Bush, Paulson Shrug Off Market Turmoil
President George W. Bush and Treasury Secretary Henry Paulson on Wednesday shrugged off concerns that the U.S. economy may be heading off track in the wake of the subprime crisis that has shaken up markets over the past month. Bush didn't even mention the subprime issue in a short speech. "Markets ultimately look at the fundamentals of the economy," Bush said after a meeting with Paulson and other economic advisers. "The fundamentals of our economy are strong." Bush said volatility in the market had been orderly, particularly the losses in the mortgage industry, adding that there was a lot of liquidity in the system that "will provide the capacity for our system to adjust." Bush didn't commit when asked if he'd support a Federal response to the housing recession, such as agreeing to requests from Fannie Mae and Freddie Mac to raise the $722.5B federal limit on purchases of home loans to add more funding to the mortgage market. Instead, he said he'd like to see their roles reformed. Separately, Paulson said he's monitoring what he called 'disruptions' in financial markets, but stressed that a weak economy wasn't the cause of the credit market upheaval. Rather, he said they were adjusting to a period of "excess," and attributed problems to lower credit standards, saying borrowers weren't quite as disciplined as they should be. The key to maintaining economic growth, Bush and Paulson said, was keeping trade flows open, with Paulson calling reports that China would sell U.S. Treasury holdings if Congress passes bilateral trade sanctions "absurd." Bush also promised to veto any effort by Congress to raise taxes, saying his first-term tax cuts had spurred the economy.
Sources: White House press release, Thomson Financial, MarketWatch, Bloomberg
Commentary: Market Memoir: The Great Bull Market • President Bush Envisions a Soft Landing — What Does He Know? • Alan Greenspan on Credit: Fedipus Rex
Stocks/ETFs to watch: DIA, SPY, AGG
Blockbuster Buys Movielink, Enters Download Market
After months of negotiations, Blockbuster said late Wednesday it acquired Movielink LLC, an online movie downloading service owned by major Hollywood studios. Terms of the deal were undisclosed; the Wall Street Journal says that according to an unnamed source, the final price was less than $20 million. The deal is the latest tack in Blockbuster's transformation from a retail-store-only movie provider. It already competes with rival Netflix in the mail-order rental business, and Movielink will allow it to begin exploring the downloadable movie market. In an interview, CEO Jim Keyes told the WSJ he planned to integrate MovieLink with the company's website, allowing subscribers to download a movie or receive it by mail. The company was formed by a joint effort of major movie studios, including MGM, Paramount, Sony, Universal and Warner Bros., in 2002. After sinking more than $100M into the venture without much to show for their efforts, the studios were reluctant to spend more money to promote the service, leading to the sale. Keyes said Blockbuster would increase awareness of the product by promoting it to its existing customer base. Wedbush Morgan analyst Michael Pachter called the acquisition a 'defensive' move by Blockbuster to "keep up with Netflix. In the long run, if they are successful in neutralizing Netflix, this will work out," he said.
Sources: Press release, Wall Street Journal, Bloomberg
Commentary: Netflix's New Downloads: Sealing the Coffin on the Cable and Satellite Providers? • The Evolution of Video Rentals
Stocks/ETFs to watch: BBI, NFLX
News Corp. Earnings; Sets Plans for Dow Jones
News Corp. posted a 4.5% rise in its FQ4 profit Wednesday, but the results appeared to be secondary to market watchers who were more interested in last week's deal to buy Dow Jones & Co. News Corp. owner Rupert Murdoch said he wouldn't have endured three months of "criticism normally leveled at some sort of genocidal tyrant," if he didn't think the two companies were a "perfect fit." He also said he was exploring "closely" the possibility of making the subscription-based wsj.com free in an effort to boost online advertising, and that Dow Jones should not be separated from News Corp. Murdoch said there were no job cuts planned at Dow Jones, but that he did expect to sell the local newspapers. He also indicated plans to expand investment in all Dow Jones properties in Europe and Asia, and increase non-business coverage at the WSJ (see full earnings call transcript). As for the earnings, which matched analysts' expectations, net income rose to $890M ($0.28/share) on revenue of $7.37B, from $852M ($0.27/share) on revenue of $6.78B last year. A sharp decline (47%) at the 20th Century Fox film business was offset by sharply higher cable profits and earnings from the company's Italian satellite-TV business. Operating income at the company's newspaper unit rose 19% to $203M as revenues increased 13%, while the broadcast-television segment's operating income fell 4.5% to $385M.
Sources: MarketWatch, Wall Street Journal, Reuters
Commentary: News Corp. CFO: Fox Interactive To Benefit From Google Deal In 2008 • News Corp.'s Long-Term Prospects Are Outstanding • Old Media Struggles With New Media Demands
Stocks/ETFs to watch: NWS, DJ. Competitors: TWX, CBS, NYT. ETFs: XLY
Campbell to Sell Godiva -- WSJ
Campbell Soup Co. is expected to announce Thursday it is putting its Godiva Chocolatier business up for sale in order to focus on its soup and baked-snacks businesses. Citing people close to the matter, the Wall Street Journal reports Campbell will explore strategic alternatives for the Godiva unit, which generates annual sales of $500M. The company was expected to attract a broad range of interest from potential buyers. No estimates were given for a possible price, but given Godiva's strong brand name, it could fetch $750M to $1B or more, according to the Journal. Godiva no longer fits Campbell's business focus, which is increasingly geared towards healthier items such as low-sodium soups and Pepperidge Farm whole-grain bread, the Journal said. Increased soup and V8 beverage sales boosted Campbell's third-quarter earnings, and the low-sodium soups have contributed to the turnaround of the U.S. soup business. Campbell has hired Centerview Partners to handle the sale, the report said.
