U.S. Growth Slows Since August: Beige Book
Economic growth has decelerated over the last six weeks amid an increasingly uncertain outlook, according the Federal Reserve's regional business survey. Known as the Beige Book, it found that "economic activity continued to expand in all districts in September and early October, but the pace of growth decelerated since August." The report said five of the 12 regions (Cleveland, Dallas, Kansas City, Richmond and San Francisco) reported a slower rate of growth, while the other seven districts said growth was similar to the last report, which found four districts reporting a slower pace of expansion. The survey noted that the consumer spending, manufacturing and service industries weakened, and also said labor shortages may be restraining expansion. The situation in the housing market grew more dismal as it spread beyond housing, with contacts in a number of industries indicating a higher-than-usual degree of uncertainty about the outlook for economic activity on concerns credit tightening and slowing construction might hinder activity in their industries. Nevertheless, there was "cautious optimism because few see much evidence of such spillovers at this time." The study was based on information collected through October 5.
Commentary: Full Recovery from Credit Crisis May Take Time - Bernanke • Economic Report Summary: Real Economic Growth Estimates Revised Upwards • Greenspan: Credit Crunch Will Take A Toll
Nokia Jumps on Strong Q3 Earnings
Nokia is trading up more than 5% to €26.92 in Helsinki, following its announcement of an 85% surge in third-quarter net income to €1.56 billion ($2.2B), or €0.40/share. Nokia had traded up as much as 7.5%, as EPS easily beat analyst estimates of €0.34, despite sales growth of 28% to €12.9B missing expectations of €13.2B. Nokia said its global market share increased to 39%, compared to 38% in Q2 and 36% last Q3. The average selling price of its handsets declined to €82 from €90 in Q2, due to a "significant increase" in lower-end device sales, but Nokia still managed to boost division margins to 22.6% vs. 13.1% last year. Nokia said it expects industry mobile device volumes to increase sequentially in Q4, and forecasts its market share will be at around the same level. Nokia's earnings conference call is at 8 A.M., check for its earnings call transcript later today. Nokia's ADRs were last up 4.9% in pre-market activity after gaining 3.5% to $36.53 on Wednesday.
Commentary: What Is Nokia Thinking? Navteq Bid Makes No Sense • Cowen Raises Ratings On Motorola, Nokia In Anticipation of Handset Shortage • Nokia: A Better Bet Than Apple - Barron's
Stocks to watch: NOK. Competitors: MOT, ERIC, SNE, AAPL, RIMM, PALM, Samsung [see EWY]. ETFs: MTK, WMH
SAP Lower on Unchanged Outlook
SAP AG reported third-quarter net income increased 10% to €408 million, or €0.34/share, on sales growth of 9% to €2.42B. Net income was within expectations, slightly better/worse than analyst estimates depending on the poll. Shares of SAP were down 1.6% to €38.61 in late morning trading in Frankfurt, which one analyst explains is due to unmet expectations of a forecast upgrade. SAP did say it now expects full-year software and services sales growth to come in at the upper range of its previous forecast of 12% to 14%. Also, SAP still sees operating margin slipping to 26-27% for the year, compared to 27.3% last year. Q3 operating margin was flat at 24.8%. Revenue from license sales was up 11% to €715M (full earnings call transcript later today). During the quarter, SAP said it announced a Global Enterprise Agreement with Apple and said Wal-Mart will enhance its financial information systems using SAP. SAP's ADRs gained 2.8% to $56.30 on Wednesday.
