Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:55 AM ET
S&P 500: -2.3; 1,465.40
NASDAQ 100: -4.5; 1,958.00
Dow: -31.00; 13,440.00
NIKKEI 225: +0.04%; 16,921.77 (+7.31)
HANG SENG: -0.13%; 21,907.99 (-28.74)
SHANGHAI SE COMPOSITE: +0.50%; 4,651.22 (+23.12)
BSE SENSEX 30: +0.20%; 14,932.77 (+29.74)
FTSE 100: +0.99%; 6,250.60 (+61.50)
CAC 40: +1.12%; 5,594.92 (+61.93)
XETRA-DAX: +0.49%; 7,481.15 (+36.70)
Commodity Futures (Reuters/Jefferies CRB)
Oil: -0.01%; $72.05 (-$0.01)
Gold: -0.59%; $679.30 (-$4.00)
Natural Gas: +1.97%; $6.33 (+$0.12)
Silver: -0.71%; $12.94 (-$0.093)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
Tyco Posts $3.55B Loss, But Earnings From Continuing Operations Beat
Tyco International reported earnings for the first time since spinning-off its health care and electronics divisions. The company swung to a $3.55 billion, or $7.18/share loss, hurt by a class action securities litigation settlement. Adjusted EPS of $0.55 topped analysts' average estimate of $0.48. Tyco's fiscal 3Q revenues rose 7.8% to $5.09b. Tyco completed the spin-offs on June 29 and also executed a 4:1 reverse share split. Its realigned business segments include: ADT Worldwide; Fire Protection Services; Flow Control; Safety Products and Electrical and Metal Products. The Flow Control segment led revenue growth, up 22% to $982m. Electrical and Metal Products was the only segment to record a decline in sales, at -1% to $519m. CEO Ed Breen commented that "performance came in at the high end of our estimates ... driven by improvements across most of our businesses." Tyco expects 4Q sales growth of 6% - 7% (organic at 4%), with operating profit margin before special items of 9.0% - 9.5%. Shares of Tyco gained 0.8% to $48.00 on Monday and are untraded so far in the pre-market.
Sources: Press release, Bloomberg, MarketWatch
Commentary: Why I Passed On the Tyco Spinoffs • Tyco Spinoffs' Valuation Uninspiring • On the Tyco Break-Up: Come Up With a Hard Estimate in Advance
Stocks/ETFs to watch: TYC. Competitors: GE, HON, UTX. ETFs: XLI, IYJ, VIS
Duke Energy Beats On EPS, Revenue Just Misses
U.S. Utility Duke Energy Corp. reported net income slipped 17% in its second quarter, to $293 million. EPS came in at $0.24 excluding special items, which included fees associated with spinning off Spectra Energy. Analysts were expecting an average of $0.20 per share on that basis. Revenue rose 4.8% to $3.04 billion, slightly below consensus analyst estimates of $3.05 billion. Assuming normal weather conditions, Duke expects full year earnings to top its previous guidance of $1.15 a share. CEO James E. Rogers said he was "very pleased with the strong performance of our major business units." Duke shares have lost 6.5% YTD, trailing 6% gains in the utility sector as a whole. Shares climbed 4.62% in composite trading Monday, only to fall 2.5% after hours.
Sources: Press Release, Reuters, AP, MarketWatch
Commentary: Duke Energy Pays Royal Dividends • Duke Energy Corp. Misses By a Penny • Cramer's Take on DUK
Stocks/ETFs to watch: DUK. Competitors: EXC, SO, AEP, TXU. ETFs: XLU, UTH, VPU
Marsh & McLennan 2Q Net Edges Higher, But Misses; Announces $1.5B Buyback
Marsh & McLennan Cos., the largest insurance brokerage in the world, reported a 2.9% increase in 2Q profit to $177 million, or $0.31/share, on sales growth of 7% to $2.82b. Adjusted EPS of $0.29 came up short of analysts' average estimate of $0.36, but revenues topped expectations of $2.75b. Marsh's board of directors approved a $1.5b share repurchase program, which president and CEO Michael G. Cherkasky said will "begin as soon as possible." Expected net proceeds of $2.5b from its $3.9b sale of Putnam Investments which closed last week will be used to fund the buyback. Sales rose 1.6% to $1.12b at its flagship insurance brokerage Marsh Inc., for the first time since 2004, when it faced allegations of bid-rigging. Marsh completed its previously announced $500m buyback in July. Shares of Marsh gained 2.9% to $27.65 on Monday and are untraded so far in the pre-market.
