Pending Home Sales Hit New Low
The National Association of Realtors announced Tuesday Pending Home Sales, a forward-looking gauge of the housing market, dropped 6.5% in August to its lowest level since the index was created in 2001. Economists were looking for only a 2.1% decrease, and compared to a year ago, pending home sales are down 21.5%. "This is still absolutely awful, confirming that the existing-homes market is now in freefall," said Ian Shepherdson, chief U.S. economist for High Frequency Economics. The NAR pointed to the credit crunch as the main instigator for the disappointing performance. NAR senior economist Lawrence Yun said, "Fewer contracts were being written because of mortgage availability issues, and a separate internal survey of our members shows more than 10% of sales contracts fell through at the last moment in August, primarily the result of canceled loan commitments." Despite some recent strength in the housing sector, this number shows that it has a long way to recovery.
Sources: WSJ, MarketWatch
Commentary: Blame It On The Credit Markets • Housing to Hold Fed's Attention for Years, Pimco's Gross Says
TRANSPORT AND AEROSPACE
U.S. Sept. Auto Sales Down, But Better Than Expected
Despite overall U.S. auto sales falling 3% in the month of September, to 1.3 million vehicles, the results were better than industry analysts expected, considering concerns over the impact of subprime and monthly sales declines of 0.6%, 12% and 3% since June. GM recorded its second straight month of higher sales, although only up by 0.28% to 334.874 autos sold. GM says it lost production of 30,000 autos due to a two-day United Auto Workers strike late in Sept. Ford's sales declined for an 11th straight month, plunging 21% to 189,000 vehicles, hurt by a 39% drop in car sales and a 9% fall in truck sales. DaimlerChrysler's sales were off by 5.4% to 159,799 vehicles. Toyota's sales were lower for a third consecutive month, -4.4% to 213,043, although Toyota warned it was up against a tough comparison, having registered 25% sales growth last Sept. Honda posted a 9.4% increase in sales to 127,200, while Nissan's sales rose 6.7% to 94,269. On Tuesday, shares of GM gained 2.8% to $37.05, Ford climbed 4.1% to $8.57, DaimlerChrysler lost 0.01% to $103.29, Toyota fell 0.4% to $118.23, Honda rose 0.15% to $33.73 and Nissan gained 1.3% to $20.52.
Sources: Chicago Tribune, MarketWatch, Wall Street Journal
Commentary: GM-UAW Deal Good News For Stockholders ・Toyota's September Sales May Disappoint ・U.S. Auto Sales Decline Slows in August, GM Posts Surprising Gain
Stocks/ETFs to watch: GM, F, DAI, TM, HMC, OTCPK:NSANY
Micron Swings to Q4 Loss, In-Line with Estimates
Micron swung to a fiscal Q4 loss of $158 million, or -$0.21/share, after earning $64M, or $0.08 last year. This was Micron's third-consecutive quarterly loss. Sales rose nearly 5% to $1.44B. Analysts were expecting a net loss of $0.22 on sales of $1.4B. Micron lost $320M, or $0.42/share during fiscal year 2007. The company said results were "heavily influenced by industry supply/demand dynamics that depressed average selling prices for memory products." Sequential megabit sales of DRAM and NAND Flash increased 25% and 60%, respectively, but average selling prices for both fell about 15%. Micron said it took a $19M charge in fiscal Q4 for employee severance and related costs, as it continues to look for opportunities to lower overhead costs. Micron had $2.6B in cash and investments at the end of its fiscal year. Shares of Micron gained 3.9% to $11.79 during regular trading Tuesday, but gave back 3% to $11.44 in extended trading.
Sources: Press release, Bloomberg, MarketWatch
Commentary: Taiwan Semiconductor and Micron: After Hard Hits, Potential Upside ・A Look At Tech Stocks By Relative P/E and PEG ・DRAM Memory Vendors Headed For Trouble
Stocks/ETFs to watch: MU. Competitors: QI, SNDK, OTCPK:TOSBF, SNE, Samsung [see iShares S. Korea (EWY)], STM, OVTI. ETFs: XSD, IGW, SMH
Earnings call transcript: Micron Technology F4Q07
Procter & Gamble Weighing Sale of Pringles, Folgers, Duracell
Consumer goods giant Procter & Gamble is reported to have retained the Blackstone Group to advise it on the possible sale of its Duracell battery, Folgers coffee and Pringles potato chip units. The company could receive $7 billion for Duracell, $3 billion for Folgers and $3.5 billion for Pringles, according to Sanford C. Bernstein analyst Ali Dibadj. A month ago, P&G CFO Clayton Daley Jr. said the company will likely divest units with sales-growth rates toward the low end of a target range of 4-6%. The proceeds of the sales are expected to be used to buy back stock. An industry expert cited by the Financial Times named Matsushita, Phillips and GE as possible bidders for Duracell, noting that Energizer and Rayovac are out of the running for antitrust reasons. "The margins at Duracell have been deteriorating for a while," said Walter Todd of Greenwood Capital LLC. "The battery business has gotten commoditized and the competition with Energizer has heated up." As for Folgers, "Consumers can buy Starbucks and all sorts of flavored coffees at the grocery store," said Mariann Montagne, analyst for Thrivent Asset Management. Nor, she added, can Pringles, one of P&G's only snack products, compete with PepsiCo's Fritos. Peter Sorrentino of Huntington Asset Management suggested that buyout firms might be interested in the units. "These are mature products with good cash flow," he said. "Or they could unload them to smaller competitors who can devote the attention to them."
