Wall Street Journal, Bloomberg, MarketWatch, AP I, II, III
Commentary: The Truth About Personal Savings and Debt LevelsUS Savings Rate Based On Outdated Methods of CalculationJim Cramer's Mad Money Lightning Round Picks, March 22
Stocks/ETFs to watch: Chittenden Corp. (CHZ), People's United Financial, Inc. (NASDAQ:PBCT). Competitors: Bank of America Corp. (BAC), KeyCorp (NYSE:KEY). ETFs: KBW Regional Banking ETF (NYSEARCA:KRE)


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Housing: Not Yet Time for Homebuilders
Long Idea: Take a Leap on International Game Technology
Internet: New Internet Advertising Patent Puts Modavox On the Radar
Telecom: Is Telus Done Bidding For Bell or Itself a Target for Onex?
Networking: Nortel News
Hardware: For A Few More Dollars: IBM’s Leasing Adventure
Chips: LanOptics Subsidiary EZchip in Bed with Cisco
Software: Salesforce.com: Clearly Mediocre
Gadgets: Sky-High Expectations Ahead of RIM's Earnings Today
Media: The New York Times: A Stock Price Poised for Gain
Biotech: American Oriental Bioengineering Stirs Up Controversy
Retail: What Will Save the Bombay Company?
Transport: Auto Companies' Slashed Ad Spending Reflects Greater Problem
Gold: Six Copper Companies that Could Be Takeover Targets
Energy: Land-Based Drillers Extremely Mispriced
Financial: Bear Stearns Knows What Its Doing
Asia: Nike Execs Comment on Market Share Gains in China
ETFs: Broad Fundamental Index ETFsQuant Strategy Broad ETFs
Hedge Funds: Breeden Capital to Nominate Three Candidates to H&R Block Board
Small-Caps: uWink Expansion in Full Swing
IPO Analysis: Blackstone Group: The Private Equity Boom Isn't Over
Jim Cramer: Latest stock picks
Earnings Transcripts: Nike F4Q07Oracle F4Q07Red Hat F1Q08Bed Bath & Beyond F1Q07
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