GE Posts In Line Earnings; Boosts Share Buyback from $12 to $14B
GE said Friday morning its net profit climbed 12.5%, bolstered by strong performances from its infrastructure and finance units. It reaffirmed its 2007 guidance ($2.18-2.23/share), and raised its share buyback program from $12 to $14 billion. Q2 earnings per share from ongoing operations were $0.52 ($5.4 billion), in line with analyst estimates. Sales revenue increased 12.2% to $42.3 billion, outdoing analyst forecasts of $42 billion. Total orders rose 32% to a record $25 billion, while the company's backlog was up 42% to $18 billion. "Infrastructure and Commercial Finance, which account for 56% of segment profit, led our strong performance this quarter," CEO Jeff Immelt said. NBC Universal growth was a milder 2%. "Strength at infrastructure will likely offset weak sales in growth at NBC and health care," said Citigroup in a July 10 note. GE sold its plastics unit to a Saudi company in May, and Thursday said it was selling WMC mortgage, its subprime lending unit (see full summary). Also this week, on July 11 GE dropped its planned acquisition of Abbott Laboratories' medical-diagnostic units for $8.13 billion because they couldn't agree on terms. Shares are up 4.81% YTD after gaining 2.1% Thursday, and have risen 17.1% over the past year.
Sources: Press release, MarketWatch, Bloomberg
Commentary: What Is CNBC.com Thinking? • General Electric: The Dividend Champion • General Electric's Ecomagination: A Panacea?
Stocks/ETFs to watch: General Electric Co. (GE). Competitors: 3M Company (MMM), Eaton Corp. (ETN), Honeywell International Inc. (HON). ETFs: PowerShares Industrial ETF (PRFN), iShares S&P 100 Index ETF (OEF), iShares NYSE Composite Index ETF (NYC)
Conference call transcript: General Electric Q1 2007
Related: CNBC's GE earnings tables
Samsung Electronics Up 6% on Rumor of Icahn Hostile Bid
Samsung Electronics jumped 6.4% to 687,000 won ($750), its highest close in more than two years, on a report of a possible hostile takeover bid by Carl Icahn and other hedge funds. South Korea's daily Chosun Ilbo broke the news, but Samsung's executive VP of investor relations told analysts he is unaware of a hostile bid by Icahn, adding that Samsung "has an appropriate set of strategies in place that we'll implement." The Samsung Group owns 30.4% of Samsung Electronics, of which 3.2% is controlled by chairman Lee Kun-hee. Foreign investors are said to own a 49% stake. Samsung Electronics has a market cap of 101.3t won ($110b) based on Friday's close, meaning a hedge fund would need about $33b to achieve at least a 30% stake in order to gain managerial rights. Separately, Samsung reported better-than-expected Q2 earnings Friday, on strength in its LCD business, despite a 5% decline in net income on weakness in chips and mobile phones.
Sources: Chosun Ilbo, Associated Press, Forbes.com, Reuters
Commentary: Samsung Headlines Korea's Top Heavy ETF • iPhone Unpacked • Samsung's 1Q Spending Supports Thesis That Capex Spending Will Slow
Stocks/ETFs to watch: Samsung Electronics is not traded in the U.S., however it is a sizable component of iShares MSCI South Korea Index (EWY) [14.7% of assets as of 6/30 per Morningstar] and the closed-end fund Korea Fund Inc. (KF) [12% as of 3/31].
Paychex Hikes Dividend 43%, Announces $1B Buyback
Shares of Paychex Inc., a provider of human resource and payroll services, climbed 4.5% to $43.30 in light after-hours trading, on news the company's Board of Directors increased its quarterly divided 43% to $0.30/share (previously $0.21) and announced a $1 billion share buyback. The dividend is payable August 15, to shareholders of record August 1. "The dividend increase, combined with the stock repurchase program, reflects the Board's confidence in the ability of Paychex to continue generating superior cash returns for our shareholders. We don’t believe there's any better investment than ourselves," said Jonathan J. Judge, president and CEO of Paychex. This is the company's first share repurchase. In a press release, Paychex said the buyback "will be executed in a manner to be determined by management." Paychex gained 1.1% to $41.44 during normal trading and has traded in a range of $32.98 - $42.50 over the past year.