Sources: Press release, Bloomberg, MarketWatch
Commentary: Weekly Earnings Preview: The Roller Coaster Comes To An End • Upcoming Ex-Dividend Dates For Russell 1,000 Stocks Yielding Over 2% • Marsh & McLennan An LBO Candidate? Inside Sources Say No
Stocks/ETFs to watch: MMC. Competitors: AIG, AOC, ING, WSH. ETFs: KIE
BMC Posts Higher 1Q Earnings, Beats Street, Raises Guidance
BMC Software reported fiscal 1Q net income jumped 85% to $57.2 million, or $0.28/share, with adjusted EPS of $0.37 beating the Street's consensus forecast of $0.34. Shares of BMC spiked 4.1% to $28.94 in extended activity on thin volume, after gaining 1.5% to $27.79 during normal trading. BMC's 1Q revenues rose 6.5% to $385m, topping analysts' average estimate of $375m. BMC raised its full-year EPS guidance to $1.69 - $1.79, compared to analysts' average estimate of $1.68. For the current quarter, BMC projects EPS of $0.39 - $0.44, on sales of $395m - $410m. Analysts were expecting $0.41/share, on sales of $401m. First-quarter bookings rose 19% on strength in its corporate service management and mainframe service management business, commented CEO Bob Beauchamp. (See earnings call transcript).
Sources: Press release, MarketWatch, Reuters
Commentary: BMC: Even Software is Bigger in Texas • BMC Software: Focused on Taming the IT Infrastructure • What Will Underpin BMC Software If Growth Falters? - Barron's
Stocks/ETFs to watch: BMC. Competitors: CA, HPQ, IBM. ETFs: SWH, PSJ, IGV
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• Warner Music Group (WMG), home to artists Madonna, the Red Hot Chili Peppers and Green Day, saw its losses increase during the latest quarter on charges related to its realignment initiative, due to a major sea change in the recording industry. Net losses amounted to $17 million, or $0.12 cents a share, versus a net loss of $14 million, or $0.10 cents a share a year ago. Excluding one-time items, WMG would have posted a gain of $0.20 a share. Consensus estimates were for EPS of $0.15, excluding items. Revenues fell 2.2% to $804 million. (source: Wall Street Journal)
• Harrah's Entertainment, Inc. (HET) saw its 2Q profit surge 85%, but missed on adjusted EPS. Earnings nearly doubled to $1.25 a share, versus $0.69 a share a year earlier. Adjusted EPS was $0.96 versus $0.95 a year ago. Consensus estimates were projecting adjusted EPS of $0.98. Revenue grew 14% to $2.7 billion, topping consensus estimates for revenues of $2.59. (source: AP)
• El Paso Corporation (EP) gained 3.68% in pre-market trading just before 8 a.m. ET as the natural gas producer saw its 2Q profits rise 11% on an increase in production. EPS was $0.22 including "an $0.08 charge for debt repurchases," versus EPS of $0.19 a year earlier. Analysts were looking for EPS of $0.23 on average (it was not immediately clear if analysts' estimates and El Paso's stated EPS were comparable). Revenues climbed to $1.20 billion, from $1.09 billion a year earlier. (source: Press Release, Reuters)
Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
Yesterday began with a continuation of Friday's sell-off with heavy volume on the downside. By 11 a.m. Eastern, the Dow was off nearly 100 points. American Home Mortgage (AHM) halted trading after forfeiting most of its market capitalization, casting a cloud over early trading.
But UBS upgraded Merrill Lynch (MER) during the weekend, and TD Ameritrade (AMTD) and Thomson Financial agreed with the "buy" assessment of MER while adding Morgan Stanley (MS), Lehman Bros. (LEH) and E-Trade (ETFC) to the list. It may have seemed like Wall Street formed circles to sing "Kum Ba Yah" around the campfire, but it was enough to launch a wave of bargain hunting and then short covering.
The result was the stock market's best day in more than four years back-to-back with its third-worst day of the year on Friday. Hope is reborn, and now traders are looking forward to an extension of yesterday's bold rally and more comforting announcements from the Fed today.
At the close, the Dow Industrials gained better than 287 points to finish at 13,469. The S&P 500 was up over 34 points at 1,468, and the Nasdaq was up 36 to 2,547. Volume was heavy with 2.2 billion shares trading on the NYSE and 2.8 billion on the Nasdaq, but breadth was narrowly positive at about 8/7 on both exchanges.
Crude oil (September contracts) fell by $3.42 to $72.06 a barrel, and that accounted for the narrow breadth readings on the major stock exchanges; a large number of energy stocks are represented on most exchanges and yesterday they found it tough going. But the Amex Energy SPDR (XLE) closed higher by 37 cents, triggering a reversal and a CBR buy signal (our proprietary indicator).
It was an impressive reversal that took the index from down more than 2 1/4 points through the 100-day moving average and back up to a positive close. Gold (December contracts) closed down $1.10 at $683.30 per troy ounce, and the Gold/Silver Index [XAU] lost $2.08 and closed at $141.64. However, the XAU did finish above its 200-day moving average, and its internal indicators are now oversold -- look for a reversal soon in the XAU.
