Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:58 AM ET
S&P 500: +6.00; 1,511.50
NASDAQ 100: +9.75; 2,222.50
Dow: +45; 13,600
NIKKEI 225: -0.12%; 16,249.63 (-19.29)
HANG SENG: +1.71%; 29,438.13 (+495.81)
SHANGHAI SE COMPOSITE: -1.74%; 5,536.57 (-97.88)
BSE SENSEX 30: -0.97%; 19,400.67 (-190.11)
FTSE 100: +0.65%; 6,503.30 (+41.90)
CAC 40: +0.60%; 5,718.46 (+33.84)
XETRA-DAX: +0.60%; 7,854.62 (+47.07)
Commodity Futures (Reuters/Jefferies CRB)
Oil: +1.93%; $95.79 (+$1.81)
Gold: +1.53%; $823.20 (+$12.40)
Natural Gas: +0.35%; $8.03 (+$0.03)
Silver: +2.43%; $15.145 (+$0.36)
U.S. Breaking Newssee today's Wall Street Breakfast for earlier news
Analyst, Citigroup Debate Bank's Future; Citi Gives Stuckey Subprime Unit
The analyst whose downgrade and comments on Citigroup's balance sheet sparked the abrupt departure of CEO Chuck Prince (full story) is calling on his successors to break up the company, The UK-based Telegraph reported Tuesday. CIBC World Markets' analyst Meredith Whitney said she believes the only way new Chairman Robert Rubin and interim CEO Sir Win Bischoff can salvage the mighty banker is to carve up the company and sell some of the pieces. "That's really the only thing they can do. They don't have the capital to manage it as an ongoing entity." Whitney has stated she believes Citi doesn't have the capital it needs to meet its commitments, which will force it to cut its dividend and ultimately sell-off non-core assets. Citi Sunday denied a lack of cash. "I see my role to hand over a vibrant firm which has learnt from its mistakes and is ready once again to take advantage of its considerable assets and heritage," Bischoff said. CFO Gary Crittenden Monday told analysts Citi had no intention of cutting its dividend. "Clearly the maths do not add up," Whitney responded. Separately, Bank of America downgraded Citigroup to Neutral from Buy. "Price-to-book becomes the focus given the lack of visibility on earnings. However, with confidence in Citi's book value eroding in light of recently disclosed balance sheet risks, we believe the stock could be range bound given current valuation of 3 times tangible book value," it said. Also Tuesday, Citi said Richard Stuckey, who helped unwind Long-Term Capital Management's turmoil nine years ago, would take over management of most of its $43 billion in subprime mortgage assets. Analysts say unwinding illiquid subprime holdings, though, is substantially more challenging than the liquid interest-rate and equity derivatives held by Long-Term. "The opaqueness as well as the stinkiness are greater," Lawrence White, professor of economics at New York University's Stern School of Business, said.
Commentary: Financial Sector Write-Downs: Don't Be Seduced Into Holding the Bag • Has Citi's Prince Been Unfairly Blamed? • Don't Say Citi Didn't Warn You
Stocks to watch: C. Competitors: BAC, DB, JPM. ETFs: DHS, FDL, IYG.
Earnings call transcript: Citigroup Business Update Call • Citigroup Q3 2007
IndyMac’s Q3 Losses Surge, Stock Drops
Mortgage lender IndyMac Bancorp swung to a larger loss than expected Tuesday, marking the first time the company has reported a loss in eight years. The lender lost $202.7 million ($-2.77/share) compared to a gain of $86.2 million ($1.19/share) last year. Analysts had been expecting a loss of $0.46/share, while IndyMac had forecasted $0.50/share. CEO Michael Perry said, "We could have performed better even with the very tough environment had we not followed our major competitors and expanded so significantly during the housing boom…these are difficult decisions because scale is important in the mortgage business, which encouraged our drive for market share." The company announced it will slash its dividend by 50% and said it had cut 1,500 jobs to stay afloat. The wider loss was a result of increasing loan losses and severance costs. IndyMac increased its credit reserves 47% to $1.39 billion. The company was the largest lender of "Alt-A" loans, given to borrowers with a risk to default in between subprime and prime loans, in 2006. The significant loss and the dividend cut forced shares of IndyMac down 15.5% to $10.79 in pre-market trading Tuesday.
