Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:22 AM EST
S&P 500: -3.20; 1,556.60
NASDAQ 100: -6.00; 2,059.50
Dow: -47.00; 14,014.00
NIKKEI 225: +0.23%; 18,157.93 (+41.36)
HANG SENG: +1.20%; 23,291.90 (+275.70)
SHANGHAI SE COMPOSITE: +3.73%; 4,058.85 (+145.91)
BSE SENSEX 30: +0.10%; 15,565.55 (+15.42)
FTSE 100: -0.11%; 6,633.10 (-7.10)
CAC 40: -0.83%; 6,015.07 (-50.43)
XETRA-DAX: -0.61%; 7,942.54 (-48.67)
Commodity Futures (Reuters/Jefferies CRB)
Oil: -0.11%; $75.84 (-$0.08)
Gold: -0.16%; $677.00 (-$1.10)
Natural Gas: -0.85%; $6.65 (-$0.06)
Silver: -0.07%; $13.365 (-$0.01)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
Caterpillar Down 7% on Miss, Maintains Full Year Guidance
Shares of Caterpillar were last down 7.7% to $80.31 in pre-market trading, on news of a 21% decline in Q2 net income to $823m, or $1.24/share, missing analysts' average estimate of $1.49/share. Revenues rose 7.1% to $11.36b, beating analysts' forecast of $11.1b. "Disappointing earnings in the second quarter were attributable to the sharp negative swing in on-highway truck engine profitability, weakness in North American machine sales, continued selected supply chain disruptions and higher material costs," said CEO Jim Owens. However, Caterpillar is maintaining its full year guidance for EPS of $5.30 - $5.80, compared to $5.17 in 2006 and analysts' average estimate of $5.59. Caterpillar gained 0.9% to $86.98 on Thursday.
Sources: Press release, Bloomberg, MarketWatch
Commentary: Dow Component Performance and Impact On Overall Index Gains • CAT, GOOG, AAPL Sporting Consecutive Day Gains Heading Into Earnings • Caterpillar Earnings Conference Call Transcript (later today)
Stocks/ETFs to watch: Caterpillar Inc. (CAT). Competitors: CNH Global NV (CNH), Komatsu (OTCQB:KMTUY), Volvo AB (VOLV). ETFs: DIAMONDS Trust, Series 1 (DIA), Industrial Select Sector SPDR (XLI), PowerShares Dyn Building & Construction (PKB), iShares Dow Jones US Industrial (IYJ)
Citigroup Beats Estimates on Strong International Gains
Number-one U.S. bank Citigroup said its Q2 net income grew 18% to $6.23 billion ($1.24/share), beating analyst expectations of $1.13/share. Revenue climbed 20% to $26.6B, almost $2B more than the $24.9B analysts forecasted. "We have very clear priorities to drive growth and we are executing on all of them," CEO Charles Prince said (see earnings call transcript later today). International revenue grew an even-stronger 34%; during the quarter Citi increased its stake in Japan's Nikko Cordial Corp. to a controlling stake of 68%. Similar to Bank of America who reported Thursday, Citi said credit costs jumped by $934 million, driven by a $259M loss increase and a $465M increase in loss reserves. Investment banking profits were $2.83B, jumping 65% from last year's $1.72B. Citi ranks #2 M&A advisor after Goldman Sachs, participating in 273 announced deals so far this year. PNC Wealth Management analyst Mark Batty commented, "It looks impressive across the board." Shares are down 6.4% YTD vs. BoA's -5.7% and JP Morgan's 2.9% gain. Citigroup shares are up 1.1% in pre-market trading.
Sources: Press release, MarketWatch, Bloomberg
Commentary: Citigroup's Differentials: 3rd Dimension Marketing Metrics • Citigroup's Differentials: 3rd Dimension Marketing Metrics • Why Citigroup Should Be Broken Up - Now
Stocks/ETFs to watch: Citigroup Inc. (C). Competitors: Bank of America Corp. (BAC), JPMorgan & Chase Co. (JPM), Deutsche Bank AG (DB), UBS AG (UBS), Barclays PLC (BCS). ETFs: streetTRACKS KBW Bank (KBE), PowerShares Financial ETF (PRFF), Vanguard Financials VIPERs (VFH)
Schlumberger Beats As Strong International Operations Offset N. American Weakness
World #1 oil services company Schlumberger Limited (market cap $110 billion) reported net income and revenue above analyst estimates Friday, sending shares higher by 1.12% in pre-market action as of 7:24 a.m. EST.Net profit jumped 47% on strong international performance despite weakness in the Canadian market, to $1.26 billion, good for EPS of $1.02. Revenue climbed 20% to $5.64 billion, on $4.97 billion in oilfield services revenue. Consensus analyst estimates were for EPS of $0.96 on revenue of $5.575 billion. N. American revenue was the weakest link, down 3% sequentially to $1.34 billion, and up just 6% y/y. The company didn't offer specific guidance but believes international oilfield revenue will continue to grow nicely as the production companies combat shortfalls. CEO Andrew Gould praised the "continued favorable revenue mix from exploration services - particularly in Asia." Schlumberger's largest N. American competitor, Halliburton, reports its earnings Monday.
