Philips Q2 Profit Jumps on Sales of TSMC Shares; More Divesting Ahead
Philips Electronics reported a quintupling of Q2 net income to €1.57b ($2.16b), or €1.43/share, helped by a €1.22b gain from selling part of its stake in Taiwan Semiconductor Manufacturing Co. [TSMC]. Earnings were mostly in-line with estimates, but a 4.4% decline in sales to €6.1b was worse-than-expected. Ordinary shares of Philips were down 1% to €32.08 in morning trading in Amsterdam. Philips blamed part of its sales decline on a weak U.S. dollar. It reiterated its forecast for 7.5% target growth in EBITA and 5% - 6% in sales for the year. Sales at its medical systems unit rose 4% to €1.65b, while revenue fell 14% to €2.15b at its consumer electronics unit due to seasonality because of World Cup Soccer last year. Philips has sold around half its 16.2% stake in TSMC amidst a planned complete exit. It intends to sell part or all of its 32.9% stake in LG.Philips LCD Co., with plans to reduce it below 20% by year-end, as a lock-up period expires this month. Philips has €1b remaining of a €4b share repurchase program it expects to finish by the end of the year.
Sources: Associated Press, Bloomberg, MarketWatch, Wall Street Journal
Commentary: 17 Ways to Invest in The Netherlands • Philips To Buy Color Kinetics For 14% Premium • Philips Plans to Sell Remaining Stake in TSMC • Philips Earnings Conference Call Transcript (later today)
Stocks/ETFs to watch: Koninklijke Philips Electronics N.V. (PHG), Taiwan Semiconductor Mfg. Co. Ltd. (TSM), LG Philips LCD Co., Ltd. (LPL). Competitors: General Electric Co. (GE), Matsushita Electric Industrial Co. Ltd. (MC), Sony Corp. (SNE). ETFs: Shares MSCI Netherlands Index (EWN), iShares MSCI Taiwan Index (EWT), BLDRS Emerging Markets 50 ADR Index (ADRE)
Related: Quarterly results and presentation (.pdf)
Mattel Reports In-Line As Strong International Performance Offsets Weak U.S. Sales
The world's top toymaker Mattel Inc. reported Monday morning its 2Q net income rose 16.4%, with earnings-per-share of $0.11 on sales of $1.02 billion. Estimates were $0.10 on sales of $1.025 billion. Mattel credited strength in its recent quarter largely to strong global sales. Gross international sales rose 18%, offsetting a 3% decrease in U.S. sales. On a brand by brand basis, Wheels (including Hot Wheels, Matchbox and Tyco R/C brands) was strongest with a 20% gain, followed by Fisher-Price which rose 12%. Mattel Girls & Boys Brands, which includes Barbie dolls rose just 5%. Barbie continues to face stiff competition from privately-held MGA Entertainment's Bratz dolls.
Sources: Press Release, Wall Street Journal, AP, Bloomberg, MarketWatch
Commentary: Mattel's Q1 Profit Drops, But Beats Street As Sales Increase 18.5% • Cramer's Take on MAT
Stocks/ETFs to watch: Mattel (MAT). Competitors: Hasbro (HAS). ETFs: PowerShares Dynamic Consumer Discretionary (PEZ)
Kraft Foods Shares Rise On Reports of Icahn Stake, Peltz Meeting
Word that activist investor Carl Icahn has taken an undisclosed stake in Kraft Foods sent shares higher by 3.13% Friday. The story was initially broken by the Wall Street Journal; both Icahn and Kraft declined to comment. Shares had been down 2.5% in 2007, despite CEO Irene Rosenfeld's plan to make Kraft more profitable. Rosenfeld also agreed to sit down with another activist investor who recently disclosed a 3% stake in Kraft, Nelson Peltz. Peltz believes Kraft should divest itself of certain less profitable businesses such as Post cereals and Maxwell House Coffee, in order to focus on its frozen foods and grocery businesses. Peltz would also like to see the company increase the amount it had allocated to share buybacks, currently $5 billion. Rosenfeld recently announced the purchase Group Danone's cookie and cracker business for more than $7 billion, and does not appear ready to decrease the size of Kraft's holdings, leading to a possible showdown with Peltz.
