Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 9:00 AM ET
S&P 500: -4.00; 1,458.00
NASDAQ 100: -4.25; 1,941.50
Dow: -34.00; 13,241.00
NIKKEI 225: -2.19%; 16,870.98 (-377.91)
HANG SENG: -3.15%; 22,455.36 (-729.58)
SHANGHAI SE COMPOSITE: -3.81%; 4,300.56 (-170.47)
BSE SENSEX 30: -3.96%; 14,935.77 (-615.22)
FTSE 100: -1.33%; 6,275.20 (-84.90)
CAC 40: -1.68%; 5,654.42 (-96.66)
XETRA-DAX: -1.08%; 7,502.60 (-81.54)
Commodity Futures (Reuters/Jefferies CRB)
Oil: -0.40%; $77.90 (-$0.31)
Gold: -0.77%; $674.10 (-$5.20)
Natural Gas: +1.31%; $6.27 (+$0.08)
Silver: -1.17%; $12.865 (-$0.152)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
Kraft Beats Street, Raises Sales Guidance, But Margins Under Pressure
Kraft Foods reported 2Q net income increased 3.7% to $707 million, or $0.44/share, with adjusted EPS of $0.50 beating analysts' average estimate of $0.47. Revenues rose 6.8% to $9.21b, also topping analyst expectations. Organic net revenues increased 4.1%. Kraft raised its full-year organic revenue growth guidance to 4%-plus, from its previous forecast of 3% to 4%. Full-year EPS is now projected between $1.55 - $1.60, compared to $1.50 - $1.55 previously. Kraft maintained its adjusted EPS estimate of $1.75 - $1.80, compared to analysts' average estimate of $1.80. Gross margins fell 1.3% to 35.7% and operating margins declined 2.1% to 14.5%, as Kraft faced "significant increases in input costs" and increased spending on advertising. CEO Irene Rosenfeld warned "margins will show further decline in the second half of the year, but said, "it is critical that we invest now in order to lay the foundation for our future growth." During the quarter Kraft repurchased $2.0b of its common stock at an average price of $32.96/share. Its shares lost 0.7% to $32.75 on Tuesday.
Sources: Press release, MarketWatch
Commentary: Buffett Takes a Stake in Kraft • Kraft Foods Shares Rise On Reports of Icahn Stake, Peltz Meeting • Kraft's Danone Deal A Good One For Shareholders
Stocks/ETFs to watch: KFT. Competitors: GIS, DLM, K. ETFs: PRFG, XLP, UGE
MasterCard's Earnings Rise 93%, Beating Estimates
MasterCard said Wednesday second-quarter net income rose 93.1% to $195 million, from $101M a year earlier, on strong growth in its gross dollar volume [GDV] and number of transactions processed. EPS of $1.43 was stronger than the $1.34 analysts expected. Quarterly revenue was $997 million, 17.8% higher than last year's $846M, and ahead of analyst expectations of $974M. GDV increased 13.3% to $555 billion, and the number of transactions MasterCard processed was up 15.2% to 4.6 billion for the quarter. "We are very pleased with our second-quarter financial results, which reflect strong growth across all regions and represent the highest quarterly net revenue in MasterCard's history," said CEO Robert W. Selander. "This also marked our 13th consecutive quarter of double-digit GDV growth." (See full earnings call transcript later today.) In a pre-earnings note, A.G. Edwards analyst Timothy W. Willi wrote: "We continue to believe in the long-term merits of the MasterCard story. MasterCard has easily exceeded quarterly earnings expectations since becoming public in May 2006." Shares are down $6.80 (4.23%) in pre-market trading. They have more than quadrupled since first being offered at $39 in June of 2006.
Sources: Press release, MarketWatch
Commentary: Mastercard: Good Time For An Initial Entry? • Five Credit Card Stocks to Consider When Making Your Next Purchase
Stocks/ETFs to watch: MA. Competitors: AXP, DFS. ETFs: FPX
Earnings call transcript: MasterCard Q1 2007
Qwest 2Q Net Doubles, But Falls Just Short of Estimates
Qwest Communications' 2Q profit more than doubled to $246 million, or $0.13/share, helped by cost-cutting, but fell short of the Street's consensus estimate of $0.15/share, even when backing out a $22m (approx. $0.02/share) charge for an employee early retirement program. Sales fell 0.3% to $3.46b, missing analyst expectations by $10m. Operating costs declined 4.2% on the quarter. Qwest reported a sizable increase in adjusted cash flow, $679m vs. $84m, as its net debt fell $356m to $13.4b and capex totaled $744m compared to $832m last year. Qwest said it executed 45% of its approved $2b share buyback during the quarter and reached the halfway point by the time of its 2Q earnings release. Its shares lost 1.3% to $8.53 on Tuesday and are down 2.7% in very thin pre-market trading. Qwest's earnings call is at 9 a.m. EDT. Check for Qwest's earnings call transcript later today.
