Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 9:08 AM ET
S&P 500: -17.50; 1,537.50
NASDAQ 100: -16.50; 2,236.00
Dow: -128; 13,808
NIKKEI 225: +0.79%; 16,870.40 (+132.77)
HANG SENG: +0.45%; 31,492.88 (+140.30)
SHANGHAI SE COMPOSITE: -0.68%; 5,914.28 (-40.48)
BSE SENSEX 30: -0.57%; 19,724.35 (-113.64)
FTSE 100: -1.97%; 6,589.20 (-132.40)
CAC 40: -1.87%; 5,738.67 (-109.28)
XETRA-DAX: -1.25%; 7,919.29 (-99.93)
Commodity Futures (Reuters/Jefferies CRB)
Oil: +0.84%; $95.32 (+$0.79)
Gold: -0.04%; $795.00 (-$0.30)
Natural Gas: +1.55%; $8.46 (+$0.13)
Silver: -0.26%; $14.40 (-$0.038)
U.S. Breaking Newssee today's Wall Street Breakfast for earlier news
Soaring Oil Prices, Shrinking Margins Hit Exxon
Shares of ExxonMobil dropped 2% in pre-market trading Thursday after it said Q3 net earnings fell a worse-than-expected 10%, as higher energy prices hit the company's margins and reduced profits on what was otherwise a record-setting quarter for revenues. EPS of $1.70 ($9.41 billion) was down from $1.77 ($10.49B) a year earlier, and worse than the consensus analyst estimate of $1.75. Revenue climbed 2.8% to $102.38 billion; Exxon's prior revenue record was $100.72B, set two years ago. Oil-and-gas production earnings were down 3% to $6.3B. Higher oil prices have hurt oil refiners, leading to higher production expenses, which the companies have been unable to fully recuperate through higher prices for their end products. Exxon's downstream (refining) business saw profits drop 31% to $1.9 billion. "The decrease reflected lower downstream and chemical margins partly offset by higher crude oil realizations," the company said (full earnings call transcript later today). Average price per barrel over the quarter was $75.25, vs. $70.50 a year ago. Chemical earnings fell 11% to $1.2 billion on lower margins. "It's a pretty good bet we've seen peak earnings for these guys," C.S. McKee manager William Andrews told Bloomberg, "Refining profits are down across the board." Since Sep. 30 when Q3 ended, crude oil futures have risen to over $95 a barrel from $80; many analysts say $100/barrel-plus oil is around the corner (full story).
Commentary: Oil Majors Quietly Investing In Renewable Fuel Sector • Exxon Mobil Stock Up Big, But Underperforming Crude • The Oil Scam Driving Crude
Stocks to watch: XOM. Competitors: BP, RDS.A, CVX, COP, TOT. ETFs: DIG, IYE, PRFE
Earnings call transcript: ExxonMobil Q2 2007
Altria to Acquire John Middleton Cigars for $2.9B
Altria announced early Thursday it has entered into an agreement to acquire 100% of John Middleton, Inc., a leading maker of machine-made large cigars, in a $2.9B all cash deal. John Middleton is currently owned by privately held Bradford Holdings. In a statement, Altria said the net cost of the acquisition after deducting tax benefits is $2.2B. Philip Morris USA CEO Michael E. Szymanczyk commented, "The acquisition is both strategically compelling and financially attractive. It fits squarely with our announced strategy to grow our U.S. tobacco business beyond cigarettes and complements our recent initiatives in the smokeless category." John Middleton is expected to have operating revenues of $360M in 2007 with operating earnings of $182M. Both revenues and earnings have grown 10% and 13%, respectively, on a compound annual basis since 2003. The transaction is expected to be completed by the end of the year and "modestly accretive" to earnings in 2008 and "generate an attractive double-digit economic return." Shares of Altria rose 0.2% to $72.93 and were last unchanged in pre-market trading.
Commentary: Altria Shareholders: Watch Exxon's Supreme Court Appeal • Reynolds' Healthy Growth In Smokeless Tobacco Will Also Benefit Altria • Altria Higher on Q3 Beat and Raise
Stocks to watch: MO. Competitors: RAI, BTI, ITY. ETFs: DIA, IYK, XLP, VDC
Sprint's Q3 Net Tumbles on More Subscriber Losses
Sprint Nextel suffered a 77% drop in third-quarter net income to $64 million, or $0.02/share, while sales fell 4.2% to $10B, after nearly 340,000 subscribers canceled service. Excluding items, EPS were $0.23, topping the Street's consensus estimate by a penny. Sales missed estimates by $200M or 2%. Sprint's woes are not over yet, as the company warned it expects continued pressure on subscriber gains in Q4. "Our third quarter results reflect mixed performance as we address competitive market conditions and manage through credit market impacts on a portion of our customer base," commented acting CEO and CFO Paul Saleh. (Earnings conference call transcript later today). The Wall Street Journal likened Sprint's troubles stemming from reliance on poor-credit customers to those of the mortgage industry related to sub-prime borrowers. Sprint's total subscribership declined by 60,000 from Q2 to 54 million, compared to net subscriber gains of 2M and 1.6M for larger rivals AT&T and Verizon. Shares of Sprint lost 0.2% to $17.06 on Wednesday and were last down 3.3% to $16.50 in pre-market trading.
