Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:21 AM EST
S&P 500: -0.60; 1,559.10
NASDAQ 100: -0.25; 2,048.25
Dow: +4.00; 14,033.00
NIKKEI 225: -0.12%; 18,217.27 (-21.68)
HANG SENG: +0.45%; 23,057.30 (+103.36)
SHANGHAI SE COMPOSITE: +1.94%; 3,896.19 (+74.28)
BSE SENSEX 30: -0.14%; 15,289.82 (-21.40)
FTSE 100: -0.75%; 6,647.50 (-50.20)
CAC 40: -0.62%; 6,087.52 (-38.08)
XETRA-DAX: -0.87%; 8,035.23 (-70.46)
Commodity Futures (Reuters/Jefferies CRB)
Oil: +0.61%; $74.60 (+$0.45)
Gold: -0.30%; $664.30 (-$2.00)
Natural Gas: +0.93%; $6.44 (+$0.06)
Silver: -0.65%; $12.98 (-$0.085)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
Lyondell To Be Bought By Access Industries' Basell Holdings For $12.66 Billion
Not a week after losing its bid for chemical maker Huntsman Corp., Access Industries Holdings which owns Dutch chemical unit Basell Holdings NV, successfully agreed to buy Lyondell Chemical Co. for $12.66 billion in cash - $19 billion including assumption of debt. The offer price of $48 per Lyondell share values the the company at 45% above its May 10 closing price, the day before Access' billionaire owner Len Blavatnik disclosed an 8.3% stake in Lyondell, sending shares climbing on takeover speculation. The offer values the shares at 20% above Monday's closing price. Shares jumped to $47, or 17.15%, in pre-market action as of 7:12 a.m. EST. Blavatnik said in the press release, "The combination of Basell and Lyondell creates one of the top chemical companies in the world," while Lyondell Chairman and CEO Dan Smith added, "This transaction offers significant value. The combination of our companies will enhance our opportunities." The two companies reported combined revenues of $34 billion for FY2006. The boards of both companies have already unanimously approved the deal.
Sources: Press Release, Wall Street Journal, Reuters, Bloomberg
Commentary: Billionaire Blavatnik Buys Rights on 8.3% of Lyondell Chemical, Shares Soar • Apollo Raises Huntsman Bid to $28 per Share -- WSJ • Apollo Tops Basell with $6.35 Billion Bid for Huntsman
Stocks/ETFs to watch: Lyondell Chemical Company (LYO). Competitors: Huntsman Corp. (NYSE:HUN), BASF AG (BF), Dow Chemical Co. (NYSE:DOW), EI DuPont de Nemours & Co. (NYSE:DD). ETFs: Materials Select Sector SPDR (NYSEARCA:XLB), iShares Dow Jones US Basic Materials Index (NYSEARCA:IYM), Vanguard Materials VIPERs (NYSEARCA:VAW)
Coca-Cola Beats on Strong International Sales
Coca-Cola Co. reported second-quarter earnings of $0.85 per share, up 15% from a year ago, beating the $0.82 analyst consensus estimate. Net earnings rose 0.8% to $1.85 billion. Revenue rose 19.4% to $7.73 billion, ahead of the $7.4 billion analysts were expecting. International sales played a key role in the quarter, including a 9% rise in unit case volume, while U.S. sales lagged. CEO Neville Isdell said that while pleased with the company's performance, "we must underscore that we continue to manage for the long term." He noted that "an overall favorable global environment" helped earnings and sales. Coca-Cola Zero soda saw strong Europe sales. The company launched a new advertising campaign for Georgia Coffee in Japan, which brings in 1/5 of its profit. In June Coca-Cola committed to buy a 34% stake in Tokyo Coca-Cola Bottling to boost Japan sales; an analyst estimates it paid $250 million. In June, Coca-Cola paid $4.1 billion for Energy Brands Inc., adding its vitamin waters to its lineup. Coke said the acquisition would begin adding to earnings in 2008. Analysts say they are encouraged by the company's recent moves to diversify its product mix; until recently, Coca-Cola was seen by many as being overly reliant on carbonated drinks. Shares, which have gained over 26% during the past year, are up 0.8% in pre-market trading.