Commentary: IndyMac to Post 3rd Quarter Loss, But Sees Profitable Future • Housing Bubble and Real Estate Market Tracker
Stocks to watch: IMB. Competitors: CFC, BAC. ETFs: PSP
Ad Revenue Fuels TheStreet.com Earnings as Subscriptions Fall
Financial website TheStreet.com posted earnings that beat Street estimates by $0.01, while coming up short on revenue. Q3 adjusted net income was $3.8 million ($0.13/share), up 22% from $3.1M ($0.11/share) a year ago, and better than the $0.12/share analysts polled by Reuters were expecting. Record revenue of $16.1 million was up 24% from 2006's $12.9 million, but short of $16.3 million Street estimates. TheStreet said subscription-based revenue to its pay website was $8.3 million, down 3% from $8.6M a year ago. Advertising revenue, conversely, jumped 23% to $4.6 million from $3.7M. Non-financial ad revenue was up 97% year-over year. In August, the company acquired Corsis, a provider of custom solutions for advertisers, marketers and content publishers, for approximately $20.7 million in cash and shares. "With our recent acquisitions and the many other initiatives we have undertaken, TheStreet.com has dramatically altered and broadened the landscape of opportunities for the Company," CEO Thomas J. Clarke Jr. said (full earnings call transcript later today). Shares are up 1.2% to $13.25 in pre-market trading.
Commentary: The Most-Trafficked Financial Websites • Is TheStreet.com In Play? • In Defense of Jim Cramer
Stocks to watch: TSCM. Competitors: DJ, TWX, YHOO, GOOG
Earnings call transcript: TheStreet.com Q2 2007
Valero's Net Falls on Weak Refining Margins; Shares Higher on Beat
Valero Energy Corp. saw its Q3 profit fall 20% on weak refining margins. Net income fell to $1.27 billion, good for EPS of $2.09, versus EPS of $2.55 a year ago. EPS from continuing operations was $1.34, down nearly 50% from $2.48 a share during the previous-year period. Excluding one-time benefits, EPS were $1.40. Consensus analyst estimates were for adjusted EPS of $1.36. Revenue was higher by 2% to $23.7 billion. Valero's feedstocks were approximately $3 per barrel more expensive in Q3 than they were a year earlier, knocking $700 million off of operating profits. Refining margins in the West Coast region for CARB gasoline and diesel fell 29% and 17% respectively, versus a year ago. Looking ahead to 4Q, CEO Bill Klesse said, "So far in the fourth quarter, the margin environment has been difficult as prices for refined products have failed to keep pace with the increase in feedstock costs," (full earnings call transcript later today). The company plans to repurchase about $1.2 billion of its shares during Q4. VLO is up 2.04% in pre-market action (as of 8:04 AM ET). Its shares have gained 36% YTD.
Commentary: Valero Guides Lower for Third-Quarter • It's Time To Buy Oil Refiners Again • Refining My Knowledge of the Refineries
Stocks/ETFs to watch: VLO. Competitors: BP, XOM, CVX. ETFs: IEO, RYE
Earnings call transcript: Valero Energy Corp. Q2 2007 Earnings Call Transcript
Archer Daniels Midland Beats Despite Drop in Corn Processing Profit
Archer Daniels Midland [ADM] posted a 9.4% increase in fiscal first-quarter net income to $441 million, or $0.68/share, on revenue growth of 36% to $12.83B. Both figures beat analysts' average estimates of $0.59 on revenue of $10.64B. CEO Patricia A. Woertz called the results "exceptional" and emphasized the strength of the company's diversified asset and product portfolio, which helped it overcome a 12% decline in corn processing profit. ADM said sweeteners and starches, oilseed processing and grain merchandising and handling drove Q1 earnings. The drop in corn processing profit was a result of lower ethanol sales prices and volumes and higher net corn costs. Meanwhile, ADM said oilseed processing operating profit rose on improved margins, due to strong global protein and oil demand. Shares of ADM lost 0.9% to $34.52 on Monday and were last trading at $36 (+4.3%) in thin pre-market activity.