Sources: Bloomberg, Reuters, Financial Times
Commentary: Procter & Gamble: Price Follows Value • P&G Beats By $0.01, Announces Up To $30B Buyback; EPS Guidance Soft • Three Quality Businesses: Attention Bargain Hunters
Stocks/ETFs to watch: PG. Competitors: JNJ, KMB, ENR. ETFs: DSI, ELR, IOO
Earnings call transcript: Procter & Gamble F4Q07
Dean Foods Guides Down; Cuts Jobs
Dean Foods, the Dallas-based U.S. leader in dairy production and distribution, will cut 600-700 jobs across the country and is lowering its earnings guidance, the company announced Tuesday. "This is by far the most difficult operating environment in the history of the company," said CEO Gregg Engles. Dean, whose products include Land O'Lakes butter, Silk soy milk and Horizon organic milk, adjusted its EPS outlook to $0.15 for Q3 and approximately $1.25 for 2007. Two months ago, the company forecast Q3 EPS of $0.24-0.28 and said it "may be able to hit the low end" of earlier full-year guidance of $1.52-1.58. Dean had tried to pass "all-time high" dairy commodity costs on to consumers by raising prices on its branded milk products, but sales "softened as consumers react[ed]," said CFO Jack Callahan. "We also expect...organic milk oversupply to continue to negatively affect results for the balance of this year and into at least the first half of 2008." According to Dutch agricultural lender Rabobank Groep, milk prices are up because dairy farmers have not managed to keep up with a 3% rise in annual milk consumption. Q3 "has historically been the toughest quarter in terms of severe dairy price spikes," said Wachovia Securities analyst Jonathan Feeney. "We suspect things should get better from here."
Sources: Press release, Wall Street Journal, Reuters, Bloomberg
Commentary: Highest, Lowest Betas In the Russell 1,000 • Got Milk, Got Problems: Dean Foods Guides Down
Stocks/ETFs to watch: DF. Competitors: CAG, KFT. ETFs: FXG
Earnings call transcript: Dean Foods Q2 2007
Kohl's to Open 566 New Stores Over Five Years
Wisconsin-based department store operator Kohl's Corp. said Tuesday it plans to open 566 new stores over the next five years, a 67% increase. The company is opening 80 stores Wednesday and another 15 in November, which will result in the creation of 14,000 new jobs, Kohl's said. The company currently operates 834 stores. "For the past two years, we have exceeded our financial objectives and believe we are well positioned to deliver on our long-term strategic growth plan," said chairman and CEO Larry Montgomery. The company is expecting same-store sales to rise 2-4% each year over the five-year period, with total sales growth at 9-11% on a compounded annual rate. EPS are forecast to rise 15-17% on that basis from 2006's level of $3.31. Kohl's recently started selling a high-end clothing and home goods line by Vera Wang as well as Food Network-branded kitchen items. The retailer's same-store sales dropped 0.6% for August and were flat in July, missing analyst expectations for both months. The company plans to boost its women's and men's clothing offerings and adjust its marketing campaign. Kohl's shares closed up 1.8% at $58.63.
Sources: MarketWatch, Reuters, AP
Commentary: Kohl's Looks Most Attractive Among Discount Retailers • Gabelli Multimedia's Larry Haverty Picks Five 'Elephant in the Room Stocks'
Stocks/ETFs to watch: KSS. Competitors: TGT, WMT, COST. ETFs: PMR
Earnings call transcript: Kohl's Corporation Q2 2007
Pepsi Bottling Group Beats Forecasts and Raises Outlook
Pepsi Bottling Group reported strong earnings and raised its full-year outlook on Tuesday. Net income rose to $260 million ($1.12/share) versus $208 million ($0.89/share) last year. Excluding items, PBG earned $0.99/share, beating analyst estimates of $.90/share. Sales were reported at $3.73 billion, an increase from $3.46 billion a year ago, beating forecasts of $3.70 billion. Total world case volume was up 1%, as flat volume in the US was made up for by a 16% increase in Russia. CEO Eric Foss said, "We delivered record sales and comparable operating income driven by outstanding performance in the U.S. and Canada and in Europe, led by Russia. Our strong top-line growth, gross profit per case improvement and disciplined cost management led to solid profit and cash flow increases." In addition, the company announced it had bumped up its full-year guidance to $2.15 - $2.18/share from $2.02 - $2.07/share. Shares of PBG were up 2.7% to $38.18 in midday trading Tuesday.