Commentary: Sprint CEO Enjoys Pay For Non-Performance • Google in Talks with Verizon, Sprint on Phone Software • Is Sprint Stock A Buy Upon CEO's Departure?
Stocks to watch: S. Competitors: T, VZ, DT
Blockbuster Misses Estimates on Weak Retail Sales
Shares of Blockbuster fell 4% in pre-market trading after the video-rental retailer posted a worse-than-expected loss, as the company continues to close stores worldwide. Blockbuster said it would cut jobs in an effort to save $45M/year and improve profitability. Losses from continuing operations rose to $34.8 million ($0.20/share), from -$23 million (-$0.14/share) a year ago. Analysts expected a loss of $0.18/share. Revenue fell 5.7% to $1.24 billion from $1.31 billion. A decline in retail revenue was partially offset by increased revenue from Blockbuster's online DVD rental service. Total subscribers were about 3.1 million. "Our goal is to continue to increase our membership base by providing even more ways for customers to get the entertainment they want through our stores, through the mail and through new technologies," CEO Jim Keyes said (full earnings call transcript later today). In August Blockbuster acquired Movielink LLC, an online movie downloading service owned by major Hollywood studios for what one source said was less than $20M, a move it hopes will allow it to begin exploring the downloadable movie market (full story). The company was formed by a joint effort of major movie studios, including MGM, Paramount, Sony, Universal and Warner Bros., in 2002. After sinking more than $100M into the venture without much to show for their efforts, the studios were reluctant to spend more money to promote the service, leading to the sale. Keyes said Blockbuster would increase awareness of the product by promoting it to its existing customer base. Wedbush Morgan analyst Michael Pachter called the acquisition a 'defensive' move by Blockbuster to "keep up with Netflix. In the long run, if they are successful in neutralizing Netflix, this will work out."
Commentary: Analysts Still Wary of Blockbuster's Threat To Netflix • Netflix, Blockbuster To Grab Spoils From Movie Gallery's Demise • Wouldn't Touch Blockbuster With A Ten-Foot Pole
Stocks to watch: BBI. Competitors: NFLX
Earnings call transcript: Blockbuster Q1 2007
Kodak Swings to Profit on Strong Digital Sales, Gross Margin
Eastman Kodak reported a return to profitability in its latest quarter despite a slight reduction in net sales. CEO Antonio M. Perez was "very pleased" with the way the "new Kodak" is emerging: "We delivered solid, value-creating digital growth, powered by a 12% increase in digital revenue, as well as expanded gross margins and positive net earnings. This increases my confidence in achieving our full-year goals and positions us well as we enter 2008," (full earnings call transcript later today). Q3 net income was $37 million, good for EPS of $0.13, mirroring a year ago's net loss of $37 million and negative EPS of $0.13. Revenue was $2.58 billion, versus $2.6 billion a year ago. Earnings from continuing operations showed a drastic improvement at EPS of $0.12, versus an EPS loss of $0.29 on that basis a year ago. More specifically, digital sales climbed 12% to $1.59 billion, offsetting a 16% drop in more traditional revenue streams to $986 million. Gross margin was up 1.3% to 26.4%, while overall costs were hemmed in 8%. Shares were higher by 2.3% in moderate pre-market trading (23,000 shares as of 8:18 AM ET) despite missing consensus adjusted EPS estimates of $0.24. Consensus revenue estimates were for $2.49 billion. Kodak reiterated its EPS guidance for FY2007, in addition to exuding confidence towards FY2008.
Commentary: Paul Wick: Slumping Bill Miller Will Go And Kodak Will Fall • Kodak Swings to a Q2 Profit on Growing Digital Strength • Kodak Shares Gain on HP Buyout Rumor; Why Would Hurd Do That? Stocks/ETFs to watch: EK. Competitors: FUJI, CAJ, SNE
Earnings call transcript: Eastman Kodak Q2 2007 Earnings Call Transcript
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• Pharmacy benefits management and retail company CVS Caremark Corp. (NYSE:CVS) saw its net earnings rise to $689.5 million, good for EPS of $0.45, vs. EPS of $0.33 a year ago before its merger with Caremark. Revenue was $20.5 billion, vs. $11.5 billion a year ago, again before the Caremark merger. Consensus analyst estimates were for EPS of $0.44 on revenue of $20.5 billion. Same store sales climbed 5%. Shares were slightly higher in pre-market action; its shares are up 35% YTD. (source: MarketWatch)
Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
Yesterday, the Fed cut both the fed funds and the discount rate by 25 basis points and the market responded with a rally. But it took about 20 minutes for the news to sink in, and initially the market sold off a bit as a reflex reaction to just a quarter- and not a half-point cut.
