Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:52 AM ET
S&P 500: +6.20; 1,528.70
NASDAQ 100: +7.50; 2,033.00
Dow: +57.00; 13,870.00
NIKKEI 225: -0.80%; 17,858.42 (-143.61)
HANG SENG: -0.47%; 23,362.18 (-110.70)
SHANGHAI SE COMPOSITE: +2.70%; 4,323.97 (+113.64)
BSE SENSEX 30: -0.61%; 15,699.33 (-95.59)
FTSE 100: +0.44%; 6,527.60 (+28.90)
CAC 40: -0.11%; 5,901.08 (-6.39)
XETRA-DAX: -0.36%; 7,778.96 (-27.83)
Commodity Futures (Reuters/Jefferies CRB)
Oil: -0.10%; $73.49 (-$0.07)
Gold: -0.95%; $678.30 (-$6.50)
Natural Gas: -1.42%; $5.78 (-$0.08)
Silver: -1.25%; $13.275 (-$0.168)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
Boeing Posts Strong Beat, Lifts Outlook
The world's number-two commercial airline maker, Boeing Co., said Wednesday Q2 net earnings increased to $1.05 billion ($1.35/share) compared to a $160M loss ($0.56/share adjusted) a year ago, beating analyst expectations of $1.16. Revenue jumped 13.6% to $17.02 billion, almost $1 billion higher than expected. Boeing raised its 2007 profit outlook to $4.80-4.95/share (up from $4.55-4.75) compared to $4.91 Street estimates. Revenue in its commercial airplane unit increased 22% ($8.7B), while revenue from its defense business was up only 3% ($8B). Boeing booked 360 commercial planes orders last quarter, 153 less than rival Airbus. It also began construction of its much-awaited 787 Dreamliner, already Boeing's most successful airplane with 683 contracts and a backlog of about $110 billion. Airbus's A350 won't be ready until five years after the 787 begins rolling out next year. At the recent Paris Air Show, Airbus booked 98 orders for the A350, causing some analysts to question 787 schedule slippage and a possible Airbus resurgence. In a July 9 note, Cowen & Co. said, "We think investors worry excessively about 787 risks and underestimate 2008-09 EPS upside." Shares are up 16.8% YTD, and are up another 3.3% in pre-market trading. See Boeing earnings call transcript later today.
Sources: Press release (.pdf), Bloomberg
Commentary: Boeing Company: Inconsistent Fundamentals, Stock Severely Overpriced • Boeing's 'iPlane': Two Suppliers That Stand To Benefit
Stocks/ETFs to watch: Boeing Co. (BA)
Earnings call transcripts: Boeing Q1 2007
Glaxo's Q2 Earnings Miss, But Stock Higher In London on Expanded Buyback
Ordinary shares of GlaxoSmithKline were last up 3.9%, or 1,295 pence in London, helped by news of a £7.7b increase to its stock repurchase program, after reporting Q2 net income rose less than 1% to £1.33 billion ($2.753b), or 23.7 pence/share, on a 2% decline in sales to £5.67b. Analysts were expecting 24.3 pence/share on sales of £5.72b. Glaxo now plans to repurchase £12b of its shares over the next two years. Glaxo's earnings were hurt by a 22% drop in sales of diabetes drug Avandia to £349m, following a recent medical journal article which said research showed it may increase the chance of a heart attack. The weak U.S. dollar also negatively impacted earnings, as Glaxo makes nearly half its total sales in the U.S. Glaxo said it still expects net income growth of 8% to 10% for the year. Its ADRs are tracking gains in London, last up 3.5% to $53.11 in pre-market trading.
Sources: Bloomberg, MarketWatch
Commentary: GlaxoSmithKline To Open Shanghai Research Center • GlaxoSmithKline's Weight Loss Drug Alli: Just Another Short Lived Superstar • Glaxosmithkline Looks Worthy Of Investment • Glaxosmithkline: The Cheapest Large Cap Pharma Stock?
