Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 9:02 AM ET
S&P 500: -4.00; 1,466.50
NASDAQ 100: -4.25; 2,091.25
Dow: -26; 13,281
NIKKEI 225: +2.38%; 15,513.74 (+359.96)
HANG SENG: +4.06%; 28,482.54 (+1,111.30)
SHANGHAI SE COMPOSITE: +4.16%; 5,003.33 (+199.94)
BSE SENSEX 30: +0.34%; 19,003.26 (+64.39)
Commodity Futures (Reuters/Jefferies CRB)
Oil: +2.96%; $93.30 (+$2.68)
Gold: +0.19%; $808.80 (+$1.50)
Natural Gas: +1.83%; $7.62 (+$0.14)
Silver: -0.12%; $14.515 (-$0.018)
U.S. Breaking Newssee today's Wall Street Breakfast for earlier news
U.S. Economy Grows 4.9% in Third Quarter
The Commerce Department said Thursday the U.S. economy was able to grow at its fastest pace in four years in the third quarter. In its second estimate on third-quarter growth, the department revised the number up to an annual rate of 4.9% from 3.8%. Greater exports and higher inventories were the main reason for the increase, while earnings were flat, the report said. Profits of U.S. companies after taxes was $1.15 trillion, the same as the second quarter. Profits were up 2.6% from the same time last year. The figure was right in-line with the average economists' estimate, but consumer spending, the largest component of GDP, increased a lower than expected 2.7%. Real GDP has increased 2.8% in the last year. The first GDP estimate for the fourth quarter will be released January 30th, 2008. Lehman expects the economy to grow at an annual rate of 0.6% for the quarter, while Morgan Stanley forecasts a 0.3% rise, as turbulence in the credit and housing markets are expected to have a greater impact.
Commentary: Let's Get Some Perspective on Subprime • Beige Book: Growth Slowing; Housing Slump To Last Through Late 2008
ETFs: AGG, SPY, DIA
TD's Profits Rise 44%; Untouched by Subprime Mess
TD Bank (TD) said Thursday its Q4 profit rose 44% as the number-three Canadian bank posted double-digit growth across all of its units. Net income of C$1.09 billion (US$1.10 billion - C$1.50/share) was up from C$762 million (C$1.04/share) a year ago. Revenue of C$3.55 billion was up from C$3.31 billion in the year-ago period. Adjusted earnings per share of C$1.40 beat consensus estimates of C$1.38, while the revenue figure fell just short of analyst expectations of C$3.56 billion. The results include a C$135 million gain related to the estimated value of the shares it received in Visa Inc. Return on equity, an important measure of profitability, was 20.8% versus 15.7%. Despite the spreading of subprime woes beyond U.S. borders, TD took a negligible C$39 million loan loss provision. "In a year of turbulent markets, clearly the successful altering of our risk-reward profile was a significant advantage for us," CEO Ed Clark said. "This year was also defined by the investments we made to expand our U.S. platform, and we're excited about growing as a leading North American financial institution." Canadian banks have weathered the mortgage storm far better than their U.S. counterparts. TD shares are up 19.5% year-to-date, compared to competitors Royal Bank (RY, +12.4%), Bank of Montreal (BMO, +4%), CIBC (CM, +6.7%) and Bank of Nova Scotia (BNS, +19%). In October TD agreed to buy Commerce Bancorp (CBH) for $8.5 billion in stock and cash. The deal, expected to close in the spring, will double TD's U.S. retail operations, making it the seventh-largest North American bank by branch locations. Shares are down 0.8% to $71 in pre-market trading.