Sources: Wall Street Journal, Bloomberg, MarketWatch
Commentary: Kraft: Raiders of the Lost Ark • Kraft's Danone Deal A Good One For Shareholders • Kraft Foods Jumps On Reports of Peltz's 3% Stake
Stocks/ETFs to watch: Kraft Foods Inc. (KFT). Competitors: General Mills Inc. (GIS), Del Monte Foods Company (DLM), Kellogg Company (K). ETFs: PowerShares Consumer Goods ETF (PRFG), Consumer Staples Select Sector SPDR (XLP), Ultra Consumer Goods ProShares (UGE)
Related: Kraft Foods/product listings
TRANSPORT AND AEROSPACE
Ford Denies Reports of Plans to Sell Volvo
Ford is preparing to sell Volvo, which worth as much as $8 billion according to a Merrill Lynch estimate, as it divests its Premier Auto Group's [PAG] assets, according to a report in the Sunday Times of London. A Ford spokesman said the company is not in discussions with any bidders. "However, as we’ve consistently been saying since last year, Ford has been assessing a number of strategic options for all of its operations, and that’s continuing," the spokesman commented. Ford paid $6.5b for Volvo in 1999. Analysts believe possible interested parties include BMW, Renault, Hyundai and private equity groups. Although PAG is unprofitable, analysts estimate Volvo earns $800m-$1b annually. However, U.S. sales have declined over the past year and a half, according to Autodata. Two issues making a Volvo sale unlikely are its inclusion as collateral in a $23b loan Ford took out last year, and Ford's reliance on Volvo for global engineering, design and manufacturing systems, according to David Cole, chairman of the Center for Automotive Research. Separately, bids for Land Rover and Jaguar, also of PAG, are due Thursday.
Sources: The Times [London] I, II, Associated Press, New York Times, Wall Street Journal
Commentary: GM, Ford Confuse Investors With The Turnaround Dance • Ford's Inventory Mix: What the Heck is a 'Crossover' Vehicle? • Ford Considering Jaguar Sale: Any Takers?
Stocks/ETFs to watch: Ford Motor Company (F). Competitors: General Motors Corp. (GM), DaimlerChrysler AG (DCX), Toyota Motor Corp. (TM), Nissan Motor Co., Ltd. (OTCPK:NSANY), Honda Motor Co., Ltd. (HMC). ETFs: PowerShares FTSE RAFI Consumer Goods (PRFG), Rydex S&P 500 Pure Value (RPV)
Earnings call transcripts: Ford Motor Q1 2007
ENERGY AND MATERIALS
Billiton Considering Bid for Alcoa -- Report
BHP Billiton, the world's largest mining company, is weighing a possible bid for aluminum producer Alcoa following that company's failed attempt to buy rival Alcan, according to a report in the Observer. Alcan sold instead to Rio Tinto for $38 billion. BHP had mulled a bid for Alcan, but elected not to top the Rio Tinto offer. Analysts say Alcan was a more desirable prospect than Alcoa for Billiton because Alcoa's smelters are less efficient, and it brings with it a host of downstream assets that Billiton does not want. However, Alcoa would offer Billiton strong capacity in the mining and refining of bauxite and alumina, aluminum’s raw materials. The Times of London reports that hedge fund investors are taking large positions in Alcoa on buyout speculation. One of them, Jana Partners, wrote Alcoa CEO Alain Belda in May, "Given Alcoa’s long history of failing to generate shareholder value through acquisitions, we believe that its greatest value can be realized through a sale or break-up of the company." Another told the Times on Friday, "It is time for Alcoa to create some value for shareholders by seeking a deal if it can get the right price, or selling assets." Billiton CEO Chip Goodyear is said to favor a bid for Alcoa provided it is a friendly one. Alcoa shares closed up 4.55% at $47.35 Friday.
