Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:52 AM ET
S&P 500: -7.60; 1,541.40
NASDAQ 100: -13.00; 2,040.50
Dow: -66.00; 13,945.00
NIKKEI 225: +0.21%; 18,002.03 (+38.39)
HANG SENG: +0.46%; 23,472.88 (+107.32)
SHANGHAI SE COMPOSITE: -0.07%; 4,210.33 (-3.03)
BSE SENSEX 30: +0.40%; 15,794.92 (+62.72)
FTSE 100: -1.23%; 6,542.60 (-81.80)
CAC 40: -1.00%; 5,948.86 (-60.30)
XETRA-DAX: -1.23%; 7,846.36 (-97.85)
Commodity Futures (Reuters/Jefferies CRB)
Oil: -1.26%; $73.95 (-$0.94)
Gold: +0.35%; $683.90 (+$2.40)
Natural Gas: -3.15%; $5.85 (-$0.19)
Silver: +0.60%; $13.41 (+$0.08)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
Buyout Speculation Lifts Tellabs
Speculation that Tellabs may be acquired by Nokia Siemens sent shares of the telecom-equipment supplier to a 52-week high Monday. The stock rose as high as $13.67, and shares were at $12.30 in AH trading amid reports that the network-equipment maker, which is a joint venture of Finland's Nokia and Germany's Siemens, is willing to offer up to $7 billion, or $16 to $17 a share for the company. TheStreet.com said, however, that a source indicated a deal could take a while to complete because Tellabs' decision "is not imminent." The possibility of a deal comes in the wake of Swedish firm Ericsson's $2.1B takeover of Redback last year. TheStreet.com says Nokia Siemens originally began talks for Tellabs last year that ended, but that sources indicate the deal is back on, because Tellabs "is not recovering" from some recent setbacks. Analysts such as those at Credit Suisse called the speculated price "expensive," but said a deal would represent a "strategically and financially sound" move for Nokia Siemens by strengthening its North American position and beefing up its wireline portfolio. UBS, meanwhile, speculated that a bid for Tellabs might pressure Nortel to get into the market, and suggested 3Com and Sonus Networks as possible targets.
Sources: TheStreet.com, MarketWatch
Commentary: Nokia Reportedly Makes $7 Billion Takeover Bid For Tellabs • Tellabs Warns Badly; Stock A Buy On Bounce?
Stocks/ETFs to watch: Tellabs Inc. (TLAB), Nokia Corp. (NOK), Siemens AG (SI), Nortel Networks Corp. (NT), 3Com Corp. (COMS), Sonus Networks Inc. (SONS)
Earnings call transcript: Tellabs Q1 2007
AT&T Posts Narrow Income Beat
AT&T Inc. said Tuesday Q2 net income rose 61% to $2.9 billion, up from $1.81 billion a year ago. Adjusted EPS of $0.70 beat analyst estimates by $0.03. Revenue jumped 87% to $29.48 billion from $15.77 billion, $140 million short of analyst expectations. This quarter's figures included results from BellSouth, bought by AT&T last year. Customer turnover, known as 'churn,' fell to a record low 1.6%. "Mobility is a major growth engine for AT&T," CEO Randall Stephenson said. "Our launch with Apple of the breakthrough iPhone has quickly redefined customer expectations for their wireless experience, initial response was unprecedented, and sales in July continue to be strong." The company said it activated 146,000 iPhone customers during the phone's first two days of sales, including 40% new customers. The number is substantially below the 500,000-plus some analysts estimated. A CIBC research note Tuesday said that based on store checks, iPhone demand has dropped significantly over the past ten days (see full summary). The company said its U-verse video service has begun to ramp aggressively. It now has 51,000 subscribers, up from 13,000 in Q1. AT&T said it repurchased $3.9B worth of shares in the quarter, completing its announced $10B buyback. Its Q2 earnings conference call is scheduled for 10 a.m. (see transcript later today).
Sources: Press release, MarketWatch, Bloomberg
Commentary: AT&T Compensating Apple Handsomely for iPhone -- TheStreet • iPhone Madness: Is Verizon Eating Its Heart Out? • AT&T, Comcast: How Much Bandwidth is Enough?
