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  • Dismantling Yahoo. A source says Microsoft's (MSFT) most recent proposal to Yahoo (YHOO) would see Microsoft buying Yahoo's search ad business, Yahoo selling its Asia assets (including stakes in Yahoo Japan and Alibaba), and Microsoft buying a stake in what remains of Yahoo. Microsoft floated the idea with Yahoo executives, but has not formalized it, nor has it put a price tag on Yahoo's search business. One analyst thinks the search ad unit is worth $21B and Yahoo's international assets another $9.25B. Shares of Yahoo Japan and Alibaba fell 4%.
  • Housing woes hurt Home Depot. Home Depot (HD) said net income plunged 66% to $356M. Still, adjusted EPS of $0.41 beat consensus estimates by $0.04. Revenue fell 3.4% to $17.91B. "The housing and home improvement markets remained difficult in the first quarter; in fact, conditions worsened in many areas of the country," CEO Frank Blake said. "We will continue to invest wisely in our core retail business." Rival Lowe's (LOW) said yesterday earnings fell 18% on a sales drop of 1.3%.
  • Food price forecast climbs. The Agriculture Department raised its food inflation forecast by 0.5% to 4.5-5.5%, levels not seen since 1990. The revision is likely to further fuel tensions between the ethanol industry and food companies who say federal ethanol subsidies are inflating corn prices.
  • Ominous outlook. Oppenheimer's Meredith Whitney: "The real harrowing days of the credit crisis are still in front of us and will prove more widespread in effect than anything yet seen. Just as strained liquidity pushed so many small and mid-sized specialty finance companies to beyond the brink, we believe it will do the same with the U.S. consumer... As the securitization market remains effectively closed for most asset classes, we believe more consumers will face the threat of default and banks will simply face far higher loss rates."
  • Barclays mulls bold takeover. Barclays (BCS) is considering a "daring takeover bid" for an unnamed rival, possibly an investment bank, in an effort to make a speculated £3B rights issue (which it needs to solidify its balance sheet) more enticing for shareholders. Media reports say CEO Bob Diamond has looked at both Lehman (LEH) and UBS (UBS).
  • Ford to trim Volvo. Ford (F) is reducing production at its Volvo unit in order to cut costs and trim its losses; it's unclear whether the cutbacks will decrease the unit's revenues. Sources say CEO Alan Mulally has told top executives he wants to sell Volvo some day. Volvo has been hit by dwindling sales, but also by the climb of the kronor vs. the dollar, which has cost it about $1.7B over the past two years.
  • More trouble for Citi's hedge funds. Wachovia (WB-OLD) says a previously disclosed $315M writedown was related to a (rumored $1B) investment in Citigroup's (C) Falcon Strategies hedge fund, which is now worth just 20% of its original value. Fifth Third Bancorp (FITB) said last month it put $612M into Falcon, and is suing the insurer and brokerage firm (AEGON nv) that arranged the deal. Many of the fixed-income fund's investors were Smith Barney retail clients. Citi is spending $250M to absorb the retail customers' losses; it may be forced to do something similar for the banks.
  • Staples goes hostile. Staples (SPLS) took its €1.5B ($2.34B) offer for Corporate Express directly to shareholders after CE's board proved unwilling to negotiate. Staples has secured a $3B line of credit to finance the deal.
  • $300B homeowner rescue plan gaining momentum. A Senate bipartisan agreement that would allow the government to insure up to $300B in refinancing for struggling homeowners is quite similar to a House proposal, and was apparently encouraged by President Bush yesterday, making it increasingly likely it could become law. The plan includes an overhaul of Fannie's (FNM) and Freddie's (FRE) regulation; fees charged to the two would cover initial losses on loan defaults. Some doubt the plan can stop the short-term bleeding, while others think it's too late.
  • UK mortgage crisis eases. HSBC's (HBC) First Direct has resumed its mortgage lending, saying it has now cleared its backlog. Other UK lenders cut long-term lending rates, potential signs of a thaw in the credit-market freeze.
  • Greenberg implicated in AIG lawsuit. A federal judge says there's significant evidence to implicate former AIG (AIG) CEO Hank Greenberg in a conspiracy to inflate the company's finances that involves a deal with Berkshire Hathaway's (BRK.A) General Re.
  • House of cars collapsing. While most bubbles are formed by buyers pushing up prices to frenzied levels, what now appears to have been a U.S. auto-industry bubble was fueled by Big Three carmakers rivalry -- which saw them extending no-interest loans to six years, pushing huge volume to car-rental fleets, and selling cars at employee-discount prices. Global Insight now thinks the industry won't fully recover until 2012 -- this for an industry that accounts for almost 4% of GDP and employs 2.5M people.
  • Mitsubishi UFJ beats. Profits at Mitsubishi UFJ (MTU), Japan's largest bank, rose an unexpected 69% to ¥322B ($3.1B) despite writing off ¥313B in valuation losses. "We can't be positive on the result," UBS's Nana Otsuki said. "The valuation loss in securitization products was bigger than we expected." MTU reduced its bad-loan reserve by ¥32.8B.
  • Dr Reddy profit plunges. FQ4 earnings at Dr Reddy (RDY) fell a worse-than-expected 68% to 1.03B rupees on sales of 13.25B rupees. Analysts expected 1.17B on sales of 12.89B. Dr Reddy's 180-exclusivity for a generic version of GlaxoSmithKline's (GSK) anti-nausea drug Zofran recently expired. Shares fell 2.5% in India.

