Bernanke: Economic Growth Won't Last
The U.S. economy has performed "reasonably well" over the past six months, Fed Chairman Ben Bernanke said Thursday in Congress, however, "the economic outlook has been importantly affected by recent developments in financial markets, which have come under significant pressure in the past few months." Testifying before the Joint Economic Committee, Bernanke said mortgage delinquencies are likely to rise further in coming months. Concerns over mortgage-backed securities have greatly reduced investors' appetite for asset-backed commercial paper. Also contributing to recent credit-market crisis, Bernanke said, was investors' reluctance to fund LBOs and buy speculative-grade corporate bonds. Banks, concerned about "difficult-to-predict draws on their liquidity" have become less willing to lend to customers and each other, the sum of which could restrain economic growth as borrowing costs rise, he said. Despite Q3's surprisingly robust 3.9% GDP growth, Bernanke said the Fed doesn't expect recent growth performance to be sustained. Reduced mortgage availability will continue to stress housing-related activity, and household spending is slowing. The Fed foresees a noticeable slowing of economic growth in Q4 and during the first part of 2008. Bernanke said he sees important upside inflation risks -- higher oil and commodity prices and a weak U.S. dollar. Still the Fed expects inflation to stay in a "range consistent with price stability next year" as inflation expectations appear "reasonably" anchored, but that could change should price expectations "become unmoored." The Chairman suggested lenders "work with borrowers" to reduce mortgage foreclosures, but added regulators must insure workouts "protect consumers and do not disguise lenders' losses."
Commentary: Fed Rate Cuts: Do They Really Help the Economy? • Cool Heads Will Prevail • Buffett on Mr. Market
Stocks to watch: DIA, SPY, AGG
Regulator Irate Over NY AG's Probe of Fannie and Freddie
In what appears to be a potential "turf war," the director of Ofheo [Office of Federal Housing Enterprise Oversight], which regulates government-sponsored mortgage lenders Fannie Mae and Freddie Mac, said he was "disappointed" his office was not contacted "before or even after" the companies were subpoenaed by New York Attorney General Andrew M. Cuomo. On Wednesday, Cuomo said he uncovered a "pattern of collusion" between lenders and appraisers, and subpoenaed Fannie and Freddie seeking documents that may prove the lenders inflated appraisal values (full story). "I feel that you and your staff may not fully understand the differences between the mortgage-backed securities [MBS] issued by the GSEs [gov't sponsored enterprises] and those issued by other entities," Ofheo director James B. Lockhart wrote Thursday in a letter to Cuomo. "In particular, unlike the issuers of private label MBS, when Fannie Mae or Freddie Mac issues an MBS, they retain the credit risk on the underlying mortgages by guaranteeing repayment to MBS holders. Consequently, they have no economic incentive to knowingly purchase or guarantee mortgages with inflated appraisals." Lockhart asked to meet Cuomo, in order to discuss, among other things: Cuomo's demand that the GSEs cease doing business with a major federally-chartered bank that has not been charged or subpoenaed [WaMu]; the scope and authority of the independent examiner announced yesterday by the GSEs at Cuomo's bidding; the potential expansion of the probe to other financial institutions. Fannie Mae shares dropped 10.1% Wednesday while shares of Freddie Mac were off 8.6%.
Commentary: Fannie, Freddie, WaMu Tumble on Expanded Probe • Contemplating Life Without Guarantors • The Easing Credit Crunch
Stocks to watch: FNM, FRE, WM
Sprint-Clearwire WiMax Pact Falls Through; Clearwire Earnings Drop
The Wall Street Journal reports that Sprint Nextel is calling off its agreement with Clearwire to build a national WiMax network that will reach 100 million Americans. WiMax is similar to WiFi in that it provides wireless internet connectivity to large physical spaces, but boasts the ability to do so at faster speeds. The companies had signed a 'letter of intent' in July with 60 days to cement a comprehensive agreement (full summary). But continuing financial troubles at Sprint caused CEO Gary Forsee to be shown the door in October, effectively unravelling what was shaping up to be a potentially complex revenue sharing agreement between the companies. In addition to raising questions about the future of Sprint's WiMax unit, the move will likely hurt outside investors in WiMax-related technology, most notably Intel and Motorola. Tech website Gizmodo.com says the cancellation, "is a bigger blow to Clearwire, the smaller of the two companies, which might need a cash injection from WiMax-backers like Intel to stay on track." Sprint had planned to spend $5 billion developing the joint network through 2010. Separately, Clearwire's Q3 earnings showed an increasingly cash-negative business. The company reported net income of -$328.6 million (-$2.01/share) versus -$118 million in the previous quarter and a loss of just $60 million a year ago. Revenue rose to $41.3 million from $26.9 million. Clearwire lost $0.95 per share on an adjusted basis, badly missing consensus analyst estimates for $0.78/share loss. Clearwire shares are down 26.8% YTD; Sprint's are down 12.4%.