Stocks/ETFs to watch: AT&T Inc. (T). Competitors: Sprint Nextel Corp. (S), Verizon Communications Inc. (VZ), Deutsche Telekom AG (DT). ETFs: iShares S&P Global Telecom ETF (IXP), iShares Dow Jones U.S. Telecom Sector Index ETF (IYZ), HOLDRS Market 2000 (MKH)
Earnings call transcript: AT&T Q1 2007
McDonald's Posts Q2 Loss on Store Sales, Adjusted EPS In-Line
Shares of McDonald's were trading lower by around 1.8% in very thin pre-market activity. McDonald's reported a $711.7 million net loss (-$0.60/share), hurt by a $1.6b charge for sales of stores located in Latin America. Adjusted EPS of $0.71 matched analysts' average estimate. Revenues rose 12% to $6.01b, while quarterly global same-same-store sales of 7.4% reached their highest level since 2004. Analysts were expecting sales of $5.9b. McDonald's said it repurchased $664 million of its shares during the quarter. Shares of McDonald's have gained the most year-to-date through Monday among the S&P's 500 Restaurant Index, +18%, compared to +12% for both Yum! Brands and Wendy's. It also trades at a lower forward (analysts' average) earnings multiple, 17.4, than its aforementioned rivals' respective multiples of 18.7 and 25.8. McDonald's rose 0.8% to $52.50 on Monday.
Sources: Press release, Bloomberg, MarketWatch, Reuters
Commentary: Dow Component Performance and Impact On Overall Index Gains • McDonald’s Corporation: High Dividend Grower, Currently Overpriced • Starbucks and McDonald's: Goldman Makes Deutsche Look Reasonable • McDonald's Earnings Conference Call Transcript (later today)
Stocks/ETFs to watch: McDonald's Corporation (MCD). Competitors: Burger King Corp. (BKC), Yum! Brands Inc. (YUM), Wendy's (WEN), Starbucks Corp. (SBUX). ETFs: Consumer Discretionary SPDR ETF (XLY), PowerShares Dynamic Food & Beverage (PBJ), Vanguard Consumer Discretionary VIPERs (VCR), DIAMONDS Trust, Series 1 (DIA)
PepsiCo Beats and Raises On Strong International, Frito-Lay Growth
World's number two soft drink maker PepsiCo said Tuesday morning 2Q net profits rose 13% to $1.56 billion, good for EPS of $0.94, while revenue came in 10% higher y/y, at $9.6 billion. Consensus analyst estimates were for EPS of $0.89 cents on sales of $9.4 billion. Its strong earnings caused the company to up its full year outlook to "at least" $3.35 a share from its previous projection of EPS of $3.30. Powering Pepsi's most recent quarter was strong international growth, especially in the company's Frito-Lay snack division, and favorable currency exchanges. Shares are higher in pre-market action by $0.45 as of 7:17 a.m. ET.
Sources: Press Release, Bloomberg, MarketWatch, AP, Reuters
Commentary: Pepsi Covered Call Hits the Spot • Is Pepsico Stock Overvalued? • Pepsi Outbids Coke in Fight for Ukrainian Juice Maker
Stocks/ETFs to watch: PepsiCo Inc. (PEP). Competitors: The Coca-Cola Company (KO), Cadbury Schweppes (CSG). ETFs: Consumer Staples Select Sect. SPDR (XLP), Vanguard Consumer Staples (VDC)
Conference call transcripts: check back later today for PEP's latest conference call transcript • PepsiCo Q1 2007 Earnings Call Transcript
Nissan Posts Smaller Q1 Profit, Forex Gains Offset by Higher Materials Costs
Nissan reported Q1 net income fell 16.2% to ¥92.3 billion ($764m), due mainly to a higher tax rate, while sales rose 10.7% to ¥2.45t ($20.25b). Operating profit declined 3.2% to ¥148.4b ($1.23b) on higher materials costs and a weaker product mix, missing analysts' average estimate of ¥152.6b. An analyst at UBS Securities in Japan was disappointed by the decline in profits and said the company's full-year forecast may be difficult to achieve. Sales of Nissan passenger cars rose 20% during the quarter in the U.S., but sales of light trucks fell 17%. Nissan maintained its full fiscal year forecast for net income of ¥480b as it plans to roll out 11 new or redesigned autos through next March. Nissan said it will repurchase 18 million shares, or 0.4% of shares outstanding between August and September, under an allotment of ¥26b ($213m). Ordinary shares of Nissan gained 0.5% to ¥1,311 ($21.69 ADR equiv. at ¥120.9/$1) before it announced earnings. Its ADRs closed at $21.59 on Monday.