Stocks/ETFs to watch: GlaxoSmithKline plc (GSK). Competitors: Merck & Co. Inc. (MRK), sanofi-aventis (SNY), Bristol-Myers Squibb Co. (BMY), Novartis AG (NVS), Pfizer Inc. (PFE). ETFs: iShares S&P Global Healthcare (IXJ), iShares MSCI United Kingdom Index (EWU)
Corning Posts Weaker Than Expected Earnings
Corning Inc. posted weaker-than-expected second-quarter results amid slower sales of its telecommunications products. The specialty glass maker earned $489M ($0.30/share), down from $514M ($0.32/share) a year earlier while sales rose to $1.42B from $1.26B in 2006. Excluding a $0.04/share charge, earnings would have been $0.34/share. Analysts had expected earnings of $0.32/share and sales of $1.44B, on average. Telecommunications segment sales fell 7% to $438M. Looking ahead, Corning said it expects third-quarter earnings in the range of $0.34 to $0.37/share on sales of $1.525B to $1.575B. Analysts had been expecting a range of $0.34 to $0.38/share and sales of $1.534B to $1.585B. Third-quarter sequential LCD volume growth for the company's wholly owned businesses were expected be in the range of 10% to 15% and in the range of 5% to 10% at Samsung Corning Precision, Corning's 50-percent owned equity venture in Korea which manufactures LCD glass substrates for the Korean market. Sequential sales growth of about 10% was expected in the telecommunications segment in Q3, while sales in the company's Environmental Technologies segment were expected to be flat. Diesel product sales were expected to increase, but be offset by declines in automotive products. Sales in the Life Sciences segment were seen flat to down 5%. Shares have fallen 4.5% in pre-market trading.
Sources: Press release, Reuters
Commentary: Corning: Estimates Up On Improving Telecom Business • Is Corning Worth $35 A Share?
Stocks/ETFs to watch: Corning Inc. (GLW). Competitors: 3M Company (MMM), Siemens AG (SI). ETFs: HOLDRS Broadband (BDH)
Earnings call transcript: Corning Q1 2007 • Check for Corning's earnings call transcript later today
Freeport McMoRan Triples Earnings, Falls Short of Forecasts
Freeport McMoRan Copper & Gold tripled its Q2 net earnings from a year ago on higher metal prices and the $26 billion buyout of copper miner Phelps Dodge, but EPS of $2.62 fell short of the $2.74 analysts were forecasting. Net income rose over 200% to $1.1 billion, while revenue climbed 307% to $5.33 billion. "Our second-quarter financial performance reflects strong results in our North American, South American and Indonesian operations, and a continuation of positive market conditions for copper, gold and molybdenum. The outlook for our business is strong," the company said in its press release. Shares are up 70.5% YTD in apparent appreciation of the acquisition, which made FCX the world's number-two copper company. In a July 6 note, Credit Suisse wrote, "Comparing FCX’s copper, molybdenum, and gold reserves with current North American equity market valuations for the reserves of ‘pure play’ copper, molybdenum, and gold producers suggests FCX shares ($95) are worth $126 per share." Shares are trading slightly higher in the pre-market. Check for Freeport-McMoRan's earnings call transcript later today.
Sources: Press release (.pdf), Reuters,
Commentary: Freeport McMoRan: Cheap Producer, Cheap Stock
Stocks/ETFs to watch: Freeport-McMoRan Copper & Gold Inc.(FCX). Competitors: Newmont Mining Corp. (NEM), Southern Copper Corp. (PCU). ETFs: Vanguard Materials VIPERs (VAW), Rydex S&P Equal Weight Materials (RTM), PowerShares Dynamic Basic Materials (PYZ)
Xerox Shares Climb On Beat and Raise
Xerox Corp. reported its 2Q EPS rose to $0.28 on net income of $266 million and sales of $4.21 billion. Consensus analyst estimates were looking for EPS of $0.27 on total revenue of $4.2 billion. The company expects EPS in 3Q in a range of $0.24-$0.26 and raised its full year EPS expectations to a range of $1.16-$1.18. Shares rose nearly 4% in pre-market action as of 6:40 a.m. ET. Increasing equipment sales pricing pressure was mitigated by color and general post-sales growth in the latest quarter according to JP Morgan analyst Bill Shope.
Sources: Press Release, Bloomberg, MarketWatch, Reuters
Commentary: Are Printer Companies Chasing the Wrong Target? • Xerox: Risk Of Global Imaging Acquisition Rising • Xerox: Managing Expectations Better Than Operations
Stocks/ETFs to watch: Xerox Corporation (XRX). Competitors: Canon (CAJ), Hewlett-Packard (HPQ). ETFs: PowerShares Dynamic Tech Sector (PTF), PowerShares Dyn Hardware&Con Electronics (PHW)
Conference call transcripts: check back later today for XRX's latest conference call transcript • Xerox Q1 2007
Honda Posts 16% Rise in Q1 Profit, Raises FY Forecast
Honda reported 1Q net income increased 15.8% to ¥166.1 billion ($1.38b) on sales growth of 13% to ¥2.93t ($24.3b). Honda raised its fiscal year (ending March) net profit forecast by 8.7% to ¥625b, as it expects sustained demand for fuel-efficient autos and continued yen weakness, but incurs rising capex costs. Honda also upward revised its FY operating profit and sales forecasts by 14.3% to ¥880b ($7.3b) and by 5.1% to ¥12.35t ($102.5b), respectively. Total vehicle sales rose 5.6% to 946,000 units, with a 9.5% rise in overseas sales offsetting a 12.8% decline in Japan. Honda earned ¥50.5b ($419m) in operating profit from the weak yen. Analysts expect Honda may raise its FY forecast again later this year as the company rolls out new auto models. Honda's ordinary shares lost 2.4% to ¥4,390 ($36.43 ADR equiv. at ¥120.5/$1) ahead of its earnings release. Its ADRs lost 0.2% to $36.82 on Tuesday.
