Lennar Q3 Earnings Plunge
Number-one U.S. homebuilder Lennar Corp. said Tuesday morning it lost $514 million ($3.25/share) during the third quarter, a reversal 2006's net earnings of $206.7 million ($1.30/share). Revenue plunged 45% to $2.34 billion, from $4.18 billion a year ago. Analysts, on average, had been expecting a far milder loss of $0.55/share on revenue of $2.39 billion. The company took a $857 million charge ($3.33/share) for valuation adjustments and write-offs. Gross margins fell to 14% from 19.5% as the company was forced to offer attractive incentives in order to lure buyers and deplete an expanding inventory. Home deliveries were down 41% in the quarter, while the price of homes delivered fell 6%. Lennar said home sales and backlogs were poor in all of its regions. The company said it has cut its work force by 35%, and expects more layoffs in Q4. "It is already well documented that the housing market has continued to deteriorate throughout our third quarter," CEO Stuart Miller said. "Heavy discounting by builders, and now the existing home market as well, has continued to drive pricing downward. Consumer confidence in housing has remained low, while the mortgage market has continued to redefine itself, creating higher cancellation rates." KB Home reports Thursday. Shares trade at $24.18, down from a 52-week high of $56.54.
Sources: Press release, Dow Jones, Bloomberg, Wall Street Journal
Commentary: NAR Cuts Housing Forecasts Again • Moody's Ridiculously Late On Homebuilders' Credit Review • Homebuilders: Hell Fights Back
Stocks/ETFs to watch: LEN. Competitors: KBH, TOL, CEN, DHI, PHM, HOV. ETFs: XHB, ITB
Apple Warns Against iPhone Hacking
Apple said late Monday that iPhones that have been "unlocked" with unauthorized programs may become "permanently inoperable" when an Apple-provided software update is installed. The company said it has discovered that many of the unlocking programs have caused "irreparable damage" to the phone's software, while also stressing that unauthorized changes to the device void its warranty. The iPhone has been a favorite target of hackers because Apple has made it operable only with specific wireless networks, such as AT&T in the U.S., and unlocking the device makes it usable on other networks as well. Although Apple has indicated previously that it may deliberately try to counteract the effects of unlocking programs, it said it was not trying to proactively disable an iPhone that has been hacked or unlocked. Apple noted it plans to release the next iPhone software update, including the iTunes Wi-Fi Music Store, later this week. Although the Street's interest in Apple has been focused largely on the iPhone, which has sold more than a million units since its June release, The Street.com reported late last week that the company's computers are also being sold at a "blockbuster" pace, with expectations that some 2.35M iMacs and MacBooks will be sold this quarter; 400,000 more that analyst estimates.
Sources: Press Release, Wall Street Journal, The Street.com
Commentary: Usability Data Prove Apple's iPhone Really is Better • Google vs. Apple: Choosing the Better Stock
Stocks/ETFs to watch: AAPL, T. Competitors: DELL, HPQ, IBM. ETFs: XLK, IGM, IYW
Earnings call transcript: Apple F3Q07, AT&T Q2 2007
Microsoft May Go Public With Yahoo Bid - NY Post
As rumors circulate about Microsoft taking a stake in social-networking website Facebook (full story), the New York Post reports the company is also considering "going public with the takeover proposal it made for Yahoo! earlier this year in an attempt to prod shareholders to force management to the bargaining table." Sources say Microsoft wants to do a deal, but after having purchased aQuantive earlier this year for $6 billion (full story), it doesn't have the appetite to do another two multi-billion dollar deals, so it's either Facebook or Yahoo, but not both. Sources also say that Microsoft thinks the Facebook negotiations are "much further along" than does Facebook, but cautioned the recent talks could easily fall apart, "which is one reason why Microsoft hasn't abandoned going public with its Yahoo offer." Facebook would give Microsoft an entry into fast-growing social networking; a weak spot for the software giant. It would also allow Microsoft to use its technology unencumbered. A Yahoo deal, meanwhile, would likely raise questions of whose technology to keep and whose to jettison, the Post says.