Sources: Press Relese, Bloomberg, MarketWatch, Reuters, Dow Jones Newswires
Commentary: Adding Schlumberger to the Bar Mitzvah Portfolio • The Ins and Outs of Terror-Free Investing • Cramer's Take on SLB
Stocks/ETFs to watch: Schlumberger Limited (SLB). Competitors: Halliburton (HAL), Baker Hughes Inc. (BHI), BJ Services (BJS). ETFs: iShares Dow Jones US Oil Equipment (IEZ), Oil Service HOLDRs (OIH), Vanguard Energy (VDE)
Conference call transcripts: Check back later today for SLB's latest conference call transcript
Wachovia Beats By a Penny, Raises Loan Loss Reserve
Wachovia reported a 24% increase in Q2 net income to $2.34 billion, or $1.22/share. Adjusted EPS of $1.23 beat the Street by a penny. Revenue growth of 20% to $8.69b topped analysts' average estimate of $8.4b. Although Wachovia's stock has struggled on concerns of mortgage market weakness related to its Golden West Financial takeover last year, the latter boosted Wachovia's average loans by 53%, along with a 21% increase in interest income. A Soleil Securities analyst, who rates Wachovia a "buy", says "the critics are wrong ... [Golden West's] sales culture was underappreciated." Still, Wachovia said it increased its loan loss provision to $179m, from $59m last year, while bad loan write-offs nearly tripled to $150m. Wachovia's net interest margin meanwhile narrowed to 2.92%, from 3.18% y/y. In May, Wachovia entered an agreement to purchase A.G. Edwards for $6.8b in cash and stock. Shares of Wachovia are untraded so far in the pre-market. Wachovia lost 0.02% to $51.61 on Thursday.
Sources: Press release, Bloomberg, MarketWatch
Commentary: Why Aren't Banks Keeping Up With the Market? • Big Five Bank Stocks Undervalued: Time to Nibble • Seven Financial Stocks With Strong Momentum Going Into Earnings
Stocks/ETFs to watch: Wachovia Corp. (WB). Competitors: Bank of America Corp. (BAC), Wells Fargo & Company (WFC), JPMorgan & Chase Co. (JPM), Mellon Financial Corp. (MEL), SunTrust Banks Inc. (STI). ETFs: Regional Bank HOLDRs (RKH), streetTRACKS KBW Bank (KBE), Financial Select Sector SPDR (XLF)
Boston Scientific Misses Earnings Estimates on Weak Coated Stent Sales
Medical device maker Boston Scientific said its Q2 profits fell a greater-than-expected 34% to $271 million ($0.18/share adjusted), down from $412M ($0.31/share) a year ago. Analysts forecasted a $0.19/share profit. Revenue fell 2% to $2.07B, missing analyst estimates of $2.09B. Sales of the company's flagship coated coronary stent systems slumped 32% to $437 million, compared to $647 million for Q2 2006 and $468 million last quarter. Coated stents release scar-suppressing medicines which reduce the need to repeat procedures. They cost about $2,100 each. But a March study found that coated stents didn't prevent the risk of further heart attacks any better than the use of blood-thinning drugs. Sales have since declined as doctors began prescribing metal versions costing $800. Sales of J&J's competing Cypher stent fell 35% to $450 million over the same period. Shares are down 11.7% YTD, and have lost another 1.8% in pre-market trading to $14.90. The company scheduled an earnings call for 8:30 am ET (see transcript later today).
Sources: Press release, Reuters, Bloomberg, Reuters
Commentary: The Long Case for Boston Scientific • Bypassing Surgery - Will Stents Survive The Bad News? • Biotechs Develop New Generation of Drug-Eluted Stents
Stocks/ETFs to watch: Boston Scientific Corp. (BSX). Competitors: Johnson & Johnson (JNJ)
Seeking Alpha's news briefs are combined into a pre-market summary called Wall Street Breakfast. Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.
Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
Buyers were again attracted to the blue chips as IBM reported its strongest quarterly earnings in five years, and Honeywell (HON) posted better-than-expected earnings and raised its guidance for the full year.