Commentary: Clearwire, Sprint Call Their Deal Off [Om Malik] • Sprint and Clearwire Nix WiMax Partnership [Gizmodo] • Clearwire Soars 23% on WiMax Deals with DirecTV, EchoStar
Stocks to watch: S, CLWR, INTC, MOT. Competitors: ALVR, AIRN, T, VZ. ETFs: WMH, TTH, IYZ
Earnings call transcript: Sprint Nextel Q3 2007
Vonage Reports Jump in Revenue and Settlement
Shares of Vonage Holding Corp. traded higher Thursday after the company reported third-quarter results and announced it is close to settling its final major patent dispute. The company reported a loss of $161.8 million ($1.04/share), wider than last year's loss of $62.2 million ($0.40/share). Excluding litigation costs and other items, Vonage would have lost $0.10/share, better than the $0.13/share analysts had expected it to lose. Revenue jumped 30% to $211 million, slightly ahead of estimates of $210 million. Chairman Jeffrey Citron said, "We are acquiring customers more effectively and running the business at an improved cost structure... Our primary focus today is to improve the customer experience to reduce churn." The company has been taking steps to improve customer service, but its churn rate, the percentage of subscribers who terminate subscriptions, increased to 3% from 2.5% last quarter. Vonage also announced it is close to settling its last patent suit with AT&T. In principal, the agreement will have Vonage pay AT&T $39 million over five years. Vonage traded as much 12% higher early Thursday, and is up 5.0% to $2.30 in midday trading.
Commentary: Vonage Surges 71% on Verizon Patent Settlement • Vonage Announces Settlement with AT&T
Stocks to watch: VG, T. Competitors: S, VZ. ETFs: WMH, VOX
NVIDIA Jumps on Q3 Beat, Q4 Revenue Outlook
Shares of NVIDIA recouped the 6% drop from Thursday's regular session and more in extended trading, following the company's report of better-than-expected Q3 earnings and Q4 revenue guidance. Net income more than doubled to $235.7 million, or $0.38/share, with adjusted EPS of $0.44 easily beating analyst estimates of $0.37. Revenue climbed 36.5% to $1.12B, also topping expectations of $1B. Strong demand for PC graphics cards, especially for notebooks (+120% y/y) drove growth. Desktop PC graphic card sales rose 33%. However, in spite of NVIDIA's strong earnings, American Technology Research analyst Doug Freedman says the results don't change his Sell rating issued two weeks ago. Freedman thinks the stock is near a peak, and says he doesn't "believe they have a lot of (market) share gain available to them next year." Nevertheless, NVIDIA's current quarter guidance offered in its conference call for revenue growth of 5% to 7% (est. $1.17B to $1.19B) is well ahead of the $1.06B analysts were expecting (transcript). NVIDIA rallied 7.9% to $36.50 in extended trading.
Commentary: Nvidia Corp: Leading Innovator In Graphics Microchips Field • Nvidia Bounces Back on Bullish Street Talk • Lehman Downgrades Nvidia, Bear Stearns Remains Bullish
Stocks to watch: NVDA. Competitors: AMD, INTC, OTCPK:CREAF. ETFs: XSD, IGW, PSI
Wireless Chipmaker Qualcomm Inc. fell more than 7.5% in after-hours trading on a soft forecast for its next fiscal year (FY08), despite topping Wall Street's estimates in its latest quarter. President Steve Altman blamed his company's pricey ongoing legal dispute with Nokia over licensing fees as part of the reason for the softer than expected guidance (full earnings call transcript). The company reported adjusted net EPS of $0.53 in its recently-ended quarter (F4Q07) on revenue of $2.31 billion. Net income of $1.13 billion was nearly doubly net of $614 million from a year ago. Analysts were, on average, looking for adjusted EPS of $0.53 on revenue of $2.26 billion. But the company forecast FY2008 EPS of between $2.03 and $2.09 (midpoint $2.06); consensus analyst estimates were for EPS of $2.18.
Commentary: Qualcomm Boosts Guidance; Investors Apathetic • Qualcomm's New Gobi Chipset Should Be Market-Changing • Are Analysts Misleading Investors on Qualcomm?
