Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 9:00 AM ET
S&P 500: +8.50; 1,544.50
NASDAQ 100: +10.50; 2,228.25
Dow: +57; 13,879
NIKKEI 225: +0.52%; 16,737.63 (+86.62)
HANG SENG: -0.90%; 31,352.58 (-285.64)
SHANGHAI SE COMPOSITE: +0.98%; 5,954.76 (+57.57)
BSE SENSEX 30: +0.28%; 19,837.99 (+54.48)
FTSE 100: +0.12%; 6,666.70 (+7.70)
CAC 40: +0.38%; 5,826.24 (+22.31)
XETRA-DAX: +0.14%; 7,989.35 (+11.41)
Commodity Futures (Reuters/Jefferies CRB)
Oil: +0.64%; $90.96 (+$0.58) Natural Gas
Gold: +0.37%; $790.70 (+$2.90)
Natural Gas: +0.51%; $8.06 (+$0.04)
Silver: +0.47%; $14.395 (+$0.067)
U.S. Breaking Newssee today's Wall Street Breakfast for earlier news
MasterCard Jumps on Strong Earnings
MasterCard was last up 10% to $172.80 in the pre-market, following its Q3 earnings release showing a 63% surge in net income to $314 million or $2.31/share on revenue growth of 20% to $1.08B. EPS were in-line with estimates and revenues beat estimates of $1.03B. MasterCard's earnings include a $0.51/share after-tax gain from the partial sale of an investment in Brazil's Redecard. Gross dollar volume increased 13% to $577B and purchase volume rose 14% to $477B. MasterCard reported a 13% increase in transactions processed to 4.8B, led by 21% cross-border volume growth. "We continue to benefit from positive secular trends and outstanding growth in international and emerging markets such as South
Asia/Middle East/Africa and Latin America," commented CEO Robert W. Selander. (Earnings call transcript later today). MasterCard had a positive forex impact of 2.3%. Operating expenses climbed 16% to $730M, due to a 26% rise (to $264M) in advertising and marketing expenses, while general and administrative costs increased 10% to $433M due to personnel hirings and incentive accruals. MasterCard said its Board has approved an incremental $750 million Class A repurchase program. Shares of MasterCard lost 0.1% to $157.15 on Tuesday.
Commentary: Mastercard's Undeserved Decline is a Buying Opportunity ・How To Profit From The Visa IPO Before It Goes Public? ・Credit Card Companies Target Subprime Borrowers
Stocks to watch: MA. Competitors: AXP, DFS. ETFs: FPX
Kraft's Q3 Net Falls, But Beats; Maintains Outlook
Kraft reported a 20% decline in third-quarter net income to $596 million, or $0.38/share, ($0.44/share ex-items), on 10% sales growth to $9.05B, beating analyst expectations of $0.42/share on sales of $8.68B. Kraft maintained its full-year outlook for EPS of $1.60 to $1.62 ($1.80 to $1.82 adjusted) on 4%-plus organic revenue growth. Analysts are forecasting $1.81/share, on average. Kraft blamed its profit decline on higher input costs (particularly dairy) and investments in growth initiatives. CEO Irene Rosenfeld commented, "Although we face a difficult input cost environment, we are making the necessary investments to strengthen our brand equity. These investments are driving accelerated volume growth despite having taken significant price increases. I remain confident that we are on track to deliver the volume growth and product mix that will improve market share performance and profit margins in 2008." (Earnings call transcript later today). Kraft repurchased 30.2M of its shares at a total cost of $1.0B (avg. $33.13/share) during Q3. Shares of Kraft lost 1.15% to $32.60 on Tuesday and were last unchanged in thin pre-market activity.