Commentary: Archer Daniels Midland: Manufacturing Fertilizer, A Fertile Source Of Income • Archer Daniels Midland Enters Industrial Chemicals Market, A Good Place To Be • Now There's An Ethanol Glut?! I Thought We Couldn't Make Enough
Stocks to watch: ADM. Competitors: BG, CPO
Urban Outfitters Tops Sales Targets
Shares of Urban Outfitters are trading higher by 4.5% to $25.00 in the pre-market, following the company's release of better-than-expected third-quarter sales estimates of $379.32M (+23% y/y). Analysts were expecting sales of $374.75M, on average. Urban Outfitters said strong sales at its Anthropologies and Free People stores drove the strong sales growth. Total comparable store sales rose 8% during the quarter, led by 17% and 16% increases at Anthropologies and Free People, respectively. CEO Glen Senk commented, "Our recent merchandise strategy changes have begun to take effect as all of our brand channels experienced double digit sales growth over the prior year's quarter. We still believe our largest opportunity over the next several quarters rests with further execution of the Urban brand merchandise initiatives." Urban Outfitters is scheduled to report Q3 earnings on Thursday Nov. 8. Shares of Urban Outfitters lost 0.7% to $23.92 on Monday.
Commentary: September Same-Store Sales: Comprehensive Roundup
Stocks to watch: URBN
Earnings call transcript: Urban Outfitters F2Q08
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• American brewer Molson Coors Brewing Company (NYSE:TAP) reported Q3 net income fell slightly, as it was hit by higher costs and lower volume. Net income was $134.7 million, good for EPS of $0.74, vs. net income of $135.8 million (EPS of $0.78) a year ago. Excluding one-time items, EPS would have been $0.95 cents a share, vs. adjusted EPS of $0.73 a year ago. Revenue climbed 6.9% to $1.69 billion despite a 0.2% slip in sales volume to 11.2 million barrels. Consensus estimates were for adjusted EPS of $0.92 on sales of $1.64 billion. TAP shares were unmoved in the pre-market; they are up 48% YTD. (source: MarketWatch)
Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
"Here comes the other shoe," was the thought at the opening bell yesterday.
The trading week started off a bit on the rough side, as Citigroup (NYSE:C) stunned investors with news that it would write off between $8-$11 billion in Q4, resulting from declines in the fair value of subprime loans. With that, the Dow (Private:DJI) opened lower by almost 90 points. Accordingly, in the financial sector a new wave of selling took many of the high-exposure investment banks down 2%-3.5%.
However, economics came to the rescue when the Institute for Supply Management (ISM) data were released showing that non-manufacturing sectors in October grew more than anticipated. Auto giant Ford (NYSE:F) and the United Autoworkers reached an agreement that included an independent health-care trust for retirees, helping to buoy the sector.
At the close, the Dow Jones Industrials were off 52 points at 13,543. The S&P 500 was down 7 points at 1,502, and the Nasdaq fell 15 points and closed at 2,795. The Big Board traded 1.5 billion shares and the Nasdaq traded more than 2.1 billion, with decliners ahead of advancers on the NYSE by 3-to-1 and by 2-to-1 on the Nasdaq.
Crude oil (December contract) fell by $1.95 to $93.98 a barrel, and the Amex Energy SPDR (NYSEARCA:XLE) lost 55 cents to close at $75.30. Gold (December contract) rose by $2.30 to $810.80 per troy ounce, and the Philadelphia Gold/Silver Index [XAU] fell by $1.02 to $186.61.
What the Markets Are Saying
With about 83% of the companies on the S&P 500 having reported Q3 earnings, The Street looks for the quarter to come in at about 2.1% lower year-on-year, which would be the first down quarter in five years.
Leading the pack down are, of course, the normally influential financial stocks, as a result of the worst financial crisis since the S&L scandals of many years ago. Gold is still hitting new highs, as is crude oil, and political unrest is the norm in the Middle East. With this much "bad news," you'd think that we'd be proclaiming a big new bear market instead of holding our own.
However, yesterday the major averages closed above the support levels outlined in the morning, at Dow 13,270, S&P 1,490, and Nasdaq at 2,720. So bad news is being treated well by the market and, with that, we will again await our opportunity to pick some low-hanging fruit -- but not too much quite yet.