Stocks to watch: QCOM
Earnings call transcript: QUALCOMM F4Q07 (Qtr End 9/30/07)
Adobe Readies Photoshop-for-the-Web
Adobe said Thursday an online version of its blockbuster photo-editing software Photoshop will be available in beta this year, and said it will be finished by 2008. Named Photoshop Express, the software will be licensed by photographic websites like Shutterfly and Photobucket. Popular photo-site Flickr said in October it will use Picnik's online photo enhancement tools. For Adobe, the project highlights its transformation from a retail software seller to a provider of network-based tools. It also represents yet another indication that traditional software vendors are increasingly willing to risk extending their flagship brands to the wide-open internet. Photoshop Express can do many of the basic photo-editing functions users expect like red-eye removal, cropping, color adjustment, and touch-ups. It does not carry the rich feature set of its over-the-counter cousin, or even that of its toned-down version Photoshop Elements.
Commentary: Adobe Enters Web-Office Arena With Virtual Ubiquity Acquisition • Adobe to Acquire Buzzword, Move Into Online Word Processing • Why I'm Placing a Small Bet on Adobe
Stocks to watch: ADBE. Competitors: MSFT, ORCL
Earnings call transcript: Adobe F3Q07 (Qtr End 8/31/07)
Priceline Shares Surge on Q3 Earnings Beat
Shares of Internet travel site Priceline.com shot up 15% to $97.03 in AH trading Thursday after the company reported Q3 net income well beyond analyst expectations. The company posted earnings for the quarter of $104.4 million ($2.27/share) versus $48.8 million ($1.05) in the year-ago period. Excluding items, earnings came in at $71.5 million ($1.58/share) against $30.2 million ($0.72) last year. Revenue rose 33% to $417.3 million from $313.5 million. Analysts were expecting EPS of $1.28 on revenue of $387.5 million. The company is projecting Q4 EPS excluding items of $0.77-0.85; analysts had been forecasting earnings of $0.77 on revenue of $326 million. The company's European brand, Booking.com, saw an almost 98% increase in bookings over the quarter. The company posted total bookings of $1.39 billion, a 54% y-o-y increase. "The (European) business has performed extremely well for several quarters," said CEO Jeffery Boyd. "We're certainly guiding to continued high growth rates." In related news, Priceline announced that it has purchased online travel company Agoda, which specializes in Asian discount hotel bookings. The company expects the acquisition to be neutral to slightly accretive to 2008 results.
Commentary: Is Priceline's a Winning Strategy? • Will Other Travel Sites Match Priceline's Elimination of Booking Fee? • Priceline: Riding High On the Internet Travel Boom
Stocks to watch: PCLN. Competitors: EXPE, OWW. ETFs: HHH, FVL
IAC/Interactive Launches News-Satire Site
IAC/Interactive Corp., which this week said it would split itself into five businesses (full story), is launching a comedy/news website it describes as an "up-to-the-minute topical comedic reaction to news and current events." The site, 23/6, is being managed in partnership with political website the Huffington Post. It plans to satirize news events and people in the news using funny photos, videos and articles. Other websites trying to bring comedy news to the web include Onion News Network, and Time Warner's This Just In. The site will be managed by IAC's programming division, which also manages CollegeHumor, which boasted more than two million unique monthly visitors in 2006. IAC, the Wall Street Journal writes, plans to expand its web properties as it attempts to realign itself as an ad-revenue-driven online-media company.
Commentary: IAC to Split Into Five, Stock Climbs • IAC Break-Up Rings Alarm Bells • Will IAC/Interactive's Break-Up Generate More Value?
Stocks to watch: IACI, TWX. Competitors: YHOO, VVTV
Earnings call transcript: IAC/InterActiveCorp Q3 2007
Disney Q4 Profit Up 12% On Cable, Parks
Entertainment company Walt Disney reported 12% growth in fiscal Q4 profit on Thursday, in line with expectations. Revenue came in just short of analyst forecasts. Net income was $877 million ($0.44/share) versus $782 million ($0.36) in the year-ago quarter (full earnings call transcript). Excluding items, EPS were $0.42. Revenue rose 3% to $8.93 billion, behind Street forecasts of $9.02 billion. "The key driver was significant growth at cable networks, with a strong performance at the Disney Channel," said Lehman Bros. analyst Anthony DiClemente. Media networks revenue was up 14% to $4.0 billion, and operating income at that unit was up 25% to $1.1 billion. Parks profit rose 8.6% to $430 million, due in part to higher admission fees at Florida's Walt Disney World. CEO Bob Iger said he has not seen any indication that prevailing economic conditions have affected advertising or travel, but the Hollywood writers' strike could have an impact on Disney's profits if it goes on longer than a month. Goldman Sachs analyst Anthony Noto said in a client note that he "believe[s] the shares have the potential to appreciate even in a decelerating economic environment... with drivers of growth coming from content-driven success."
