Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:58 AM ET
S&P 500: +0.00; 1,466.50
NASDAQ 100: -4.75; 1,934.75
Dow: +4.00; 13,265.00
NIKKEI 225: -0.41%; 16,248.97 (-67.35)
HANG SENG: -0.20%; 22,921.89 (-45.08)
SHANGHAI SE COMPOSITE: +1.49%; 5,107.67 (+75.17)
BSE SENSEX 30: +1.84%; 14,424.87 (+260.89)
FTSE 100: -0.01%; 6,196.00 (-0.90)
CAC 40: +0.33%; 5,541.68 (+18.35)
XETRA-DAX: -0.44%; 7,478.55 (-33.41)
Commodity Futures (Reuters/Jefferies CRB)
Oil: +0.07%; $69.88 (+$0.05)
Gold: +0.34%; $670.70 (+$2.30)
Natural Gas: -0.21%; $5.61 (-$0.01)
Silver: +0.70%; $11.88 (+$0.082)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
Durable Good Orders Surge an Unexpected 5.9%
Orders for durable goods surged 5.9% in July on higher demand for airplanes, vehicles, computers and steel, among others, the Commerce Department said Friday. Net of a 10.8% surge in the volatile transportation sector, orders rose 3.7% -- the biggest jump in two years. The numbers far exceeded the expected 1% gain forecast by economists, or 0.6% net of transportation equipment. In June, durable goods orders rose 1.9% -- revised from a previously estimated 1.3% gain. "Strong orders point to continued business spending, which is sorely needed to keep the U.S. economy alive throughout the current credit squeeze," Bank of Tokyo-Mitsubishi UFJ Ltd. economist Ellen Zentner told Bloomberg. Unfilled orders, a barometer of future demand, jumped 2.4% in July -- its highest level since the series was first measured in 1992, and followed a 1.6% June increase.
Sources: Press release (.pdf), MarketWatch, Bloomberg
Commentary: Now Entering The Eye of the Market's Hurricane • Staying The Course Amidst This Relative Valuation Reversal
Stocks/ETFs to watch: DIA, SPY, AGG
Proposed Tax Bill Could Knock $10.5B Off Blackstone's Market Cap
A proposed Senate bill that raises taxes on publicly-traded private-equity and hedge-fund firms would increase the annual tax bill of recent IPO Blackstone Group LP by $525 million, the company said in a letter. The bill would likely dissuade similar companies from going public, it said, depriving the government of the revenues resulting from their stock sales. "In our opinion, the Baucus-Grassley bill would actually result in a significant net loss of tax revenues by dramatically decreasing the number of firms willing to access the public markets," it said. The legislation, it claims, would crush its earnings, and wipe out up to $10.5 billion of the company's $25 billion market cap, resulting in further tax losses to the government. Until now, buyout firms had fought the bill by saying it would hurt the economy and reduce returns for investors such as pension funds. The current letter takes a two-pronged tack, coupling the previous argument with the idea that tax increases will depress the company's earnings and market cap, substantially reducing the government's take in its shareholders' capital gains taxes. Univ. of Illinois law professor Victor Fleischer admitted there is "some truth" to Blackstone's argument that the bill would discourage private-equity IPOs. Still, he argues Congress should adopt the legislation: "The bill is not going to be a huge revenue-generator, but it has independent merit in protecting the integrity of the corporate tax code," he said. Blackstone shares trade at about $25, about 22% below its IPO price of $31.
Commentary: Blackstone Is A Dog • Blackstone Group Gets The Thumbs Up From Analysts
Stocks/ETFs to watch: BX. Competitors: FIG. ETFs: PSP
Burger King Beats On EPS, Sales; Tops Full-Year Growth Estimates
Reversing a loss from a year ago when it had to pay $0.26-a-share in expenses related to IPO costs, Burger King swung to a gain in its recently ended quarter (F4Q07), on an 11% y/y increase in revenues and a 4.4% y/y increase in global same-store sales (check back later for BKC's most recent earnings call transcript). Excluding a $0.03-a-share charge on lease termination costs, adjusted EPS was $0.29 on net income of $36 million. The fast food burger maker recorded a net loss of $10 million in the year earlier period and adjusted EPS of $0.18. Revenue climbed 11% to $590 million as same store sales in the U.S. and Canada rose 4.8%. Consensus analyst estimates were looking for adjusted EPS of $0.27 on revenue of $580 million. For FY07, which ended with the recent quarter, Burger King's revenue climbed 9% to $2.23 billion, above its initial estimate of 6-7% growth, which it announced it would likely top in April. According to CEO John Chidsey, "We expect to see rapid development in the coming years in all of our international segments... For fiscal 2008, we expect to perform at the top of our industry." Shares are up nearly 34% since the company's IPO in May 2006; shares were higher by 1.3% in composite trading Thursday and gained an additional 3.05% after hours in anticipation of Friday's earnings report.
