Market Wrap for April 13: GE, Tribune, McDonalds, Intel and AMD in Focus

by: Rob Black

Stocks inched higher in light trading after government data indicated that the economy was growing at a slower pace, raising investors' hopes that moderating economic growth might halt the Federal Reserve's streak of interest rate hikes.

Dow climbed 11 points (0.07%) to 11137   
Nasdaq was up 11 points (0.49%)  to 2326
S&P 500 was up 1 point (0.08%) to 1289   

Top stories... U.S. 10-year Treasury note yields rose to 5 percent for the first time since June 2002, a harbinger of higher borrowing costs for everything from home loans to corporate bonds.

Prices of goods imported into the U.S. fell in March, held back by cheaper natural gas, oil and industrial supplies. Excluding oil, import prices also fell.

General Electric (NYSE:GE) , the world's No. 2 company by market value, said first-quarter profit rose 14 percent, driven by demand for power-plant turbines, jet engines, health-care services and financing.

Tribune (TRB), publisher of the Los Angeles Times and Chicago Tribune newspapers, said first-quarter profit fell 28 percent on stock-options expenses and costs to cut jobs. Tribune, New York Times and McClatchy posted drops in first-quarter profit as a slide in advertisers and readers weighed on ad sales and circulation. 

McDonald's (NYSE:MCD), the world's largest restaurant chain, said first-quarter profit fell 13 percent from a year earlier, when it had a tax gain. Comparable- store sales posted the biggest increase in six quarters.

InBev, the brewer of Stella Artois, agreed to pay about $1.2 billion for most of the shares it doesn't own in Quilmes Industrial, gaining a larger slice of Latin American beer revenue.

Michael Jackson is trying to avert bankruptcy by refinancing hundreds of millions of dollars in loans. Michael Jackson may sell part of his back catalog to Sony in a $325 debt refinancing. The deal will probably force him to sell half of his 50% stake to thousands of songs, including 251 Beatles songs, to Sony within the next year. Every time a Beatles song is played on the radio money is made for Sony and Michael.

Nissan Motor CEO Carlos Ghosn  urged his fellow auto executives to wean themselves from costly incentives.  In March, the industry spent an average of $3,200 a vehicle on rebates, discounted lease deals and financing plans. Carmakers are spending $60 billion a year on incentives — enough to develop 120 new vehicles, at a cost of $500 million apiece.

Last year Exxon Mobil (NYSE:XOM) reported $36 billion in profit — the most ever for any corporation — they also allowed Lee R. Raymond to retire in style as chairman of Exxon Mobil. The total sum for Mr. Raymond's golden years comes to at least $398 million, among the richest compensation packages ever. The record was the payout of $550 million to Michael D. Eisner, the former head of Walt Disney (NYSE:DIS).

Retail Sales . . . So many issues can push stocks higher or lower but one of the more important numbers is retail sales.  Retail sales in the U.S. rose more than forecast in March as an improving labor market sparked demand for cars, building materials and furniture.  Purchases increased 0.6 percent after a 0.8 percent decline in February.   Retail sales growth averaged 0.9 percent a month from January through March, the strongest since the third quarter of 2004. Last month's gain shows greater momentum in the economy heading into the current quarter as accelerating wages bolster spending. All things considered these numbers are strong especially in face of higher gasoline prices which sap consumer spending. A late Easter this year, following an early one last year, contributed to weakness in chain store sales in March, and should ensure strength in April.  Retail sales account for almost half of all consumer spending, which in turn accounts for about two-thirds of the economy.

Auto Lesson . . . One person that I trust for insight is Renault/Nissan CEO Carlos Ghosn.  His insight teach me about the automobile industry.  Ghosn urged his fellow auto executives to wean themselves from costly incentives, which he said had become "an insidious, confusing carousel" on which the companies could not stop spinning.   Mr. Ghosn's plea came with both General Motors and Ford Motor mired in problems that have led to billions of dollars in losses and their lowest market share in North America in decades.  In March, the industry spent an average of $3,200 a vehicle on rebates. The biggest investment success story in autos is Toyota and they only spent an average of $1300 on rebates.  In all, carmakers are spending $60 billion a year on incentives — enough to develop 120 new vehicles, at a cost of $500 million apiece.  Such rebates and other plans are depressing the resale value of automakers' products, ruining their brand images and eroding the attraction that automobiles have traditionally had for buyers,.

China Of Note . . .  China's sizzling economic growth slowed to an estimated 8.5 percent in the first three months of this year and will gradually slow to 7.5 percent by the end of the year, a government report said today.

Eco Speak . . . U.S. retail sales increased 0.6% in March with unexpected strength in auto and building materials sales. Economists were looking for sales to rise 0.4%. Excluding the 1.6% rise in auto sales, retail sales increased 0.4%, as expected. Sales in February were revised higher to show a 0.8% decline from the previously reported 1.4% decline. Sales rose 3% in January. Auto sales increased 1.6%. Gasoline sales fell 0.1%. Building materials sales rose 1.2%.