Sources: NY Post
Commentary: Microsoft Might Take Stake in Facebook - WSJ • Yahoo Could Fetch $53B from Microsoft -- Bear Analyst • The Microsoft -Buying- Yahoo Rumor Still Makes No Sense
Stocks/ETFs to watch: MSFT, YHOO
Microsoft Might Take Stake in Facebook - WSJ
Microsoft is in negotiations to buy a minority stake in social networking site Facebook Inc., according to the WSJ. Microsoft's proposals are said to value Facebook at about $10 billion. Unnamed sources say Microsoft is interested in purchasing up to 5% of the company at a cost of $300-500 million. Microsoft might end up going head-to-head with Google for Facebook, which brushed aside a $1 billion offer from Yahoo last year. Facebook, which might hold out for a valuation of up to $15 billion, is believed by industry observers to be a prime candidate for an IPO in 2008 or 2009. In related news, Microsoft is giving oversight of its online ad business to ad executive Brian McAndrews, whom Microsoft acquired when it bought aQuantive last month for $6 billion. Microsoft, Google, Yahoo and others are competing to construct a "platform" -- a single location at which advertisers can buy ads that appear all over the Internet. Google is well ahead of Microsoft, with an estimated one million advertisers buying ads on its system. Google pulled in $3.9 billion in revenue in Q2, almost all from online ads, against $688 million reported by Microsoft's online group. Microsoft is working with a p.r. firm to combat Google's $3.1 billion acquisition of online ad broker Doubleclick.
Sources: Wall Street Journal, MarketWatch, C|Net News.com, AP, New York Times, TheStreet.com [video], 24/7 Wall Street, Financial Times
Commentary: Microsoft/Facebook Rumors Persist • Will Microsoft Turn Its Sights On Facebook? • Microsoft Hires PR Firm to Battle Google-Doubleclick Merger - WSJ
* Stocks/ETFs to watch: MSFT. Competitors: GOOG, YHOO.
Earnings call transcript: Microsoft F4Q07
EchoStar to Buy Sling Media for $380M; Considers Spinning-Off of Assets
EchoStar Communications, operator of the DISH satellite TV network, announced late Monday it is acquiring privately held Sling Media for $380 million in cash and options. Sling Media's Slingbox connects cable and satellite set-top boxes to the Internet, allowing customers to watch content from their living room via web-connected devices. The deal is expected to close in Q4. "As an early investor in Sling Media, EchoStar has been pleased with the progress and commitment the company has made establishing Sling Media and the Slingbox as powerful and beloved digital media brands," commented EchoStar CEO Charlie Ergen. Sling spokesman Brian Jaquet said the acquisition doesn't change any products or services scheduled to be released, and won't change interoperability of products with EchoStar rivals. Separately, EchoStar said in a statement Tuesday it is considering a spin-off of its technology and assets from its U.S. DISH network business. The transaction is intended to be tax-free for shareholders. "We believe separation of our consumer-based and wholesale businesses could unlock additional value. Each company would be able to separately pursue the strategies that best suit its respective long-term interests," the company said in a Tuesday press release. Shares of EchoStar lost 1% to $41.32 on Monday.