Two more Dow components, Microsoft (MSFT) and Hewlett-Packard (HPQ), were strong, too -- MSFT in anticipation of earnings and HPQ as a result of a report that Q2 market share increased to 19.3%, keeping it as the world's largest PC manufacturer.
The Leading Economic Indicators fell 0.3% -- the fourth decline in six months -- but the release of the minutes from the last Federal Open Market Committee meeting indicated that corporate growth was holding steady despite continued fears of inflation. The market generally ignored the economic reports, though, and focused on the earnings.
At the close yesterday, the Dow Industrials had advanced to a new closing high of 14,000, up 82 points. The S&P 500 gained seven points at 1,553, and the Nasdaq added 21 points to close at 2,720. The NYSE traded 1.5 billion shares and the Nasdaq did 2.2 billion; breadth was positive on both exchanges -- 5-to-3 on the New York and 17-to-11 on the Nasdaq.
Crude oil (August contract) continued higher, this time by 87 cents to close at $75.95 a barrel for an 11-month high. And the Amex Energy SPDR (XLE) gained 71 cents and closed at $74.48 for another new all-time high.
August gold futures rose by $4.40 to $678.10 per troy ounce. And by closing at $158.12, the Philly Gold and Silver Index [XAU] broke above the Sept. 6, 2006, high and closed the gap at $153.28-$157.26. Treasury prices were little changed and the Euro closed at $1.3795.
What the Markets Are Saying
It is comforting to see that the blue chips, led by the Dow components, put on a charge this month. Most analysts would thus conclude that the market is "in strong hands." But the facts are that the recent rally in the big caps is not new, even though it does make up for a slight lag in the Dow year-to-date.
Through last week, the Dow was up 11.6% for the year while the Nasdaq had gained 12.1%. Such close numbers indicate that the market has had broader participation, and that's very good. But as the market has advanced, a vast number of fearful individual investors have remained on the sidelines.
The American Association of Individual Investors [AAII] released its weekly figures showing that their members are currently 41.77% bullish, 36.71% bearish and 21.52% neutral. This is a contra-indicator and, thus, bullish for the market, since a reading of 70% bullish is considered to be bearish -- and these results are far from that.
Today's Trading Landscape
The following companies are due to report earnings today: Boston Scientific (BSX) (read above), Capitol Bancorp (CBC), Caterpillar (CAT) (read above), Citigroup (C) (read above), Ericsson (ERIC), Great Atlantic & Pacific Tea (GAP), Sonoco Products (SON), Wachovia (WB) (read above), Whirlpool (WHR) and Wilmington Trust (WL), among others.
Schlumberger (SLB) (read above) announced this morning that it had beaten estimates, but Google's (GOOG) miss that was reported after yesterday's close may negatively impact today's opening. There are no significant economic reports due today.
Asian Headlines (via Bloomberg.com)
• Asian Stocks Climb on Earnings, Metals Prices; LG Electronics, BHP Advance Asian stocks rose, pushing a regional benchmark to a record, after LG Electronics Inc. and Ranbaxy Laboratories Ltd. (OTC:RBXLF) reported better-than-expected earnings, and metals prices climbed.
• Nanya Reports First Loss in Two Years on Record Low Memory-Chip Prices Nanya Technology Corp., Taiwan's second-biggest computer-memory chipmaker, reported its first loss in two years after a glut pushed prices of computer memory chips used in personal computers to record lows.
• China's Biggest Copper Smelters May Cut Output as Raw Material Costs Rise Chinese copper smelters, including Jiangxi Copper Co. and Tongling Nonferrous Metal Co., may cut output in the second half of this year as domestic prices fail to cover the cost of buying and processing imported raw material.
European Headlines (via Bloomberg.com)
• U.K. Economic Growth Unexpectedly Accelerates as Manufacturing Rebounds U.K. economic growth unexpectedly quickened in the second quarter as manufacturing rebounded, evidence that higher interest rates have yet to cool expansion.
• European Bonds Rally as Subprime Defaults Prompt Investors to Seek Safety European government bonds rallied on speculation defaults on U.S. subprime mortgages will hurt the global economy, fueling demand for the safest assets.
• TietoEnator Net Unexpectedly Slides 71 Percent as Restructuring Costs Rise TietoEnator Oyj, the Nordic region's biggest computer-services company, said it may miss an earnings forecast after second-quarter profit unexpectedly plunged, sending its stock down the most in five years.
• European Mining Stocks Advance, Paced by Anglo American; Ericsson Declines European mining stocks rose for a second day as copper rallied to the highest in almost two months. Anglo American Plc (AAUK) and Rio Tinto Group (RTP) paced the advance as economic growth in China buoyed metal prices.