Wall Street Breakfast: Must-Know News

• Google quiets naysayers. Google stomped out concerns that a softening U.S. economy would hurt its ad revenue, causing shares to jump about 17% to $526 in extended trading. Earnings rose 30% to $4.82/share (vs. $4.52 consensus), while revenue rose 45.7% to $3.7B (vs. $3.61B consensus). Google noted on its earnings conference call that paid clicks growth was far higher (+20% Y/Y and +7% from Q4) than speculated by third parties. ComScore (SCOR) alarmed investors recently with estimates Google's paid click growth was a paltry 1.8%; its shares dived 8.4% in reaction to its apparent blunder, although it's possible comScore's estimates were misunderstood. Average revenue per paid click rose 17.2% in the quarter as Google tweaked its design to reduce accidental clicks and nonproductive ads.
• Citigroup loss exceeds expectations, calms markets. Citigroup (C) lost $1.02/share (-$5.1B), $0.07 worse than consensus. Revenue of $13.22B (-48.1%) beat analyst estimates of $12.77B. Citi took a $6B writedown on subprime exposure; a $3.1B writedown on leveraged debt; $1.5B writedowns each on monoline insurer and auction-rate securities exposure; and a $3.1B writedown in credit costs in its global consumer unit. Shares rose 3.4% in pre-market trading, and futures jumped. Apparently traders feared much worse.
• Libor moves up. The Libor jumped Thursday by 8 BP (to 2.8175%), its largest one-day move since the advent of the credit crunch, after a Wednesday WSJ article raised serious concerns banks were underestimating the cost at which they were borrowing from each other in an effort to smooth over their credit crisis woes. The article prompted the British Bankers' Association to step up an inquiry into the rates banks provide to establish the Libor. Analysts think the rate may still be 0.3-0.4% below where it belongs.
• France Telecom exploring TeliaSonera acquisition. France Telecom (FTE) acknowledged it's in exploratory talks to buy Norway's TeliaSonera. It would use cash and debt to buy the company, should talks advance, which might cause it to miss its debt-to-operating-margin ratio of 2 this year. FTE pledged to uphold its dividend. Analysts have questioned what exactly the synergies between the two giants are.
• Fed officials fret inflation. Fed presidents Jeffrey Lacker and Richard Fisher warned of the dangers of delaying moves to address pending U.S. inflation. "Inflation is a problem now. It is too high and personally I would be uncomfortable in just waiting for economic slack to bring it down," Lacker said. "A deterioration of inflation psychology is a major concern because it is very difficult to unwind." Fisher, who voted against the Fed's March 0.75% rate cut, added: "The answer...is not to compound the bad by repeating the oft-prescribed remedy of inflating our way out of our predicament, with a wing-and-a-prayer promise that it can always be reined in later."
• Halliburton may counterbid for Expro. Oilfield servicer Halliburton (HAL) is mulling a counter bid for England's Expro after it agreed Thursday to sell itself for £1.6B ($3.17B) to funds managed by Goldman Sachs (GS) and a private-equity group.
• Xerox. Xerox's (XRX) Q1 EPS of $0.27 was in line; revenue of $4.34B (+13%) beat expectations of $4.24B. Guidance for Q2 of $0.28-0.30/share is in line. Gross margin of 39.1% was down 130 BP.
• Sixth straight quarterly loss at AMD. AMD (AMD) lost a worse-than-expected $0.59/share (vs. -$0.51 consensus) on in-line revenue of $1.5B (-15%). The firm expects a seasonal decrease in Q2, during which it will take a restructuring charge. In its earnings call, AMD said it probably won't hit break-even this year. AMD said weak consumer spending contributed to slow sales. Gross margin was 42%, down from 44% in Q4. AMD sees gross margin "north of 45%" by Q4.
• SanDisk revenue tops targets, EPS comes up short. SanDisk (SNDK) posted Q1 EPS of $0.21, $0.05 short of consensus. Revenue of $850M (+8%) beat estimates of $811M. SanDisk said sales were led by Sansa MP3 players and sales to mobile handset and GPS makers. Margins rose to 18.4% from 14.2%, but CEO Eli Harari said margins will continue to experience pressure in Q2.
• Schlumberger comes up short. Q1 EPS at Schlumberger (SLB) off $.106 fell $0.05 short of analyst targets. Revenue of $6.29B (+15.1%) was in line. "Seasonal factors and weather-related events, as well as lower product and software sales following the exceptional levels in the fourth quarter, had a general dampening effect on sequential revenue gains with a consequent effect on margins," CEO Andrew Gould said. Gould said SLB's long-term prospects are positive.
• E*Trade misses; gains record 60K new accounts. E*Trade Financial (ETFC) lost $0.20/share, worse than the $0.10 analysts expected. Revenue of $316M (-51%) was well short of consensus ($364M). Net new customers were up 60,000, but total customer assets fell 11% sequentially. E*Trade took a $234M provision expense for loan losses. Its current restructuring should save it $50M a year. E*Trade said its much-maligned home-equity portfolio performed in line with expectations, and reiterated its three-year cumulative loss forecast of $1-1.5B." Shares rose 7.7% in extended trading, yet another case of "it's hard to surprise to the downside."
• GE joins air show. GE (GE) disclosed it is working with airlines and FAA officials to address improperly certified parts in up to 50 of its jet engines. GE and the FAA said the issue is not an immediate safety threat, and won't result in airplane groundings.
• GM hit with UAW strike. 3,000 UAW workers striked at a Michigan GM (GM) plant, compounding its woes from the 30 plants already stopped or slowed by a strike against parts supplier American Axle & Manufacturing (AXL). The strike relates to a dispute with a GM supplier, but raises concerns about the UAW's cooperation with automakers in fulfilling new contracts hammered out last fall.
• Auction-rate investigation. New York AG Andrew Cuomo launched a probe into auction-rate securities; 18 firms were subpoenaed including UBS (UBS), Citigroup (C), Merrill Lynch (MER), JPMorgan & Chase (JPM) and Goldman Sachs Group (GS). Investors were left holding auction-rate bonds in February when the market for the securities dried up, and issuers were forced to pay interest of up to 20%. Issuers and investors criticized banks for suddenly pulling out of a market they had previously backed by stepping in to bid on unsold bonds.