Sources: MarketWatch, Financial Times, The Observer, Times Online
Commentary: Alcoa Concedes Alcan; Traders Think It Could Be Next • BHP Seeks Blackstone's Help In Alcoa Bid -- Times of London • Rio Tinto Trumps Alcoa with $38.1 Billion Offer for Alcan
Stocks/ETFs to watch: Alcoa Inc. (AA), BHP Billiton Limited [ADR] (BHP). ETFs: Materials Select Sector SPDR (XLB), iShares Dow Jones US Basic Materials Index (IYM), Vanguard Materials VIPERs (VAW)
Earnings call transcripts: Alcoa Q2 2007
RBS Consortium Ups Cash Ante for ABN Amro
The RBS-led consortium vying with Barclays for ABN Amro, unfazed by last week's decision by the Amsterdam Supreme Court permitting ABN to sell LaSalle Bank to the Bank of America, has raised the cash portion of its €71.1 billion ($98 billion) bid for the Dutch banking giant. The other parties in the consortium are Spain's Banco Santander and the Belgian bank Fortis. The consortium confirmed its prior offer of €38.40 per share and increased the cash proportion to 93% from 79%. Barclays' offer, which is all stock, is 11% lower at €34.49 per share. RBS CEO Fred Goodwin, who wanted LaSalle as a means of building up RBS's U.S. operations, said Monday the acquisition of ABN "remains compelling" even without LaSalle because it will provide new avenues for growth. "I still question whether they are right to take on all the execution risk without LaSalle,'' said Oriel Securities analyst Mike Trippitt. "LaSalle for them was the real gem." ABN shares were up as much as 4.5% in Amsterdam trading by mid-morning Monday. Shares of RBS are down 3.7% since it announced its intention to acquire ABN in May. Barclays will now have to choose between increasing its bid, introducing a cash element, joining forces with another bidder or selling one of ABN's assets to stay in the running with RBS.
Sources: Reuters, Wall Street Journal, Bloomberg
Commentary: Dutch Supreme Court: ABN Amro Can Proceed with LaSalle Sale • Dutch Advocate General: ABN's Sale of LaSalle Does Not Require Shareholder Vote • 17 Ways to Invest in The Netherlands
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)
Nasdaq-OMX Merger Threatened by DIFC - Report
The Dubai International Financial Centre [DIFC], owner of the Dubai International Financial Exchange, is believed to have arranged financing to launch a rival bid of up to 250 crowns ($37.63) per share for the Nordic stock exchange group OMX, according to the Telegraph. The bid at its maximum would be 20% higher than the cash and stock offer made by Nasdaq two months ago of 208.1 crowns per share, or $3.7 billion. Dealers are said to be expecting a counterbid more in the area of 230 crowns ($34.59). The unsourced article says the bid might be submitted as soon as next week. The loss of the merger would be a blow to the Nasdaq, which has seen the NYSE merge with Euronext, Germany’s Deutsche Boerse ink a deal to buy the U.S. options exchange ISE, and the LSE agree to buy the Borsa Italiana during the industry's swift consolidation. According to the report, DIFC has been building up its OMX stake recently to about 4.5%. The OMX closed Friday at 210 crowns.
Sources: Telegraph I, II, Reuters, Gulf News
Commentary: Nasdaq to Purchase Nordic Bourse Operator OMX for $3.67 Billion • London Stock Exchange to Acquire Borsa Italiana for €1.63B • Treading Carefully In Exchange Stocks
Stocks/ETFs to watch: Nasdaq Stock Market, Inc. (NDAQ). Competitors: NYSE Euronext (NYX), Chicago Mercantile Exchange Holdings Inc. (CME). ETFs: Financial Select Sector SPDR ETF (XLF), PowerShares Financial Preferred Portfolio (PGF), iShares Dow Jones US Financial ETF (IYF)
Boston Scientific Settles Guidant Suits for Less Than Expected
Boston Scientific Corp. announced late Friday it has reached an agreement to pay $195 million to settle claims related to faulty defibrillators and pacemakers manufactured by Guidant, the company it acquired in 2006. Boston Scientific had estimated its liability at $732 million. Guidant had to recall over 100,000 cardiac-assist devices in 2005 after a defibrillator malfunctioned. The settlement covers about 4,000 individual claims. There are about 1,850 pending cases (not including approximately 100 state lawsuits). The settlement, which was reached during court-supervised mediation before a U.S. magistrate judge in Minneapolis, means the first trial -- scheduled to begin on July 27 -- will be suspended. "It'll be nice to move on, get a little bit of silence from the company and stop the bad news flow," said Soleil-Belmont Harbor Research analyst Daniel Owczarski. Boston Scientific shares rose 1.6% to $15.65 in AH trading Friday.
