Beazer Skids, Denies Bankruptcy Talk
Shares of Beazer Homes USA tumbled 18% to $11.48 Wednesday, but recovered from a drop of as much as 40% earlier in the session after the homebuilder denied rumors it might file for bankruptcy amid ongoing worries about the subprime market. "We have become aware of rumors circulating in the market about Beazer Homes' liquidity and a prospective bankruptcy filing. We do not know where these scurrilous and unfounded rumors started," Beazer said, and referred investors to last week's earnings release and conference call transcript. Beazer posted a Q2 $123M ($3.20/share) loss and revenue fell for the third straight quarter. A Moody's credit officer said, "We're confident that what's going on today is much ado about nothing. If anything, they're more liquid than they were before and they're coming into their fourth fiscal quarter of the year, where they generate the most cash. So we think it's just a bear raid on the company." Beazer also said last week that it had entered into a four-year $500M revolving credit agreement and expected to end the year with more than $300M in cash. Adding to Beazer's woes are concerns about a federal probe of its mortgage-origination business and an SEC investigation into possible securities laws violations. Checks of court dockets in Atlanta, where the company is based, New York and Wilmington, Delaware, found no bankruptcy filing for Beazer.
Sources: Press release, MarketWatch, Bloomberg, AP
Commentary: Beazer Homes Receives Federal Subpoena • How to Trade on Homebuilders' Profitibility
Stocks/ETFs to watch: BZH. Competitors: CTX, DHI, TOL. ETFs: XHB, ITB
Electronic Arts Extends Net Loss; Raises Full-Year Guidance
World-leading videogame publisher Electronic Arts reported fiscal Q1 results Wednesday, posting a smaller-than-expected net loss and a revenue decline after the company stopped charging users for playing games online. The company had a net loss of $132 million (-$0.42/share) in the period versus a loss of $81 million (-$0.26) in the year-ago quarter. Excluding items, the loss would have been -$0.22, ahead of analysts' expectations of a loss of -$0.35. Revenue was down 4.4% to $395 million from $413 million, ahead of analyst forecasts of $389.4 million. The company noted that $36 million in deferred revenue caused by an accounting change for several titles will be posted in future quarters. During Q1, Electronic Arts restructured into four groups. Margins were affected by slowing sales of the PlayStation 3 console. "There's been some unexpected strength with the Wii and the PS3 hasn't--yet--performed as well as we expected it to," said CEO John Riccitiello. The company is forecasting fiscal Q2 revenue of $465-570 million, or $825-910 million excluding the accounting change, with EPS excluding items of $0.10-0.20. Analysts had been expecting EPS of $0.33 on revenue of $957.7 million. It raised its fiscal 2008 revenue forecast by $100 million to $3.2-3.5 billion and its loss per share forecast to -$0.63-0.10 from -$0.77-0.23. Excluding items, the company is projecting a full-year profit of $0.90-1.20.
Sources: MarketWatch, Bloomberg, AP, Reuters, Next Generation, Dow Jones
Commentary: Electronic Arts: Breaking It Down To Build It Back Up • EA Reveals Details of Two Spielberg Games • Peter Moore's Move To EA: Has He Learned From His Mistakes At Microsoft?
Stocks/ETFs to watch: ERTS. Competitors: ATVI, MOT. ETFs: IGV
Earnings call transcripts: Electronic Arts F1Q08
Dell To Buy ASAP Software From Corporate Express For $340 Million
Dell Inc. agreed to buy ASAP Software from Amsterdam-based Corporate Express for about $340 million. The deal is slated to close during Dell's fiscal 3Q. ASAP specializes in providing companies and government organizations with automated asset managment. Its License Technologies Group offers Web-based software for asset inventory, software license compliance and software usage. Dell Senior VP, Paul Bell on Dell's latest acquisition: "Merging Dell's software business with ASAP is part of our effort to re-invent and simplify the way our customers get access to IT." Dell hopes to win a greater share of the corporate market with ASAP on board. Corporate sales already contribute 85% to Dell's annual revenue. Last month, Dell bought Silverback Technologies, a publisher of remote management tools.