Sources: Press release, BusinessWeek, MarketWatch, Reuters
Commentary: EchoStar Buys Sling Media For $380 Million • EchoStar Snaps Up the Slingbox • EchoStar Posts Strong Cash Flow and Ebitda Growth
Stocks/ETFs to watch: DISH. Competitors: DTV, CMCSA, TWC. ETFs: PPA
Earnings call transcript: EchoStar Q2 2007
Lowe's Predicts Earnings Shortfall
Blaming drought conditions in the mid-Atlantic, Southeastern and Western regions of the U.S., which hurt sales of its outdoor products, Lowe's Corp. said late Monday that earnings for the fiscal year will come in at the low end of or slightly below its $1.97-$2.01/share forecast.Analysts, on average, expected the company to earn $1.99/share for the year. "While part of the weakness is weather related, Lowe's cautious outlook on 2008 suggests underlying trends are weaker than the company expected against easy compares," said one analyst. The housing market has experienced a slowdown as a result of problems in the subprime credit market, which has impacted Lowe's and rival home-improvement retailer Home Depot. Lowe's cited the subprime crisis in August when it lowered its outlook from the $1.99-$2.03/share it had forecast in May. Looking past the current cycle, the company said it expects sales to rise 8-11% annually and EPS growth to average 12-15% annually over the next three years. Lowe's shares slid 6.2% to $28.65 AH following the warning. Home Depot shares lost 2.2% to $33.15.
Sources: Press release, Reuters
Commentary: Lowe's "Runs A Tighter Ship" Than Home Depot • Lowe's: Maybe It's Not The Shoppers, But Where They Shop
Stocks/ETFs to watch: LOW. Competitors: HD. ETFs: RTH, XRT, PMR
Earnings call transcript: Lowe's Companies Q2 2007
Target Warns on September Same-Store Sales
U.S. discount chain Target Corp. said Monday that September same-store sales will likely come in below forecast at, rising just 1.5-2.5%. The company had originally projected a gain of 4-6%. Target said weak store traffic, especially in Florida and the Northeast, was to blame for the shortfall. "The average American consumer is feeling pinched by the combination of tighter credit, higher gas prices and climbing food costs," said Patricia Edwards, a money manager at Wentworth, Hauser & Violich. In view of these strains, the National Retail Federation is forecasting a 4% gain for November and December -- the smallest holiday sales gain in five years (full story). Target is looking for ways to help its share price, which appreciated less than 6% in both 2006 and 2005. It is mulling the sale of its $7 billion credit-card portfolio (in which JPMorgan as well as HSBC's and GE's credit card divisions are said to be interested TheStreet.com reported Monday), and might speed up share buybacks. Target's shares fell 4% in AH trading to $61.74 after falling 2% in regular trading. The company will report September sales results on October 11.
Sources: MarketWatch, Reuters, Bloomberg, AP, TheStreet.com
Commentary: Target Considering Sale of $7B of Credit Card Receivables • Looking for Strength and Weakness in Retail • Eight Halloween Stock Tricks....I Mean Picks
Stocks/ETFs to watch: TGT. Competitors: COST, WMT. ETFs: RTH, XLY, PRFS
Earnings call transcript: Target Corporation September Mid-Month Sales Release Transcript
TRANSPORT AND AEROSPACE
UAW Goes on Strike at GM
The United Auto Workers followed through on their threat to strike if a contract agreement with GM was not reached by Monday, putting GM's turnaround in jeopardy. Approximately 73,000 workers at 70 GM plants across the country downed tools after the breakdown of talks on a four-year contract. The talks had been extended on an hour-by-hour basis for a week following a September 14 deadline. Industry analysts suggest the strike is a means by which the union is showing resolve, and does not represent a disruption of the negotiating process. Indeed, union leaders plan to resume negotiations Tuesday. "This is a little bit of last-minute theater to get GM's attention and to get it to move off the dime," said Burnham Securities analyst David Healy. The WSJ estimates the strike could cost GM $100 million a day. "The bargaining involves complex, difficult issues that affect the job security of our U.S. workforce and the long-term viability of the company," GM said. UAW President Ron Gettelfinger said the breakdown was the result of an inability to resolve the question of job security in the event of plant shutdowns and GM's insistence on capping profit-sharing.
Sources: Financial Times, MarketWatch, Wall Street Journal, Bloomberg
Commentary: UAW Sets Monday Morning Deadline for GM Contract - WSJ • GM Presses UAW On Central Principles As Negotiations Intensify • Are GM Labor Concessions Built Into The Stock?
