Wall Street Breakfast: Must-Know News

• GE comes up short. GE (GE) posted Q1 EPS of $0.44, falling short of consensus estimates of $0.51. Revenue of $42.2B (+7.8%) was also less than an expected $43.7B. GE down-guided its Q2 EPS estimate to $0.53-0.55, vs. the consensus estimate of $0.58. It lowered previous 2008 guidance of $2.42/share to $2.20-2.30 (vs. $2.43 consensus). "Demand for our global infrastructure business remained strong, but our financial services businesses were challenged by a slowing U.S. economy and difficult capital markets... Our primary shortfall was a decline in financial services earnings. We knew the first quarter was going to be challenging, but the extraordinary disruption in the capital markets in March affected our ability to complete asset sales and resulted in higher mark-to-market losses and impairments," it said. Futures dropped heavily after the earnings release.
• Scotiabank considering National City. Sources say Bank of Nova Scotia (BNS) is interested in acquiring or taking a stake in National City Corp. (NCC), which is under regulatory pressure to either increase its capital or find a buyer before it reports Q1 results on Apr. 22. BNS's $45B market cap puts it in a solid position to acquire National City, which is now worth just $5B. BNS's Scotiabank lacks a U.S. retail presence. Others figuring in on the race include KeyCorp (KEY), Fifth Third Bancorp (FITB), and private-equity interests.
• Frontier files for Ch. 11. Frontier Airlines (FRNT) filed for Chapter 11 reorganization following an unexpected move by its principal credit card processor to substantially increase a holdback of customer receipts which threatened its liquidity. Frontier will continue normal business operations. Frontier is the forth airline to fall (Aloha, ATA, Skybus) in recent weeks.
• Still grounded. American Airlines (AMR) is cancelling another 570 flights today, after grounding 930 on Thursday. It expects all of its 300 MD-80s to be back in service by Saturday night. AMR CEO Gerard Arpey said Thursday he takes "full, personal responsibility" for the groundings, which were due to a lack of preciseness in AMR's compliance with FAA standards. Shares gained 7.6% Thursday, as investors apparently hoped the worst was behind the company.
• Merger of the mobile chipmakers. STMicro (STM) is merging its wireless chip business with NXP in a $3B joint venture. STMicro is paying NXP $1.55B to own 80% of the new company. The two hope to better challenge market leaders Qualcomm (QCOM) and Texas Instruments (TXN). "This deal is about creating scale in a market with too many players," STMicro CEO Carlo Bozotti said. STM and NXP are the #3 and #4 wireless chipmakers, with a combined 10% global market share. Texas Instruments has 16%, and Qualcomm has 18%.
• Linens N' Things on brink of bankruptcy. Home-furnishings retailer Linens 'N Things is expected to seek Chapter 11 bankruptcy protection by Tuesday, sources say. It will be one of the first major retailers to file for bankruptcy protection during the current economic downturn. Apollo Management, which this week filed for an IPO, acquired Linens 'N Things in 2006 for $1.3B.
• No surprises at Genentech. Genentech (DNA) reported Q1 EPS of $0.84 (vs. consensus of $0.82), up 12% on strong sales of its cancer drugs. Operating revenue of $3.06B was in line. Major drug sales: Rituxan sales up 13% to $605M; Avastin up 13% to $600M; Herceptin up 9% to $339M; Lucentis down 6% to $198M. DNA reiterated 2008 EPS guidance of $3.35-$3.45, vs. consensus of $3.43. Shares were flat in AH trading.
• Judge vindicates CBS. A court dismissed most of Dan Rather's claims against CBS (CBS). Rather sued for fraud, tortious interference with prospective business relations, breach of good faith and fair dealing, among other accusations.
• More to come. The latest WSJ survey shows a majority of economists still see more downside to the U.S. economy. 75% of economists think the economy is in recession, and almost the same amount feel we haven't reached the bottom. They are divided on what is the biggest current risk: 35% say crumbling credit markets; 25% say a sharp drop in consumer spending; 13% say housing weakness.

Today's Markets

• Markets were up in Asia Friday, but then again, they didn't know about GE. Nikkei +2.92% to 13,324. Hang Seng +1.99% to 24,668. Shanghai +0.61% to 3,493. BSE Sensex +0.72% to 15,808.
• In Europe, markets traded lower at midday. FTSE -0.86% to 5,914. CAC -0.9% to 4,815. DAX -1.25% to 6,621.
• U.S. futures are sharply lower at 7:30. Dow -0.71% to 12,510. S&P -0.77% to 1,353. Nasdaq -0.58% to 1,848.

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Comments

[nukldrager]

How can a credit card processor not turn over receipts to Frontier airlines?

[Rumpty]

If the airline goes under and you bought your ticket with a CC, you don't have to pay the CC company. The CC company doesn't want to get stuck.

[Voice ofReason]

I guess you have no idea what Chapter 13 means and doesn't mean.

[nukldrager]

Thanks, User 155196. A further question though. Seems like another catch 22. If they are being forced into chapter 11 by the witholding of receipts, they must be under some other stress as well, and known to the CC company, or they would be able to proceed w/o bankrupcy protection and with the money from their customers.

[nukldrager]

Frontier filed for chapter 11 according to the article, but you are right, enlighten us please, Voice of Reason. Thanks

[nukldrager]

Thanks everybody, did some reading on it, all set.

[vaduz]

ge should be more precise about financial losses or mark downs.

[User 75562]

Dan Rather was dealt a bad decision. Was this politically motivated by a Republican judge?

[Ridefast]

Yuck, I love the Canadian banks but why do they insist on making acquisitions in the overly competitive US market. I would hope BNS would only take it if they get it really cheap.

[Voice ofReason]

There are way too many 'the sky is falling' worrywarts in the market right now that don't have a clue how the "game" is played.

Take GE for example. Awhile ago I was watching some bubble headed blond bimbo "analyst" on CNBC having a hissy fit on air over GE calling their creditability into question.

Earth to all analysits... When a company "misses" all that really means is YOU fools got YOUR estimates wrong. I still can't figure out why so many get their shorts all bunched up over pennies quater by quater. INVESTING not moronic trading short term trading... is best judged over multiple quarters or years even.

Oh, by the way I just doubled my positoin on GE. Thanks to be dummies for the bargain basment price. GE rarely takes such a big hit. LOL!

[User 176842]

Voice of Reason,

Perhaps you may want to consider refraining from blog posts. Your arrogant approach and dense analysis of the markets do not impress any readers. I am glad you, like many others who patronize this blog, enjoy the market and the strategy involved. Your comments however only highlight your lack of experience or education within the realm of finance or economics and your egotistical manner is not due any respect.

[Slowdrawl]

I just starting playing stocks back in January of this year, so I'm certainly no expert in the field. When a megalith like GE drops 10% in one day, I pile in like no body's business, because they won't be going out of business anytime soon.

[BlueOkie]

Mr Market is bipolar for sure. I try to buy ownership of a company as opposed to trading stocks. Seems to calm the nerves. It even makes money for the long term investor.