Sources: Press release, TheStreet.com
Commentary: Paychex Net Up 12%; Weak Guidance • Unlucky Number Seven: Sideways Performers Since 2000 Who Stand To Gain • 32 Big Dividend Payers: Buy Now, Profit Later
Stocks/ETFs to watch: Paychex Inc. (PAYX). Competitors: Administaff Inc. (ASF), Ceridian Corporation (CEN), Automatic Data Processing, Inc. (ADP)
Earnings call transcripts: Paychex F4Q07
Energizer Buys Hygiene Products Maker Playtex For $1.9 Billion
Thursday night U.S. #2 battery maker Energizer Holdings announced it had agreed to buy hygiene product maker Playtex Products for $1.2 billion in cash, or $1.9 billion including debt. The buyout offer, which works out to $18.30 a share, adds an 18% premium to Playtex's closing price Thursday of $15.52. Both companies' boards have already unanimously approved the merger. Energizer CEO Ward M. Klein said in the press release the companies have "similar customers and distribution channels in the U.S. and Canada," adding the acquisition may lead to others. In the hygiene department, Energizer already owns Schick-Wilkinson Sword men's shaving; the Playtex acquisition gives it several household names including Playtex brand tampons, Wet Ones baby wipes and Banana Boat and Hawaiian Tropic sunscreen. Despite seeing its share price increase 89% over the last year, Energizer reported last quarter that rising Zinc prices, used widely in the manufacture of batteries, had cut into its profit margins. The Playtex acquisition is expected to close by year's end.
Sources: Press Release, Reuters, Bloomberg, Financial Times Alphaville
Commentary: Cramer's Take on ENR • Energizer Holdings: Worth at Least $7.5 Billion
Stocks/ETFs to watch: Playtex Products (PYX), Energizer Holdings (ENR). Competitors: The Procter & Gamble Company (PG), Kimberly-Clark Corporation (KMB), Spectrum Brands (SPC). ETFs: PowerShares DWA Technical Leaders (PDP), PowerShares WilderHill Progressive Energy (PUW)
Related: Playtex Products
Target Shares Surge on Report of Ackman Stake
Shares of discount retailer Target Corp. rose 6.8% to close at $70.04 Thursday, their biggest gain in over three years, after Bloomberg reported that activist investor William Ackman has taken a stake of more than 5%. The holding will be disclosed next week in a filing with the SEC, according to an unnamed individual "with direct knowledge of [Ackman's] plans." The source did not disclose Ackman's plans for the company. Ackman, general partner of the hedge fund Pershing Square Capital Management, has prodded several companies to cut costs, sell off divisions and make other changes to bolster shareholder value. Together with billionaire investor Nelson Peltz, he pushed Wendy's to spin off its Tim Hortons coffee shops, and he urged McDonald's to use the proceeds of the sale of its Latin American restaurants to pay dividends and buy back stock. Last Friday, Target's shares gained 6.1% on rumors the company might sell its credit-card unit, which represented approximately 20% of the company's operating income in Q1. "Target's been pretty adamant that they see it as a key asset to keep," said Piper Jaffray analyst Jeffrey P. Klinefelter. Money manager Patricia Edwards speculates that Ackman might urge Target to sell its real estate and lease it back.
Sources: Reuters, Bloomberg
Commentary: Ackman's Pershing Square Allegedly Accumulates a 5%+ Stake in Target • June Retail Same-Store Sales Roundup • Why Target is an Investment and Wal-Mart is a Trade
Stocks/ETFs to watch: Target Corp. (TGT). Competitors: Costco Wholesale Corp. (COST), Wal-Mart Stores Inc. (WMT). ETFs: Retail HOLDRS ETF (RTH), SPDR S&P Retail (XRT), PowerShares Dynamic Retail (PMR)
Earnings call transcripts: F1Q07
Nordstrom Near Agreement to Sell Façonnable Line -- WSJ
Nordstrom is close to signing a $200 million deal with Lebanese private equity firm M1 Group to sell it its Façonnable apparel and retail line, according to the Wall Street Journal. The divestiture is intended to allow Nordstrom to sharpen its focus on more upscale luxury goods. The agreement is not final and may still collapse. Nordstrom bought Façonnable for $169 million in 2000 and operates four namesake boutiques in the U.S. and 36 in Europe. It also sells Façonnable apparel at most of its 98 U.S. department stores, where it will continue to sell some of the label's merchandise following the transaction. The M1 Group, founded by Taha Mikati and his brother Najib, a former Lebanese prime minister, established itself through investments in construction and mobile telecommunications.