Sources: Press release, Bloomberg, MarketWatch, Reuters
Commentary: Big Three Automakers Lose Ground to Japanese in June • High Gas Prices Driving Hybrid Demand • Japan's Auto Parts Makers Gaining Attention
Stocks/ETFs to watch: Honda (HMC) (JP: 7267). Competitors: Toyota (TM) (JP:7203), Nissan (OTCPK:NSANY) (JP: 7201), General Motors (GM), Ford (F), DaimlerChrysler (DCX). ETFs: BLDRS Asia 50 ADR Index (ADRA), iShares S&P/TOPIX 150 (ITF), iShares MSCI Japan (EWJ)
Related: Honda financial results presentation [pdf]
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• Consumer products maker Colgate-Palmolive (CL) said Wednesday net income climbed 47% in 2Q to $415.8 million (EPS $0.76), on sales of $3.41 billion, up from $3.01 billion a year earlier. Excluding one-time costs, EPS was $0.84, in-line with consensus estimates of EPS of $0.84 on revenues of $3.31 billion. The company credited improved margins and cost cutting for its strong y/y growth. (source: AP, TheStreet.com)
• Canada-based natural gas and crude producer EnCana (ECA) reported 2Q EPS of $1.80, excluding one-time items, versus consensus estimates of $1.20. Revenues rose 43.1% to $5.61 billion. The company raised its full-year guidance for total cash flow to a range of $7.8 billion-$8.2 billion. (source: Briefing.com)
• Defense contractor General Dynamics (GD) reported 2Q earnings fell 19% to $513 million (EPS of $1.27 excluding items), despite an 11% gain in revenue to $6.59 billion. Consensus estimates were for EPS of $1.17. The company projects full-year EPS in a range of $4.85-$4.90. Consensus estimates had previously called for FY2007 EPS of $4.79. (source: Dow Jones Newswires)
• Reynolds American Inc. (RAI) blamed weak U.S. cigarette shipments Wednesday, for a 14% drop in its 2Q profit, to $1.10 a share, versus $1.27 a share a year ago. Revenue was $2.35 billion. Consensus analyst estimates were expecting EPS of $1.21. (source: AP, Reuters)
• Health benefits provider, WellPoint Inc. (WLP) reported its 2Q net income rose 11% to $835.2 million, good for EPS of $1.35, on a 7.7% revenue increase to $15.26 billion. Consensus analyst estimates had called for EPS of $1.35 on revenue of $15.1 billion. The company projects EPS of $5.55 for the full year, up a penny from its previous guidance, on sales of $60.5 billion, with 35.1 million members enrolled in its plans. (source: Wall Street Journal)
Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
Yesterday's sell-off largely stemmed from fear that the subprime problem would expand to other sectors, compounded by further weakness in the lagging housing market.
Before the opening, Dow component DuPont (DD) reported its failure to make Q2 earnings estimates, which slugged the Dow while bringing on more selling in the blue-chip sector. Another Dow stock, American Express (AXP), dropped 5.4% after reporting an 85% jump in loss provisions. Then Countrywide Financial (CFC), the nation's biggest mortgage lender, had a big earnings miss, cut its full-year guidance, and fueled fears when it said that credit quality was deteriorating and the subprime problems were spreading to other sectors -- the stock lost more than 10%.
As might be expected, the biggest losses were in the financial and brokerage stocks with individual declines anywhere from 3%-6%, but the technology issues also suffered following a sharp drop in Q2 earnings and lower future guidance from Texas Instruments (TXN).
Even the tech darling, Apple Inc. (AAPL), fell 5.5% following a report from AT&T (T) that it activated fewer iPhone accounts than expected. No sector was immune from selling yesterday and even the energy stocks sagged as crude-oil futures hit a two-week low. The NYSE imposed trading curbs for the first time since March.
At the close, the Dow Industrials were off 226 points at 13,717. The S&P 500 dropped 31 points at 1,511, and the Nasdaq lost 51 points to close at 2,640. The broad-based S&P 500 lost almost 2% and was the leading loser of the major averages. Volume on the NYSE totaled almost 2 billion shares and 2.5 billion traded on the Nasdaq; declining issues beat advancers by 3/1 on the Big Board and 5/1 on the Nasdaq.