By today's close, there will no doubt be another view of the Fed's action, especially after the talking heads and financial media hash out the meaning of that Fed's statements, "The Committee judges that, after this action, the upside risks to inflation roughly balance the downside risks to growth."
Does that mean that the Fed thinks that we are headed for one or the other or both? Or is it saying, "This is it. Don't ask for any more rate cuts -- you're on your own."
The Fed announcement was the most anticipated news of the day, but not the only news. Earlier in the trading session, the Commerce Dept. said the U.S. economy has grown at an annual rate of 3.9% -- a remarkable feat considering the extent of the housing slowdown. Private payrolls also grew by 106,000 in October and that, too, was a pleasant surprise.
On the corporate side, Google (NASDAQ:GOOG) topped $700 a share for the first time, closing at $705.45, and Commerce Group (NYSE:CGI) jumped 17% after an announcement that it would be acquired by Spain's Mapfre S.A. for $36.70 a share. Weyerhaeuser (NYSE:WY) reported that Q3 earnings fell 55%, but the stock rose 1.4% as a result of optimistic comments by its management on the future of the housing market and a better-than-expected outcome in its timberland business. The world's largest telecommunications-equipment maker, Alcatel-Lucent (ALU), said it is cutting another 4000 jobs and the stock rose by 3.2%. It almost seemed that no matter the news, stocks were bound to advance.
At the close, the Dow Industrials were up 138 points and closed at 13,930. The S&P 500 rose 18 points to 1,549, and the Nasdaq was again the percent leader, up 1.51% or 42 points, closing at 2,859. The NYSE traded almost 1.6 billion shares and the Nasdaq traded 2.5 billion. Advancers beat decliners by almost 3-to-1 on the NYSE and 2-to-1 on the Nasdaq.
Crude oil (the December contract) closed at another new record high at $94.53 a barrel, up $4.14, after a sharp drop in inventories, and the Amex Energy SPDR (NYSEARCA:XLE) closed at $76.54, up $1.68. Gold surged to over $800 per troy ounce for the first time since 1980, following the Fed's rate cuts. The December contract settled at $795.30, up $7.50, and the Philadelphia Gold/Silver Index [XAU] closed at $188.10 -- another new high, up $7.40.
What the Markets Are Saying
The Fed cut in rates by 25 basis points was expected, and so was yesterday's rally. But now that the news is out and even though momentum is now with the bulls, sentiment is extremely bullish, especially the Investor's Intelligence numbers and Standard and Poor's short-term investment polls -- that is not good.
Curiously the Association of Individual Investors [AAII] sentiment numbers from last week showed more bears than bulls, and that theoretically should help the market but those numbers may be askew. The AAII reports new numbers today, so I'll comment tomorrow on that report.
However, put/call ratios have dropped sharply, and the ISEE sentiment index recently hit the highest level in over a year. Further, some of the most speculative sectors are getting the most attention from buyers. This is not the usual formula for a big sustainable breakout.
Still, if the bulls can get some heavy volume and breadth going to support a breakout to new highs, it is possible that we could get an impressive run-up and even a blowout as we approach the year's end.
With all of the major indices at the top of their ranges, it is time to focus on breadth and volume. But keep in mind that we've been here before, only to have major reversals drive prices back down to support lines.
Today's Trading Landscape
With the Fed meeting out of the way, the only reports due today are the September Personal Income (the consensus expects 0.3%), Personal Spending (the consensus expects 0.4%), Personal Consumption (the consensus expects 2.3% year-over-year and a core figure of 1.8%), ISM Manufacturing (the consensus expects 51.5 %), Prices Paid (the consensus expects 63%) and Vehicle Sales.