Sources: Press Release, Bloomberg, MarketWatch, RTT News
Commentary: Dell Makes Another MSP Move • Dell, Sun Could Suffer As Virtualization Business Picks Up • Dell's Small Software Acquisition Has Big Implications
Stocks/ETFs to watch: DELL, CXP. Competitors: HPQ, GTW, LNVGY.PK. ETFs: IAH, IGM
Related: ASAP Software Online
EDS Beats By a Penny, But Weak Guidance Sends Shares Lower
EDS reported 2Q net income increased 33% to $138 million, or $0.26/share, with adjusted EPS of $0.27 topping analysts' average estimate by $0.01. Sales rose 5% to $5.45b, slightly exceeding expectations. However, EPS guidance of $0.37 - $0.43 for 3Q disappointed the Street, which had projected $0.43 on average. New contract signings also came up short of expectations, with year-to-date through 2Q bookings less than half of its full-year target of $23b. President Ron Rittenmeyer explained three large deals totaling more than $4.3b slipped into 3Q. (See earnings call transcript). Revenue guidance of $5.6b - $5.8b for 3Q was ahead of the Street consensus of $5.6b. For the year, EDS still forecasts EPS of $1.55 - $1.60, on sales of $22b - $22.5b, compared to analyst estimates of $1.57 on sales of $22.2b. Shares of EDS lost 2.7% to $26.27 during normal trading and fell as much as 6.1% to $25.34 after its earnings statement was prematurely released at 3:22 p.m. EDS lost 2.9% to $25.50 in very thin after-hours trading.
Sources: Press release, Bloomberg, MarketWatch, TheStreet.com
Commentary: S&P 500 Stocks With Largest Trailing 12-Month P/E Contractions/Expansions • IT Giants Team Up To Save $5.5 Billion In Energy Costs • Recent Earnings Strength Tied to International Exposure
Stocks/ETFs to watch: EDS. Competitors: ACN, IBM, ACS, CSC, PER. ETFs: PWP
Atmel Profits Slump
Atmel posted sharply lower second-quarter profits and missed analyst estimates, hurt by foreign income taxes and various expenses. Atmel said it earned $678,000 ($0.00/share) on revenue of $404.2M, down from $8.3M ($0.02/share) on revenue of $429.5M a year ago. The foreign taxes "substantially reduced" earnings, the company said. The results included about $15M in charges related to the special shareholder meeting in May as well as recently completed stock option backdating and other independent investigations. Stock-based compensation expense totaled $3.3M. Analysts were expecting earnings of $0.01/share on revenue of $402.6M, on average. Sales grew sequentially in all major product groups except the wireless foundry business. Gross margins were 35.0%, slightly lower than the 35.8% in Q1, but an improvement from 32.4% a year ago. For the third quarter, the company expects sequential revenue growth of 1% to 3%, which would suggest a range of $408.2M-$416M. Analysts were expecting Q3 revenue of $414.5M, on average. Atmel said it planned "additional initiatives during the remainder of 2007 to unlock shareholder value." Shares dropped 5.7% in AH trading Wednesday after losing 1.5% during regular trading.
Sources: Press release, Reuters, TheStreet.com
Commentary: With Several Possible Catalysts, Atmel Corp. Providing Good Entry Point • Dan Loeb's ThirdPoint LLC Picks Up a 7% Stake In Atmel Corp. • The Long Case for Semi Stocks
Stocks/ETFs to watch: ATML. Competitors: AMD, QI, STM, TXN, IFX. ETFs: XSD
Google Looks to Capture Moblie Ad Market -- WSJ
On the heels of the hysteria surrounding Apple's iPhone launch, Google, which already has made billions of dollars in Web advertising on computers, is reportedly looking to do the same on cellphones. Citing people familiar with the project, the Wall Street Journal says the Internet search giant has invested millions of dollars in a far-reaching project to convince wireless operators to carry handsets customized to Google products, including its search engine, email and a new mobile Web browser, with hopes of capturing a sizable piece of the fast-growing market for ads on cellphones. Global spending on mobile-phone advertising is projected to grow to nearly $14B by 2011. The Journal says Google has developed prototype handsets, made overtures to operators such as T-Mobile USA and Verizon Wireless, and discussed technical specifications with phone manufacturers, with the hope that manufacturers will produce devices based on its specs to be offered by multiple carriers, unlike the iPhone which only can be used with AT&T. Google CEO Eric Schmidt has said mobile phone ads are twice as profitable as non-mobile phone ads because they are more personal. A Google spokesman declined to comment on a phone project, but did say the company was partnering with almost all of the carriers and manufacturers to get Google search and other applications onto their devices and networks. Meanwhile, Google has said it may bid for wireless-spectrum licenses at an upcoming government auction and could turn into a phone operator itself.