Sources: Press release, Bloomberg, MarketWatch, Reuters
Commentary: Did Qwest Stock Rise Too Fast For A Buyout? • Qwest: Private Equity Buyout Not Likely • Five Telecoms Chosen for Government Contract; Sprint Makes Cut
Stocks/ETFs to watch: Q. Competitors: T, S, VZ. ETFs: IYZ, TTH, VOX
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• Wireless services provider Alltel Corporation (AT) saw its 2Q net income fall 54%, largely based on large one-time gains in the year earlier period. Adjusted EPS was $0.74, above consensus estimates of $0.71 a share. Revenue rose 12% to $2.18 billion. Total churn was 1.67% as the company added 181,000 post-pay customers in the quarter. (source: Dow Jones Newswires)
• HMO Cigna Corp. (CI) reported its 2Q profit declined 27% as it was forced to increase reserves at its reinsurance business. By the numbers, net income came in at $198 million, good for EPS of $0.68, versus $273 million a year ago. Excluding one-time items, EPS was $0.96. Revenue rose nearly 7% to $4.31 billion. Consensus analyst estimates were for adjusted EPS of $0.88 on revenue of $4.41 billion. (source: AP)
• GPS maker Garmin Ltd. (GRMN) saw its share rise 7.7% in pre-market action on a solid EPS beat and a raise in full year outlook. Net income climbed to $214.4 million, good for EPS of $0.98, or $1.00 excluding forex losses. Revenue jumped 72% to $742 million on a nearly doubling of sales in the automotive/mobile segment. Consensus analyst estimates were looking for adjusted EPS of $0.73 on revenue of $644.2 million. Garmin upped its full year EPS forecast to $3.15, on revenue above $2.8 billion; analysts had been expecting EPS of $2.92 on revenue of $2.6 billion. (source: Reuters)
• World number one offshore drilling contractor, Transocean Inc. (RIG) reported 2Q net income more than doubled to $549 million, good for EPS of $1.84. Revenue climbed to $1.4 billion, versus $854 million a year ago. Consensus estimates were for EPS of $1.72 on revenue of $1.37 billion. (source: MarketWatch)
• World number two contract chip maker, United Microelectronics Corp. (UMC) reported its 2Q operating profit fell significantly from a year ago, as clients placed fewer orders due to a slowdown in PC sales. Operating profits were T$1.226 billion, sharply higher than the first quarter's T$18 million. Net profits were T$4.911 billion, well above consensus estimates of T$3.11 billion. The company was upbeat looking toward the third quarter, forecasting shipments would grow 20%. (source: Reuters)
Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
Yesterday started with just about the best corporate news possible -- before the opening bell, General Motors (GM) reported Q2 earnings that exceeded analysts' forecasts by a wide margin.
The trend continued when the Fed's favorite inflation indicator -- the core Personal Consumption Expenditures (PCE) index -- came in at 0.1% for the fourth consecutive month. The year-over-year rate was at 1.9%, which put it within the Fed's comfort zone and the lowest rate in four years. Good earnings also continued with Anadarko Petroleum (APC) reporting well above forecasts.
Many have said that the market and the economy have been propped up by the consumer and that it couldn't last, but at 10 a.m. it was announced that the consumer confidence index rose to 112.6 versus expectations of 106, so the market held its early rally.
But then at just after 1 p.m., with the Dow Industrials up over 130 points, American Home Mortgage Investment Corp. (AHM), the 10th largest U.S. mortgage lender, announced that it couldn't pay its creditors. Analysts quickly concluded that it would have to file for bankruptcy. When trading resumed, AHM had fallen from $10.47 to $5.51 and closed at $1.04.
The announcement hit the market and other lenders like a load of bricks. Earnings, inflation, and consumers' attitudes all went out of the window in a wash of worry over the state of other mortgage lenders, and the financial services group led the market lower.
At the close, the Dow Industrials lost 146 points at 13,212. The S&P 500 was off 19 at 1,455, and the Nasdaq was down 37 at 2,546. The NYSE traded 1.8 billion shares and 2.4 billion shares were traded on the Nasdaq, with decliners ahead of advancers on the New York by 9/7 and by 18/11 on the Nasdaq.
Crude oil prices climbed to a new high with the September contracts closing at $78.21 a barrel up $1.38, and that too added to the woes of the stock market. The Amex Energy SPDR (XLE) fell by 70 cents to close at $69.05. Gold (August contracts) rose $2.80 to $666.90 per troy ounce, and the Philadelphia Gold/Silver Index [XAU] lost $1.04 and closed at $148.72.
What the Markets Are Saying
Yesterday afternoon's failure to hold the morning rally resulted in a close that penetrated the intermediate trend line of the S&P 500, confirming beyond a doubt that the market high made July 19 was a false breakout. Thus, both the near and intermediate trends are now down with the long-term trend still strongly up.