Commentary: Kraft Boosts Outlook ・Starbucks to Sell Coffee Through Kraft's Tassimo Line ・Kraft Exploring Sale of Post Cereals -- WSJ
Stocks to watch: KFT. Competitors: GIS, K, CAG, SLE. ETFs: XLE, PRFG, UGE
Clorox to Buy Burt's Bees for $925M; Tops Earnings Estimates
Consumer products manufacturer The Clorox Company announced Wednesday it was buying natural care company Burt's Bees for $925 million. The deal to acquire 100% equity in the privately held Burt's will be funded through a combination of cash and short-term debt. According to Clorox CEO Donald R. Knauss, "This acquisition allows us to enter a growing market that's consistent with consumer megatrends... we're entering into a new strategic phase for our company, enabling us to expand further into the natural/sustainable business platform." The press release claims, "the Burt's Bees® brand today is regarded among many consumers who purchase natural personal care products as the 'most natural' personal care brand and as the leading natural brand in the U.S." Burt's is estimated to be on pace for $170 million in net sales in 2007 and will add two points of top-line growth to Clorox in fiscal years 2008 and 2009. The merger isn't expected to be accretive to Clorox's earnings until 2009; it will reduce FY2008 EPS by $0.10 to $0.15. The deal is expected to close around the end of the current calendar year, subject to regulatory approval. Clorox also reported earnings for its quarter ended 9/30/07 (F1Q08) Wednesday, reporting slightly lower net income of $111 million, versus $112 million a year ago. However, due to a reduction in shares outstanding, EPS grew to $0.76, versus $0.73 per share a year ago. Sales rose $80 million Y/Y to $1.24. Consensus analyst estimates were for EPS of $0.62 on sales of $1.21 billion. Growth was strong in Clorox's higher margin businesses, including food products and Brita water-filtration products. The company expects FY2008 total growth of 4% to 5%. Clorox's shares were untraded in pre-market action; they are lower by 5% YTD.
Commentary: Three Safer Stocks For This Shaky Market • Cramer on CLX
Stocks to watch: CLX. Competitors: CL, PG
IAC/Interactive's Q3 Tops Targets
IAC/InterActiveCorp reported a quarterly decline in net profit, due to high costs at its Home Shopping Network unit and an operating loss for its LendingTree mortgage business. The internet conglomerate's Q3 net profit fell to $71.8 million ($0.24/share) from $74.9 million ($0.24) a year ago. Adjusted earnings were $0.37/share on revenue of $1.52 billion, up 7.4% from last year's $1.41B. Analysts had forecast EPS of $0.35 on revenue of $1.53 billion, according to Reuters. The firm's HSN home shopping network has been struggling to recover from internal difficulties; the unit posted an operating income loss of 26%. "With the exception of LendingTree, this was a satisfactory quarter for IAC. Trends at our businesses are good, and particularly so at HSN, where I believe that Mindy Grossman and her team have now become acclimated and are beginning to demonstrate the great retailing smarts that we knew they were capable of," CEO Barry Diller said (full earnings call transcript later today). By unit, media & advertising revenue jumped 40%; Ticketmaster revenue grew 13%; ServiceMagic home-improvement marketplace jumped 33%; revenue from its real estate unit fell 13%; and LendingTree saw its revenue plunge 41%. In a post-earnings note, Citigroup analyst Mark Mahaney called the report "mixed, but incrementally positive... Versus the almost unanimously negative results of Q2, the Q3 results provide a modicum of relief," he said. IAC repurchased $220M of stock during the quarter. In pre-market trading, shares are up 0.7% to $28.60.
Commentary: New Search Tools Only Showcase Google's Lead • Merrill Sees 25% Upside To IAC/Interactive Stock • IAC/Interactive Failed To Anticipate "Softness In Domestic Ticketing Volumes"
Stocks to watch: IACI. Competitors: GOOG, YHOO, MSFT, VVTV. ETFs: FDN
Earnings call transcript: IAC/InterActiveCorp Q2 2007
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• Offshore oil and gas driller Transocean Inc. (RIG) saw its Q3 profit more than triple to nearly a billion dollars, on record rental rates for its drilling rigs and a tax sharing agreement. Net income jumped to $973 million, good for EPS of of $3.24, vs. EPS of $0.96 a year ago. On an adjusted basis, EPS climbed to $2.12 - well above consensus analyst EPS estimates of $1.99. Revenue increased 50% Y/Y to $1.54 billion. The news sent shares of RIG higher by 2.72% in pre-market action (as of 8:20 AM ET). (source: Reuters)
• The world's second largest contract chipmaker, United Microelectronics Corp. (UMC) reported its Q3 profit rose 7.5% to NT$9.23 billion ($284 million), well above consensus analyst estimates. UMC didn't offer an explanation for the rise in profit. Consensus analyst estimates had been for net income of just NT$6.96 billion. Revenue climbed 11.4% to NT$31.03 billion, vs. NT$27.85 billion a year ago. Capacity utilization was 93% in Q3, vs. 82% in the year-ago period. (source: AP)
Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
With the season of year-end holiday buying almost upon us, the Consumer Confidence Index is receiving more attention than usual. So yesterday, when the index was reported to be quite a bit lower than expected (95.6 versus 99.5), the market reacted by selling off part of the gains it achieved in the last couple of days.
