RBC Cash Index Shows Recovery In U.S. Consumer Confidence
The RBC Cash Index showed a recovery in U.S. consumer confidence in September, from multi-year lows the previous month. The rise in confidence is attributable to the Fed's mid-month 50 bps rate cut, a recovery on Wall Street and stabilizing gas prices. The index rose to 80.6 from 71.1 in August. People's feelings on the current state of the economy also climbed, as did their willingness to undertake major purchases. The index began measuring consumer sentiment in 2002 and was set at 100 based on January's readings from that year. Says Wachovia's Mark Vitner, "As long as we don't have another blow up in the credit markets, we'll probably see confidence come back some more."
Commentary: Consumer Confidence Lowest in Two Years • Consumer Confidence Number Comes Through
Stocks/ETFs to watch: SPY, DIA, AGG
Factory Orders Fall More Than Expected
Factory orders dropped 3.3% in August the Commerce Department announced Thursday. Economists were looking for a 2.6% decline after a sharp increase of 3.7% in July. Demand for durable goods, products designed to last at least three years, declined 4.9% and non-durable good orders fell 1.6%. Transportation equipment orders were down 11.1%, motor vehicle orders decreased by 8.5%, and demand for non-defense aircrafts dropped 39.9%. "The volatility in financial markets in recent months probably introduced an element of caution in ordering," said Michael Moran, chief economist at Daiwa Securities America Inc. Though the numbers were disappointing, the markets actually are up since the announcement, perhaps exhibiting that investors saw the figures as further evidence the Fed should look to cut rates in its next meeting in late October.
Sources: MarketWatch, WSJ, Bloomberg
Commentary: ECB, BOE Hold Rates • Fed Easing Flowing Through To High Yield Spreads
Stocks/ETFs to watch: DIA, SPY
Verizon Wireless Unveils Device to Rival iPhone
Verizon Wireless has unveiled three new cellphones for the holiday season, one of which -- the high-end Voyager -- is designed to compete with Apple's iPhone. "We think it'll be the best phone...this year. It will kill the iPhone," said Verizon Wireless Chief Marketing Officer Mike Lanman. The Voyager, manufactured by LG Electronics, resembles the iPhone in that it has a touchscreen and a Web browser. Its claim to superiority is based on the faster Web access it offers the user and the QWERTY keypad it provides under a hinged door. "People who want a high-end media phone and want to stay with Verizon will certainly give [the Voyager] a hard look," said Current Analysis analyst Avi Greengart, but "I don't know that it would pull anybody away from an iPhone." Verizon Wireless's other two new phones are the Juke, an ultra-slim phone shaped like a chocolate bar, and the Venus. The three phones will range in price from less than $100 to about $400. The Juke will go on sale October 19; Voyager and Venus will be released in November. "This is something Verizon had to do," said Greengart. "It's been a long time coming for them to get hotter devices."
Commentary: Tip To Microsoft and Verizon: Think Better. Much Better. • What Does Verizon Have In The Wings? • iPhone's Carrier Competitors: Verizon
Stocks/ETFs to watch: VZ, VOD. Competitors: AAPL, T, S, Q. ETFs: TTH, PRFQ, VOX
Earnings call transcript: Verizon Q2 2007
Research In Motion Doubles Bottom Line, Shares Fall
In its fiscal second quarter, Research in Motion doubled last year's earnings and was in line with analysts' estimates. Big things were expected from the wireless device maker, as the market pushed RIMM up 4.4% in Thursday's trading, before the earnings were announced. The company reported a net income of $287.7 million ($0.50/share) versus the $140.2 million ($0.25/ share) it earned one year ago. Revenue jumped to $1.37 billion from $658.5 million last year. Forecasters expected $0.50/share and revenues of $1.36 billion. Around 1.45 million new subscribers were added, bringing the total to 10.5 million. "RIM's second quarter results were exceptionally strong on all metrics including revenue, subscriber account additions and net income," RIM co-Chief Executive Jim Balsillie said. "This growth is fueled by the depth of the BlackBerry product portfolio and the continued diversification of our business across market segments and geographies." RIMM offered guidance for its fiscal third quarter, predicting earnings between $0.59 - $0.63/share, higher than analysts' estimates. "We think that the space is growing a lot, this is the category leader -- new devices, new international coverage -- and the guidance is very, very good," Canaccord Adams analyst Peter Misek said after the numbers were released. Shares of RIMM were down 2.54% in pre-market trading Friday.