VimpelCom Higher On Q3 Beat Driven by Russian Growth
ADRs of Vimpel-Communications, Russia's second-largest wireless carrier, are trading to the upside by 2.75% to $36.99 in the pre-market, following its report of a 71% increase in third-quarter net income to $458.1 million, or the equivalent of $0.45 per U.S.-listed share, beating analyst estimates of $0.41/share. Revenues rose 44% to $1.96B, coming in slightly ahead of estimates. This marks VimpelCom's ninth-consecutive quarter of profit growth, reflected in the doubling of its shares this year. VimpelCom reported a 16.4% y/y increase in subscribers to nearly 61 million in total. Average revenue per customer in Russia climbed 26% to $13.40, as average monthly calling minutes used jumped 30% to almost 209 minutes. However, VimpelCom suffered declines in average revenue per customer in Kazakhstan (-5.6% to $13.60) and in Ukraine (-13.4% to $5.80). CEO Alexander Izosimov said he was "pleased" with the company's progress and believes "... the increasing usage in Russia and expanding subscriber base in the CIS countries will continue to keep our business growing robustly." VimpelCom's ADRs gained 4.35% to $36.00 on Wednesday.
Commentary: Six Ways to Invest in the Ukraine • Three Emerging International Telecoms • Why Did Bear Stearns Downgrade Vimpelcom?
Stocks to watch: VIP. Competitors: ROS, OTCPK:GLDN, MBT. ETFs: WMH
Lululemon Athletica Jumps on Q3 Beat and Raise
Lululemon Athletica is up nearly 9% to $44.00 in thin pre-market activity, following its report of better-than-expected Q3 earnings of $7.57 million, or $0.11/share, compared to $0.02/share last year and analyst estimates of $0.08/share. Sales soared 84% to $66.2M, also beating estimates of $63M. Lululemon raised its full-year EPS outlook to $0.40 to $0.42, from $0.30 to $0.33 previously. Analysts were expecting $0.37/share, on average, according to Reuters Estimates. Gross margin improved to 54.2%, compared to 52.1% last year. "We are very pleased to have delivered another quarter of strong sales and earnings growth. We believe that our performance during the third quarter further demonstrates that our innovative product offering, unique culture and distinct community-based marketing approach creates brand loyalty and continues to attract healthy and active-minded individuals to the lululemon brand. Based on the strong results in both our comp stores as well as our new stores, we are extremely excited about our future growth prospects," commented CEO Robert Meers in a statement. Lululemon said it plans to open 10 stores during Q4 in North America and plans 30 to 35 new openings in fiscal 2008. Shares of Lulu gained 4.9% to $40.50 on Wednesday.
Commentary: Lululemon CEO's Resume Doesn't Add Up • 14 Apparel Stocks to Consider Fitting into Your Portfolio • Lululemon: “The Seaweed Scandal” Appears To Be Over
Stocks to watch: LULU. Competitors: NKE, UA, OTCQX:ADDYY
Heinz Tops Forecasts, Falls Short on Outlook
Food producer Heinz (HNZ) said Thursday a weak U.S. dollar helped it to an 18% earnings gain, beating analyst estimates, but projected FQ3 earnings per share that fell short of consensus estimates. Profit was $227 million ($0.71/share) on sales of $2.52 billion, up from $191.6 million ($0.57/share) on sales of $2.32 billion a year ago. Analysts polled by Reuters were expecting EPS of $0.67 on revenue of $2.4 billion. Looking ahead, Heinz raised the top end of its full-year outlook to $2.54-$2.62/share from $2.54-$2.60/share. Even so, the $2.58 midpoint fell short of the $2.61/share analysts forecast. North American sales grew 12.6%; European sales were up 18%; while sales in the Asia/Pacific region gained 16.8%. Operating income at its U.S. Foodservice unit took a 13.5% hit due to rising commodity costs, particularly dairy and oil. "It was a very strong quarter," Clover Capital Management portfolio manager Matthew Kaufler said. "If you look at the top-line momentum, and you look at the kind of pricing they have been able to realize to help offset the cost increases, it's pretty impressive." "We continue to be impressed with the new product pipeline with 200 new items expected this year," Credit Suisse analysts recently told clients in a research note. The firm rates the shares Outperform, with a $52 target. Shares are up 0.5% to $47.40 in pre-market trading.