Commentary: SAP Still Shopping: Picks Up Rules Management Company YASU • SAP, Business Objects and Cognos: Scotia Research Discusses Potential Takeovers • SAP, Oracle Turf War Far From Over
Stocks to watch: SAP. Competitors: ORCL, MSFT, CRM. ETFs: SWH, EWG, DBT
Related: SAP Q3 Audio Webcast and Presentation
Sony to Sell PS3 Chip Unit to Toshiba; Drops U.S. PS3 Price by $100
Sony Corp. will sell its "Cell" microprocessor output facility and "RSX" graphic chip production line to Toshiba for an undisclosed sum, part of the Japanese consumer electronics giant's latest attempt to unload 'non-core' businesses. The two facilities are integral to the manufacturing of Sony's PS3 video game console. Unnamed sources with ties to the matter say the price will likely top 100 billion yen (about $858 million). Sony and Toshiba had jointly developed the chips with IBM; they hope to complete the deal by March 2008. Industry insiders believe the purchase is somewhat risky for Toshiba, despite having both Sony and IBM as guaranteed customers, since it will require heavy additional investment going forward for a chip (the 'Cell') that has yet to be widely adopted. Separately, Sony said Thursday it was slashing the U.S. price of its PlayStation 3 consoles by $100 in the hopes of boosting weak sales in time for the holiday season. The $399 40-GB PS3 is now only $50 more than Microsoft's $349 entry-level Xbox 360, but is still $150 more than Nintendo's $250 Wii. IDC game-industry analyst Billy Pidgeon said the price drop should boost sales, but added a bigger impact will likely be made by stronger game titles due next year, including a new version the popular Metal Gear.
Commentary: Sony, Qimonda in Chip Joint Venture • PS3 and Backwards Compatibility: What the Analysts Are Missing • Cramer on SNE
Stocks to watch: SNE, OTCPK:TOSBF, IBM
Earnings call transcript: Sony F1Q07 (Qtr End 6/30/07) Earnings Call Transcript
Apple Opens iPhone to Developers
In a much-speculated move, Apple CEO Steve Jobs said Wednesday the company will open up the iPhone to software developers, allowing them to create native applications, a reversal of its previous policy that limited iPhone apps to those that run through its web browser. In a letter posted on Apple's website, Jobs said the company will release a software development kit [SDK] in February 2008. "Let me just say it: We want native third-party applications on the iPhone, and we plan to have an SDK in developers' hands in February," he said. Apple's initial policy, that limited the iPhone to browser based apps in the name of protecting users from viruses and malicious code, prompted some software developers to claim Apple was wielding a too-heavy hand over the iPhone. Some developers found ways to circumvent the limitation, but Apple countered by saying that unauthorized software could 'brick' iPhones when future Apple software updates are downloaded. The SDK will also allow developers to design apps for the new iPod touch. Apple shares closed up 1.9% to $172.75.
Commentary: Will The iPhone Being Unlocked Mean More or Less Revenue for Apple • The iPhone : Apple's First Flop - Seeking Alpha
Stocks to watch: AAPL. Competitors: MOT, PALM, RIMM, NOK
EBay Posts Loss, But Climbs on Solid Outlook
EBay announced earnings after the bell Wednesday, reporting it swung to a Q3 loss because of a previously-announced charge related to its purchase of Skype. The company reported a net loss of $935.6 million ($-0.69/share), versus a profit of $280.9 million ($0.20/share) last year. Revenues jumped 30% to $1.89 billion. EBay announced earlier this month it would take a $1.39 billion writedown associated with its 2005 purchase of voice-over-internet provider Skype (full story), saying Skype failed to live up to the expectations of eBay's management. Not including the writedown, earnings would have been $0.41/share. Analysts forecasted earnings, excluding the charge, of $0.33/share on revenues of $1.83 billion. PayPal net revenue was a record $470 million, a y/y growth rate of 35%. Quarterly listings of 556 million were just ahead of analyst estimates of 545 million; revenue per listing of $2.28 (up 31%) beat estimates of $2.23. "Monetization remains a major upside driver," Citigroup analyst Mark Mahaney said. "Results were driven by a combination of somewhat stronger performance in our big markets, as well as newer, faster growing businesses," CEO Meg Whitman said (full earnings call transcript later today). EBay sees full-year earnings for 2007, excluding the Skype charge, of $1.47-$1.49/share, and revenue of $7.6-7.65 billion, well ahead of analysts' range of $1.35-$1.41/share on revenue of $7.495 billion. Shares of the online auction site were up 5.2% before the announcement, and gained another 0.4% to $40.75 in extended trading.
Commentary: MySpace Adds Skype to Its Instant Messenger • Skype: Overvalued or Not?