Commentary: Old Media Versus New Media: Moving Toward a Whole New Balance? • RBC Likes Disney Despite Economic Risk • Disney Begins Implementing New Strategy
Stocks to watch: DIS. Competitors: CBS, VIA, TWX. ETFs: PBS, PEJ, VCR
October Same-Store Sales: Comprehensive Roundup
Retailers reported October same-store sales Thursday, posting a second-straight month of weak sales growth and estimate misses. Once again, retailers said warmer-than-usual weather took a toll on winter merchandise sales. Rising gasoline prices were another source of consternation, making shopping trips more expensive and eroding consumer confidence. Approximately two-thirds of retailers missed analyst estimates, collectively falling short of forecasts by 1%. Collective same-store sales for the retailers in the chart below were down 0.2% from a year ago, while net sales gained a more respectable 4.8% over the month; in September comps were down 1.4% and net sales gained only 1.8%. Last week, a Deloitte survey said Americans plan to spend less overall during the coming holiday season, but that they still plan to increase gift purchases (full story). Much-watched Wal-Mart posted a 0.7% same-store sales increase, missing estimates by 0.4%. The company referred to "solid" Halloween sales, but sluggishness in weather-related products. Costco reported a 9% jump, vs. estimates of 5.7%. Target's 4.1% beat estimates of 2.7%. Luxury retailer Nordstrom posted a surprising 2.4% drop; analysts were looking for a 1% gain. Saks continued to shine, with comps up 10.6% vs. estimates of 5.6%, though its shares were down 4.1% in midday trading. Shares of Christopher & Banks jumped 4% on its 22% same-store sales leap. See full post with comprehensive same-stores sales table.
Commentary: September Same-Store Sales: Comprehensive Roundup, August Same-Store Sales Roundup • July Same-Store Sales Roundup
Stocks to watch: ANF, ARO, AEO, ANN, BEBE, BKE, CACH, CTR, CHS, PLCE, CBK, DBRN, GPS, HOTT, JOSB, LTD, MWRK, PSUN, ROST, SSI, SMRT, TJX, WTSLA, WLSN, ZUMZ, BONT, DDS, GOT, KSS, M, JWN, JCP, SKS, DUCK, TGT, WMT, CVS, LDG, RAD, WAG, HVT, SHRP, FCPO, FDO, FRED, BJ, COST, CULS, PSMT. ETFs: XLY
Jones Soda Dumps on Surprising Q3 Loss
Jones Soda tanked 15.7% to $7.49 in extended trading Thursday after the company reported an unexpected third-quarter loss. Analysts had forecast earnings of $0.02/share, but Jones posted a $1.5 million ($0.06/share) loss, compared to net income of $195,000 ($0.01/share) last year.
Revenue growth of 15.1% to $11.7M also disappointed. Analysts were expecting revenues of $13.9M, on average. Operating costs as a percentage of sales jumped to 52.1% from 36.8% last year, on new sales and marketing personnel hires and on increased promotional spending and fees of $1.3M versus only $62K last year. "While we have taken a number of important steps and investments to successfully position our company within the $70 billion carbonated soft drink market - including distribution of our product in over 15,000 retail locations across the United States - we have not executed as well as we know we can," commented CEO Peter van Stolk in a statement (full earnings call transcript later today). Shares of Jones Soda lost 1.7% to $8.88 during Thursday's normal session.
Commentary: Sweet Buying Opportunity In Jones Soda • Financial Sector in a Bind; Gold and Oil on the Rise; U.S. Dollar Slides Hard
Stocks to watch: OTCQB:JSDA. Competitors: HANS, CSG, KO, PEP
Sotheby's Plunges 36% on Lackluster Auction, Downgrades
Shares of art auctioneer Sotheby's plunged 28.4% Thursday after a weak Wednesday auction prompted analysts to cut the stock's ratings. With total sales of under $270 million, Sotheby's Impressionist and modern art auction fell far short of its low forecast of $355 million and analyst estimates of as much as $557 million. "Tepid results for a major sale suggest cloudier macro outlook for the art market," Bank of America analyst Dana Cohen told clients, lowering the firm's shares to Neutral from Buy. Three key areas may have contributed to the sale's weakness, Cohen said: U.S. hedge funds, China economic growth, and Russian commodities. Several high-profile works went unsold, while others came up short of estimates. Van Gogh's "The Fields (Wheat Fields)," which was valued at $28-35 million, received no bids. "It wasn't just several paintings that failed to draw bidders but most of the paintings," JMP Securities analyst Kristine Koerber wrote. "What happened to all of the bidders?" Rival Christie's International, the world's largest auction house, barely beat its low estimate during its Nov. 6 impressionist sale, and missed its top estimate by about 29%. Cohen sounded an ominous note: "These data points suggest to us heightened risk, that it may be happening sooner than we previously anticipated."