Sources: Wall Street Journal
Commentary: 100 Stocks to Offset Rising Food Prices • Campbell Soup's CEO: 'Satisfied Despite Decline in Soup Sales'
Stocks/ETFs to watch: CPB. Competitors: DLM, HANS, GIS, KFT
Jones Sells Barneys to Dubai Group for $942M, Ending Bidding War
The battle for Barneys New York ended Thursday as Japan's Fast Retailing Ltd. pulled out of the bidding leaving Dubai's Istithmar victorious in the competition for the mens wear chain with a $942.3M bid. "The price we suggested was very different from what they had in mind," a Fast spokesperson said. Jones Apparel Group, which owns Barneys, had agreed in June to sell the chain to Istithmar for $825M after which Fast offered $900M, prompting Istithmar to match that bid, which was followed by a $950 offer from Fast (full summary). Because Jones was obligated to pay Istithmar a $22.7M termination fee had it accepted the Fast deal, it ultimately would have received just $927.3M -- $15M less than Istithmar's latest offer. Under terms of the new deal, Jones is permitted to cancel the agreement if Fast Retailing raises its bid and Jones determines it is a "superior transaction," but would have to pay a termination fee of $34.7M, $12M more than the earlier agreements. Jones purchased Barneys for $400M in 2004. It is expected to use the proceeds from the sale to repurchase stock, pay off some debt and invest in its core business. Fast shares jumped more than 10%, its biggest gain in more than four years, on speculation the deal would fall through, as investors had worried that Barneys was overpriced and that it would be difficult to achieve operational synergies. Istithmar said earlier this year it would spend $1.7B to buy retail, industrial and financial-services companies. It is expected the company might add to the seven existing Barneys locations.
Sources: Press release, Thomson Financial, Wall Street Journal, Bloomberg, Reuters
Commentary: Jones Apparel Group: No Catalysts In Sight to Boost Ailing Stock • Jones Apparel: Room to Grow -- Barron's
Stocks/ETFs to watch: JNY, FRCOF.PK. Competitors: ANN, LIZ. ETFs: RTH
TRANSPORT AND AEROSPACE
Automakers Lower 2007 Forecasts; Toyota Delays New Hybrid
General Motors, Ford and Toyota each lowered their industry sales forecasts for the full-year, but Toyota's Q2 projections improved,after industry-wide sales fell 3.2% year-to-date through July. Toyota expects a 2% full-year decline to 16.3 million autos from 16.6M autos sold in 2006, with a rebound beginning next year and steady growth into the next decade. GM lowered its target to 16.5-16.6M from its forecast earlier this month for 16.6-16.7M. GM's head of sales commented, "The consumer's hurting. If we're in a soft [auto] market, we're going to have to lower price[s]." Ford lowered its outlook to 16.5-16.8M, from its prior forecast of 16.8M. Separately, The Wall Street Journal reports sources say Toyota is delaying the release of its new hybrid model autos until early 2009 (originally scheduled to hit the market in late 2008). Lithium-ion batteries will not be used due to safety concerns, and are now not expected to be released until 2011. Toyota's target of selling 600,000 hybrids annually in the U.S. by early next decade is on hold, according to sources. Approximately 200,000 were sold in 2006.
Sources: Bloomberg, New York Times, Wall Street Journal I, II
Commentary: July Auto Sales Hit Nine-Year Low • July 2007 Light Vehicle Sales: Is the Point of Rationalization Upon Us? • Toyota Posts Double-Digit Profit, Sales Growth, Reiterates FY Guidance
Stocks/ETFs to watch: TM, GM, F, DCX, HMC, NSANY
AIG Tops Forecasts, Not Worried About Mortgage Exposure
American International Group late Wednesday reported second-quarter earnings that bested analysts' expectations despite losses in the subprime market, amid strength in its property and casualty and domestic life insurance businesses. AIG wrote down none of its $32.6B in subprime-linked securities after analysts had said the worst-case scenario could cost as much as $3.25B. A.G. Edwards said "The subprime issue was overblown." AIG said it earned $4.28B ($1.64/share), up from $3.19B ($1.21/share) a year ago. Excluding items, earnings were $4.63B ($1.77/share) vs. $4.16B ($1.58/share) last year. Revenue rose 16% to $31.15B from $26.85B. Analysts had expected earnings of $1.62/share and revenue of $30.17B, on average. Results included a $78M loss in its mortgage guaranty unit on the weakening U.S. housing market vs. a $110M profit last year. Nevertheless, the company was not concerned about the situation. The consumer finance business also was impacted by the cooling housing market, posting operating income of $58M, down from $199M last year. "We continue to be very comfortable with our exposure to the U.S. residential mortgage market, both in our operations and our investment activities," CEO Martin Sullivan said. AIG said it would provide more detail about its exposure to subprime loans in its Thursday conference call (see full transcript later today).
Sources: Press release, Bloomberg, MarketWatch, Reuters
Commentary: AIG's Insurance Business: An Odd Sense of Gains and Losses • American International Group: Bigger is Better - Especially When It's Cheap
Stocks/ETFs to watch: AIG. Competitors: AZ, AXA, ALL, TRV, BRK.A. ETFs: IAK, KIE
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