Sources: Press release, Bloomberg, Reuters, Thomson Financial
Commentary: Big Three Automakers Lose Ground to Japanese in June • Japanese Exporters Look Poised to Profit from Weak Yen • Japan's Auto Parts Makers Gaining Attention
Stocks/ETFs to watch: Nissan (OTCPK:NSANY) [JP: 7201]. Competitors: Toyota (TM) [JP: 7203], Honda (HMC) [JP: 7267], General Motors (GM), Ford (F), DaimlerChrysler (DCX)
Related: Nissan FY2007 Q1 Financial Results
• E.I. du Pont de Nemours & Company (DD) reported 2Q net income was essentially flat on 5.1% revenue growth. EPS was $1.04 on revenue of $8.24 billion. Consensus estimates were for EPS of $1.06 on $7.86 billion of sales. The company confirmed it expects to earn an adjusted EPS of $3.15 in 2007, versus consensus estimates of $3.18.
• Lockheed Martin (LMT) reported 2Q net profit of $778 million, good for EPS of $1.82 per share, well above the EPS of $1.53 consensus analyst estimates were predicting. Sales came in at $10.7 billion, versus $10.0 billion the year before. The company raised its full year sales forecast to $41 billion-$41.75 billion, up from its previous range of $40.35 billion-$41.35 billion. It also raised its full year EPS forecast to $6.65-$6.80, up from $6.20-$6.35.
• United Parcel Service (UPS) reported 2Q net income rose to $1.1 billion as international growth offset week U.S. small package business. EPS were $1.04, versus consensus analyst estimates of $1.03.
• Kimberly-Clark (KMB) reported 2Q net income of $461.8 million, good for EPS of $1.00, or $1.04 on an adjusted basis. Revenues were $4.5 billion; consensus estimates were for EPS of $1.03 on revenue of $4.44 billion. The company also announced a $2 billion accelerated share repurchase program. Kimberly raised its full year EPS guidance to $4.20-$4.25, from its prior forecast of $4.10 to $4.20. Analysts were looking for $4.21 a share on average.
• Lexmark (LXK) reported 2Q net fell 16.3% to EPS of $0.67, while sales fell 1.7% to $1.21 billion. Adjusted EPS were $0.65. Consensus analyst estimates expected EPS of $0.64 on revenue of $1.2 billion. The company reported strong branded unit growth in its color laser and inkjet all-in-one segments.
• EMC Corp. (EMC) reported its net income rose 20% to $334.4 million, good for EPS of $0.16, while sales increased 18% to $3.12 billion. Analysts were expecting EPS of $0.15 on average.
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Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
It was a familiar story as Monday opened with a major merger between two industry leaders -- this time in the oil-service sector. Some solid earnings reports also helped buyers take advantage of Friday's sell-off and put some cash to work.
Transocean Inc. (RIG) and GlobalSantaFe Corp. (GSF) agreed to merge in a deal worth $53 billion and both stocks were up more than 5%. Like other Mondays this year, there was more to come. Barclays increased its offer for ABN AMRO (ABN) to $93 billion, Hewlett-Packard (HPQ) is buying Opsware (OPSW), Tellabs (TLAB) may be an acquisition target, and United Rentals (URI) is being taken over by Cerberus for $6.6 billion.
The following companies also reported earnings, which stirred yesterday's pot: Merck (MRK) was up $3.31 after reporting that Q2 beat analysts' estimates, Texas Instruments (TXN) equaled estimates, and American Express (AXP) beat estimates but announced earnings after the close. Altera (ALTR) also exceeded analysts' expectations, but Netflix (NFLX) cut its Q3 estimates and adjusted its full-year outlook lower.
At the close, the Dow Jones Industrial Average gained 92 points at 13,943. The S&P 500 gained 7 at 1,542, and the Nasdaq added 3 to close at 2,691. Volume on the Big Board totaled 1.5 billion shares, and 2.1 billion traded on the Nasdaq with declines exceeding advances by about 8/7 on both exchanges.
Crude oil contracts (new spot month September) fell to $74.89 a barrel, down 90 cents, resulting from a major refinery restart and statements from OPEC expressing concern that "high oil prices are weighing on sentiment." The Amex Energy SPDR (XLE) rose 19 cents to $74.19. Gold (August contracts) fell $3.20 per troy ounce to $681.50, and the Philadelphia Gold/Silver Index [XAU] fell 12 cents to close at $158.26.
Last week, the Dow Industrials fell 56 points (-0.4%), which broke a three-week winning streak, even though on Thursday the Dow hit 14,000 for the first time. That was just 58 days after taking out 13,000. Both the S&P 500 and the Nasdaq also fell -- the S&P by 1.2% and the Nasdaq by 0.7%. Last week's top groups were gold mining, non-ferrous metals, computer services, rails, and oil equipment and services.