Sources: Wall Street Journal
Commentary: Is Google Still Interested In Wireless Bidding? • FCC to Announce Rules for Wireless Spectrum Auction • Mobile Devices, Mobile Networks: Can't Have One Without the Other
Stocks/ETFs to watch: GOOG, VZ, VOD, T, AAPL
Earnings call transcript: Google Q2 2007, Apple F3Q07, AT&T Q2 2007, Verizon Q2 2007
Sohu's 2Q Profit Falls, But Beats Estimates, Shares End Lower in Late Trading
Sohu.com reported its 2Q profit fell 20% to $5.7 million, or $0.15/share, but still beat analysts' average estimate of $0.13. Sales increased 14% to $39M, topping its own forecast of $35.5-37.5M and analyst expectations of $36.2M. Sohu recorded better-than-expected sales of online ads, which grew 38% to $26.6m. Shares of Sohu jumped 5.8% to $33.99 during normal trading Wednesday, and were up as much as 9% in extended activity, but ended down about 0.5% to $33.83. Sohu projected Q3 EPS of $0.25-0.27 on sales of $45-47M (see earnings call transcript). Analysts had been looking for $0.20/share on sales of $41.6M. A Hong Kong-based JP Morgan analyst said Sohu is benefiting as the operator of the official web site for the 2008 Beijing Olympics, as the "spirit of the games has already started to kick in." However, the analyst also pointed out "content production costs are rising... because companies all want exclusive content." Sohu's operating expenses increased 24% to $18.7m. Sohu's Q2 internet search market share fell by half sequentially to 2.7%, while rivals Baidu (57% -> 58%) and Google (19% -> 23%) registered gains, according to Analysis International.
Sources: Press release, Bloomberg, MarketWatch, Reuters
Commentary: Chinese Tech Stock Weekly Summary • China: 'In Cyberspace They Trust' • Pacific Crest Upgrades Baidu, Sina On Strong China Net Ad Market
Stocks/ETFs to watch: SOHU. Competitors: BIDU, SINA
Disney Tops Forecasts, Buys Club Penguin Website
Walt Disney Co. bested analysts' expectations for the third quarter amid double-digit growth at its Media Networks, Parks and Resorts and Consumer Products segments. It also expanded its interactive business with the purchase of the Club Penguin children's website. The entertainment giant said it earned $1.18 billion ($0.57/share) on sales of $9.05B in the quarter, up from $1.13B ($0.53/share) on sales of $8.47B a year ago. Excluding items, earnings were $0.58/share. Analysts had expected earnings of $0.55/share and sales of $9.05B. Contributing to increased profits, according to analysts, were increased advertising rates on popular programs at the ABC network; operating profit from broadcasting, which includes ABC and both Disney and ESPN radio, more than doubled on an 8.9% sales rise. Goldman Sachs analyst Anthony Noto said ABC's profit gain probably outpaced all other broadcast networks. The key theme parks division posted a 13% rise in operating income and 6% sales rise. The studio division was a disappointment, however, with a 20% drop in income, as ticket sales from the latest "Pirates of the Caribbean" film were offset by marketing costs for its latest Pixar Animation Studios release, "Ratatouille," and there were no strong DVD releases in the period. In the deal for Club Penguin, which has 700,000 subscribers, Disney paid $350M, and could pay another $350M if certain profit targets are met by the end of 2009. Disney CEO Robert Iger said, "It puts us in a space more robustly and faster than if we did it organically."
Sources: Press release I, II, AP, Bloomberg, MarketWatch
Commentary: Disney Buys Club Penguin For $700m • TechCrunch • Interview of Steve Wadsworth, President, WDIG; Lane Merrifield, CEO, Club Penguin [PaidContent.org]
Stocks/ETFs to watch: DIS. Competitors: CBS, NWS, TWX. ETFs: UCC, PBS, PEJ
Dow Jones Takeover Could Face Regulatory Scrutiny
FCC Commissioner Michael Copps, one of two Democrats on the Commission and a critic of media consolidation, said Wednesday the pending $5.6 billion takeover of Dow Jones by News Corp. is not a "slam dunk." "What's good for shareholders of huge media conglomerates isn't always what's good for the public interest or our civic dialogue," he said in a statement, arguing that the tie-up would leave fewer independent voices in the media landscape. FCC cross-ownership rules forbid one company from owning a broadcast TV station and a daily paper in the same market. News Corp. already owns Fox News, which is based in NY, and its takeover of Dow Jones's Wall Street Journal could bring it into violation. (News Corp. received a waiver from the FCC regarding its tabloid property, the NY Post.) Many analysts hold that the Journal is exempt from the regulation because it is a national rather than a local daily, a position the FCC itself took when Gannett founded USA Today. FCC Chairman Kevin Martin and a Republican majority of commissioners are lobbying to eliminate the cross-ownership prohibition completely, an effort Copps strongly opposes. "It's interesting to hear the 'experts' claim the [Dow Jones] transaction faces no regulatory hurdles," he said. "Not so fast."