Stocks/ETFs to watch: GM. Competitors: F, TM, DAI. ETFs: PRFG, RPV
Earnings call transcript: General Motors Q2 2007
Kirby Surges on Revised Outlook
Shares of Kirby Corp. spiked more than 10% to $44.24 in extended Monday trading on news the company raised its Q3 EPS guidance to $0.60, compared to its earlier outlook for $0.53 to $0.58 and EPS of $0.48 in 2008. Analysts were expecting EPS of $0.57. Houston-based Kirby operates barges and towing vessels for the oil industry. In a statement, Kirby said its marine transportation and diesel engine services operating fundamentals remain strong. CEO Joe Pyne commented the company is experiencing "strong demand" in all of its transportation markets. Pyne said, "Kirby's fleet remains essentially fully utilized, creating a favorable environment for fairly pricing our services." Kirby is scheduled to announce Q3 results on Oct. 24 and is hosting a conference call on the following day. Kirby shares fell 1.35% to $40.16 during normal trading Monday.
Sources: Press release, Associated Press, MarketWatch
Commentary: Kirby Corporation: Nothing Special
Stocks/ETFs to watch: KEX
ENERGY AND MATERIALS
NRG Energy Applies to Build Two Nuclear Reactors
New Jersey-based energy company NRG Energy has applied for permission from the Nuclear Regulatory Commission to construct two nuclear reactors in Texas. This is the first such application to be submitted to the Commission in 31 years. NRG is using a new application process that allows companies to apply for permission to both build and operate a reactor. The agency is anticipating a rush of applications "represent[ing] a possible investment by the U.S. power industry of $60 billion to $90 billion," the WSJ reports. Companies that get their applications in early could qualify for federal incentives and loan guarantees. Congress is expected to favor a rejuvenation of the country's aging nuclear facilities, though the flurry of applications could spur new debate on their safety. Nuclear power, reviled in the wake of the Three Mile Island accident, is gaining favor now that coal-fired plants have been shown to complicate the prevention of global warming and natural gas plants depend on an expensive fuel. NRG is a surprising company to lead the charge: it makes and sells electricity and has never built a nuclear reactor. "We're like the uncola," said NRG CEO David Crane. In related news, U.S. Rep. Edward Markey said Monday that outsourcing part of the permitting process for federal nuclear power plants might be illegal. "If Congress had intended to turn oversight of the extraordinarily sensitive nuclear sector over to private companies, we would not have established the NRC," he said.
Sources: Wall Street Journal, New York Times, Dow Jones
Commentary: Nuclear Reactor Presents Huge Implications For NRG Energy • Solid Buying Opportunity in NRG Energy Following Goldman Call
Stocks/ETFs to watch: NRG, EXC, D. Competitors: AES. ETFs: PUI, UTH, VXF
Earnings call transcript: NRG Energy Q2 2007
BP Bracing for Shakeup - Financial Times
Tony Hayward, the new CEO of BP, warned that Q3 revenues will be "dreadful" and told staff to prepare themselves for a streamlining of the organization, the Financial Times reported Tuesday. "There is massive duplication and lack of clarity of who does what," Hayward said during a "town hall" staff meeting in Houston. "We will reduce the number of organization units." He said the oil company's financial performance over the quarter was its worst since 1992-93. BP has had to contend with a squeeze on refining margins, dropping U.S. natural gas prices, and damage to a gas pipeline in the North Sea, as well as damage to its reputation from an accident at the Texas City refinery in 2005 that killed 15 and an oil spill in Alaska in 2006. Hayward said Q4 revenues should improve with the start of Atlantis, a flagship project in the Gulf of Mexico, as well as other projects. BP shares were down 2.1% to 577 pence in early London trading.
Sources: Financial Times, Reuters
Commentary: BP: End Of Russian Natural Gas Field Controversy In Sight • BP and Shell in Merger Talks -- Times of London
Stocks/ETFs to watch: BP. Competitors: CVX, XOM. ETFs: NYC, DGT, ADRU
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