Fed Chairman Ben Bernanke testified before Congress, but it added little to current knowledge of the Fed's future course. The Producer Price Index [PPI] fell 0.2% in June (good news), although the "core" number was up 0.3% and that was a tick above forecasts. Industrial production rose 0.5% in June following a slight drop in May, and capacity utilization rose to 81.7% above the longer-term average which prompted a comment from Chairman Bernanke about "relatively high resource utilization."
June housing starts rose 2.3% despite being down 21.8% versus last year. Additionally, motor vehicle sales are down, and the Leading Economic Indicators fell 0.3% -- the fourth decline in the first six months of this year.
What the Markets Are Saying
No question about it -- Friday was a nasty affair. But Monday saw another buying wave that took back a good portion of Friday's losses. However, with breadth slightly negative and volume much lower (especially on the NYSE) than on Friday, the rally lacked enthusiasm and, during the last hour of trading, the Dow lost about 30 points.
Buyers again focused on blue chips, but in the last two weeks the financial sector has lagged due to the continuing subprime/hedge fund questions as well as rumors of the crisis spreading to other areas. Dorsey Wright, and independent investment advisory firm, pointed out that the Dow Industrials lost about 1% on Friday while the Wall Street group of stocks got clobbered for more than 3%.
Further, this weekend's financial press centered on gloom and doom over the "expanding crisis." This may all be baloney but until investors gain confidence that all of the bad news is out, the markets may tread water for a bit. Nevertheless, with the bull market still in full steam, any pullbacks should be viewed as a buying opportunity.
Today's Trading Landscape
This morning, DuPont (DD) announced Q2 earnings and missed estimates by 2 cents.
Look for more earnings today from the following companies (read above): AT&T (T), Amazon.com (AMZN), Anadigics (ANAD), Biogen (BIIB), Burlington Northern (BNI), Check Point (CHKP), Chubb (CB), EMC (EMC), Eli Lilly (LLY), Energizer (ENR), First Industrial (FR), Kimberly-Clark (KMB), Legg Mason (LM), Lockheed Martin (LMT), McDonalds (MCD), Nabors Industries (NBR), Northrop Grumman (NOC), Occidental Petroleum (OXY), Peabody Energy (BTU), PepsiCo (PEP), Quest Diagnostics (DGX), Smith International (SII), Tellabs (TLAB), Tenneco (TEN), United Airlines (UAUA), UPS (UPS), Western Union (WU) and a host of others.
The economic calendar this week is light with nothing due until Wednesday's report on existing home sales.
Asian Headlines (via Bloomberg.com)
• Asian Stocks Rise to Record on Earnings Outlook; KDDI, Samsung Heavy Gain Asian stocks rose, driving a regional benchmark to a high, after Samsung Heavy Industries Co. reported better-than-expected earnings and Ping An Insurance (Group) Co. said profit may have doubled.
• Thailand, Aiming to Halt Baht Rally, Eases Exporter Currency Restrictions Thailand's Cabinet agreed to scrap a 15-day deadline requiring exporters to convert foreign-exchange earnings into baht to help curb strength in the currency.
• San Miguel to Spin Off Beer Assets, Move Into Mining; Stock Sale Planned San Miguel Corp. shareholders approved plans for the Philippines' largest food and drinks maker to spin off its domestic beer assets as it seeks growth in mining and other industries.
European Headlines (via Bloomberg.com)
• European Stocks Drop, Led by Next, Kingfisher, Sports Direct on U.K. Flood European stocks fell, paced by U.K. retailers Next Plc and Kingfisher Plc (OTCQX:KGFHY), as the country's worst floods in 60 years damage homes, submerge roads and hamper access to cities.
• Manufacturing, Services Growth in Europe Slowed More Than Forecast in July Growth in Europe's manufacturing and service industries, which account for two thirds of the economy, slowed more than economists forecast in July as the euro rose to a record and oil prices increased.
• BP Net Rises 1.5 Percent on Higher Oil Prices, Sale of Last U.K. Refinery BP Plc (BP), Europe's second-largest oil company, reported better-than-expected earnings in the second quarter, boosted by record gasoline prices and the sale of a U.K. refinery.
• Fiat Second-Quarter Profit Doubles on Increased Vehicle Sales in Europe Fiat SpA (FIA), Italy's largest manufacturer, said profit more than doubled in the second quarter as the company increased its share of the European car market.