Sources: MarketWatch, TheStreet.com, Editor & Publisher, Dow Jones
Commentary: Dow Jones Accepts News Corp. Offer • Murdoch Takes Dow Jones: The Battle Commences • Murdoch Gets Dow Jones - Now What?
Stocks/ETFs to watch: DJ, NWS. Competitors: NYT, RTRSY, TOC, GE. ETFs: RCD, RSP
Earnings call transcripts: Dow Jones Q2 2007, News Corporation F3Q07
Investors Dismiss Las Vegas Sands Earnings Miss
Shares of Las Vegas Sands rose 1.5% to $87 AH after closing down 1.8% in NYSE composite trading as investors looked past the casino operator's disappointing earnings to the highly anticipated opening of the Venetian Macau in China later this month. "We believe there is very little to conclude from this quarter as the co.'s major catalyst is on the horizon," Lehman Bros. told clients. The Venetian Macau, which Jefferies & Co. has dubbed "the eighth wonder of the world," will open August 28 and include a multi-zoned mall, a water park and a rooftop golf course. Billionaire Sheldon Adelson's company posted second-quarter earnings of $34.4M ($0.10/share) down from $109.3M ($0.31/share) a year earlier. Adjusted to exclude a loss on disposal of assets, pre-opening expense, development expense, and loss on early retirement of debt, earnings were was $81.9M ($0.23/share) compared to $121.3M ($0.34/share) last year. Revenue rose 19% to $612.9M from $517M. Analysts had expected earnings of $0.25/share on revenue of $697.3M, on average. The company blamed the decline on higher net interest expenses and depreciation charges, saying it spent $54.4M on interest, more than double what it spent a year earlier, while pre-opening expenses were $40.3M, nearly 10x year-ago levels.
Sources: Press release, Bloomberg, AP, TheStreet.com
Commentary: Las Vegas Sands Surges On Kerkorian Move; More Upside Seen • Las Vegas Sands: Macau 'Redemption Right' Raises Long Term Concerns • Investing in China's Tourism Industry
Stocks/ETFs to watch: LVS. Competitors: BYD, HET, MGM. ETFs: VXF
Starbucks Q3 In Line; Shares Climb in AH
Starbucks reported Wednesday fiscal third quarter net income increased 8.8% to $158.3 million ($0.21/share), on revenue growth of 20.1% to $2.36 billion. Analysts were expecting $0.21 on sales of $2.39 billion. Shares of Starbucks gained 1.5% to $27.60 in extended trading and were up as much as 6.1% after its earnings release. Starbucks reiterated its fiscal year 2007 EPS target of $0.87-0.89, but again warned that hitting the upper end of the range will be "very challenging in the current operating environment." Analysts expect $0.88 on average. Starbucks projects 2007 sales growth of approximately 20%, and same-store sales growth between 3% and 7%. For 2008, Starbucks is targeting similar same-store sales growth, on total sales growth of 18% and EPS growth between 20% and 22% ($1.04 to $1.09), compared to analysts' average projection of $1.06. Starbucks plans to open around 2,600 new stores next year, an increase of 200 stores over 2007. Shares rose 1.95% to $27.20 during normal trading. See Starbucks' earnings call transcript.