• Sony BMG shuffles music-label ranks
• Honeywell profit up 22 percent
• Capital One Q1 net income $1.47 vs $1.62 a share

Today's Markets

• Markets were mixed in Asia Friday. Nikkei +0.58% to 13,476. Hang Seng -0.25% to 24,198. Shanghai -2.09% to 3,155. BSE was closed.
• In Europe, markets rose broadly in tune with U.S. futures. FTSE +0.89% to 6,034. CAC +1.36% to 4,928. DAX +1.48% to 6,781.
• U.S. futures jumped after Citi's earnings release. Dow +0.83% to 12,764. S&P +1.02% to 1,386. Nasdaq +0.9% to 1,883.50.
• Gold is -0.49% to $938. Oil is down 0.51% to $114.27.

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Comments

[sieraromero]

This is completely insane! Citigroup and ETrade and Merril Lynch have absolutely TERRIBLE quarterly reports and their stock price goes up, with the reasoning that it wasn't as bad as it could have been. Sectors of the economy are going thru depression and hyperinflation depending on which sector you are reffering to. The countries financial system has to be bailed out by the FED. We are in a recession! Inflation (REAL) is way out of control, and the FED is going to be forced to raise interest rates to TRY to control it and the falling dollar! Yet investors think that the stock market should be at or going to new all time highs. Someboby is going to eventually wake up and say the emporer is naked when they realize that the emporer doesn't have any clothes on. People who are in this market deserve to lose a good chunk of their past profits!

[Mazel Tov]

Mazel Tov and Happy Pesach Rabbi Hoffman

[Blue collarguy]

People forget sometimes...particular... the losers in the market, that the market itself is composed of many different elements, moving in different directions continuously and at the end of any day there will be many stocks that have move in one direction or another.
There ARE many good companies out there doing an excellent job in the areas and fields they operate in; because they are well managed and alert to all aspects affecting them, including the financial industry at large (which is in a huge mess right now and for at least a probable year). One should never throw the baby out with the wash which is there is always a tendency to do with things in general go badly. The people who pay attention, even small investors like myself will make money most of the time IF they manage to find the "right" companies to invest in and IF they pay close attention to "who's on first" especially when it comes to who they pay for the investing advice they use. Sounds to me like we may have sore loser or two out there. Nobody wins 100% of the time, not even the crooks.....I intend to enjoy my profits by spending a little and investing some more of them in the "right" stocks.

[User 173196]

MAZEL TOV......and many many more....your smiling face and your intelligent and concise commentary are a delight.

[jackooo]

eddie G
Doesn't matter wether a company is good or bad anymore. Just doesn't matter.