Earnings are expected from the following companies: 8x8 Inc, ABN Amro Holding, Accuride, Affiliated Computer Services, Agilysys, Agree Realty, AmerisourceBergen, American Superconductor, Anglogold Ashanti, Antigenics, Aspen Insurance Holdings, Astrazeneca, Atlas Pipeline Holdings, Avanex, Axcelis Technologies, Bebe Stores, Becton Dickinson, Big 5 Sporting Goods, Blackbaud, Blackboard, Blockbuster, British American Tobacco, Bucyrus International, Cabelas, Callaway Golf, Cambrex, Camden Property Trust, Carriage Services, CBS Corp, Cogent, Cognex, Comforce, Consolidated Edison, Crompton, CVS, Dentsply International, Draxis Health, Eastman Kodak, El Paso Electric, Electronic Arts, Endo Pharmaceuticals, Exxon Mobil, Georgia Gulf, Harris Corp., Haverty Furniture, Human Genome Sciences, Hypercom, Immersion, Immunogen, Intermune, Investment Technology, La Barge, Lance, Leather Factory, Libbey, Marathon Oil, Marinemax, Medco Health Solutions, Millennium Pharmaceuticals, Morningstar, Napster, Nationwide Financial Services, Neurocrine Biosciences, Neustar, Nicor, Nymex Holdings, Oceaneering International, Officemax, Omega Healthcare, Pengrowth Energy, Pepco Holdings, Perrigo, PG&E, Psychiatric Solutions, Puget Energy, Radian Group, Rainmaker Systems, Realty Income, Rowan Cos, Royal Gold, Safeguard Scientifics, Scotts Miracle Gro, Sempra Energy, Silicon Image, Sprint, Stanley, Strategic Diagnostics, Swift Energy, Symmetricom, Synaptics, Tesoro, Theragenics, Timberland, Unova, USEC, Valueclick, Washington Post, Weingarten Realty, Western Digital, Westlake Chemical, Zilog and many, many more.
Unilever's (NYSE:UL) Q3 net grew by 37%, which was ahead of forecasts, but Crocs's (NASDAQ:CROX) full-year revenues fell short of expectations. Garmin's (NASDAQ:GRMN) bid for Tele Atlas (OTC:TLATF) is being supported by Tele Atlas. Prudential Financial (NYSE:PRU) said it met estimates, but Credit Suisse wrote off $1.9 billion and PRU's net profit fell by 31%.
Today's opening looks lower due to another new high in crude oil in Europe this morning.
Asian Headlines (via Bloomberg.com)
Asian Stocks Advance to a Record on Fed Rate Cut, Oil; Canon, Sinopec Rise Asian stocks rose after the Federal Reserve cut interest rates and U.S. economic growth accelerated, bolstering confidence in the region's biggest export market.
Australia's Retail Sales Jump, May Prompt Interest-Rate Increase Next Week Australia's retail sales climbed more than economists forecast in September, reinforcing speculation the central bank will raise interest rates next week.
China Railway Engineering to Raise $4 Billion in Share Sales, People Say China Railway Group Ltd., the nation's largest construction company, may raise as much as $4 billion in Shanghai and Hong Kong share sales by next month, said two people familiar with the plan.
Lenovo Second-Quarter Profit Triples on Job Cuts, Personal Computer Sales Lenovo Group Ltd., the world's third- biggest maker of personal computers, almost tripled fiscal second- quarter profit, beating analysts' estimates, after reducing jobs and winning market share.
Hyundai Motor's Kim Says Won May Extend Rally, Create Earnings `Headwind' Hyundai Motor Co., South Korea's third-biggest exporter, said the won will extend its rally from a 10-year high, damping profit because the automaker sells four out of every five cars overseas.
Honda Expects Euro's Rise Against Yen to Buffer Earnings From Weak Dollar Honda Motor Co., reliant on U.S. auto sales for more than half its profit, said the rising value of the euro will help protect earnings from a decline in the dollar.
European Headlines (via Bloomberg.com)
European Stocks Decline, Paced by Banks; Credit Suisse, UBS, Barclays Drop European stocks declined, led by financial companies, after Credit Suisse Group said it is ``too early to predict'' an end to the turmoil in the credit markets.
Unilever Earnings Climb 37 Percent, Led by Asia, Africa, Cleaning Products Unilever, the world's second-largest consumer-products company, said third-quarter profit rose 37 percent on detergent sales in Asia and Africa.
AstraZeneca Profit Falls 15 Percent on Increased Competition From Generics AstraZeneca Plc, the U.K.'s second- largest drugmaker, said third-quarter profit declined less than analysts expected as the Seroquel antipsychotic surpassed $1 billion for the first time.
Smith & Nephew Net Drops 86 Percent on Cost of U.S. Justice Investigation Smith & Nephew Plc, Europe's largest maker of knee and shoulder implants, said third-quarter profit fell 86 percent after the U.K. company paid $28.9 million to settle an investigation by the U.S. Justice Department.
Gasoline in Europe Rises to Two-Year High on Fire; Naphtha Reaches Record Gasoline prices in northwestern Europe advanced to the highest in more than two years following a fire at a U.K. refinery yesterday. Naphtha rose to a record.