Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 9:00 AM ET
S&P 500: -14.00; 1,432.00
NASDAQ 100: -21.00; 2,014.00
Dow: -112; 12,948
NIKKEI 225: -2.46%; 14,837.66 (-373.86)
HANG SENG: -4.15%; 26,618.19 (-1,153.02)
SHANGHAI SE COMPOSITE: -1.50%; 5,214.22 (-79.48)
BSE SENSEX 30: -3.52%; 18,602.62 (-678.18)
FTSE 100: -1.60%; 6,126.60 (-99.90)
CAC 40: -1.72%; 5,412.17 (-94.51)
XETRA-DAX: -1.72%; 7,499.12 (-131.19)
Commodity Futures (Reuters/Jefferies CRB)
Oil: +0.22%; $98.25 (+$0.22)
Gold: +0.76%; $797.40 (+$6.00)
Natural Gas: -0.23%; $7.46 (-$0.02)
Silver: +0.38%; $14.555 (+$0.055)
U.S. Breaking Newssee today's Wall Street Breakfast for earlier news
Deere Smashes Estimates on Strong Overseas Demand
Strength in overseas markets helped offset weaker domestic sales as Deere & Co. reported a better-than-expected 52% increase in fiscal Q4 net income to $422.1 million, or $1.88/share, compared to estimates of $1.55/share. Sales climbed 20% to $6.14B, easily beating expectations of $5.80B. Overseas sales grew 32% Y/Y, boosted by a 9% positive forex impact, while sales in the U.S. and Canada rose 15%. CEO Robert W. Lane said Deere benefitted from an "improving global farm economy," but saw "weakening in the construction, forestry, commercial and consumer sectors, chiefly as a result of the U.S. housing downturn." (Earnings call transcript later today). He also commented that "Deere is well-positioned to continue benefiting from powerful global economic trends such as growing affluence and increasing demand for food, feed and biofuels." Deere expects sales to increase 25% in fiscal Q1-2008 and to grow 12% for the full year. Net income is seen at $325M and $2.1B, respectively. Deere shareholders recently approved a 2:1 stock split effective Dec. 3, for shareholders of record on Nov. 26. Shares of Deere rose 2.5% to $145 on Tuesday and were last up 1% to $146.52 in thin pre-market trading.
Commentary: Agriculture Stocks Are Smoking - But For How Much Longer? • Agribusiness Outshines Gold • Move Over Deere as CNH Global Plows Ahead
Stocks to watch: DE. Competitors: CAT, CNH, KUB, TEX, JOYG. ETFs: MOO, VIS, PRFN, DBA
Share Repurchases Losing Appeal in Cash Strapped Markets
Share repurchases, once embraced by investors, are falling out of vogue as cash-strapped companies sometimes find themselves forced to sell on the cheap the same shares they recently retired at much higher prices in order to shore up their books, the Wall Street Journal reports. Share buybacks peaked in Q2 2007, when nonfinancial companies retired $192 billion of shares. Much of the money used to buy those shares was acquired through debt, which now weighs heavily on the companies' balance sheets. Standard & Poor's Nick Riccio says share buybacks and leveraged buyouts have lead to downgrades of "about a dozen" investment-grade companies, such as Home Depot (HD), which went from A-plus to BBB-plus after it said it would finance $12 billion of a $22.5 billion share repurchase through debt (full story). Home Depot now says it believes it is "prudent to take a cautious stance with regard to the completion" of the program. Troubled mortgage-lender Freddie Mac (FRE), which may need a capital infusion of up to $6 billion (full story), and may consider a share sale, repurchased $1B of its common stock this year. Countrywide (CFC) spent $2.4 billion over the past year in share buybacks; recently it was forced to sell shares at depressed levels to raise money. Troubled bank Citigroup (C) recently told investors it isn't in the position to repurchase shares. Notable exceptions include Target (TGT), which upped its share repurchase program to $10 billion from $8 billion on Tuesday (full story), and Nacco Industries (NC) ($750 million market cap), which announced this week a $100 million share buyback (Wall Street Journal).
Trina Solar Down 14% on Q3 Miss
hares of China's Trina Solar are down 14% to $41.85 in pre-market activity, after reporting disappointing third-quarter earnings of $7.24 million (+86% Y/Y), or $0.28/share, missing analysts' average estimate of $0.35/share. Revenues surged 155% to $82.6M, compared to estimates of $82.8M. Gross margins improved sequentially to 20.1% versus 18.9% in Q2, but declined over last year's 26.2%. Trina said its cost of revenues jumped 176.4% Y/Y to $66M, due to the growth of its solar module business. For 2008, Trina said its outlook is "increasingly positive due to continued strength in demand from both customers in our established as well as our new markets." Trina Solar lost 3.9% to $48.88 on Tuesday.