Sources: Press Release, MarketWatch, Bloomberg, Reuters
Commentary: Research in Motion Higher Ahead of Earnings; Touch Screen Blackberry Coming? • Analysts See Little Upside Left For Research In Motion Heading Into Earnings
Stocks/ETFs to watch: RIMM, Competitors: AAPL, PALM. ETFs: WMH, EWC
Tellabs Warns on Q3 Results
Telecom equipment manufacturer Tellabs Inc. said Thursday it expects Q3 results to miss Wall Street expectations, sending its shares down 7.4% to $8.87 in AH trading. Tellabs' preliminary estimate for Q3 is now $452-460 million in revenue, below prior Street forecasts of $501.6 million. It is forecasting EPS of break-even to $0.01 including items and $0.02-0.03 excluding items, well behind analysts' prior expectation of $0.06 excluding items. Tellabs is projecting non-GAAP gross profit margins to be in the 31-32% range. "Third-quarter revenue reflected lower sales to North American wireless carriers, yet we saw sequential growth in access and data," said President and CEO Krish A. Prabhu. Tellabs will post results on Tuesday, October 23.
Sources: Reuters, TheStreet.com, Forbes
Commentary: Nortel Takes Aim at Tellabs • Nortel To Buy Tellabs? • Buyout Speculation Lifts Tellabs
Stocks/ETFs to watch: TLAB. Competitors: ALU, CSCO, NT. ETFs: IGN, PXQ, BDH
Earnings call transcript: Tellabs Q2 2007
Disney Begins Implementing New Strategy
Disney announced late Wednesday it paid $144 million for 21 acres of beachfront property on the Hawaiian island of Oahu. The company plans to develop a resort there as part of a new strategy to expand through smaller, mixed-use sights. "This resort hotel will give our guests another way to visit an exciting part of the world with a brand they trust," said Jay Rasulo, chairman of Walt Disney Parks and Resorts. Building new parks is costly, so Disney is looking for other ways it can cash in on its brand value. Only 29% of Americans visited theme parks last year, while 71% went on a leisure trip to another US city. The Hawaiian resort should be open in 2011. Disney shares were up 0.78% to $34.99 in midday trading on Thursday.
Sources: Financial Times
Commentary: Disney to Implement Toy Double-Checks - NY Times • Disney's Purchase Of Club Penguin Was A Steal
Stocks/ETFs to watch: DIS. Competitors: SIX, FUN. ETFs: PEJ, VCR
Earnings call transcript: Walt Disney F3Q07 (Qtr End 06/30/07)
Marriot's Q3 Net Off, But Beats Estimates
Marriot International reported Q3 net income fell 7.0% to $131 million, or $0.33/share, but was three cents better than analysts' average estimate. Revenues rose 12% to $3.0B, also beating expectations of $2.86B. Marriot's earnings were hurt by a 36% decline in timeshare profit to $39M. Marriot's revenue per available room [REVPAR] in N. America during Q3 increased 7.2%, better than its target of 6.0% to 7.0%. Worldwide comparable REVPAR rose 7.7%. Marriot said it expects Q4 EPS between $0.61 to $0.63 and full year 2007 EPS of $1.88 to $1.90. Analysts were expecting $0.68 and $1.95, respectively. Marriot said "based on favorable group bookings, 2008 is shaping up as another strong year." The company expects 2008 EPS of $2.10 to $2.25, which is short of analysts' average estimate of $2.30. Marriot's earnings conference call is at 10:00 AM (check for Marriot's earnings call transcript later today). Shares of Marriot are untraded as of 8:00 AM. Marriot lost 1.4% to $44.32 on Wednesday.
