Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:50 AM ET
S&P 500: +17.00; 1468.00
NASDAQ 100: +21.75; 1950.75
Dow: +123.00; 13360.00
NIKKEI 225: +0.21%; 16,800.05 (+35.96)
HANG SENG: +0.45%; 21,891.10 (+98.39)
SHANGHAI SE COMPOSITE: +1.49%; 4,820.06 (+70.70)
BSE SENSEX 30: +1.00%; 15,017.21 (+148.96)
FTSE 100: +2.39%; 6,182.50 (+144.20)
CAC 40: +1.96%; 5,555.30 (+106.67)
XETRA-DAX: +1.29%; 7,437.89 (+94.63)
Commodity Futures (Reuters/Jefferies CRB)
Oil: +1.27%; $72.38 (+$0.91)
Gold: +0.13%; $682.50 (+$0.90)
Natural Gas: +1.76%; $6.94 (+$0.12)
Silver: +0.27%; $12.905 (+$0.035)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
Blackstone Beats Estimates Despite Challenging Conditions
The Blackstone Group said Monday 2Q net income and revenue tripled; the private-equity buyout firm went public in June. Net income was $774.4 million, up from $224.1 million in 2006, and revenue rose to $975 million from $325 million. Economic net income after taxes (which excludes some compensation costs) rose to $515 million ($0.46/share) from $118 million ($0.11). On that basis, EPS beat analyst estimates of $0.34. "Throughout much of the second quarter, the operating environment was fundamentally positive, with global equity markets approaching near-record levels and the global economy, particularly in the U.S., remaining healthy. Concerns over weakness in the U.S. housing market and sub-prime mortgage market, coupled with a large volume of debt financing backlog related to leveraged equity transactions, served to create more challenging financing conditions starting in the last week of the quarter, which continue to date," the company said in a press release (see full earnings transcript later today). "It's the most visible private-equity firm out there and it's a whipping boy one day and the best boy on the block the next," said Paul Schaye of Chestnut Hill Partners. "We're seeing a squeeze on the debt markets and that changes the economics." Shares are down 27.9% since Blackstone's IPO, and are up 3.7% in pre-market trading.
Sources: Press release (.pdf), Bloomberg, MarketWatch
Commentary: Blackstone Is A Dog • Private Equity Returns: You May Do Better With Treasuries
Stocks/ETFs to watch: BX. Competitors: APOL, GS, MER, MS
Sysco 4Q Profit Up 19%, Beats Street
Sysco Corp., the largest food distributor in the U.S., posted a 19% rise in 4Q net income to $303.4 million, or $0.49/share, beating analysts' average estimate of $0.46. Sales increased 8.5% to $9.23B, topping expectations of $9.15B. Sysco was helped by its raising of prices by 6.1%, which offset higher costs for dairy, beef and other commodities. However, 4Q gross profit margins fell 34 basis points to 19.51%, hurt primarily by "high inflation," according to Sysco. In a press release, Sysco said it expects long term annual nominal sales growth of 7% - 9%, excluding the impact of major acquisitions. CEO Richard J. Schnieder said the company "expects to convert this sales growth into low- to mid-double digit annualized EPS growth." Shares of Sysco were last up 3.4% to $33.50 in thin pre-market trading. Sysco gained 3.5% to close at $32.40 on Friday.
Sources: Press release, Bloomberg, MarketWatch
Commentary: 100 Stocks to Offset Rising Food Prices • Eye on Sysco: Good Business, Bad Economy • Sysco 3Q Net Up 15%, But Misses Estimates by a Penny
Stocks/ETFs to watch: SYY. ETFs: PBJ, PSL
Sears Lowers 2Q Guidance For Second Time In a Month
In what appears to be becoming a regular occurrence, Sears Holdings Corporation has again lowered its guidance for 2Q. For the second time in a month, Sears tempered earnings expectations for the quarter ended August 4. It now expects net income of $170 million-$185 million, good for EPS of between $1.13 to $1.23, versus net of $294 million (EPS of $1.88 a share) a year ago. Sears blamed rising markdowns, "most notably in seasonal apparel," for the weak forecast. In addition, same-store sales fell 3.8% at Kmart and 4.3% at Sears branches in the recently-ended quarter. Only one month ago, Sears warned it expected soft EPS of $1.06-$1.32 on net income of $160 million-$200 million, well below the $2.12-a-share consensus estimates were calling for at the time (full story). The last announcement sent shares down 10%; Sears shares are down nearly 21% this year. Shares are as of yet untraded in pre-market action. Sears' board approved another $1.5 billion in share buybacks in the upcoming quarter. The company repurchased $1.5 billion worth of its own shares during 2Q at an average price of $153. Shares closed Friday at $133.10.