U.S. business inventories were unchanged in February while sales dropped 0.6%. It was the largest drop in sales since a 1.5% decline in April 2003. The inventory-to-sales ratio rose to 1.26 from a record low 1.25 in January. In the past year, sales are up 7.8%, while inventories are up 3.7%. The one new bit of information in the report was the 0.3% decline in retail inventories in February.

First-time claims for state unemployment benefits rose in the latest week. The number of initial claims in the week ending April 8 rose 12,000 to 313,000. It's the highest level since the week ended March 11. The increase was larger than expected. The four-week average of initial claims fell 1,500 to 307,500. Meanwhile, the number of Americans receiving state jobless benefits held steady fell 4,000 to 2.42 million in the week ending April 1, the lowest since the week ended Jan. 20.

Finance  . . .  Capital One released March master trust securitization data this morning, which showed a sequential increase in charge-offs (from an abnormally low level in February) contributing to a decline in the average excess spread. However, underlying credit fundamentals remain solid.   Charge-offs rose to 2.61% versus February's record low of 1.61% although February’s rate reflected a non-recurring benefit. March’s charge off rate was consistent with the company’s charge off experience since the spike in bankruptcy filings in October of 2005. Capital One’s charge off rate continues to benefit from the pull forward of bankruptcy filings experienced late last year.  The trust charge off rates may return to more normalized level of 4-5% later this year as bankruptcy related charge offs normalize.   Delinquency rates improved in all buckets, with the total delinquency rate down 25 bps to 3.39%. Delinquency rates have been relatively stable from month to month, but have been continuing to trend lower across all delinquency stages.

Commerce Bancorp upgraded to Neutral at Oppenhiemer.

REITs . . .
Mills Corp. was downgraded to underweight from equal weight by Morgan Stanley due to uncertainty over the company's strategies and concerns over valuation. Analyst Matthew Ostrower also cuts his stock price target to $25 from $46. He noted that the company announced Wednesday a dividend cut and new access to capital through a mortgage loan.

Metals . . . Barrick Gold (NYSE:ABX) target raised to $20 at Lehman. 

Energy . . . Merrill Lynch upgraded electric utility TECO Energy to neutral from sell, citing increased confidence in the company's post-synfuel earning power. In addition, the broker told clients that the company has indicated the board is moving closer to considering potential dividend increases.

Food & Beverage . . . Thomas Weisel downgraded Caribou Coffee to Peer Perform. The downgrade is given the higher probability that same-store sales, full-year openings and, inevitably, profit objectives may fall short of expectations.

InBev, the brewer of Stella Artois, agreed to pay about $1.2 billion for most of the shares it doesn't own in Quilmes Industrial, gaining a larger slice of Latin American beer revenue.

The Wall Street Journal reports Archer Daniels Midland (NYSE:ADM) has yet to capitalize fully on the recent run-up in ethanol prices. It sells much of its production under six-month-long contracts. Going forward, ADM should be able to lock in higher prices.

Transports . . .   IBD notes Tata Motors (NYSE:TTM), India's No. 1 commercial vehicle manufacturer, plans to battle it out is with a smaller and cheaper car than any other on the mkt. It intends to sell what is now dubbed the "People's car"- still in development- for about $2,000. That market would include many first-time buyers who would normally look to a motorcycle or other two-wheeler.

Nissan Motor CEO Carlos Ghosn urged auto executives to wean themselves from costly incentives.  The industry spends an average of $3,200 a vehicle on rebates. Carmakers are spending $60 billion a year on incentives — enough to develop 120 new vehicles, at a cost of $500 million apiece.

Leisure . . . Calyon raises their 1st quarter and 2006 EPS estimates for Harrah’s (HET) .  The firm also raised their target to $90.  Firm cites better revenue trends at acquired properties and a faster than expected pace of revenues in New Orleans, as well as the impact of a temporary casino in Biloxi.

Media . . . Tribune delivered mixed 1st quarter 2006 results as cost controls continue to drive bottom line performance given the weak ad environment in both the newspaper and broadcast divisions.  1st quarter 2006 EPS were $0.33 on a GAAP basis, versus comparable estimate of $0.34. Excluding the impact of one time items, EPS from ongoing operations of $0.38, compares favorably to $0.37 estimate.  Total revenue was down 1.3%, below expectation of 0.3% growth, as declines were posted in both the newspaper and broadcast and entertainment divisions, although there was a slight up tick in March results. One bright spot in newspaper advertising that has emerged is the growth of real estate classified, up 35% in the quarter, boosted by a softening marketplace that has spurred the use of advertising to move properties.