What the Markets Are Saying
Yesterday's triple-digit rally was impressive with the better-quality stocks receiving the focus of attention. As a result, the broad-based indexes did well with the S&P 500 up 2.42% and the NYSE Composite up 1.9%, compared with Nasdaq which gained 1.44%.
The S&P, the NYSE and the Nasdaq all reversed off of their respective 200-day moving averages and that was impressive, too, but also highly predictable since they went into the session in such an oversold state. No doubt the Fed will give some support to the market today in its afternoon announcement.
That development may bring in more buyers; however, resistance in all of the indexes is now just above yesterday's closes. For the Dow it is 137 points, for the S&P it is 23 points, and for the Nasdaq 40-50 points. It would be wise not to chase this bounce unless you go after some of the better-quality techs.
Today's Trading Landscape
Today look for earnings from Avis Budget (CAR), Buca (BUCA), Cisco Systems (CSCO), Cree (CREE), Dean Foods (DF), Dendreon (DNDN), Dollar Thrifty (DTG), Duke Energy (DKE) (read above), Eagle Bulk Shipping (EGLE), EGL Eagle Global Logistics (EAGL), El Paso Corp. (EP) (read above), eMagin (EMAN), Emerson Electric (EMR), Equity One (EQY), Fluor (FLR), Forest Oil (FST), Harris Corp. (HRS), Harrah's (HET) (read above), Health Care REIT (HCN), International Flavors & Fragrance (IFF), Martin Marietta (MLM), McCormick (MKC), McDermott International (MDR), MHI Hospitality (MDH), Papa John's (PZZA), PG&E Corp. (PCG), Technology Investment Capital Corp. (TICC), Tenet Healthcare (THC), Tesoro (TSO), TXU Corp. (TXU), Tyco (TYC) (read above), US Cellular (USM) and many others.
The following economic reports are due today: Q2 non-farm productivity (the consensus expects 2.0%), unit labor costs (the consensus expects 1.7%) and the June consumer credit (the consensus expects $5.3 billion). Despite the reports, all attention will be focused on the Fed's policy decision at 2:15 p.m. Eastern today.
Asian Headlines (via Bloomberg.com)
• Asian Commodity Stocks Drop, Led by Inpex on Oil Price; Macquarie Rises Asian energy stocks fell, led by Inpex Holdings Inc., after oil dropped for a third day. Macquarie Bank Ltd. and HSBC Holdings Plc (HBC) gained on speculation the U.S. government will take steps to contain subprime mortgage losses that triggered declines in global equities.
• Shinsei Reports $30 Million of Subprime Losses, Has $200 Million at Risk Shinsei Bank Ltd., Japan's second- worst performing bank stock this year, said losses on subprime loans reached $30 million and it has more than six times that amount of U.S. mortgage-backed securities that may be affected.
• Hongkong Land's First-Half Profit Jumps 30 Percent on Higher Office Rents Hongkong Land Holdings Ltd., one of the biggest business-district landlords in the world's second- most expensive city for offices, said first-half profit surged 30 percent amid rising commercial rents.
• Indonesia's Central Bank Keeps Interest Rate on Hold After Inflation Jumps Indonesia's central bank kept its benchmark interest rate unchanged, after 13 cuts since May 2006, to cool inflation fanned by a weaker rupiah.
European Headlines (via Bloomberg.com)
• European Stocks Advance, Paced by Barclays, Societe Generale; Dexia Gains European stocks rose on speculation the Federal Reserve will signal today that credit market losses may slow U.S. economic growth, reigniting speculation the central bank will lower borrowing costs.
• Xstrata Offers $1.07 Billion for Eland Platinum; First-Half Profit Doubles Xstrata Plc offered 7.5 billion rand ($1.07 billion) for Eland Platinum Holdings Ltd., South Africa's best-performing stock this year, and said first-half profit more than doubled.
• Standard Chartered First-Half Net Income Rises 26 Percent on China, India Standard Chartered Plc, the U.K.'s best-performing bank stock this year, said first-half profit rose 26 percent on gains in India, China and the Middle East.
• Saint-Gobain to Buy Unit From Germany's HeidelbergCement for $2.94 Billion Cie. de Saint-Gobain SA, Europe's biggest supplier of building materials, agreed to buy the Maxit unit of HeidelbergCement AG for 2.13 billion euros ($2.94 billion) to double its production of industrial mortars.
• Swiss Re Profit Jumps 45 Percent as Purchase of GE Unit Boosts Premiums Swiss Reinsurance Co. (OTC:SWCEY), the world's largest reinsurer, said second-quarter profit rose 45 percent after the purchase of a General Electric Co. unit boosted premium income.