Stocks to watch: EBAY.Competitors: GOOG, AMZN. ETFs: HHH, FDN
Earnings call transcript: eBay Q2 2007
Morgan Stanley Dumps 7.2% Stake in NY Times - WSJ
Morgan Stanley sold its 10 million share / 7.2% stake in New York Times Co. Wednesday morning, ending an extended struggle with Times management, the Wall Street Journal said on its website, citing unnamed sources. The move comes as New York Times shares are trading at a 52-week lows, "a signal of how negative investor sentiment in the newspaper industry has become," the Journal said. Meanwhile the Times, and its chairman Arthur Sulzberger Jr., can say goodbye to an outspoken and aggressive critic, Hassan Elmasry, who ran the Morgan Stanley fund that owned the stake. Elmasry led an unsuccessful campaign for the Ochs-Sulzberger family, who control the Times through their minority Class-B stake, to relinquish control of the paper, leading CEO Janet Robinson to comment that the family "has no intention of opening any doors to the action that is tearing at the heart of some of the other great journalistic institutions of our country." (full story) "As a matter of policy, Morgan Stanley Investment Management does not publicly comment on changes in its portfolios," an Elmasry spokesman said. The Times also declined to comment. Earlier this morning, CNBC reporter David Faber said, "There's a 10 million share block that went up. I'm hearing, I don't know for certain and cannot confirm at this point, that it is Morgan Stanley." NY Times shares closed down 2.3% to $18.48.
Commentary: New York Times: Poised for Gain • New York Times' Online Free-For-AllThe Buffett Sell Signal
Stocks to watch: NYT
TRANSPORT AND AEROSPACE
AMR Profits Surge, Slightly Beating Estimates
AMR Corp., parent to American Airlines, reported a surge in profits Wednesday, as the airline was able to charge more yet fill more planes. Net income for the quarter, excluding certain costs, was $215 million ($0.74/share), compared to $15 million ($0.06/share) last year. Sales increased 1.7% to $5.95 billion. Analysts forecasted $0.73/share on revenue of $5.96 billion. AMR lowered capacity enabling it to fly with fuller planes, and an increased demand for travel allowed the company to increase ticket prices. "We must step up our continued focus on managing costs, work to improve our profit margins and continue our momentum," CEO Gerard Arpey said. Revenue per available seat mile, a key figure for airlines, increased 5%, but came in below analyst expectations. In the fourth-quarter, AMR projects capacity increasing 0.9%, with unit costs rising 4.5%. This was AMR's sixth straight quarter with a profit, after the company lost about $8 billion between 2001-2006. Shares of the company traded up 4% to $25.10 Wednesday.
Commentary: AMR Announces Early Debt Payment • AMR Ready for Take Off - Barron's
Stocks to watch: AMR. Competitors: DAL, NWA, LUV. ETFs: PPA, ITA
Earnings call transcript: AMR Q2 2007
E*Trade Swings to Unexpected Loss, Guides Down
Shares of E*Trade Financial Corp. dropped as much as 6.5% in extended trading after the brokerage firm said it swung to a third-quarter loss of $58 million ($0.14/share), having earned $153 million ($0.35/share) in the year-ago period. "While we are extremely pleased with the continued growth trends we are generating throughout the retail business, we are clearly disappointed with the overall Company performance as a result of the severe volatility in the credit markets," CEO Mitchell Caplan said. The net loss included a $0.30/share writedown charge on asset-backed securities. Net revenue fell heavily, to $321 million, from $582 million a year ago. Analysts surveyed by Reuters were looking for a net gain of $0.11/share on revenue of $506 million. Last month E*Trade warned it had been severely hit by the mortgage market crisis, and told investors 2007 earnings would be hurt by higher provisions for loan-losses and potential declines in the value of some securities. At the time, it said it expected full-year EPS of $1.05-1.15 (down from $1.53-$1.67). In today's earnings release, E*Trade again guided down; it now forecasts earnings of $0.85-0.90/share, assuming no further securities writedowns, and said it is prudent to account for another $0.10 in its forecast due to its difficulty in assessing the effect the current environment will have on its earnings (full earnings call transcript later today). Shares dropped 5.8% to $11.75 in extended trading.