Sources: Press Release, Wall Street Journal, MarketWatch, Reuters
Commentary: Burger King Is Actually A Turnaround Story • Burger King's Post-LIPO Recovery • Cramer's Take on BKC
Stocks/ETFs to watch: BKC. Competitors: MCD, YUM, WEN. ETFs: VCR, PEZ, PBJ
Earnings call transcripts: Burger King F3Q07 (Qtr End 3/31/07)
Heinz Fiscal Q1 EPS In-line, Affirms FY EPS at Upper End
H.J. Heinz reported in-line fiscal first-quarter results, as net income increased 5.8% to $203.5 million, or $0.63/share, on a 9.1% rise in revenues to $2.25B. For the full year, Heinz said it is "on track" for EPS at the upper end of its $2.54 - $2.60 range. Analysts had forecast $2.60, on average. Heinz credited Q1 growth to greater investments in marketing, which boosted organic sales by 5.3%, including double-digit growth in ketchup, beans, soups and Smart Ones (a line of healthy entrees). Sales rose 8% in North America and climbed 15% in emerging markets. Heinz raised prices by an average of 2.8% in reaction to commodity cost increases of 4.7% during the quarter. Shares of Heinz gained 0.2% to $45.22 on Thursday.
Sources: Press release, MarketWatch
Commentary: Heinz Trumpets Good News - Anticipating Shareholder Wrath • 100 Stocks to Offset Rising Food Prices • 32 Big Dividend Payers: Buy Now, Profit Later
Stocks/ETFs to watch: HNZ. Competitors: CPB, CAG. ETFs: PBJ
AnnTaylor's Q2 Net Drops 27%, But Beats; Slow Sales Miss Estimates
AnnTaylor reported Q2 net income declined 27% to $31.7 million, or $0.50/share, on sales growth of about 1% to $614M, beating EPS estimates by $0.02, but falling short of analyst expectations for sales of $618M. Same-store-sales fell 6.2% on the quarter. Sales at AnnTaylor were off 3.4% to $216.9M and sales at LOFT were down 1.8% to $310M. Gross margins fell 3.6% to 50.6%. CEO Kay Krill called the quarter "challenging," noting "persistent traffic softness and some product-specific issues at both divisions caused us to be promotional during the quarter." Krill says the company's Ann Taylor and LOFT divisions are "positioned to deliver ... a good second half." Full-year EPS guidance was reaffirmed in the range of $2.15 - $2.25 (vs. analysts' average estimate of $2.10). The company repurchased 3.8M shares for $137M in Q2, completing its $300M buyback program -- the board of directors authorized a new $300M buyback program. AnnTaylor said it is planning to launch a new concept in fall 2008. Shares of AnnTaylor were last up 2.2% to $30.30 in thin pre-market trading, after gaining 0.6% to $29.64 on Thursday.
Sources: Press release, Bloomberg, MarketWatch
Commentary: July Same-Store Sales Roundup • AnnTaylor's Q1 Profit Down, In-line with Estimates, Reiterates FY Guidance
Stocks/ETFs to watch: ANN. Competitors: CHS, TLB, GES, LIZ, GPS
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Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
There was a bit of positive news yesterday, like the injection of $2 billion by Bank of America (NYSE:BAC) into beleaguered Countrywide Financial (CFC), and later in the day the Congressional Budget Office's statement that "in spite of the recent situation, the economy remained sound."
But after a week of buying following last Thursday's reversal up, it was time to take a breather. If there was one news item that led some investors to take profits or even seek refuge it was Countrywide's CEO, who said on CNBC that the housing market would lead the economy into a "recession." That statement knocked the Dow lower by about 40 points but by mid-afternoon, buyers emerged and at the end of the day prices stabilized.
However, investors are still wondering what the Fed will do at its next meeting and some think that the pressure is on the Fed to cut the benchmark rate that is charged between banks from the present 5.25% to 5.00%. The guessing will go on until the Federal Open Market
Committee [FMOC] meeting on Sept. 18.