New York Times (NYSE:NYT) said earnings fell to $35 million from $111 million in the year-ago period. Revenue rose 3.3% to $831.8 million. The first-quarter results include a charge of 4 cents a share for costs associated with a staff reduction program announced in September 2005. The 2005 first-quarter results included an after-tax gain from the sale of the company's current headquarters.

Friedman Billings upgrades Tivo (NASDAQ:TIVO) to Market Perform and raises their target to $6.

ThinkEquity initiates Napster (NAPS) with a Buy and $7 target. The firm says the company's recently announced strategic partnerships with Ericsson and XM Satellite should position it well to capitalize on the potential mass market opportunity, albeit at a much lower cost.

Google unveiled a much-anticipated, free Web-based calendar application that is expected to heat up the race with Yahoo and Microsoft. A Gmail account is not necessary to use Google Calendar.

Chinese Web search engine and a unit of chip maker Intel inked a deal to co-develop Internet search and related applications in China.

ThinkEquity initiates RealNetworks (NASDAQ:RNWK) with an Accumulate and $11 target. The company represents a compelling pure-play investment opportunity to capitalize on the convergence of digital media and mobile; However, they feel the co needs to demonstrate additional rev growth acceleration, possibly through acquisition, in order for them to become more positive.

XM Satellite Radio (XMSR) disclosed refinancing plans, including a cash tender offer for certain debt, the private placement of an equal amount of new unsecured floating rate and fixed rate senior notes, and the establishment of a revolving credit line of $230 million. The firm expects the transactions to lower its ongoing interest expense, extend maturity dates on its debt portfolio, and provide lower cost standby liquidity.

Intel and will cooperate in developing search applications for laptops, handsets, personal computers, and other home appliances. The venture will leverage respective strengths, according to the statement. "In addition to PCs, our users will soon be able to access Baidu search services on their handsets and home devices," said Jerry Liu, Baidu's chief technology officer. Baidu is a leading Chinese language Internet search provider.

Healthcare . . .  CryoLife lifted its revenue outlook for 2006 to between $76 million and $80 million from a previous projection of between $74 million to $77 million. For the first quarter, the company said revenue rose to $19.4 million, up 10% from its year-ago equivalent total of $17.7 million.

Pfizer (NYSE:PFE) entered into an agreement with Schwarz Pharma under which Pfizer will acquire exclusive worldwide rights to fesoterodine, a new drug candidate for treatment for overactive bladder.

Medtronic (NYSE:MDT) received approval from the Food and Drug Administration for its MiniMed Paridigm Real-Time Insulin Pump and Continuous Glucose Monitoring System. The system relays glucose readings every five minutes from a glucose sensor to the insulin pump.

Medtronic will buy back around $2.5 billion of its common stock.

JMP Securities downgraded Sybron Dental to Market Perform.  The downgrade is based on the pending acquisition by Danaher.

Matria Healthcare initiated with an Overweight at Lehman. Price target $45. 

Retail . . .  Circuit City (NYSE:CC) remains focused on merchandising and supply chain initiatives that include portfolio management, sourcing, vendor collaboration, inventory management, and merchandise mix management. Balancing its portfolio of products to high growth areas such as MP3 players and accessories and flat-panel TVs and installation services has enabled the company to achieve sales and margin growth. The company is achieving this portfolio balance partly by increasing
in-stocks in key areas, but remains focused on reducing net owned inventory towards zero over time. CC is also partnering with vendors to optimize sourcing efficiency with better forecasting, promotions, in-stock levels, and other performance metrics. This vendor collaboration will be enhanced in 2007 as the company continues to implement the first modules of its new merchandise systems.

CNET reports state legislatures and tax officials, eager to find new ways to boost government spending and curb budget shortfalls, are eyeing the burgeoning market for digital downloads as a potentially lucrative source of revenue. Fifteen states and D.C. now tax downloads of music, movies and electronic books. Some high-tax states such as CA do not levy the same charge on iTunes downloads, but that could soon change.

The New York Post reports the fate of the Martha merchandise sold in Kmart stores was in doubt, after Edward Lampert, the chairman and chief executive of Kmart parent Sears Holdings, said he had been unable to secure a long-term contract for the brand. As a result, Lampert, said he was unwilling to add the merchandise to Sears stores, given that he might have to pull the products in a few years. 

Bank of America upgraded Circuit City to Neutral.

McDonald's said U.S. March same-store sales rose 6.6%, helped by its breakfast menu and extended operating hours. The fast-food chain also forecast first-quarter earnings of 49 cents a share, in line with expectations. March global same-store sales rose 5.3%. In Asia/Pacific, Middle East and Africa, same-store sales for March were up 5%, led by strong results in Australia and improved results in China. Europe's comparable sales grew 1.6% in March, led by strong performance in France and Russia, the company said.