Sources: Press Release, Bloomberg, Reuters
Commentary: Pepsi Is Losing Some Fizz • Pepsi Bottling Beats, Raises Guidance
Stocks/ETFs to watch: PBG. Competitors: CCE, COKE. ETFs: RHS
Sallie Mae Gets New Buyout Proposal
Sallie Mae received a revised deal from the group of buyers looking to acquire the lender on Tuesday. The new deal lowers the bid price by $10, to $50/share, but also will come with warrants to make up for the lower buyout price. The warrants would be worth $7 if Sallie Mae meets its own projections. If it exceeds them, the warrants can pay a maximum of $10. "I think Sallie was probably looking for closer to $55, but you do have the sweetener if the business is going well ... you should get about $57," said Richard Hofmann, analyst at CreditSights. "I think they (Sallie Mae) might try to come back and get more cash." Investors have been waiting for the new deal since the group of buyers, that include J.C. Flowers, JP Morgan, and Bank of America, informed SLM they would not go through with the originally agreed upon offer (full story). In a response to the new deal, Sallie Mae said in a statement, "Our contract is with Bank of America and JPMorgan Chase, two of America's largest and strongest banks. We expect these banks to honor that contract, not breach the contract." The new deal will expire in seven days. Shares of Sallie Mae initially jumped on the announcement, but finished Tuesday's session up only 0.38% to $50.09.
Sources: WSJ, Reuters
Commentary: Sallie Mae Gets Boost from Renegotiation Possibilities • How The New Student Lending Bill Affects Sallie Mae
Stocks/ETFs to watch: SLM, BAC, JPM
Morgan Stanley, Credit Suisse Announce Job Cuts
In what is becoming a familiar refrain on Wall Street, Morgan Stanley announced Tuesday that it is cutting about 600 employees from its residential-mortgage businesses and Credit Suisse said it is cutting 170 jobs, additional to the 150 it cut last month. Morgan Stanley's cuts will eliminate a quarter of its home-lending staff. About 500 people will lose their jobs at its three mortgage units in the U.S. and about 90 at its U.K. home-lending unit. Credit Suisse's September cuts were residential-mortgage positions; this month's are in its fixed-income unit, including some commercial mortgage-backed securities positions, and in its investment banking division. "In the current market environment, we have made targeted reductions to adjust our capacity to meet diminished client demand," said Credit Suisse spokeswoman Victoria Harmon. The bottom has fallen out of the mortgage lending business as defaults have risen in the subprime sector. Lehman Brothers fired about 2,500 residential-mortgage employees over the summer, HSBC is shutting down its U.S. mortgage unit at a cost of 750 jobs, and Bear Stearns is bringing the axe down on its subprime-mortgage unit. So far in 2007, 88,000 jobs have been lost in the U.S. financial industry, about 75% more than in 2006. "The economy is slowing, and this is an industry that traditionally cuts pretty quickly when things slow down," said Alan Johnson, a New York compensation consultant at Johnson Associates.
Sources: Wall Street Journal, Reuters I, II, Bloomberg, New York Times, MarketWatch
Commentary: Credit Suisse Still Expects Q3 Profit • Morgan Stanley Misses on Loan Markdowns • UBS to Post Q3 Loss; Cut Jobs • Lehman, National City Cut Staff at Mortgage Units
Stocks/ETFs to watch: MS, CS. Competitors: C, DB, UBS, GS, MER. ETFs: IAI, PWV, XGC
Earnings call transcript: Morgan Stanley F3Q07
Deutsche Bank to Take $3.09 Billion in Charges; Forecasts Rise in Q3 Net
Deutsche Bank announced Wednesday it will take charges of about €2.2 billion ($3.09 billion) in Q3 but still forecasts a rise in net profit for the period of more than €1.4 billion ($2 billion). The bank also affirmed its 2008 forecast of a pretax profit of €8.4 billion. Its shares gained 2.6% in Frankfurt trading following the announcement. The bank will take a charge of up to €700 million on its leveraged loans and loan commitments and another €1.5 billion charge on its structured credit products and residential mortgage-backed securities. The corporate banking and securities unit is thus forecast to report a pretax loss of about €250-350 million in Q3. "Despite a challenging quarter for our investment banking franchise, our 'stable' businesses continue to perform well. We see substantial opportunities in investment banking after this period of correction," said CEO Josef Ackermann. Pretax income for Q3 is projected at about €1.2 billion. Two days ago, UBS announced it will take a write-down of around $3.4 billion (full story). On the same day, Citigroup said it will take a 60% profit hit (full story) due to its exposure to the roiling credit markets.
Sources: Reuters, MarketWatch, Bloomberg, Wall Street Journal
Commentary: Deutsche Bank May Write Down €1.7B in Debt - report • Deutsche Bank To Write Down Leveraged Loans in Q3 • Deutsche Bank Says Asset-Backed Fund Down 30%, But No Exposure to Subprime
Stocks/ETFs to watch: DB. Competitors: C, UBS. ETFs: EWG
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