Sources: Press Release, MarketWatch, TheStreet.com, AP, Reuters,
Commentary: Sears: Let People Know About Land's End • Sears Plunges 10% On Lowered Earnings Outlook • Sears Holdings Warns on Q1 Earnings
Stocks/ETFs to watch: SHLD. Competitors: WMT, TGT, JCP. ETFs: XRO, PMR, RTH
Goldman Injects $3B Into Flagging Global Fund
Goldman Sachs said Monday its Global Equity Opportunities fund has taken steep losses, and said it and others will inject $3 billion into the fund to keep it liquid. "Many funds employing quantitative strategies are currently under pressure as recent conditions have resulted in significant market dislocation. Across most sectors, there has been an increase in overlapping trades, a surge in volatility and an increase in correlations. These factors have combined to challenge many of the trading algorithms used in quantitative strategies," the firm said in a press release. New investors joining Goldman in include Perry Capital, C.V. Starr & Co., and Eli Broad. The investors, Goldman says, feel "current values that the market is assigning to the assets underlying various funds represent a discount that is not supported by the fundamentals." Goldman said fund investors will be given the opportunity to invest alongside the firm. The firm did not disclose a dollar value on the funds losses; earlier Monday Bloomberg reported the fund has lost 13.9% over the past year.
Sources: Press release, MarketWatch, Bloomberg, TheStreet.com
Commentary: Shorting the Golden Goose That Is Goldman Sachs • That's Bull Stearns, not Bear Stearns - Barron's • Investment Teasers: The Good, the Bad and the Ugly
Stocks/ETFs to watch: GS. Competitors: BSC, MS, LEH, MER
Earnings call transcript: Goldman Sachs F2Q07
China: Surging Food Prices Push Inflation to Highest in 10 Years
China's National Bureau of Statistics announced consumer prices climbed 5.6% y/y in July, the fastest pace in more than a decade, as food costs surged 15.4% due to a pig shortage resulting in higher pork prices and inclement weather destroyed crops. Economists were expecting an increase of 4.6% on average. Many economists believe the People's Bank of China [PBOC] will be forced to raise interest rates and reserve requirements at least once more this calendar year. Inflation averaged 3.5% year-to-date through July, ahead of the Bank's 3.0% target. Food is said to account for one-third of the consumer price index and Bloomberg reports meat costs jumped 45% y/y, while egg prices rose 31%. Two economists at Capital Economics in London said the mostly food-driven inflation will likely ease "once supply disruptions have worked themselves out." Still, with economic indicators at "alarming" levels, according to the PBOC's deputy international chief, monetary actions appear to be a matter of when, not if. The Shanghai Composite gained 1.5% to 4,820, renewing its all-time high.
Commentary: Will Tomorrow Be Black Monday In China? Depends On the Headline Inflation Data • Morgan's China A-Shares Fund Suffering From Holding Other China Funds • A Look At China's Retail Environment
Stocks/ETFs to watch: Bond funds: SHY, IEF, TLT. Currency funds: DBV, FXE, FXY. China funds: CAF, FXI, PGJ
Seeking Alpha's news briefs are combined into a pre-market summary called Wall Street Breakfast. Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.
Today's Market (via Sam Collins, ChangeWave.com)
Recap of Last Week's Action
On Friday, the central banks of Asia, Europe and the United States intervened in the world's credit markets attempting to stabilize the systems by injecting more than $130 million. This followed a 95-billion-euro loan by the European Central Bank [ECB] on Thursday. Wall Street welcomed the intervention -- stocks rallied from over a 200-point deficit to make up most of the losses, and the S&P 500 actually closed higher.
In addition, the U.S. Federal Reserve promised to provide reserves "as necessary" to the federal funds market, and the other central banks followed with supporting comments of their own. On the flip side, Countrywide Financial (CFC) said its allowance for losses climbed by 97% from the end of last year; the stock fell to $27.86, off 2.8%. The major Wall Street firms took a hit, too, with Bear
Stearns (BSC) down $3.85, Goldman Sachs (GS) off $1.75, and Lehman Brothers (LEH) down $1.08.
