Wall Street Breakfast: Must-Know News

• Bud prepares for brawl. Sources say Anheuser-Busch (BUD) is preparing itself to fight InBev's unsolicited $46.5B bid. Management will argue the bid undervalues the company, and will present shareholders with its strategic outlook, including selling some non-core assets such as its theme parks, and added cost savings of $500M over the next four years. InBev is likely to take its offer directly to shareholders.
• Fed focused on inflation. The Fed left its target rate unchanged at 2%, as expected. It said economic activity continues to expand, but labor is weaker and financial markets remain under stress. Analysts said its statement was skewed more to inflation than to lack of growth: "Uncertainty about the inflation outlook remains high," making a rate hike by September more likely now than before. Analysts said the Fed's statement is moderately bullish for the stock market: there is nothing that suggests an imminent rate hike, and no evident panic over inflation. The decision wasn't unanimous: Dallas Fed president Richard Fisher dissented for a fourth straight time, favoring a rate hike to 2.25%.
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• Goldman says Citi crisis not over. Goldman says Citigroup (C) will likely take an additional $8.9B writedown in Q2. "The turnaround in business trends that we had been expecting in the second half of 2008 may not occur as quickly as we should have thought. We see multiple headwinds for Citigroup," including writedowns, the need for more capital, and dividend cuts or asset sales. These would add to Citi's $42.9B in credit-related losses so far. Goldman cut its share price target to $16, and put Citi on its Conviction Sell list.
• Oracle beats; shaky outlook scares Street. FQ4 profits at Oracle (ORCL) jumped 27% to $2.4B, ahead of analyst expectations. Shares initially climbed in extended trading, but dropped when CFO Safra Catz said the current economic environment continues to challenge, and hinted revenue from corporate customers may slow. Catz said Oracle's strong results owed a lot to its aggressive acquistions.
• BlackBerry maker drops 9% after outlook falls short. Research In Motion (RIMM) doubled its revenue and EPS, but investors punished the company in AH trading after its outlook failed to satisfy them. Looking ahead, RIM sees FQ2 EPS of $0.84-0.89, well short of the Street consensus of $0.90. On RIM's conference call, CEO Jim Balsillie said he's unphased by the iPhone 3G's (AAPL) pending debut, and discounted any overlap between the two companies' products.
• Keep vigilant watch on core inflation - Fed's Kohn. For now, Fed vice chairman Donald Kohn says, headline inflation (which includes food and energy costs) has barely embedded itself into core inflation and long-term inflation expectations. "However, policymakers around the world must monitor the situation carefully for signs that the increases in relative prices globally do not generate persistently higher inflation," he said this morning in Frankfurt. Kohn says emerging market growth was likely due to stronger earnings for commodity exporters.
• Sony talks up big future. Sony (SNE) says it will pump $17B into key businesses and technologies over the next three years, as it aims to lift return on equity to 10% from about 6%. Sony wants its TV business to turn profitable by year-end, and is looking to unseat Samsung as the number-one global LCD TV seller.
• Lehman and LSE join hands. The London Stock Exchange and Lehman (LEH) are planning to launch a pan-European trading platform, dubbed Baikal after the world's deepest lake, that will give clients access to securities in 14 European countries. A rival exchange for soon-to-launch Project Turquoise, backed by nine investment banks including C, GS, MER and UBS.
• Tri-state trouble. Officials from California, Illinois and the Washington State Department of Financial Institutions filed legal actions against Countrywide (CFC) Wednesday. Allegations include misleading marketing, steering buyers into costly loans, and discriminatory lending. Also yesterday, Countrywide (CFC) shareholders overwhelmingly approved Bank of America's (BAC) $4B (now $2.8B) buyout of the firm.
• SEC sets stage for change. The SEC proposed numerous regulatory changes, including weaning investors' reliance on credit ratings by lifting a requirement that money-market funds hold high-rated securities, and easing limitations on U.S. retail customers trading directly with overseas brokerage houses. Chairman Christopher Cox plans to leave in Feb. 2009; the broad moves are his attempt to make his mark on the body as it moves towards globalizing U.S. securities law.
• Oil inventories came in higher than expected: Crude +800K vs. -1.1M consensus. Gasoline -150K vs. unchanged. Distillate +2.82M vs +2M consensus. Crude futures are down 2.18% to $134. Crude futures were all over the board yesterday, but finished down 1.78% to $134.56.
• Valdez award slashed. The U.S. Supreme Court reduced the $2.5B Valdez award against ExxonMobil (XOM +0.8%) to just $507.5M, and said damages should be compensatory, not punitive.
• May New Home Sales were down 2.5% to 512K, after jumping 4.6% a month ago - in line with analyst consensus. Inventory jumped to 10.9 months supply, up from 10.7 last month. New homes sales are down 40% from a year ago. After 501K in March, and 525K in April - sales appear to be leveling. Thursday's existing home sales number will be a clearer indication.
• UK inflation to fall, but not free of charge. BofE governor Mervyn King says he's confident inflation will drop back to the government's target of 2% within the next year - but said it will do so on the heels of a severe economic slowdown. UK inflation recently hit 3.3%, surprising economists.