There was another economic number that spooked buyers -- the Standard and Poors/Case Schiller Home Price Index showed that home prices declined 4.4% in the 12 months ending in August.
There were some corporate developments that also influenced the trading flow but most of those were negative. Proctor & Gamble (PG) fell 4% after missing analysts' estimates, UBS AG (UBS) reported a Q3 loss, and Merrill Lynch (MER) was off because of the never-ending story surrounding its chairman's resignation.
However, the Nasdaq (NASD) held its own mostly due to Microsoft's (MSFT) success with its new operating system, Vista, and buyers' acceptance of Apple's (AAPL) Leopard operating system. Colgate-Palmolive (CL) rose 1.4% following its report of a 22% rise in Q3 profits.
But the real controlling factor to yesterday's pullback was jitters over today's decision by the Fed on interest rates. Some say that rates are just where they should be (including several former Federal Open Market Committee members). Yet others think that a 25-basis-point cut is a certainty, and still others believe a 50-point cut a real possibility.
One thing most agree on is that, if the Fed decides not to cut rates, the market will surely sell-off. With this case of market uncertainty (everyone knows that the market hates uncertainty), most stocks traded lower yesterday.
At the close, the Dow Jones Industrial Average was off 78 points and closed at 13,792. The S&P 500 fell 10 points at 1,531, and the Nasdaq lost less than a point closing at 2,817. The NYSE traded 1.2 billion shares and the Nasdaq traded 2.2 billion, while breadth was negative on both exchanges to the tune of about 5-to-3.
Crude oil (December contract) caused quite a stir yesterday by selling off by $3.15 (3.4%) to $90.38 a barrel, with predictions by some floor traders that black gold has reached a temporary top and that yesterday's decline was a key reversal. The Amex Energy SPDR (XLE) fell $2.43 to $74.86 in a chart pattern that looks decidedly bearish, with the next support at the 50-day moving average at $73.48.
The sharp decline impacted many energy stocks, and they in turn caused the major indices to register a decline. Amid predictions of $800 per troy ounce, gold had a mind of its own and closed lower down $4.80 to $787.80 basis December. The Philadelphia Gold/Silver Index [XAU] lost $4.76 to close at $180.70.
What the Markets Are Saying
After a very brief (12-hour) sojourn above S&P 1,490, stocks reversed course and closed lower as a result of uncertainty over the Fed's next interest-rate move.
Yesterday's pullbacks were not serious across-the-board reversals but merely mild reactions to the possibility of no action by the Fed on rates. Some are whining that the Fed may cause a sell-off if it doesn't cut rates. Will this, then, be the attitude of investors at every Fed meeting?
If so, it's not only silly but even self-defeating since at some point rates will not be cut and stocks will fall either before or after the decision to keep status quo is made. Do investors really believe that the governors will be influenced by the stock market's reaction to their decisions?
The Federal Reserve's focus is not and should not be the success of stocks on any given day, week, or year. Further, it will be to every investor's benefit if Fed officials concern themselves with a monetary policy that promotes long-term economic growth and stability. In other words, we should buy stocks because they offer good value and an opportunity to make an investment income, not because the Fed is scratching our latest itch.
Today's Trading Landscape
Look for the following economic reports: October ADP Employment (the consensus expects 58,000), the Chicago Purchasing Manager Index (the consensus expects 53.0), and construction spending figures (the consensus expects -0.5% month-over-month). Also our first look at Q3 gross domestic product (the consensus expects 3.1% GDP) aided by another quarter of strong personal consumption and corporate inventory reductions.
Merrill Lynch forecasts exports are growing 16.4% for the quarter versus a 3.8% rise in imports. The Q3 Personal Consumption Index is expected to rise 3.2% and the Employment Cost Index is estimated to increase by 0.9%.