Cache initiated with a Buy at Nollenberger and a price target of $23. The firm is saying they believe the company is on the cusp of a strong, multi-year earnings growth cycle after a transition year in 2005 when considerable improvement was achieved at the Cache division. The merchandise assortment at Cache is the best they have seen in the last two years. The firm says looking forward, they believe several new initiatives will enhance results for 2006 and beyond, including a direct-sourcing strategy, a more broad-based marketing plan, and a new customer loyalty program.

Circuit City price target raised to $28.50 at Piper Jaffray.

Telco . . . IBD reports consumer groups are gearing up to fight the merger of AT&T and BellSouth by focusing on the fact it could reduce options for wireless Internet broadband services. Most broadband users get the service through cable lines or phone digital subscriber lines. But wireless broadband, led by a technology called WiMax, is fast emerging as a third option. Sprint Nextel owns the most WiMax-type spectrum, followed by BLS. But T also holds such spectrum. The consumer groups want to force T to give up that spectrum as a condition of its purchase of BLS.

Technology . . .  Intel (NASDAQ:INTC) will have a strong product cycle starting late 3rd quarter 2006 with its new micro-architecture. In addition, expect Intel’s gross margins, a metric closely watched by investors, to bottom in 2nd quarter or 3rd quarter.  There has been a permanent downward shift in Intel’s gross margins, as a result of AMD having become a much more formidable competitor, and analysts are not forecasting gross margins to return to the historical peak margins of 60%+ through 2007.

Lam Research earned $86.3 million on revenue of $437.4 million. Lam also gave a forecast that topped estimates.

Advanced Micro target was raised to $42 at UBS. 
Cisco Systems target raised to $23 at UBS- based on continued strength in the U.S enterprise market.

Banc of America analyst Sumit Dhanda said it was "time to take the plunge" on Intel's stock, as he believes investor negativity over the semiconductor giant's outlook "might have overshot reality." He reiterated his buy rating and $25 stock price target. Intel has lost 23% since the end of 2005. "Concern over share loss to Advanced Micro Devices, aggressive pricing and excess inventory have impacted results and perception through the quarter," Dhanda said. He believes the worst is behind the company, and said investors should expect a reduction, but "not a hack," to June quarter estimates after Intel posts results on April 19.

Sandisk is going in the S&P 500 to replace Chiron.  Sandisk - outta Sunnyvale  makes flash memory, which prevents info from getting lost when the power goes off. SNDK  was founded in 1988 and the stock has been a huge winner this decade moving from $4 to $59.

Intuit, the maker of personal finance software like Quicken and TurboTax, is teaming with health care companies to develop new products to help Americans manage their health care. The software  will allow users to view and organize information such as medical bills and insurance data from a variety of health care sources.

Prudential Equity Group cut its revenue and gross margin estimates for Intel on expected market unit weakness in the first quarter, erosion in average selling prices and continued share loss to rival Advanced Micro Devices in the market for PC micro processor units. Analyst Mark Lipacis said recent checks in Asia indicate below seasonal desktop growth in the first quarter. Lipacis said Intel is losing market share and building inventories, and will likely have to take a charge for inventory and/or underutilization in 2006. He reiterated his underweight stance on the stock with a $15 price target.

Credit Suisse raised Motorola (MOT) estimate to $0.30 and their revenue estimate to $9.9 billion from $9.5 billion. They remain confident that MOT will benefit from improved handset product positioning at the high-end and in emerging markets, further handset product cost reductions and ongoing operating efficiencies to drive margin expansion over the next 12-18 months.

Lehman upgrades Kemet to Equal Weight.

Thomas Weisel believes that AMD (NYSE:AMD) continued its excellent execution during the quarter and appears to have gained market share in 1st quarter and may continue to do so in 2nd quarter. Firm says AMD seems content with current architectures, however, and did not specifically address the upcoming performance gaps in 2nd half 2006 when Intel launches Conroe, Woodcrest and Merom based on Core Architecture. They also believe that AMD could see manufacturing challenges in transitioning to 65nm and 300mm. As a result, firm is cautiously optimistic regarding AMD's longer-term prospects and will continue to monitor upcoming technology announcements and product launches.

Advanced Micro target raised to $32 at HSBC.

According to, the roll-out of Apple's forthcoming video iPod has been delayed substantially after the company encountered problems with the display and touch-screen interface, Think Secret has learned.

Dell announced a contract with Boeing for the day-to-day mgmt of thousands of printers spread across the company's operations.

Amtech believes that Broadcom is likely to meet or beat their and consensus estimates for the March quarter on April 20. Strength in the quarter came predominantly from set-top boxes, ADSL2, and Bluetooth/VPOD product lines.  The firm reits Buy and raises their tgt to $50.

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