Sources: Wall Street Journal, MarketWatch
Commentary: Nordstrom to Sell Façonnable Chain to Lebanese Firm -- NY Post • June Retail Same-Store Sales Roundup • Number One Retail Category: Online Clothing Sales
Stocks/ETFs to watch: Nordstrom, Inc. (JWN). Competitors: Macy's Inc. (M), Saks Inc. (SKS), Jones Apparel Group Inc. (JNY), AnnTaylor Stores Corp. (ANN). ETFs: Consumer Discretionary SPDR ETF (XLY), PowerShares Dynamic Consumer Discretionary (PEZ), Vanguard Consumer Discretionary VIPERs (VCR)
Earnings call transcripts: Q1 2007
FTC Case Strong Against Whole Foods/Wild Oats Merger -- Analyst
Bear Stearns analyst Robert Summers said Thursday the FTC appears to have ample evidence to mount a successful challenge to the pending merger between Whole Foods and Wild Oats. The FTC posted its case against the $565 million deal on its website earlier in the week (see link below). After reading the document, Summers concluded, "the FTC case against the merger appears solid and [we] are now leaning more toward the FTC prevailing in its injunction." The FTC is basing its case on the premise that Whole Foods is "obsessed with running Wild Oats out of business" by buying it and then taking it apart. Part of its evidence is eight years' worth of postings placed anonymously by Whole Foods CEO John Mackey on a Yahoo Finance message board that touted his own company's stock and spoke derisively of Wild Oats. That evidence supplements material disclosed by the FTC in June, including an email written by Mackey to company executives advocating the "elimination" of Wild Oats as a means of preventing a price war and barring competitors Kroger, SuperValu and Safeway from entering the natural/organic space. Summers classifies the anonymous Yahoo postings as a "distraction for the company as it tries to improve investor sentiment that its growth prospects have rebounded."
Sources: MarketWatch, Business Week
Commentary: Whole Foods CEO Mackey Is Out Of His Organic Mind • Whole Foods CEO John Mackey Makes a Mind-Boggling Mistake • Whole Foods' CEO Found Anonymously Touting His Own Stock
Stocks/ETFs to watch: Whole Foods Market, Inc. (WFMI), Wild Oats Markets, Inc. (OATS). Competitors: The Kroger Co. (KR), SuperValu Inc. (SVU), Safeway Inc. (SWY). ETFs: Consumer Staples Select Sector SPDR (XLP), Vanguard Consumer Staples ETF (VDC), PowerShares Dynamic Consumer Staples (PSL)
Earnings call transcripts: Whole Foods Market F2Q07
Related: FTC's motion for restraining order and preliminary injunction against Whole Foods and Wild Oats
ENERGY AND MATERIALS
Alcoa Concedes Alcan; Traders Think It Could Be Next
Alcoa Inc. announced Thursday it has withdrawn its $27 billion hostile bid for Alcan Inc. following Rio Tinto's higher offer, bringing to a close its two-year attempt to acquire the company. Rio's bid, worth $38.1 billion ($101/share), was a third higher than Alcoa's $28.8 billion ($76.03/share). "[A]t this price level," said Alcoa CEO Alain Belda, "we have more attractive options for delivering additional value to shareholders." Alcoa will now restart its share buyback program, which it suspended May 7 when it submitted its bid. Alcan finished Thursday's session up almost 9% at $98.45 following news of Rio's bid. Shares of Alcoa also closed up 6.7% and tacked on another 1.6% in AH trading on speculation that it will now be taken over. "The deal rips Alcan from the jaws of Alcoa in what had become a nasty spat," said Interactive Brokers Group market analyst Andrew Wilkinson. "Traders are now focused on the likelihood of a bid from Australian mineral producer, BHP Billiton." Other possible suitors include CVRD or Xstrata plc. A total of 259,552 Alcoa calls and 55,738 Alcoa puts were traded Thursday, well beyond Alcoa's normal options volume of 64,948 contracts all together.