Sources: Wall Street Journal, MarketWatch, Dow Jones, Bloomberg
Commentary: Better Medicine for Boston Scientific [24/7 Wall Street] • The Long Case for Boston Scientific • FDA Lifts All Restrictions on Boston Scientific's Minnesota Guidant Plant
Stocks/ETFs to watch: Boston Scientific Corp. (BSX). Competitors: Johnson & Johnson (JNJ), Medtronic Inc. (MDT), St. Jude Medical Inc. (STJ), Abbott Laboratories (ABT). ETFs: iShares Dow Jones US Medical Devices (IHI)
ACTIONABLE BARRON'S CALLS
Barron's articles likely to move stocks today, culled from our Annotated Barron's Summaries
- Investors have traded up shares of two India internet stocks -- number-three portal Rediff.com (REDF) and number-one private broadband provider Sify (SIFY) -- to sky high multiples that are hard to justify under any metric: Rediff trades at 115x trailing earnings and 88x forward earnings, while Sify's numbers are 205x and 60x. Rediff's market share has dropped from 34.1% to 25.5% over the past 1.5 years, and Sify's cybercafe growth is slowing and its fees dropping due to stiff competition from Microsoft-backed HughesNet Fusion. [see full summary]
- WorldCom/Enron whistleblower, rating agency Egan-Jones, says National Rural Utilities Cooperative Finance Corp.'s (NRN) bonds should not be rated investment grade single-A, but rather seven notches lower at single-B-plus. NRN's net loan interest income (the difference between what it earns on loans and the interest it pays on borrowings) has plummeted from $300 million in 2002 to $20.9 million in the first 9 months of 2007. Its lack of loan loss provisions shocks Egan-Jones, considering its SEC filing indicated $1 billion of its $17b portfolio are troubled loans. A downgrade will affect its 7.45%/share yield as well as the rate at which it can raise and lend money. [see full summary]
- Governments worldwide are passing tougher environmental bills, making clean energy companies a great investment opportunity. ETFs like PowerShares WilderHill Clean Energy ETF (PBW) are one way to go for the green. Barron's cover story singles out five stocks that are poised to rise on the tails of the clean energy movement: (1) SunPower Corp. (SPWR) -- the premier seller of silicon solar cells and panels. (2) Environmental Power Corp. (EPG) -- its technology cuts the release of carbon-based Greenhouse Effect gases, giving it valuable pollution trading credits. (3) Fuel-Tech (FTEK) -- its system keeps fuel plants running smoother and cheaper. (4) PICO Holdings Inc. (PICO) -- is buying up water rights in the West in order to sell fresh water to areas where supply is limited. (5) Composite Technology (OTC:CPTC) -- will release a new wind turbine that should help address a global backlog. [see full summary]
- Shares of First Solar Inc. (FSLR) jumped over $20 to almost $120 Monday after the company disclosed $1.28 billion in new contracts. Investors are hyped about First Solar's thin-solar ('Solar 2.0') technology that uses chemicals instead of polysilicon to absorb sunlight, so that its cells can be housed in tiles -- turning roofs into solar panels. But Barron's says the "dirty secret on First Solar" is that its chemical film is still applied to heavy glass panels, many of which are too heavy to even be mounted on rooftops, and it falls short of realizing the hype of Solar 2.0. The company relies heavily on European government subsidies, and two weeks ago Germany, a big player, said it wants to cut solar subsidies. [see full summary]
- Fiberoptic stocks are finally starting see the light of day as falling storage prices and increased computer dependence find users thirsting for more bandwidth. But the enthusiasm surrounding the June 7 IPO of fiberoptic company Infinera Corp. (INFN) may be overdone. Shares jumped 52% on day one, and are up another 27% since. But the three other fiberoptic IPOs have dropped up to 25% from their initial closing prices. Also disconcerting is Infinera's rich 20x price-to-trailing 12-month sales ratio. Even if one assumes an exceptional tripling of sales over the next year, a 7x price-to-sales multiple would still put it far ahead of much-larger Ciena Corp. (CIEN) -- which itself projects 20% sales growth next year. [see full summary
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