Sources: Press release, MarketWatch, Bloomberg
Commentary: Coca-Cola: Ten Years of Investing and Still No Growth • Coke vs. Pepsi: Diversification's the Name of the Game • Jones Soda: The Long Case, and a Threat to Coke and Pepsi
Stocks/ETFs to watch: Coca-Cola Company (NYSE:KO). Competitors: Pepsico Inc. (NYSE:PEP), Cadbury Schweppes PLC (NYSE:CSG), Hansen Natural Corp. (HANS), Cott Corp. (NYSE:COT), Jones Soda Co. (OTCQB:JSDA). ETFs: Ultra Consumer Goods ProShares (NYSEARCA:UGE), Vanguard Consumer Staples ETF (NYSEARCA:VDC), PowerShares Consumer Goods ETF (PRFG)
Conference call transcript: Coca-Cola Q1 2007, Coca-Cola Earnings Q2 Conference Call Transcript (later today)
J&J Beats On EPS, International Sales Robust
Johnson & Johnson reported Tuesday morning before the open its 2Q net income rose 9.3% to $3.08 billion, good for EPS of $1.05 a share, on a 13% rise in revenue, to $15.1 billion. Consensus analyst estimates were predicting EPS of $1.00 on sales of $15.1 billion. J&J reported domestic sales increased 9% while international sales rose a robust 18.4%. The strong international sales growth reflects operational growth of 13% and a positive currency impact of 5.4%. On a pro-forma basis, including acquisitions, worldwide sales increased 3.6% operationally. Said CEO William C. Weldon, "We continue to grow earnings while successfully integrating acquisitions and continuing to invest in promising new growth opportunities." The company reaffirmed its full year EPS guidance of $4.02-$4.07, in line with consensus estimates of $4.04. Shares were up 0.3% in pre-market action.
Sources: Press Release, Bloomberg, TheStreet.com, MarketWatch, Reuters [check bback later today for JNJ's latest conference call transcript]
Commentary: Johnson & Johnson: A Definite Buy at Current Price Levels • J&J Lands FDA Approval for Breast Cancer Test • Johnson & Johnson Approves $10 Billion Buyback
Stocks/ETFs to watch: Johnson & Johnson (NYSE:JNJ). Competitors: Merck & Co. Inc. (NYSE:MRK), Pfizer (NYSE:PFE), Novartis AG (NYSE:NVS), Procter & Gamble Co. (NYSE:PG). ETFs: Pharmaceutical HOLDRs (NYSEARCA:PPH), Health Care Select Sector SPDR (NYSEARCA:XLV), Vanguard Health Care ETF (NYSEARCA:VHT)
Merrill Lynch: Another Huge Quarter
Brokerage firm Merrill Lynch reported second-quarter earnings of $2.24 per share, up 27% from a year ago, and beating the $2.02 analysts were forecasting. Net income rose 31% to $2.14 billion. Revenue climbed 19% to $9.73 billion, beating the $9.25 billion analysts were expecting. The firm said quarterly revenue growth -- its second highest ever -- was driven by strong performances in investment banking (+41%) and wealth management (+18%). Sales and trading revenue surged 34%, including a 55% gain in fixed income, currencies and commodities trading. A full 61% of Merrill's net trading and investment-banking sales were from outside the U.S. Merrill shares are down 10% since January over concerns CEO Stanley O'Neal may have overexposed the company to subprime mortgage lending; the company bought First Franklin Financial, a large subprime mortgage issuer, in December 2006 for $1.3 billion. The firm is also the number-one CDO underwriter; collateralized debt obligation revenues stand to drop as bankers tighten lending standards and demand for CDOs wanes amid investor concern. Company executives have insisted subprime troubles haven't spread to other parts of Merrill's portfolio, while admitting First Franklin won't add to Merrill's earnings this year as originally thought. "We delivered another strong quarter in a volatile and, at times, hostile market environment," said O'Neal. Analysts were not anticipating much Q2 impact to Merrill's earnings from subprime mortgages. Shares are up 2% in pre-market trading.
Sources: Press release, MarketWatch, Bloomberg, Dow Jones I, II
Commentary: Seven Financial Stocks With Strong Momentum Going Into Earnings • Merrill Lynches Bear? • Online Brokers Will Be Acquired By Banks and Brokerages Says optionsXpress Founder
Stocks/ETFs to watch: Merrill Lynch & Co. Inc. (MER). Competitors: Goldman Sachs Group Inc. (NYSE:GS), Morgan Stanley (NYSE:MS), JPMorgan & Chase Co. (NYSE:JPM), Bear Stearns Companies Inc. (NYSE:BSC). ETFs: iShares Dow Jones US Broker-Dealers Index Fund ETF (NYSEARCA:IAI), Vanguard Financials VIPERs (NYSEARCA:VFH)
Conference call transcript: Merrill Lynch Q1 2007 Earnings Call Transcript, Merrill Lynch Q2 Earnings Conference Call Transcript (later today)
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Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
Blue chips continued their advance on Monday as a cheaper U.S. dollar and rumors of new merger-and-acquisition deals surfaced. But overall trading was mixed, with the focus of the day primarily upon Verizon (NYSE:VZ) and its rumored suitor Vodafone (NASDAQ:VOD).
And even though VZ denied the story from the Financial Times that it was considering a $160 billion offer, VZ closed higher by $1. Also, Applebee's International (APPB) rose more than 2% on news that it was to be bought by IHOP (IHP) for about $2.1 billion.