At the close, the Dow Industrials were off fractionally at 13,235. The S&P 500 lost under 2 points at 1,463, and the Nasdaq was off 11 points to close at 2,542. The NYSE traded almost 1.4 billion shares, and the Nasdaq traded 1.6 billion. Breadth on the New York Stock Exchange was slightly positive but negative on the Nasdaq by 9/5.
Crude oil was up yesterday by 57 cents with the October contract closing at $69.83 a barrel. The Amex Energy SPDR (NYSEARCA:XLE) rose by 48 cents, closing at $67.73 and managing to penetrate the 20-day moving average. The next stop could be the resistance at $70. Gold closed lower by 30 cents at $668.40 per troy ounce (December contract) and the Philadelphia Gold/Silver Index [XAU] was off by $1.56 and closed at $136.16.
What the Markets Are Saying
Last Thursday's dramatic reversal is looking more and more like the genuine article with enormous volume, a classic key-reversal day, and lingering fear as measured by the put/call ratio that's still almost at record levels. The American Association of Individual Investors' [AAII]
sentiment numbers still show more bears than bulls (43.12% versus 41.28%) but after a week of rallying, the market is now getting into some serious overhead.
On the S&P 500, the resistance starts at yesterday's close of 1,463 and runs up to 1,487. That first number, coincidentally, is almost exactly where the S&P closed business last night and represents a full 50% retracement of the high of 1,555 made last month and last Thursday's
intraday low of 1,370. The support for the S&P 500 begins at 1,430 and runs down to 1,406. It may be best to take off early for a long weekend.
Today's Trading Landscape
Earnings should be reported today from Ann Taylor (NYSE:ANN) (read above), Cathay Financial (NASDAQ:CATY) and HJ Heinz (HNZ) (read above). Burger King (BKC) reported a gain of 26 cents a share (read above) versus a loss last year.
But today, it won't be earnings that will likely move the markets but the housing market -- all eyes will be on the New Home Sales numbers which will be reported at 10 a.m Eastern. The consensus expects 820,000, or -1.7%, month-over-month versus -6.0% in June. We'll also get the durable goods figures (consensus expects 1.0%, excluding transportation 0.6%) to cap off the week of economic reports.
Asian Headlines (via Bloomberg.com)
• Asian Stocks Snap a Four-Day Rally as BHP, Posco Slide; Canon Advances Asian stocks fell for the first time in five days after Bank of China Ltd. said it had almost $9.7 billion invested in U.S. subprime loans.
• Yuan Gains Most in Six Weeks on Speculation Stocks Rally to Draw Inflows China's yuan rose the most in more than six weeks as a central bank official said capital inflows pose a risk to the economy, spurring speculation the government will allow faster currency gains to cool growth.
• Insurance Australia Second-Half Profit Drops 31 Percent on Storm Payouts Insurance Australia Group Ltd., the nation's largest auto and home insurer, had its fifth consecutive decline in earnings on higher payouts for storms and narrowing profit margins. The company's shares headed for their biggest drop in almost five years.
• Dollar Slides Against Yen Before Report That May Show New Home Sales Fell The dollar fell for a third day against the euro before a government report that's forecast to show sales of new homes in the U.S. weakened in July to the lowest in seven years.
European Headlines (via Bloomberg.com)
• Global Stocks, U.S. Futures Fall; Allianz, Financial Shares Pace Decline Stocks in Europe and Asia dropped, led by financial companies, paring the biggest weekly gain in global equity markets since March. U.S. index futures retreated before a report that may show new home sales fell to a seven-year low.
• European Manufacturing, Services Expansion Slows on Global Credit Squeeze Growth in Europe's manufacturing and service industries slowed in August as the pace of orders cooled, indicating turmoil in world credit markets may be starting to weigh on the economy.
• Standard Chartered Drops on Concern About Risk From $18 Billion Debt Fund Standard Chartered Plc dropped as much as 4.3 percent in London trading on speculation the company may be understating its risk from Whistlejacket Capital Ltd., an $18 billion debt fund the U.K. lender manages.
• Former BP Chief Browne Resigns From Apax Advisory Board, Joins Riverstone John Browne, former chief executive officer of BP Plc (NYSE:BP), resigned as chairman of the advisory board of Apax Partners Worldwide LLP to join Riverstone Holdings LLC and help expand the private equity firm's energy business.
• U.K. Economic Growth Accelerated in Second Quarter on Household Spending The U.K. economy accelerated in the second quarter, driven by consumer spending and business services, putting it on course for the best growth performance in three years.