Earnings: Monday After Close

  • DryShips (DRYS): Q1 EPS of $4.13 beats consensus of $4.05. Revenue of $232M vs. consensus of $219M. Ebitda of $201.4M. Shares: +2.4%.
  • The9 (NCTY): Q1 EPS of $0.46 beats consensus of $0.32. Revenue of $62.7M vs. consensus of $58.1M. Shares: +8.3%.
  • Tower Semiconductor (TSEM): Q1 EPS of -$0.24 misses consensus of -$0.20. Revenue of $57.6M in-line. Sees Q2 revenue of $56-60M vs. consensus of $63.4M. Tower said it will acquire Jazz Technologies (JAZ) for about $169M in its shares, including debt. Shares: +2.9%.

Earnings: Tuesday Before Open

  • AutoZone (AZO): FQ3 EPS of $2.49 beats consensus of $2.43. Revenue of $1.5B in-line.
  • China Sunergy (CSUN): Q1 EPS of $0.01 beats consensus of -$0.05. Revenue of $77M vs. consensus of $73.25M.
  • Home Depot (HD): Q1 EPS of $0.41 beats consensus of $0.37. Revenue of $17.91B vs. consensus of $17.61B. Shares: -0.6%.
  • Medtronic (MDT): FQ4 EPS of $0.78 beats consensus of $0.73. Revenue of $3.28B vs. consensus $3.72B.
  • Mobile TeleSystems (MBT): Q1 revenue of $2.38B vs. consensus of $2.34B.
  • Saks (SKS): Q1 EPS of $0.13 misses consensus of $0.16. Revenue of $862M vs. consensus $840M.
  • Staples (SPLS): Q1 EPS of $0.30 in-line. Revenue of $4.88B vs. consensus of $4.82B. Sees flat EPS growth for Q2.
  • United Natural Foods (UNFI): Q1 EPS of $0.30 beats consensus of $0.29. Revenue of $887M vs. consensus of $879M.
  • ValueVision (VVTV): Q1 EPS of -$0.53 misses consensus of -$0.13. Revenue of $156M vs. consensus of $167M.

Today's Markets

  • Shares fell in Asia Tuesday. Nikkei -0.77% to 14,160. Hang Seng -2.23% to 25,169. Shanghai -4.48% to 3,443. BSE Sensex -1.22% to 17,222.
  • In Europe, shares are substantially lower at midday. FTSE -1.16% to 6,303. CAC -1.16% to 5,082. DAX -0.88% to 7,162.
  • U.S. futures are down at 7:15 AM. Dow -0.36% to 12,997. S&P -0.44% to 1,423.50. Nasdaq -0.41% to 2,017.50.
  • Oil +0.2% to $127.28. Gold +0.11% to $907.

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