Commentary: Don't Count on Spain for Solar Success • Solar Stocks Are Overheated • BAC Warns about Polysilicon Supply: Beware the Solar Bubble
Stocks to watch: TSL
Abercrombie Beats by a Penny; Looks to Expand Internationally
'Hip' teen and college retailer Abercrombie & Fitch Co. posted a penny earnings beat in Q3, sending its shares slightly higher (0.29%) in pre-market action Wednesday (as of 7:29 AM ET). Net income climbed 15% to $117.6 million, good for EPS of $1.29, versus EPS of $1.11 a year ago. Sales rose 12.8% Y/Y to $973.9 million. Analysts were, on average, expecting EPS of $1.28 on sales of $985 million. Same store sales rose 1% Y/Y and broke down as follows: namesake Abercrombie & Fitch chain stores rose 3% percent, while Hollister chain stores fell 1% and RUEHL chain stores sales were off 7% Y/Y. Gross margin was up 0.40% Y/Y to 66.2%. The company forecast second half EPS in a range of $3.63 to $3.67 (mid-point $3.65). Analysts were expecting second half EPS of $3.72 on average. In March Abercrombie opened its first European location in London; the company plans its first Japanese opening in Tokyo in 2009. In the earnings press release, CEO Mike Jeffries was upbeat in assessing Abercrombie's long-term growth prospects: "During the third quarter, Abercrombie & Fitch demonstrated its ability to consistently drive strong profits.... Our track record in this regard, combined with the excellent opportunity to expand our business both domestically and internationally, gives us confidence we will continue to produce outstanding financial results over the long term," (full earnings call transcript later today). But financial blogger TraderMark believes, "Any bounces in [retail stocks] are opportunities to short in my book... Christmas won't go away - the consumer is not dead. It's just going to be a consumer looking to buy even cheaper goods so someone's profit margins must suffer."
Commentary: Retail on Sale - Barron's • Retail's Dismal Performance a Reason to Short on Any Bounce • Cramer on ANF
Stocks/ETFs to watch: ANF. Competitors: AEO, GPS, JCG. ETFs: XLY, PEZ, VCR
Earnings call transcript: Abercrombie & Fitch F2Q07 (Qtr End 8/4/07)
Whole Foods Q4 Profit Slips; Beats Revenue Estimates
Whole Foods Market Inc. said its fiscal Q4 profit slipped 15%, due to outlays for store openings and incurred legal and administrative costs from its $565 million purchase of Wild Oats Markets in August (full story). Net income fell 15% to $33.9 million ($0.24/share) from $39.8 million ($0.28/share) during the same period in 2006, while revenue rose to $1.74 billion from $1.29 billion. Analysts were expecting earnings of $0.30/share on revenue of $1.61 billion. CEO John Mackey, in a conference call with analysts (transcript), offered an upbeat view of sales at stores WFMI acquired from Wild Oats, and said a weak U.S. economy isn't hurting his company. "One of the myths out there about Whole Foods Markets... is that we are some kind of luxury retailer... and whenever the economy gets weak everybody comes out and says, 'Gosh, Whole Food sales are going to fall.' However, that's never been the case... in fact, during the recession our comps went up into double-digits." Preopening and relocation costs for Q4 2007 were $23 million, up from $14 million a year ago. Sales at stores open at least a year grew by 8.2%, following a 7% rise in Q3. Same-store Q4 2006 sales were up 8.6%. The company expects same-store sales to be up between 7.5% and 9.5% in fiscal 2008. Shares were up 2.3% in extended trading Tuesday.
Commentary: Will Whole Foods Report a Turkey Quarter? • Whole Foods Board Wimps Out, Exonerates Mackey
Stocks to watch: WFMI. Competitors: SWY, KR, NUTR, WMK, SVU. ETFs: QQXT, RHS, RSP, XRT
Earnings call transcript: Whole Foods Market F4Q07 (Qtr End 9/30/07)
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Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
During yesterday's session, U.S. investors had much to fear and much to cheer as the market put on a July Fourth fireworks show two days before Thanksgiving.
It all started on a positive note with the terrific earnings of Dow component Hewlett-Packard (HPQ), which not only had a great report but forecast more for the quarter ahead, as well as an additional $8 billion for its share buy-back program.
Then Exxon Mobil (XOM) was upgraded, as crude oil prices headed north again, and the Commerce Department estimated a 3% rise in housing starts for October -- even though building permits fell for the fifth consecutive month. On balance it looked like a good day was shaping up.
But then Freddie Mac (FRE) reported a whopping loss and its cousin, Fannie Mae (FNM), experienced some serious selling. The market took back all of the early gains and headed into the red zone.
By 2:30 p.m. Eastern, the Dow Industrials were a negative 110 points and gloom was settling in as what had looked like a strong day was turning ugly. But with just 30 minutes to go in the trading session, some impressive buying came into the technology and financial sectors, reversing many stocks and turning the day into an impressive win for the bulls.