Sources: Press release, MarketWatch
Commentary: Starbucks Faces More Headwinds Going Into Earnings • Wake Up and Smell the Coffee: Starbucks Still Doesn't Get It • International Opportunities Could Give Starbucks Its Kick
Stocks/ETFs to watch: SBUX. Competitors: THI, PEET, MCD, GMCR, KKD. ETFs: VCR, IYC, PBJ
TRANSPORT AND AEROSPACE
July Auto Sales Hit Nine-Year Low
U.S. auto sales slowed across the board in July, with the Big Three automakers tallying a combined market share of less than 50% for the first time ever. General Motors suffered a 22% sales drop, Ford a 19% drop and the Chrysler Group an 8.4% slide. Toyota and Honda also posted 7% declines, though Toyota outsold Ford and Honda outsold Chrysler. Toyota's passenger car sales contracted 13.8% to 112,153 vehicles, while Lexus sales, one of the few bright spots, rose to 27,141 vehicles from 26,959 a year ago. During the month, 15.54 million vehicles were sold, the industry's slowest July since 1998. Domestic auto sales plummeted to 4.79 million, their lowest since data were first collected in 1990. GM and Ford have decided not to cut production for Q3 and have not unveiled what the WSJ calls "major blowout clearance tactics" in the hope that pent-up demand will be released in coming quarters, a prospect bolstered by encouraging consumer confidence numbers. There is concern, however, that the auto market is losing stability as the housing downturn and the turbulent credit market weigh on the sector.
Sources: TheStreet.com, MarketWatch I, II, III, Wall Street Journal I, II [video]
Commentary: Quick Reactions To Today's Auto Retail Earnings • GM, Ford Confuse Investors With The Turnaround Dance • June U.S. Light Vehicle Sales: Not A Bad Month For Auto Retailers
Stocks/ETFs to watch: GM, F, DCX, TOM, HMC. ETFs: ADRA, PRFG, RPV
Earnings call transcripts: General Motors Q2 2007, Ford Q2 2007, DaimlerChrysler Q2 2007
ENERGY AND MATERIALS
Rio Tinto Posts Disappointing Earnings on Higher Costs
Rio Tinto, the third-largest mining company in the world, posted a greater-than-expected 14% drop in H1 net income Thursday on declines in Australian coal revenue and copper output. Net income fell to $3.25 billion ($2.51/share) for the period from $3.8 billion ($2.82) a year ago, shy of the $3.7 billion expected by analysts. Revenue was up 15% to $13.93 billion, reflecting a $314 million impairment charge on the company's Argyle diamond mine. Increased demand among Chinese steelmakers has pushed the price of iron ore up to record levels. Mining companies have been trying to boost production to achieve maximum gain from those prices, but gains have been dampened by high equipment and labor costs. As Bloomberg notes, the slipping U.S. dollar is also denting earnings for those miners that pay costs in local currencies. Australian coal producer Coal & Allied Industries Ltd., which is run by Rio Tinto, suffered a 53% drop in H1 profit resulting from flooding and rail congestion. Rio Tinto's interim dividend will be $0.52 per share, up from $0.40. The company recently agreed to pay $38.1 billion for Alcan, the aluminum manufacturer.
Sources: MarketWatch, Wall Street Journal, Bloomberg, Reuters
Commentary: Rio Tinto Trumps Alcoa with $38.1 Billion Offer for Alcan • What Does Rio Tinto's Takeover of Alcan Mean for the Rest of the Industry? • Rio Tinto: Pricey 'Defensive' Move With Alcan Threatens Credit Profile
Stocks/ETFs to watch: RTP. Competitors: RIO, AAUKD. ETFs: SLX, XLB, IYM, VAW
Investors Jittery About AIG's Subprime Exposure
Shares of American International Group, the biggest insurer in the world, fell up to 6% intraday Wednesday on analyst concerns about the extent of its exposure to the subprime mortgage market. Goldman Sachs issued a report estimating AIG's losses at up to $1.4 billion. Citigroup analyst Joshua Shanker said AIG could lose $0.82 per share for each $10 billion invested, representing a loss of $8.5 billion. AIG's shares have fallen over 8% since late June on fears that its earnings will be affected by the decline in value of its subprime mortgage-backed holdings. AIG has not disclosed those holdings, stoking investor anxiety. Some analysts believe AIG is unlikely to suffer badly even if its exposure is significant. "Even in a worst-case scenario, we think AIG's subprime mortgage losses would be manageable," wrote A.G. Edwards analyst Paul Newsome. He argued that even if 10% of AIG's estimated $35.7 billion subprime exposure goes bad, the company will have losses of $3.6 billion, or $2.3 billion after taxes -- about 13.5% of what he expects AIG to generate in operating earnings in 2007.
Sources: Bloomberg, Reuters, MarketWatch, AP
Commentary: Is This the Bottom for Submerging Prime? • American International Group: Bigger is Better - Especially When It's Cheap • Municipal Bonds: How Issuers Manage Temporary Investments
Stocks/ETFs to watch: AIG. Competitors: AZ, AXA. ETFs: DRF, EWQ
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