The next support for the Dow Jones Industrial Average is at 12,800 (April 20 breakout). For the S&P 500 it is 1,449 (200-day moving average), and for the Nasdaq it is the breakout at 2,530.
Looking ahead, many technicians will no doubt point to the 200-day moving average as the critical market support line, but S&P technician Mark Arbeter was correct when he said, "It is not a good indicator to use for timing the overall market," and pointed out that since the current bull market began, the 200-day has been penetrated four times. He, and I, prefer the 325-day exponential average but at present that average sits at 12,380 for the Dow, 1,406 for the S&P, and 2,417 for the Nasdaq.
Today's Trading Landscape
Today look for earnings from the following: Alltel (AT) (read above), Applebee's (APPB), Atmel (ATML), Black Box (BBOX), Chicago Bridge & Iron (CBI), Dominion Resources (D), Electronic Arts (ERTS), Federal Realty (FRT), Garmin (GRMN), Gladstone Investment (GAIN), Helmerich & Payne (HP), Iron Mountain (IRM), Kraft Foods (KFT) (read above), MasterCard (MA) (read above), Noble Energy (NBL), OfficeMax (OMX), Owens Corning (OC), Parker Drilling (PKD), Prudential (PRU), Qwest Communications (Q) (read above), Realty Income (O), Starbucks (SBUX), Sunoco (SUN), Time Warner (TWX), TRW (TRW), Transocean (RIG) (read above), USEC Inc. (USU), Walt Disney (DIS) and many, many others.
All eyes will be on June pending home sales (the consensus looks for a 0.5% drop), July ADP employment (the consensus looks for 100,000), ISM Manufacturing (the consensus looks for 55.5), ISM prices paid (the consensus looks for 1.0%), and weekly jobless claims (the consensus looks for 310k).
In early morning news today: News Corp. (NWS) and Dow Jones (DJ) sealed a deal to buy the Wall Street Journal, and Deutsche Bank Q2 net climbed 31% versus last year, which beat estimates. And the world's largest steelmaker ArcelorMittal (MT) reported Q2 figures up 50%, also beating estimates. But the big news continues to be the impact of the possible demise of American Home Mortgage (AHM) and an expansion of the mortgage crises to other credit markets. Watch for any Fed action on interest rates or other announcements geared to stabilize markets.
Asian Headlines (via Bloomberg.com)
• Asian Stocks Decline, Led by Macquarie Bank, Sony on U.S. Subprime Rout Asian stocks slumped, extending a global equities rout, after Macquarie Bank Ltd. and Bear Stearns Cos. (BSC) said funds may post losses as the U.S. subprime mortgage crisis spreads.
• Macquarie Shares Decline Most Since 2002 as Fund Investors May Lose Money Shares of Macquarie Bank Ltd., Australia's largest securities firm, slumped the most in 5 1/2 years after two of its funds said investors may lose 25 percent of their money as a rout in the U.S. subprime market spreads.
• Yen Jumps to Three-Month High Versus Euro as Investors Unwind Carry Trades The yen leapt to a three-month high against the euro and the strongest versus the pound since May as subprime mortgage losses infected banks and hedge funds, prompting investors to unwind carry trades.
• Mizuho Shares Plunge, Leading Japan Bank Shares Lower, as Profit Declines Shares of Mizuho Financial Group Inc. (MFG), Japan's second-largest bank, led the biggest drop in the nation's bank stocks in three years after reporting first-quarter profit tumbled because of rising credit costs.
• Lazard Targets Asia's Busiest Merger Market by Buying Australia's Carnegie Lazard Ltd.'s (LAZ) acquisition of Australia's Carnegie, Wylie & Co. will give Bruce Wasserstein's investment bank an instant leg-up in the Asia-Pacific's most active mergers and acquisitions market.
European Headlines (via Bloomberg.com)
• Stocks Fall as Macquarie, Bear Stearns Face Fund Losses; RBS, ING Decline European and Asian stocks dropped after Bear Stearns Cos. (BSC) stopped investors from pulling money out of a hedge fund and Macquarie Bank Ltd. said two of its funds may post losses as the U.S. subprime-market rout spreads.
• Deutsche Bank Profit Rises 31 Percent, Beats Estimates, on Record Trading Deutsche Bank AG (DB), Germany's biggest bank, said profit rose 31 percent, beating analysts' estimates, on record second-quarter trading revenue.
• European Corporate Bond Risk Soars After Bear Stearns Blocks Withdrawals The risk of owning corporate bonds soared after Bear Stearns Cos. blocked investors from withdrawing money in a hedge fund as subprime mortgage-related losses spill into other parts of the credit market.
• Prudential Net Rises 59 Percent on Life Insurance, Pension Sales in Asia Prudential Plc, the U.K.'s second- largest insurer, said first-half profit rose 59 percent, with only the U.K. unit trailing analysts' estimates.