Commentary: Sotheby's Tanks: Is the Market Next? • There's No Speculative Bubble in the Art World • Art, The Market and The Economy
Stocks to watch: BID
ENERGY AND MATERIALS
BHP Approach Could Trigger $170B Bidding War for Rio Tinto
Analysts say BHP Billiton's $140 billion all-share offer for rival miner Rio Tinto, which the latter rebuffed (full story), will likely trigger a bidding war that could push Rio's price above $170 billion. A number of parties have the potential to launch rival bids: "If you put together a consortium of Chinese, they could be out there, as well as the Russians, given there's a lot of oil money being generated," Shaw Stockbroking analyst John Colnan said. Rio did not comment as to whether it had already received other bids, but an unnamed source told Reuters Rio was open to other offers and a higher BHP bid. "The scarcity and the difficulty of bringing on new projects, sourcing people, makes these sorts of consolidations attractive," said one analyst. BHP has not indicated how it plans to address potential anti-trust issues, particularly in iron ore where a combined company would command 30-35% of the seaborne market. However, given that both miners have limited sales in the highly-regulated European and U.S. markets, BT Financial analyst Tim Barker said he sees few antitrust issues. Separately, credit ratings agency Moody's said Thursday it may put BHP's credit rating under review if the company makes Rio a formal offer.
Commentary: Rio Tinto Rebuffs BHP Buyout Bid • 10 Steel and Iron Stocks to Strengthen Your Portfolio
Stocks to watch: RTP, BHP. Competitors: RIO, AA, AAUK. ETFs: SLX
Earnings call transcript: BHP Billiton Ltd. Annual Fiscal 2007
Merck to Settle Vioxx Suits for $4.85 Billion
In one of the largest civil settlements in history, Merck & Co. has agreed to pay approximately $4.85 billion to settle 27,000 lawsuits concerning Vioxx, the painkiller it withdrew from the market three years ago on concerns about heart attacks and strokes. In almost 20 Vioxx trials over the past two years, Merck lost one -- the first -- to the tune of $253 million but won all the others that reached juries. In light of that record, a steering committee of lawyers acting for the remaining plaintiffs elected to settle. "It’s a fantastic deal," said Danny Becnel, an attorney who represents about 1,000 plaintiffs. The settlement will be binding if 85% of plaintiffs agree to accept it and drop their cases. Once the deal is finalized, Merck will be able to slash its Vioxx-related defense expenditures, which currently run to over $600 million per year. Settlements will vary according to degree of injury and the length of time each plaintiff took the drug. The average individual payout is expected to be just over $100,000 before legal expenses. The New York Times notes that the settlement, though large, will amount to less than a year's profit for Merck. When Vioxx was first withdrawn, analysts estimated Merck's potential liability at $10-25 billion. Merck will still face civil and criminal investigations into Vioxx by several states and the Justice Department.
Commentary: New Study Suggests Vioxx's Ill-Effects Were Immediate -- WSJ • The Merck Lesson: Watch For Companies On The Ropes • Merck: Making a Big Pharma Comeback
Stocks to watch: MRK. Competitors: BMY, PFE, SNY. ETFs: PPH, PRFH, XLV
Earnings call transcript: Merck Q3 2007
Japan: 40-50% Chance of Impending Recession - Report
The odds of a Japanese recession in coming months are 40-50%, according to Credit Suisse analysts. Weak construction starts, falling employment levels, and slowing exports continue to weigh on the country's economy, it said. Business confidence has been eroding for the past year. "The current predicament of the Japanese economy appears to go beyond what could be reasonably be described as a 'soft patch'," Credit Suisse's Japan Economics Weekly said. However, it noted, business sentiment is not yet at the lows seen during 1997 and 2001 recessions.
Commentary: Japanese Property: Fear Has Overcome Greed • Japan's Revised Q2 GDP Disappoints • Would a US Recession Negatively Impact Japan ?
ETFs to watch: EWJ, JSC, DFJ, DNL
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