Crude Oil (September contracts) lost $1.33 to close at $73.56 a barrel, and the Amex Energy SPDR (XLE) fell by $2.02 and closed at $72.15. Gold (August contracts) gained $3.30 to close at $684.80 per troy ounce and the Philadelphia Gold/Silver Index [XAU] lost $2.84 and closed at $155.42.
What the Markets Are Saying
Yesterday's action was the first indication that the July 19 breakout may have been false or a "failed breakout." This phenomenon is relatively unusual and, in this situation, with so much support under the current trading range, it wouldn't be confirmed unless the major index closed under the June 8 and June 27 lows. Those low numbers are Dow 13,207; S&P 500 1,487; and NYSE Composite 9,702. The Nasdaq's support is much lower at the early June low of about 2,530.
A failed or false breakout would not change the overall long-term trend but, if confirmed, could signal an intermediate correction of double-digit proportions. The financial sector causes the most concern now, and the SPDR there to watch is the Financial Select Sector SPDR (XLF); yesterday, it dropped to its March lows. Any further drop could confirm a double top in the XLF and possibly a further double-digit correction in the index.
With financial stocks making up more than 20% of the S&P 500, it would be difficult for the broad index to make much progress with this sector in a downtrend. For now though, despite the fear, the trend is still up and violent corrections in a bull market are to be expected -- especially summer corrections. Stay cool and don't panic since one day down does not create a new trend.
Today's Trading Landscape
Today look for earnings from the following companies: Akamai Technologies (AKAM), Alcon (ACL), AMBAC Financial (ABK), American Airlines (AMR), Amerigroup (AGP), Anheuser-Busch (BUD), Apple Inc. (AAPL), Applied Micro (AMCC), Ashland (ASH), Boeing (BA) (read above), Cirrus Logic (CRUS), ConocoPhillips (COP), Corning (GLW) (read above), Fair Isaac (FIC), Freeport-McMoRan (FCX) (read above), FMC Corp. (FMC), General Dynamics (GD) (read above), Hess (HES), LSI Corp. (LSI), MEMC Electronics (WFR), Norfolk & Southern (NSC), Symantec (SYMC), Varian Medical (VAR), Wellpoint (WLP) (read above), Xerox (XRX) (read above), Zimmer Holdings (ZMH) and others.
Many will be watching the June existing home sales report today -- the consensus is looking for a 2.3% decline from May, or four consecutive months down. The Beige Book will also be released.
Amazon (AMZN) reported 3 cents better than expected after yesterday's close, and the stock rallied strongly in the aftermarket. Even with the earnings whirlwind, the focus today will be on the market's ability to bounce back following yesterday's sell-off, and any further weakening of credit markets will undoubtedly influence that.
Asian Headlines (via Bloomberg.com)
• Asian Shares Fall From a Record on U.S. Economy Concern; Kospi Advances Asian stocks fell, led by Toyota Motor Corp. (TM) and Taiwan Semiconductor Manufacturing Co. (TSM), after the largest U.S. mortgage lender said home-loan losses are increasing.
• Nomura Net Soars on Trading; Firm May Exit Subprime Loan Market, CFO Says Nomura Holdings Inc. (NMR), Japan's largest securities firm, said first-quarter profit almost quadrupled as assets under management climbed to a record and revenue from trading stocks and bonds increased.
• China to Raise Export Limits, Force Labor-Intensive Industries to Upgrade China will curb exports of cheap labor-intensive products to force manufacturers into making higher-quality goods, in a move to narrow the world's largest trade surplus and reduce environmental damage.
European Headlines (via Bloomberg.com)
• Resolution to Buy Friends Provident in Stock Swap Valued at $8.7 Billion Resolution Plc plans to buy Friends Provident Plc for about 4.2 billion pounds ($8.7 billion) in stock, creating the U.K.'s fifth-largest life insurer.
• Volvo Profit Slides Most in 1 1/2 Years as Emissions Controls Erode Sales Volvo AB (VOLV), the world's second-largest truckmaker, posted its biggest profit decline in 1 1/2 years as U.S. sales plunged on stricter emissions rules and the dollar weakened. The shares fell the most in more than eight years.
• Fresenius Medical Care Shares Rise Most in Five Months on Medicare Program Shares of Fresenius Medical Care AG (FMS), the world's biggest provider of kidney dialysis, rose the most in five months on speculation that the company may benefit from a new Medicare proposal in the U.S.
• BG Group Plans to Cancel New York Listing, SEC Registration to Cut Costs BG Group Plc (BRG), the U.K.'s third-biggest oil and natural-gas explorer, will quit the New York Stock Exchange, joining Groupe Danone SA (OTC:GDNNY), British Airways Plc (OTC:BAIRY) and Volvo AB (VOLV) in yanking their U.S. stock listing because of compliance costs.