Sources: Press release, Bloomberg, MarketWatch
Commentary: Stocks With the Most Analyst Love • Eight Hotel Stocks To Watch This Summer
Stocks/ETFs to watch: MAR. Competitors: HOT, HLT, IHG. ETFs: XLY, PEZ, VCR
Constellation Posts 5.4% Rise in Q2 Net; Ups Guidance
Alcoholic beverages giant Constellation Brands Inc. reported a better-than-expected fiscal Q2 profit Thursday and raised its full-year earnings outlook. The manufacturer of Ravenswood wine and Corona beer posted net income of $72.1 million ($0.33/share) for the quarter versus $68.4 million ($0.28) a year ago (see earnings call transcript). Excluding expenses, profit was $0.35. Sales fell 32% to $892.6 million on an accounting change. Analysts were expecting EPS of $0.32 on $878.8 million in revenues. Constellation raised its full-year EPS guidance, excluding items, to $1.34-1.42 from a prior forecast of $1.30-1.40, in part because of a lower-than-expected tax bite. The Street had forecast an average $1.39. The company pushed high-end wine like Woodbridge during Q2 and raised prices on Corona to compensate for inventory cuts by wholesalers, which totaled $110 million this year. "Wines at the higher price points have done better, and Constellation is getting a benefit from that," said D.A. Davidson & Co. analyst Tim Ramey. Volume on Svedka, acquired in March, was up 50% in H1. Spirit sales were up 25% in Q2, partly on demand for Svedka. Wine generates 70% of Constellation's sales, beer 25% and spirits the remainder.
Sources: Reuters, Bloomberg, MarketWatch, Thomson Financial
Commentary: Portfolio Management In Increasingly Volatile Markets • Stock Portfolio to Weather a Volatility Shock
Stocks/ETFs to watch: STZ. Competitors: OTC:FBRWY
Family Dollar Shares Up On Higher Profits
Family Dollar announced earnings Thursday, beating analysts' estimates. The discount retailer's net income increased to $37.8 million ($0.26/share), compared to $32.3 million ($0.21/share) last year. Analysts polled by Reuters were expecting $0.25/share. Sales increased 3%, from $1.578 billion a year ago to $1.632 billion. Family Dollar said it is trying to increase sales by resetting merchandise displays and adding more food items. It is also installing coolers in its stores so it can sell perishable items like milk. "The continued investment in our business in fiscal 2008 even as the economic environment remains challenging, reflects our longer-term perspective and will make Family Dollar a more compelling place to shop, work and invest," CEO Howard R. Levine said. Family Dollar said it sees its full-year earnings coming in between $1.74 - $1.85. Analysts forecasted earnings of $1.81/share. In pre-market trading Thursday, shares of Family Dollar were up 3.0% to $28.25.
Sources: Press Release, Reuters
Commentary: Family Dollar Stores: Highly Overvalued Dividend Aristocrat • August Same-Store Sales Roundup
Stocks/ETFs to watch: FDO. Competitors: WMT, COST. ETFs: RTH, KXI
Earnings call transcript: Family Dollar Stores F3Q07
TRANSPORT AND AEROSPACE
GM, UAW Considering New Employee Buyouts
While United Auto Workers members vote on an unprecedented two-tier compensation plan from General Motors (see full story), the UAW and GM are also said to be separately considering a new round of early-retirement and buyout packages. The Wall Street Journal reports sources say higher-wage workers are being targeted in order to replace them with newer workers at lower compensation levels. GM may be able to have as much as one-third of its UAW labor under a so-called "second-tier wage and benefit plan" at a cost of around half the customary UAW-GM plan, with replacement workers under the plan over a period of three years. The UAW is said to benefit from the increased likelihood of a new labor deal attributed to acceptance of buyouts, also resulting in more full-time opportunities for part-time workers. Separately, Bloomberg reports sources say Ford and Chrysler are balking at the idea of contributing as much as GM to create a union-run retiree health fund. GM has pledged nearly $30 billion to remove it from about $50B of retiree healthcare-related costs. Only 30% of Ford and Chrysler UAW members are eligible for retirement within five years, compared to more than 60% at GM. In unrelated news, nearly 99% of DaimlerChrysler AG's shareholders have voted to rename the company Daimler AG, following the recent sale of the Chrysler division to Cerberus Capital Management.
