Wall Street Breakfast: Must-Know News

• Fed shaves rates. The Fed lowered its key short-term interest-rate target to 2.25% from 3%, and the "discount window" to 2.5% from 3.25%, wrapping up a remarkable two-month, 200 BP cut and sparking a late-day rally continuation. In its statement, the Fed expressed concern over rising unemployment, housing market woes, ongoing financial market stress and weak consumer spending. It also said the risks of inflation have increased, which may have been why two FOMC members voted against the cut. Futures traders expect a 50 BP cut on April 30.
• Housing starts sag; producer prices rise. Housing starts inched down 0.6% to a seasonally adjusted 1.065M/year, after jumping a revised 7.1% in January. Permits dived 7.8% to the lowest level in 16 years. Wholesale prices inched up 0.3% in February after a 1% surge in January.
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• Morgan Stanley joins Goldman, Lehman in dispelling panic. Morgan Stanley (MS) reported Q1 EPS of $1.45, way ahead of consensus estimates of $1.03. Q1 revenue of $8.3B was down 17%, but also trumped consensus estimates of $7.19B. MS reported sales and trading losses of $1.1B, due primarily to the marking to market of loans. The company delivered ROE of 20% on the quarter. CEO John Mack said the company's Asset Management unit faced "challenging market conditions" during the quarter. Shares, which closed up 17% yesterday to $42.88, are trading at $44.60 in the pre-market.
• Sony Ericsson warns. Sony Ericsson (SNE) (ERIC) warned that moderating sales growth of mid- and high-end mobile phones will negatively impact Q1 sales and net income. Weak sales were further compounded by certain component shortages for popular midpriced phones. "The market is proving to be challenging," said president Dick Komiyama. The firm expects to ship 22M phones during the quarter with an average price of €120. Q1 net sales will be down Y/Y, and pre-tax income should be €150-200M, vs. €362M a year ago.
• General Mills beats. General Mills (GIS) FQ3 net income rose 61% to $430.1M, or an adjusted $1.23/share. Sales climbed 12% to $3.41B. Analysts had expected earnings of $0.79/share on revenue of $3.24B. For 2008, GIS sees adjusted EPS of $3.45-3.47 vs. consensus estimates of $3.47.
• Visa IPO sets U.S. record. Visa's (V) much-anticipated IPO raised $17.9B, the biggest-ever U.S. offering. The credit-card network sold 406 million Class A shares for $44, better than the $37-42 range forecast. Underwriters, led by JPMorgan Chase (JPM) and Goldman Sachs (GS), have the option to buy another 40.6M shares. Unlike American Express (AXP) and Discover (DFS), Visa lends no money to customers -- it's strictly a transaction processor.
• Yahoo plays hard to get. Yahoo (YHOO) challenged Microsoft (MSFT) by reaffirming its 2008 financial guidance, and projecting strong revenue and cash-flow growth for 2009 and 2010 -- based on which shares could be worth north of $40/share vs. Microsoft's $31 cash and stock offer which is now worth about $29.50. Citigroup analyst Mark Mahaney said the 2009-10 numbers would not be easy to hit, but thinks the deal will ultimately close at more than $31/share. Meanwhile Chinese internet company Alibaba, 39% owned by Yahoo, said it is in advanced talks to finance a buyback of Yahoo's stake should Microsoft's bid prevail.
• Creative Suite drives Adobe beat. Adobe (ADBE) posted Q1 adjusted EPS of $0.48 on revenue of $890M, beating consensus estimates of $0.45 on $876M, driving shares up 6.3% in extended trading. ADBE said sales of Creative Suite 3 (+57%) drove its quarter. For Q2, Adobe sees EPS of $0.45-0.47 on revenue of $855-885M; analysts were calling for $0.44 on $875M. For 2008, it expects revenue growth of 13% and EPS of $1.86-1.92, vs. estimates of $1.82. CEO Shantanu Narayen says Adobe has begun working on a Flash player for Apple's (AAPL) iPhone; last month Apple CEO Steve Jobs said he has technical and performance concerns with Adobe's mobile Flash, and suggested it produce a new version.
• All the Apple you can eat. Sources say Apple's (AAPL) iTunes online music store is considering teaming up with music distributors to offer customers "all you can eat" iPods for a premium tacked on to the device purchase. The model would rival Nokia's (NOK) "comes with music" deal with Universal, but Apple is reportedly offering music companies just $20 per device, vs. Nokia's $80. Apple is also considering a monthly/yearly iTunes subscription model. Market research has shown customers would pay up to $100, or $7-8/month, for unlimited access.
• Exxon dealt blow in fight with Venezuela. U.K. courts lifted a $12B freeze on Venezuela's assets and ordered ExxonMobil (XOM) to pay some fees. The legal battle began after Venezuela nationalized several oil projects. The ruling judge noted Petróleos de Venezuela SA, or PDVSA, isn't based in England and has no significant assets in the U.K. and is therefore not under its jurisdiction.
• E*Trade's #2 to leave. E*Trade (ETFC) COO Jarrett Lilien plans to resign May 16, after the firm's annual shareholder meeting. Sources say E*Trade's new CEO Donald Layton has no plans to fill the position.
• Goldman, Lehman earnings please Wall Street. Investment banks Goldman Sachs (GS) and Lehman Brothers (LEH) both beat earnings estimates despite sharp profit drops. Goldman reported Q1 EPS of $3.23 vs. consensus of $2.58, and revenue of $8.34B vs. consensus of $7.47B. It lost $1B on residential mortgages. Lehman posted Q1 EPS of $0.81 vs. consensus of $0.72, and revenue of $3.5B vs. consensus of $3.35B. It wrote down $1.8B on the quarter. GS shares gained 16.3%, while LEH stock surged 46.4% after being battered Monday amid speculation it may be the next bank to fall into disfavor.
• FCC Airwaves auction sets record
• Darden profit, sales lifted by Olive Garden, acquisitions
• Qwest Offers Buyouts to Workers
• Focus Media Q4 tops estimates; outlook beats Street
• ECB Pumps Funds Into Money Markets

Today's Markets

• Markets closed sharply higher in Asia Wednesday on the heels of Tuesday's Fed rate cut and subsequent market rally. Nikkei +2.48% to 12,260. Hang Seng +2.26%. Shanghai +2.53% to 3,761. BSE Sensex +1.09% to 14,995.
• In Europe, markets were all lower at midday. FTSE -0.85% to 5,558. CAC -0.94% to 4,540. DAX -0.57% to 6,357.
• U.S. futures are down from Tuesday's strong close at 7:50 AM, but bounced somewhat following Morgan Stanley's earnings beat. Dow -0.35% to 12,362. S&P -0.36% to 1,329.25. Nasdaq -0.4% to 1,764.25.

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