Commentary: Financial Sector Q3 Earnings Preview • Is E*Trade a Bargain? • E*Trade Financial: Protests and Warnings
Stocks to watch: ETFC. Competitors: SCHW, AMTD. ETFs: FDN, HHH
Earnings call transcript: E*TRADE Financial Q2 2007
SEC Probing Countrywide CEO's Stock Sales
Already rattled by the subprime mortgage crisis, Countrywide Financial is finding itself deeper in hot water as the SEC reportedly investigates stock sales by its CEO Angelo R. Mozilo even as conditions at the company worsened. People familiar with the matter say the probe is one of several by the agency into stock sales by executives at mortgage lenders as share prices plummeted this summer during the ongoing subprime crisis. Until it received a $2B equity investment from Bank of America and $12B in new bank financing, Countrywide had been speculated to be headed for bankruptcy. The inquiry, the sources said, at least partially involves sales made through prearranged sales programs, known as 10b5-1 plans, which allow executives to sell holdings on a scheduled basis automatically -- even during periods they otherwise might be restricted -- if the times are predetermined when the plan is set up. The program was designed to protect executives from accusations of insider trading. Mozilo reportedly sold $130.6M in stock during the first half of the year, more than double the $60.4M he sold in the same period of 2006. North Carolina state Treasurer Richard Moore, the trustee of a pension fund that holds some 500,000 Countrywide shares, requested the probe last week. Last month, Mozilo said he increased his rate of selling through the plan late last year to prepare for his planned December 2009 retirement. Countrywide and the SEC have refused to comment.
Commentary: Countrywide CEO Angelo Mozilo Masters the Art of Bailing Out • Countrywide Financial: Mozilo Rakes It In, While Thousands Are Laid Off
Stocks to watch: CFC. Competitors: NDE, WFC.ETFs: PGF, IYF
Earnings call transcript: Countrywide Financial Q2
Citic Not Considering Bear Stears Stake
Chinese bank Citic Bank Corp. said Thursday it has not talked with Bear Stearns about acquiring a possible stake in the company, and will not do so for the next three months, dispelling Oct. 16 rumors of the bank taking as much as a 20% equity stake in the Wall Street investment bank (full story). "So far, the company doesn't have any plan to buy a stake in Bear Stearns, and the company promised that it won't plan such an event in the next three months," Citic said in a regulatory statement to the Shanghai Stock Exchange, in compliance with Chinese securities regulations that require disclosure of major deals. The rumors were sparked when, earlier this week, China Banking Regulatory Commission Vice Chairman Jiang Dingzhi said during a session of the Communist Party conclave in Beijing that Citic Bank had "bid" for an investment in Bear Stearns. It now appears Jiang was referring to a previously expressed interest of which nothing came; a Citic Group Vice Chairman confirmed the group had once expressed an interest in the U.S. banker, but said there had been no "material progress."
Commentary: Global Rescue Fund Seeks Participants - WSJ • Long-Time Sentinel Investors Redeemed; Bear Stearns Director Was Preferred Shareholder • Investment Banks: Not Dead Yet
Stocks to watch: BSC
Earnings call transcript: Bear Stearns F3Q07
MGIC Falls on Loss, Outlook Bleak
Shares of mortgage insurer MGIC dropped Wednesday after the company announced a large third-quarter loss and said it does not see a return to profitability in the next year. The company swung a loss of $372.5 million (-$4.60/share) compared to a profit of $130 million ($1.55/share) last year. Sales jumped 50% to $555.4 million. For the quarter, analysts had expected MGIC to earn $0.61/share on $399 million of revenue. The U.S.'s largest mortgage insurer's cost to bail out lenders tripled from a year ago to $602 million. The company said the disappointing figures could mainly be attributed to an after-tax writedown of $303 million from a joint-venture that invested in subprime mortgages. Many companies took huge writedowns to clear their books, so future earnings would not be dragged down. MGIC gave investors the following, bleak outlook: "Given the company's expectations for paid losses, unless the cure rate and loss severity improves, the company does not foresee net income for the fourth quarter of 2007 and full year 2008." Rob Haines, an analyst at CreditSights Inc. said, "Things are going to get worse from here. We've got a couple of scary quarters ahead of us." Fitch ratings noted Wednesday it may cut MGIC's rating given its negative outlook. The company's shares traded down 15.3% to $26.16 Wednesday.