Today's Trading Landscape
Consumer credit is the only report due today, however earnings are expected from the following companies: Archer-Daniels-Midland, AbitibiBowater, Allergan, American Financial Realty, Anworth Mortgage, Apollo Investment, Avis Budget, Bentley Pharma, Blue Nile, BMC Software, Boston Beer, Buca, CapitalSource, Chesapeake Energy, Church & Dwight, Chyron, Cogdell Spencer, Cognizant Tech Solutions, Cooper Tire & Rubber, CV Therapeutics, Digital Realty Trust, El Paso, Emerson Electric, Expeditors International, Fuel Tech, Global Crossing, HCC Insurance, Headwaters, Care REIT, Holly, Hologic, IndyMac Bancorp, Internap Network Services, International Securities Exchange Holdings, Ipass, iStar Financial, Jacobs Engineering, K-Swiss, Lear, Macrovision, Magellan Midstream Holdings LP, Magellan Midstream Partners LP, MasTec, Molson Coors, OSI Systems, Papa John's, Patriot Capital, Peabody Energy, Performance Food, Pioneer Natural Resources, Protective Life, Quicksilver Resources, Republic Services, Ruth's Chris, Skilled Healthcare, Spectra Energy, St Joe, Sunstone Hotel, SurModics, Telephone & Data Systems, Tenet Healthcare, The Street.com, Trex Co, Valero Energy, Visicu, Watson Pharma and Weight Watchers.
This morning Gold is trading over $825 an ounce and European stocks are a bit higher. Federal Reserve Chairman Ben Bernanke is making a speech this morning and his remarks will be closely monitored. Our markets look to open higher.
Asian Headlines (via Bloomberg.com)
Alibaba Triples in Trading Debut, Becomes Second-Largest Asian Web Company Alibaba.com Ltd., operator of China's largest online trading site for companies, almost tripled on its first day of trading in Hong Kong, making the stock four times more expensive than Google Inc. relative to earnings.
China Reports a 12-Fold Surge in Suspect Money Transfers to $52 Billion China's central bank said suspected cases of money laundering jumped 12-fold to 387 billion yuan ($52 billion) last year as measures to monitor currency flows in the booming economy were tightened.
Astellas Profit Surges 47 Percent on Sales of Prograf, Vesicare Medicines Astellas Pharma Inc., Japan's second- largest drugmaker, had a 47 percent jump in first-half profit, helped by sales of its bladder control treatment Vesicare and Prograf, used to prevent rejection in organ transplant patients.
Kubota First-Half Profit Falls on Steel Costs, Slowdown in U.S. Housing Kubota Corp., the biggest maker of compact tractors in the U.S., said first-half profit dropped 3 percent on rising steel costs and lower sales from North America.
European Headlines (via Bloomberg.com)
BMW Net Rises Less Than Analyst Estimates as Weaker Dollar Erodes Revenue Bayerische Motoren Werke AG, the world's largest maker of luxury cars, reported an increase in pretax profit that was lower than predicted as a weaker dollar reduced the value of U.S. sales and costs rose.
Marks & Spencer First-Half Net Gains 40 Percent on Women's Clothing, Food Marks & Spencer Group Plc, the U.K.'s largest clothing retailer, said first-half profit rose 40 percent on women's fashions and food sales, and announced plans to open its first stores in China.
Commerzbank Third-Quarter Profit Rises 56 Percent; Mueller to Step Down Commerzbank AG, Germany's second- largest bank by assets, said third-quarter profit rose 56 percent on tax gains and named board member Martin Blessing to succeed Klaus-Peter Mueller as chief executive officer.
Swiss Re Profit Surpasses Estimates on Taxes, Damage Claims; Shares Climb Swiss Reinsurance Co., the world's largest reinsurer, reported third-quarter profit that surpassed analysts' estimates as taxes fell and damage claims remained low.
German Factory Orders Drop More Than Forecast as Dollar, Oil Erode Demand Manufacturing orders in Germany, the world's biggest exporter, declined in September, led by a drop in demand for goods such factory machinery.