At Friday's close, the Dow Industrials were off 31 points at 13,239. The S&P 500 gained .55 at 1,454, and the Nasdaq lost 12 points to close at 2,545. High volume continued through Friday's session with the New York Stock Exchange trading 2.5 billion shares and the Nasdaq doing 3.2 billion. Declines exceeded advances on the New York by 5/3 and by 3/2 on the Nasdaq.
Selling hit the oil markets again on Friday with the September contract closing down 12 cents at $71.47. The Amex Energy SPDR (XLE) gained 9 cents for its second upside reversal in the week, which sets support at $65 with resistance at just above $70. Gold (December contract) rose by $6.80 per troy ounce closing at $681.60 for a daily reversal, and the Philadelphia Gold/Silver Index [XAU] gained $1.70 to close at $144.34.
But with all of last week's negative news, the volatility, the huge volume, and the second-worst daily loss of the year on Thursday, the markets actually registered a gain for the week. The Dow Industrials were up 0.44%, the S&P 500 gained 1.4%, and the Nasdaq rose by 1.3%. Despite the relatively positive end note to the wild ride and the Fed's decision not to reduce rates on Tuesday, there are many who support a rate cut, especially if the crisis broadens this week.
What the Markets Are Saying
The S&P 500 registered a reversal on Friday, and even though its gain for the day amounted to just a half-point, the turnaround happened near Monday's low and last Friday's close. That sets the S&P up for a possible double bottom at around S&P 1,430, and, despite the fact that the bottom is fragile, the other indexes also held at the Friday/Monday support line.
If the S&P holds at 1,430, the next resistance occurs at around 1,500. However, if it fails, look for a test of the band of support that starts at the 325-day exponential moving average at 1,408 and the March low of 1,374.
Today's Trading Landscape
Quarterly earnings are due today from the following companies: Blackstone Group (BX) (read above), Bob Evans (BOBE), Domtar (UFS), DTE Energy (DTE), Harvest Energy (HTE), InterOil (IOC), Track Data (OTCPK:TRAC), Venoco (VQ) and others.
Reports for retail sales figures and inventories are expected today. However, the market's focus today will again be on liquidity: Goldman Sachs and Barclays will make a public call on the performance of their quantitative funds and both the central bank of Japan and the ECB injected more capital into the system this morning.
Asian Headlines (via Bloomberg.com)
• Asian Stocks Advance After Central Banks Pledge Cash; Kookmin, BHP Climb Asian stocks rose, following their biggest drop in five months, as the region's central banks moved to ease a credit crunch sparked by losses on higher risk mortgages.
• Japan's Economic Growth Slows, Reducing Chance of Interest-Rate Increase Japan's economic growth slowed more than economists forecast in the second quarter, making it less likely the central bank will raise interest rates next week after a global credit crunch.
• Australian Central Bank Raises Core Inflation Forecast to Top of Target Australia's central bank raised inflation forecasts to the top of its target range and said economic growth will accelerate, a week after increasing the benchmark interest rate to an 11-year high.
• Asia's Central Banks Refrain From Extra Cash Injections Like Europe, U.S. Asian central banks refrained from joining U.S. and European counterparts in pumping additional cash into their markets, reflecting confidence fallout from subprime mortgage losses can be contained without their help.
European Headlines (via Bloomberg.com)
• Stocks Advance Worldwide, U.S. Futures Climb; Credit Suisse, JPMorgan Gain Stocks rallied worldwide and U.S. index futures advanced, rebounding from a two-day slump, after central banks pumped cash into the money market and analysts recommended buying financial shares.
• European Central Bank Lends $65 Billion, Says Markets Returning to Normal The European Central Bank lent emergency money to banks for a third day, paring the amount and declaring that markets are returning to normal.
• Akzo Nobel Agrees to Buy Imperial Chemical Industries for $16 Billion Akzo Nobel NV (OTCQX:AKZOY), the world's largest maker of paints and coatings, agreed to buy Imperial Chemical Industries Plc for 8 billion pounds ($16 billion) after a two-month effort to win over the U.K. maker of Dulux and Glidden paints.
• Deutsche Bank Hires Alan Greenspan as Consultant for Its Securities Unit Deutsche Bank AG (DB), Germany's biggest bank, said it hired former Federal Reserve Chairman Alan Greenspan as a consultant for its securities unit.
• Fraport Shares Slump Most in Five Years After Equinet Cuts Recommendation Shares of Fraport AG, owner of Frankfurt Airport, fell the most in more than five years after Equinet AG investment bank cut its recommendation on the stock on concern about declines in landing and aircraft-handling fees.