Warner Music Beats Despite 58% Decline in Net; Debt Issue Held Up
Warner Music Group saw its net income fall 58% from a year ago but still managed to top consensus analyst estimates by a penny. CEO Edgar Bronfman, Jr. said in the press release, "As expected, this has been a challenging quarter, reflecting the difficulties in any industry transformation of this scale," (full earnings call transcript later today). The company's continued struggles highlight the music industry's ongoing struggle to remain profitable, amid growing piracy and cheap (legal) digital downloads that cut into profits. Net income in Warner's latest quarter (Q407) was $5 million, good for EPS of $0.03, versus net of $12 million (EPS of $0.08) during the previous year period. Revenue was up 1.8% to $869 million, helped by favorable forex conversions, but actually fell 1.5% on a constant-currency basis. Wall Street was looking for EPS of $0.02 on sales of $875 million. An 8.9% rise in U.S. sales was offset by an 8% fall-off in international sales. Digital revenue rose 25% to $130 million. Meanwhile, The Financial Times is reporting that the global credit crunch will likely hold up a plan by Warner and rival EMI Group to issue billions in debt backed by revenues from their publishing catalogues. The raised capital was to be used to ease the transition from CDs to digital downloads, which has been taking a toll on both companies' bottom lines. According to one industry insider, "it just isn't going to happen." Warner was hoping to raise as much as $2 billion; it is unclear how much EMI planned to raise. Warner shares are down nearly 69% YTD.
Commentary: Private equity, Debt and Rock and Roll [Alphaville] • Warner Music Won't Bid for EMI • Shrinking Floor Space Affecting Warner Music's Outlook
Stocks to watch: WMG, OTC:EMIPY Competitors: AAPL, SNE, OTCPK:VIVEF
Earnings call transcript: Warner Music Group F3Q07 (Qtr end 6/30/07)
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Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
Yesterday registered the first back-to-back gain in almost a month for the S&P 500, with both days showing powerful triple-digit advances. The gain of 2.86% for the SPX added to Tuesday's advance, giving a total two-day performance of a 4.4% boost and the biggest two-day gain in five years.
The Dow Jones Industrial Average spiked up by 2.55%, its largest percentage gain for the year, which was driven by financial stocks. Since Monday, and Citibroup's (NYSE:C) cash infusion from Abu Dhabi, the financial sector is up 7.8%.
The big run on stocks seemed to be based on a feeling that the worst is over for the beleaguered financial sector. Even some weak economic numbers in the form of lower-than-expected durable goods orders for October, more news of declining existing home sales, and a Beige Book report that showed the economy slowing, seemed to have little impact on the bulls' rush to buy.
Some of the biggest gains this week were made in Freddie Mac (FRE), up $3.69, Fannie Mae (FNM), up $2.90, Citigroup, up $1.97, and American International Group (NYSE:AIG), up $3.23. Advancement in the technology sector drove the Nasdaq up 3.2% -- its second-biggest percentage increase of the year.
The weaker economic data, along with comments by Fed Vice Chairman Donald Kohn, led investors to conclude that the Federal Open Market Committee might cut rates again at its upcoming meeting on Dec. 11. Since this is a stark contrast to comments made last week by other Fed governors, new hope brought renewed optimism.
At the close, the Dow Industrials were up 331 points at 13,289. The S&P 500 gained 41 points, closing at 1,469, and the Nasdaq gained 82 points to close at 2,663. However, the NYSE traded just 1.3 billion shares, while 2.1 billion traded on the Nasdaq. Breadth was strong at 7-to-1 positive on the Big Board and 3-to-2 positive on the Nasdaq.
Crude oil (January contract) fell for the third day in a row, closing at $90.62 a barrel, off $3.80, and the Amex Energy SPDR (NYSEARCA:XLE) gained $1.75 to close at $72.45. Gold (December contract) fell by $13.70 to $800.30, and the Philadelphia Gold/Silver Index [XAU] closed at $173.97, up $5.
What the Markets Are Saying
A reversal came just in time to save stocks from crunching through the August lows and turning the season sour. The momentum has been sharply reversed and even though the rush to buy may be the result of a drastically oversold market (sentiment and internal numbers were the lowest of the year), we have seen three days this month of dramatic buying sprees.