And, yes, the FOMC will give us its decision on interest rates at 2:15 p.m. Eastern.
The following companies are expected to report earnings today: Advance Auto Parts, Adaptec, Alliance Imaging, Andersons, Alpha Natural Resources, AON, AvalonBay, Chicago Bridge & Iron, Constellation Energy, Clorox, Conseco, Rockwell Collins, Creative Tech, Amdocs, Dresser-Rand, Dynamics Research, DTE Energy, Drew Industries, Education Realty Trust, Endurance Specialty Holdings, Essex Property Trust, Foundation Coal Holdings, FMC, Federal Realty, Gladstone Investment, General Growth Properties, Given Imaging, Garmin, GlobalSantaFe, Hess, IAC/InterActive, L-1 Identity Solutions, International Flavors & Fragrances, Iron Mountain, JDS Uniphase, Jones Apparel, Kraft Foods, Lazard, MasterCard, ManTech International, MetLife, Monaco Coach, Noble Energy, NCR, Newmont Mining, NAVTEQ, Omnicare, Pharmion, Plexus, Parametric Tech, PPL, Prudential Financial, Penn Virginia, Quality Systems, RehabCare, Rambus, Rockwood Holdings, ComScore, Sigmatel, SPX, Sunoco, Transocean, Teekay LNG Partners, Teekay, Teekay Offshore Partners LP, Trinity Industries, Tronox, Tuesday Morning, Unum, Ultra Pet, Visteon, WCA Waste, Wabash National, Weyerhaeuser, Wyndham Worldwide, Dentsply International and many more.
Deutsche Bank's (DB) Q3 beat estimates and the big German financier said that Q4 has started off well. All eyes are on the Fed.
Asian Headlines (via Bloomberg.com)
Asian Stocks Advance on Earnings; Toyota, Mirae Asset Rise, Cnooc Declines Asian stocks rose after Denso Corp. boosted its profit forecast and Mirae Asset Securities Co. reported net income more than tripled, easing concern earnings growth in the region will slow.
Bank of Japan Cuts Growth, Inflation Outlook, Says Rates Must Still Climb The Bank of Japan forecast slower economic growth and abandoned a prediction that consumer prices will increase this year, making it harder to raise the world's lowest borrowing costs.
Mitsubishi UFJ's First-Half Profit Falls on Loss at Credit Card Subsidiary Mitsubishi UFJ Financial Group Inc., Japan's largest bank, posted a record profit decline and cut its full-year forecast on losses at a credit-card unit.
Tokyo Electric Predicts First Loss in 28 Years as Oil, Gas Costs Increase Tokyo Electric Power Co., forced to shut the world's biggest nuclear plant after an earthquake, predicted its first loss in 28 years to pay for repairs and a switch to costlier oil and gas-fired generation.
Evergreen, Neptune Orient Profits Surge on Asia Exports, Container Rates Evergreen Marine Corp., Taiwan's largest shipping line, and Neptune Orient Lines Ltd. posted higher third-quarter profits after raising rates and carrying more Asian- made good to Europe and the Americas.
Hong Kong Sells HK$7.8 Billion to Defend Fixed Exchange Rate With Dollar The Hong Kong Monetary Authority sold HK$7.828 billion ($1 billion) to defend its currency's 24- year-old fixed exchange rate, as overseas investors bet the city's assets will benefit from growth in China's economy.
European Headlines (via Bloomberg.com)
European Stocks Rise, Paced by Deutsche Bank; Tele Atlas, Danske Bank Gain European stocks rose, heading for a second-consecutive monthly advance, led by financial companies after Deutsche Bank AG said the fourth quarter began ``very positively'' and it affirmed its profit targets.
Areva's Biggest Investor, French Nuclear Agency, Aims to Sell 25 Percent Areva SA's biggest shareholder, the French state nuclear agency, aims to sell at least 25 percent of the world's largest reactor builder to fund the dismantling of old plants and to give the company the means it needs to expand.
Svenska Cellulosa Profit Advances 32 Percent on Growth in Emerging Markets Svenska Cellulosa AB, Europe's biggest tissue maker, said third-quarter profit increased 32 percent after the company raised prices.