Sources: Bloomberg, Wall Street Journal I, II
Commentary: Could the UAW Buy GM? • GM-UAW Deal Good News For Stockholders • GM-UAW Contract Introduces Two-Tier Pay
Stocks/ETFs to watch: GM, F, DAI
Earnings call transcript: General Motors Q2 2007, Ford Q2 2007
Criminal Probe Launched Into Bear Stearns Hedge Funds
Federal prosecutors have opened a criminal investigation into the activities of two Bear Stearns hedge funds that collapsed over the summer, the Wall Street Journal reported Thursday. The investigation is in addition to an SEC probe into the funds, which are believed to have lost investors $1.6 billion after a reversal in the subprime mortgage market. The U.S. attorney in Brooklyn has asked Bear Stearns to provide information but has not yet issued subpoenas, said people close to the matter. "It's a tough case to make unless they have turned up some sort of malfeasance," said Christopher Clark, a partner at Dewey & LeBoeuf LLP. "The law assumes the investors are sophisticated and understand the risks. This was clearly a high-risk investment strategy." Bear's shares fell from $140 in early July to a low of $103 in August, prompting talk that the firm might go on the block. Despite a terrible Q3 report two weeks ago, the shares have recovered somewhat, closing Thursday at $127.61. "Most of our businesses are beginning to rebound," said CEO James Cayne.
Sources: Wall Street Journal
Commentary: Bear Stearns: He Didn't Lie, It IS Getting Better • Bear Earnings Bad, But Market Response Good • SEC Knocking on Bear Stearns' Door
Stocks/ETFs to watch: BSC. Competitors: GS, LEH, MER, MS. ETFs: IAI
Earnings call transcript: Bear Stearns F3Q07
ECB, BOE Hold Rates
The European Central Bank [ECB] decided Thursday to hold its benchmark interest rate at 4.0%. The Bank of England [BOE] also kept its key interest rate unchanged, at 5.75%. Market participants are awaiting bank commentary, but the decisions to hold were widely expected, with the chief U.K. and EU economist at Global Insight saying a rate cut would have been premature. Bank of America's chief European economist commented, "The strong euro and the persistent dislocations in the money and credit markets will likely force the ECB to keep rates on hold for the foreseeable future. The markets have done the work of tightening euro-zone monetary conditions for the ECB." As for England, Charles Goodhart, a former BOE policy maker, told Bloomberg in an interview that "the one point nobody has taken into consideration is that the market has effectively tightened monetary policy on everybody by half a percent or more. If the bank were to lower interest rates by a quarter actually more people could take out mortgages and companies trying to raise funds would find that conditions in financial markets were still somewhat tighter than they were five or six weeks ago."
Sources: Associated Press, MarketWatch
Commentary: ECB, BoE and Fed Continue On Path of Monetary Inflation • BoJ, ECB Won't Raise Rates Anytime Soon - Seeking Alpha • BoE, ECB Intervene to Curb Turmoil, Leave Rates Unchanged
Stocks/ETFs to watch: EWU, EZU, VGK, FEZ, FXE, DBV
ABN Amro Shareholders Expected to Approve Consortium Takeover On Friday - WSJ
Dutch banking giant ABN Amro is expected to announce Friday that its shareholders have voted in favor of selling the bank to a consortium led by the Royal Bank of Scotland for $101 billion, the Wall Street Journal reports. A lower offer from Barclays expired Thursday. If approved, the deal could close October 19. The transaction will be the most expensive takeover in banking history and will result in the break-up of the 183-year-old bank by the consortium, which plans to split it into three parts. On April 23, ABN announced it had agreed to sell itself to Barclays for $85 billion. ABN also said it was selling LaSalle Bank, its Chicago asset, to Bank of America for $21 billion. That move was viewed by some shareholders as a poison pill designed to deflect the interest of the consortium, which wanted LaSalle. The shareholders sued but failed to stop the LaSalle deal. Undeterred, the RBS consortium raised the ante to a mostly cash offer of $99 billion in July. Barclays raised its bid 6%, but the market crisis took the wind out of its mostly stock offer. The win is "not the greatest thing that could possibly happen for RBS shareholders," said Sanford Bernstein analyst Antony Broadbent, since RBS is taking on the chunk of ABN that was most affected by the summer's problems in the credit market. Still, the group bid is expected to change the field of M&A. "ABN is a breakthrough," said Larry Slaughter, co-head of European M&A at JPMorganChase. "We see the formation of consortiums of corporates as a big event."
Sources: Wall Street Journal, MarketWatch
Commentary: RBS Consortium Doubles Stake in ABN Amro • ABN Amro Board Calls RBS Bid Superior, But Won't Back It
Stocks/ETFs to watch: ABN, RBSPY, FORSY, BCS. Competitors: HBC, DB, UBS. ETFs: RKH, EWN, KBE
Earnings call transcript: ABN Amro Q2 2007
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