Earnings: Wednesday After Close

• Autodesk (ADSK): sees Q2 EPS of $0.50-$0.52 vs. consensus of $0.53.
• Bed Bath & Beyond (BBBY): FQ1 EPS of $0.30 beats by $0.03. Revenue of $1.65B (+6.1%) in line. [PR]
• CKE Restaurants (CKR): Q1 EPS of $0.31 beats by $0.04. Revenue of $466M in line.
• Herman Miller (MLHR): FQ4 EPS of $0.71 beats by $0.14. FQ4 Revenue of $519M vs. consensus of $488.39M. Sees Q1 EPS of $0.49-$0.56, short of consensus of $0.55, and revenue of $470-$495M vs. consensus of $491M.
• Nike (NKE): FQ4 EPS of $0.98 beats by $0.02. Revenue of $5.09B (+16.1%) vs. $4.95B. "As we complete fiscal 2008, we are better positioned than we ever have been." [PR]
• Oracle (ORCL): FQ4 EPS of $0.47 beats by $0.03. Revenue of $7.28B (+23.8%) vs. $6.85B consensus. New software license revenue was up +27% - on database and middleware license revenue +23% and applications +36%. [PR]
• Red Hat (RHT): Q1 EPS of $0.18 in line. Revenue of $156.6M vs. consensus of $153M.
• Research In Motion (RIMM): FQ1 EPS of $0.84 misses by $0.01. Revenue of $2.24B (+19.1%) vs. $2.27B consensus. Sees FQ2 EPS of $0.84-0.89 vs. $0.90. Says it shipped 5.4M BlackBerrys in Q1, and signed up 2.3M new customers vs. 2.2M guidance. [PR]

Earnings: Thursday Before Open

• ConAgra (CAG): FQ4 EPS of $0.41 beats by $0.07. Revenue of $3.08B vs. consensus of $3.35B. Sees FQ1 EPS of $0.26-0.28, short of consensus of $0.33. [PR]
• Lennar (LEN): Q2 EPS of -$0.76 misses by $0.21. Revenue of $1.13B vs. consensus of $1.09B. [PR]
• Oshkosh Truck (OSK): Lowers its Q3 EPS view to between -$1.22 and -$1.32 from $1.40-$1.50, vs. consensus of $1.47, due to a non-cash charge, and soft sales. [PR]
• Rite Aid (RAD): FQ1 EPS of -$0.20 misses by -$0.10. Revenue of $6.61B (+49.3%) in line. SSS were up 1.5%. [PR]

Today's Markets

• Asia markets: Japan -0.05%. Hong Kong -0.79%. Shanghai -0.11%. Taiwan -0.55%. India +1.42%.
• European bourses are sharply lower at midday: London -1.75%. Paris -1.67%. Frankfurt -1.86%. Brussels -3.84%.
• U.S. futures indicate a much-lower open: Dow -0.86%. S&P -0.98%. Nasdaq -1.22%. Crude +0.85% to $135.70. Gold +2.12% to $900.50.

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