Some of the Dow's biggest international companies were bid higher yesterday with United Technologies (NYSE:UTX), Caterpillar (NYSE:CAT) and IBM leading the way. There was follow-through from General Electric (NYSE:GE) after meeting its quarterly estimates, and Eaton (NYSE:ETN) rose almost three points after smashing analysts' estimates.
At the close, the Dow Jones gained 44 points at 13,951, the S&P 500 lost just three points to close at 1,550 and the Nasdaq lost ground by 10 points at 2,697. The Big Board traded 1.3 billion shares and the Nasdaq did 1.8 billion. Breadth on both exchanges was negative -- by 11-to-5 on the NYSE and 19-to-10 on the Nasdaq.
The August crude oil contract gained 22 cents at $74.15 -- the first time since September that black gold has traded above $74 a barrel. Gold (August contract) closed lower, falling $1 at $666.30 per troy ounce. The Amex Energy SPDR (NYSEARCA:XLE) lost 93 cents at $73.02, and the Philly Gold and Silver Index [XAU] lost $1.56 and closed at $149.52. The 10-year Treasury note closed 13/32 higher at 95 26/32 at a yield of 5.042%.
What the Markets Are Saying
Yesterday's mixed trading with continued lower volume may continue for a couple more days unless another blue chip knocks the cover off of the earnings ball and sends the Dow hurtling to a new record close. But if that fails to happen, we may see a retracement back to the breakout points of the major averages (Dow 13,685 and S&P 1,534) before the averages again reach new highs.
The next upside target for the Dow once it penetrates the round number 14,000 is 14,163, and for the S&P 500 that target is 1,557. But the next longer-term objective for the Dow is 14,600 and for the S&P 500 it is 1,620-1,650.
Today's Trading Landscape
Look for earnings today from Johnson & Johnson (JNJ) (read above), U.S. Bancorp (NYSE:USB), Wells Fargo (NYSE:WFC), Yahoo! (NASDAQ:YHOO), Champion Enterprises (CHB), Coca-Cola (KO) (read above), Crown Holdings (NYSE:CCK), CSX Corp. (NYSE:CSX), Forest Labs (NYSE:FRX), Intel (NASDAQ:INTC), Jefferies Group (JEF), Merrill Lynch (MER) (read above), Polaris (NYSE:PII), SLM Corp (NYSE:SLM) and State Street (NYSE:STT), as well as others.
The following economic reports are due: June Producer Price Index, industrial production, and capacity utilization.
Asian Headlines (via Bloomberg.com)
• Asian Stocks Rise, Led by Taiwan; Japan's Shares, Millea Drop on Quake Asian stocks rose, paced by Taiwan's biggest companies after UBS AG raised its estimate for the nation's benchmark. Japanese stocks fell, led by insurers and power producers, after yesterday's earthquake.
• China's Economy Probably Grew 11 Percent, Raising Chance of Rate Increase China's economy may have expanded 11 percent in the second quarter, increasing the likelihood the central bank will raise interest rates for a third time this year to cool inflation and investment.
• Thailand's Government May Let Exporters Hold Dollars Longer to Curb Baht Thailand is considering allowing exporters to hold foreign currency revenue for longer to help curb gains that have taken the baht to a decade high, Finance Minister Chalongphob Sussangkarn said today.
• Hong Kong's Hang Seng Index Rises; Cnooc, PetroChina Gain, Sinopec Falls Hong Kong stocks rose for the third time in four days. Cnooc Ltd. (NYSE:CEO) climbed after Deutsche Bank AG boosted share-price estimates for oil producers and crude traded near an 11-month high.
• Telstra Dumps DoCoMo's I-Mode Web Service After Failing to Attract Users NTT DoCoMo Inc. (NYSE:DCM), Japan's biggest wireless company, said Telstra Corp. (OTCPK:TLSYY) will end its i-mode Web access service in Australia after failing to gain enough users, setting back the Japanese operator's plan to expand overseas.
European Headlines (via Bloomberg.com)
• U.K. Inflation Falls Less Than Forecast, Raising Rate-Increase Expectation U.K. inflation slowed less than economists forecast in June after transport costs and furniture prices increased, cementing investors' expectations that the Bank of England will raise interest rates further.
• German Investor Optimism Declined in July More Than Economists Forecast German investor confidence fell the most in 10 months in July, as the euro's appreciation, rising oil prices and higher interest rates threaten to crimp expansion in Europe's largest economy.
• European Stocks Fall, Led by Oil Companies After Downgrades; Statoil Drops European stocks dropped for the first time in four days after analysts downgraded oil companies and a decline in metal prices pushed mining shares lower.
• Electrolux Net Beats Estimates on U.S. Market Share, Margins; Shares Rise Electrolux AB (OTCPK:ELUXY), the world's second-largest maker of household appliances, posted a second-quarter profit that exceeded analysts' estimates after the Swedish company won market share and increased margins in the U.S.