Sources: MarketWatch, Bloomberg, Reuters, Wall Street Journal
Commentary: Alcan Acquiesces To Cash Deal With Rio Tinto • Rio Tinto Trumps Alcoa with $38.1 Billion Offer for Alcan • Alcan, Rio Tinto Engaged in Formal Merger Negotiations
Stocks/ETFs to watch: Alcoa Inc. (AA), Alcan Inc. (AL), Rio Tinto plc [ADR] (RTP), BHP Billiton Limited [ADR] (BHP), Companhia Vale do Rio Doce [ADR] (RIO). ETFs: Materials Select Sector SPDR (XLB), iShares Dow Jones US Basic Materials Index (IYM), Vanguard Materials VIPERs (VAW)
Earnings call transcripts: Alcoa Q2 2007
GE Plans To Shop Its WMC Subprime Mortgage Unit
Reuters reports General Electric plans to sell its subprime mortgage unit, WMC Mortgage, essentially taking the mega cap conglomerate out of the U.S. mortgage business. WMC President and CEO, Laurent Bossard, sent a memo to employees yesterday saying, "The mortgage industry has greatly changed since the purchase of WMC. The current subprime market environment has made a significant negative impact on the business." During the first quarter, GE took a $500 million pretax charge on subprime loans, with additional subprime losses likely for during Q2. According to A.G. Edwards analyst Christopher Kotowicz, "You can't gloss over a $100 million or a $200 million write down," adding that each $100 million write down affects EPS by $0.01. GE laid off 450 WMC employees during the first quarter, in addition to selling off $3 billion in subprime loans. It still holds another $1.5 in subprime mortgages. Credit-default swaps on $10 million of GE debt have jumped this week, from $2,000 to $16,875, signaling a deteriorating perception among financial institutions of GE's credit quality.
Sources: Wall Street Journal, Bloomberg, Reuters, MarketWatch [check back later today for GE's latest conference call transcript]
Commentary: GE May Ditch Subprime Loan Unit • Housing Bubble and Real Estate Market Tracker • Is This the Bottom for Submerging Prime?
Stocks/ETFs to watch: General Electric (GE)
Earnings call transcripts: General Electric Q1 2007
Dutch Supreme Court: ABN Amro Can Proceed with LaSalle Sale
The Dutch Supreme Court announced Friday that banking giant ABN Amro can go ahead with its $21 billion sale of LaSalle Bank to Bank of America, a precondition of ABN's own sale to Barclays for €64 billion ($88.2 billion) in stock. The Court has "dismissed irrevocably" a request for an injunction to suspend the sale, in line with advice given the Court two weeks ago by the Dutch Advocate General that a shareholder vote is not required for the sale to go through. ABN is the subject of a contest between Barclays, whose offer ABN has accepted, and a consortium led by Royal Bank of Scotland [RBS], which offered a €71 billion counterbid -- provided LaSalle was included in the deal. Angry investors, who viewed ABN's sale of LaSalle to BoA as a poison pill designed to thwart RBS's higher offer, sued to freeze the deal. Pali International analyst Bruce Packard said he considers it "very likely that the RBS-led consortium comes back with an offer ex-LaSalle." "I don't think giving up is in [RBS CEO] Fred Goodwin's vocabulary," said Oriel Securities analyst Mike Trippitt. BoA, which had threatened to sue ABN if the Court ruled in favor of freezing the sale, is "extremely happy" with the decision and plans to complete the LaSalle takeover as soon as possible.
Sources: Reuters I, II, Bloomberg, Alphaville [Financial Times]
Commentary: Dutch Advocate General: ABN's Sale of LaSalle Does Not Require Shareholder Vote • Atticus Capital: We Can Block Barclays' Bid for ABN • Bank of America Postpones ABN Amro Suit
Stocks/ETFs to watch: ABN Amro Holding N.V. (ABN), Barclays PLC (BCS), Bank of America Corp. (BAC), Royal Bank of Scotland Group plc [ADR] (RBSPY.PK), Fortis NV [ADR] (FORSY). Competitors: HSBC Holdings plc ADR (HBC), Deutsche Bank AG (DB), UBS AG (UBS). ETFs: iShares MSCI Netherlands Index (EWN), streetTRACKS KBW Bank (KBE), HOLDRS Regional Bank (RKH)
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