With that, the indices are taking on the appearance of a triple bottom -- one of the most powerful signs that a solid base is forming. It is likely that with such a powerful breadth ratio on the NYSE (though volume was surprisingly light), the buying will continue up to the resistance at S&P 1,490 before profit taking halts the current drive. Then we might see a test of Monday's lows -- and they had better hold.
So for now I'm a cautious bull who's a bit more relaxed than on Monday -- I just wish the cavalry had arrived a earlier, but I suppose that camels are slower than horses (Abu Dhabi camels, that is).
Today's Trading Landscape
The following economic reports are due today: Weekly jobless claims, a revision in third-quarter GDP (an increase to 4.9% from 3.9% is expected), and October new home sales (the consensus expects -3%).
The following companies are expected to report earnings: ACI Worldwide, American Woodwork, Argon ST, BonTon Stores, Brocade, Conn's, Cost Plus, Del Monte, Dell, Fred's, Genesco, Gerber Scientific, Grainger, HJ Heinz, J. Crew, Mentor Graphics, Sally Beauty, Seadrill, Sears, Stein Mart, Cato Corp, Wet Seal, Toronto Dominion Bank, Vimpel Communications and Warner Music Group.
An explosion at a crude oil facility in Minnesota has shut down the flow of oil from two of four main lines that bring in oil from Canada and Alaska and driven crude prices higher this morning. However, the focus today will likely be on stocks' abilities to maintain the upward momentum of the last two days despite any further negative news from the financial sector and the economy.
Asian Headlines (via Bloomberg.com)
Asian Stocks Gain on U.S. Rate Cut Speculation; Samsung Electronics Rises Asian stocks rose, led by Toyota Motor Co. and Samsung Electronics Co., on expectations the Federal Reserve will cut U.S. interest rates to support growth in the region's largest export market.
China's Ping An Insurance Acquires 4.2 Percent of Fortis for $2.7 Billion Ping An Insurance (Group) Co. bought a 4.2 percent stake in Fortis, Belgium's biggest financial-services company, for 1.81 billion euros ($2.7 billion) in the largest overseas acquisition by a Chinese insurer.
China Says Economy Less Energy Intensive; Won't Take Lead on Emission Cuts China reduced the amount of energy used to produce each unit of gross domestic product by 3 percent in the first nine months of 2007 compared with a year earlier, a government official said.
Malaysia's Sime, Biggest Palm Oil Maker, Says Asset Sales May Weaken Group Sime Darby Bhd., the world's largest oil palm grower, is unlikely to sell its property, car or construction-equipment units after an asset review because that would make the company too dependent on its main business.
Hong Kong Stocks Jump on Interest Rate Cut Speculation; Ping An Rallies Hong Kong's stocks rose, lifting the Hang Seng Index to a two-week high, after a U.S. Federal Reserve official fueled speculation interest rates will be cut, easing concern growth in the world's largest economy will stall.
China Investment Aims to Stabilize Global Markets, Chairman Lou Jiwei Says China Investment Corp., the nation's $200 billion sovereign wealth fund, signaled it may invest in stocks rocked by subprime mortgage defaults.
European Headlines (via Bloomberg.com)
European Stocks Erase Declines; Vedanta, Xstrata, Anglo American Advance European stocks erased losses as Vedanta Resources Plc, Xstrata Plc and Anglo American Plc rose.
Libor Rate for Dollar, Euro Borrowing Soars as Banks Seek Year-End Loans The cost of borrowing euros for one month rose by a record and dollar loans jumped the most in more than a decade as banks sought funds to cover their commitments through to the start of next year amid a squeeze on credit.
U.K. Home Prices Drop 0.8%, the Most Since 1995; Mortgage Approvals Fall U.K. house prices dropped the most in 12 years this month and mortgage approvals fell to the lowest since February 2005, evidence that Britain's decade-long property boom is coming to an end.
Kingfisher Profit Beats Estimates as Growth in France, Poland Offsets U.K. Kingfisher Plc, Europe's largest home-improvement retailer, said third-quarter profit was little changed, beating analysts' estimates, as growth in France and Poland offset declining U.K. earnings and a loss in Asia.