At the close, the Dow Jones Industrials were up 52 points at 13,010. The S&P 500 gained six points at 1,440, and the Nasdaq gained three points to close at 2,597. The NYSE traded 1.6 billion shares and the Nasdaq traded 2.6 billion shares. Advancers and decliners were about even on the Big Board but a negative 5-to-3 on the Nasdaq.
One of the biggest stories of the day was the new high for crude oil as the January contract posted a closing high of $98.03, up $3.39, and the Amex Energy SPDR (XLE) confirmed last week's upside reversal by closing at $73.78, up $2.31.
Gold climbed higher by more than $10 per troy ounce, as the U.S. dollar posted a new low against the euro. The December gold contract rose $13.40, closing at $791.40, and the Philadelphia Gold/Silver Index [XAU] gained $7.67 at $171.95.
What the Markets Are Saying
No doubt about it: Yesterday's reversal was impressive.
Not only did it come accompanied by some large block trades on the buy side, but the reversal occurred at just below the important line at S&P 1,430 and qualified as a reversal day on almost every major index. It also resulted in a buy signal from the stochastics and emphasized the significance of 1,430 as a number that must be held by the bulls.
With the shortened holiday week ahead for domestic markets, we couldn't have had a more positive response at such a critical moment, but caution is still warranted.
Today's Trading Landscape
The following economic reports are due today: October Leading Indicators (the consensus expects -0.4%) at 10 a.m. Eastern, as well as weekly jobless claims and crude inventories and consumer sentiment.
Earnings are expected from Abercrombie & Fitch, Deere, Gap, Patterson Dental, Children’s Place and Trina Solar.
The word "recession" is being used more frequently and Q3 earnings are over, therefore today's economic reports will have a greater impact on trading. In advance of the holiday, this could be a highly volatile, low-volume day.
Asian Headlines (via Bloomberg.com)
Asian Stocks Fall as Oil Approaches $100, Federal Reserve Cuts Forecast Asian stocks slumped, led by Honda Motor Co., after a decline in the dollar pushed the price of crude oil to almost $100 a barrel and the Federal Reserve cut its forecast for U.S. economic growth.
Yen Rises as Widening Subprime Losses May Spur Investors to Reduce Risk The yen rose against all of the world's 16 most-actively traded currencies as losses related to subprime mortgages widened, prompting investors to sell higher- yielding assets funded by loans made in Japan.
Hong Kong Stocks Plunge, Set for Worst Month Since 1997; HSBC, Cathay Drop Hong Kong's stocks fell, with the key index on course for its worst month since October 1997, after the Federal Reserve cut its 2008 U.S. economic growth forecast and crude oil rose to almost $100 a barrel.
Dubai's Damac Properties to Invest Up to $5 Billion in India, Sajwani Says Damac Properties, a closely held developer based in Dubai, plans to invest as much as $5 billion in India over the next three years as a booming economy spurs demand for real estate.
Sinotruk Raises $1.2 Billion in Hong Kong Initial Share Sale, People Say Sinotruk (Hong Kong) Ltd., China's largest maker of heavy trucks, raised HK$9 billion ($1.2 billion) in a Hong Kong initial public offering, said two people involved in the sale.
Proton's Shares Plunge Record 19% on End of Volkswagen, GM Alliance Talks Proton Holdings Bhd., Malaysia's state-owned carmaker, posted a record one-day decline in Kuala Lumpur trading after the government ended alliance talks with Volkswagen AG and General Motors Corp.
European Headlines (via Bloomberg.com)
Bank of England Policy Makers Voted 7-2 to Keep Interest Rates at 5.75% Bank of England policy makers voted 7-2 to keep the benchmark interest rate unchanged this month as Deputy Governor John Gieve joined David Blanchflower in arguing for the first cut in more than two years.
Ahold Profit Climbs 1.4%; Food Retailer Will Pay First Dividend Since 2002 Royal Ahold NV, the Dutch owner of Stop & Shop supermarkets, said third-quarter profit rose 1.4 percent as growth in the Netherlands offset a drop in the U.S. The retailer plans to pay its first dividend since 2002.
Bank Default Swaps Rise to Record on Concern of More Subprime Writedowns Credit-default swaps on bank debt jumped to a record on concern lenders will add to more than $50 billion of writedowns worldwide on securities linked to subprime mortgages.
Northern Rock Receives Below-Market-Value Takeover Approach; Shares Fall Northern Rock Plc, the U.K. mortgage lender bailed out by the Bank of England two months ago, received a bid ``materially below'' yesterday's market value of 409 million pounds ($841 million), casting further doubt on the lender's sale.
Deutsche Telekom to Offer IPhone Without Contract After Vodafone Complaint Deutsche Telekom AG, whose exclusive sale of Apple Inc.'s iPhone in Germany is contested by Vodafone Group Plc, said it will change some terms of its offer and let rival network operators use the handset.