Commentary: MGIC Investment and Radian Group Terminate $4.9B Merger • Stocks With Highest, Lowest Short Interest
Stocks to watch: MTG. Competitors: PMI, GNW.ETFs: XLF
Pfizer Net Falls 77% on Exubera Charge; Beats Estimates
Global pharmaceutical company Pfizer said Thursday its Q3 net income fell 77%, hurt by a $2.8 billion charge related to discontinued sales of its inhaled insulin drug Exubera, and strong competition from generic copies of its top-selling drugs -- yet still managed to better analyst estimates. The world's number-one drugmaker said Q3 profits were $761 million ($0.11/share), down from $3.36 billion ($0.46/share) a year ago. Profit excluding special items was $0.58/share; analysts were on average expecting $0.52/share, according to a Reuters poll. Revenue fell to $12 billion from $12.3 billion, in-line with $11.99 billion analyst consensus estimates. The company decided to stop selling Exubera after the treatment failed to catch on with doctors. CEO Jeff Kindler, while upbeat on the quarter, admitted, "...we need to deliver better results, continue to make tough decisions about allocating our capital wisely, and bring more new products to the market as quickly as possible. Doing all of this will put Pfizer on the right course and build value for our shareholders" (full earnings call transcript later today). Weak earnings have shareholders pressuring Kindler to use the company's $23 billion in cash to make acquisitions that will add to its pipeline. "It really becomes a question of what they can do with their strong balance sheet to fill the hole...," Deutsche Bank analyst Barbara Ryan told Bloomberg. "They either have to do a whole handful of smaller deals or one gigantic deal, and it remains to be seen what path they will take." In 2010, Pfizer's top-selling cholesterol treatment Lipitor, which sold $3.2 billion this quarter (-3%), loses its patent. Over the next four years, the company loses patents on drugs that produce about 50% of the company's current revenue. Shares are down 5.2% YTD, and 11% over the past year.
Commentary: Sanofi Shares Climb Amid Rumors of Pfizer Interest • Icahn Playing Marriage Broker Between Biogen and Pfizer
Stocks to watch: PFE. Competitors: MRK, JNJ, WYE, TEVA, NVS, BMY. ETFs: FDL, IYH
Earnings call transcript: Pfizer Q2 2007
Novartis Takes Earnings Hit as Patents Expire; Will Trim U.S. Workforce
Swiss pharmaceutical giant Novartis AG saw its Q3 earnings more than triple on a $5.3 billion one-time gain from the sale of Gerber and Medical Nutrition to Nestle SA, but its profit from continuing operations fell to $1.57 billion, a 12% decline from Q3 2006 net income of $1.79 billion, and well short of analysts' expectations for profit of $1.75 billion. Revenue increased 9% to $9.61 billion, as strong performance in the company's vaccines and diagnostics units offset weakness in pharma sales (full earnings call transcript later today). Novartis's loss of exclusivity over key drugs such as Zelnorm, Lotrel, Lamisil and Famvir to generic drugmakers cut into profits more than expected. The company announced plans to cut 1,260 U.S.-based marketing jobs, with expected savings of $250 million a year. Novartis confirmed its full year guidance despite the profit miss. According to Zurich-based analyst Denise Anderson, Novartis's results "really do underline what happens when you lose profit from blockbuster drugs. The fourth-quarter is traditionally weak for Novartis, don't assume the worst is over."
Commentary: Novartis’s CEO Has No Plans for a Major Merger • Teva's Generic Famir Victory Overshadowed by Novartis' Emergency Injunction • Novartis: A Dividend Payer With Foreign Currency Exposure
Stocks/ETFs to watch: NVS. Competitors: GSK, PFE, MRK. ETFs: XLV, MKH
Earnings call transcript: Novartis Q2 2007
Honda "Likely" to Reduce 2007 Sales Forecast
Honda Motor Co. Vice President Koichi Kondo told reporters Thursday it was "likely" Honda would cut its 2007 sales forecasts, as the number-two Japanese automaker struggles to sell vehicles in its home market. Honda's current sales projection of 660,000 vehicles is already 1.8% weaker than 2006. Last week Toyota lowered its 2007 Japan sales forecast from 1.72 million to "mid-1.6 million" vehicles, but maintained its global sales target, saying industry-wide conditions have worsened due to higher oil prices and subprime mortgage related troubles (full story). Reasons cited for weak domestic Japanese sales include excellent public transportation, declining paychecks, and a demographic shift to lower birth rates.
Commentary: 18 Ways to Invest in Japan, the Land of the Rising Sun • Honda Gets It Right • Toyota Loses Top Reliability Ranking
Stocks to watch: HMC, TM
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