- H-P takes Q3 in stride. Tech bellwether Hewlett-Packard (NYSE:HPQ) posted FQ3 earnings and revenue that beat analyst estimates, and affirmed its FQ4 outlook, dismissing concerns slowing Europe spending and a rising U.S. dollar threaten its growth. "At the end of the day, for us the big deal is to execute - and we feel very good about our position in many markets," CEO Mark Hurd said on the earnings conference call. About 41% of H-P's sales are from Western Europe. Operating margin widened to 9% from 8.3%. Notebook sales jumped 26% despite Dell's (NASDAQ:DELL) recent buckling down. Shares are up 2.2% Wednesday premarket.
- Goldman's bullish on Morgan Stanley, bearish on the rest. Goldman Sachs analyst William Tanona increased loss estimates for many of its peers, and warned the financial crisis is far from over. We believe a major recovery is still a few quarters away, as we anticipate additional asset sales and write-downs in coming quarters throughout the financial services sector." Tanona trimmed Q3 EPS estimates for Lehman (LEH) (from +$0.68 to -$2.75!), Morgan Stanley (NYSE:MS), JPMorgan (NYSE:JPM), Merrill Lynch (MER) and Citigroup (NYSE:C). He suggests clients sell Citi, and buy Morgan Stanley (MS) - the strongest positioned broker.
- Borrowing gets costlier for Freddie. Freddie Mac (FRE) managed to sell $3B in 5-year notes, but it had to pay 113 bps above the 5-year Treasury benchmark. Before the auction, the spread was 105 bps, and last week it was 96 bps - this despite an implicit government guarantee. Freddie and Fannie Mae (FNM) fell 5% and 2% Tuesday, as investors fretted a government bailout that could wipeout any remaining share value. The high interest rates the market is forcing them to pay just increases the pain - and the likelihood of their collapse.
- Debt rollover holds key to future of GSEs. The ultimate success or failure of Fannie Mae (FNM) and Freddie Mac (FRE) may hinge on their ability to repay $223B ($120B and $103B respectively) in bonds that is due by the end of Q3, Bloomberg says. Rolling over the debt "is the single most important factor to their ability to remain liquid," Credit Suisse's Moshe Orenbuch says. "So far they've been able to do that." A Treasury spokeswoman said this week Secretary Paulson has no plans to inject capital into the GSEs; Pimco's Bill Gross thinks he'll eat his words and sink about $30B into their preferred shares by the end of September.
- Lacker knocks GSE backstop. Richmond Fed president Jeffrey Lacker publicly criticized the Bush administration's backstopping of GSEs Fannie (FNM) and Freddie (FRE). "I would prefer to see them credibly and demonstrably privatized," Lacker said in a Bloomberg TV interview. Lacker also restated his position that the Fed should withdraw its monetary policy stimulus even "before we are completely certain that financial markets are as tranquil as we would like to see" or risk even more damaging inflation. Unlike former IMF chief economist Kenneth Rogoff, he doesn't think a big U.S. bank will fail.
- The Fed's Richard Fisher speaking Tuesday, said the expects economic growth to "decelerate to a snail's pace, if not completely grind to a halt" by year-end. The possible upside to anemic growth is moderating inflation, but Fisher says Fed officials "must remain poised to act if slowing growth fails to contain inflationary pressures." He warned against viewing the recent drop in commodity prices as a panacea for inflation.
- Mobile chip JV changes landscape. Ericsson (NASDAQ:ERIC) and STMicro (NYSE:STM) are combining their chip and mobile-apps businesses into a 50/50 fabless JV that will serve their existing customers, such as Nokia (NYSE:NOK), Sony (NYSE:SNE) Ericsson and Sharp. One analyst says Ericsson got a very good price ($1.1B), and thinks STM got the short end of the stick. A potential threat to TXN and/or QCOM.
- Wachovia dishes distressed debt. Wachovia (NASDAQ:WB) is selling $40M in troubled loans to a joint venture led by LandCap Partners. Many of the loans, backed by collateralized houses, are in some form of distress due to delinquent payments or falling property prices. The deal will allow Wachovia to move the loans off its books and raise capital. The loans have a book value of $75-80M. Yet another sign that opportunistic investors are on the prowl for on-the-cheap debt.
- SEC to propose short-sales rules within weeks. In the next few weeks, the SEC plans to propose new rules aimed at restricting manipulative short sales of stocks. The new rules come after a temporary measure targeting naked short-selling expired earlier in the month and, unlike the earlier measure, will apply to short selling in all companies instead of just a select few. Details to follow...
- Intel goes turbo. Intel (NASDAQ:INTC) is aggressively working to increase computing performance without raising power consumption and plans to include new "turbo" technology on an upcoming generation of chips, it said yesterday at a semi-yearly developers forum. The technology speeds up one core on a multi-core CPU, and compensates by powering down the others. An initial four-processor model for desktop computers is expected to go into production in Q4, with an eight-processor model due in the second half of 2009.
- VeriFone soars on rosy outlook. VeriFone (NYSE:PAY) shares soared 34% in after-hours trading after the company forecast better-than-expected earnings for the next two quarters thanks to growth at its international operations. VeriFone now sees Q3 earnings of $0.34-0.35/share and Q4 earnings of $0.36-0.39/share; analysts had expected $0.29 and $0.31 respectively.
- Heelys rejects Skecher's second bid. Heelys (NASDAQ:HLYS) rejected a second unsolicited takeover bid from Skechers (NYSE:SKX), saying the $142.8M ($5.25/share) bid was still too low. Heelys chairman Gary Martin doesn't rule out the possibility of a deal, but says it would be premature to enter into discussions at this point. Heelys' share price was down $0.05 on Tuesday to $5.30. Skechers fell 4.9% to $18.56.
- Macau gamble looking risky. Casino stocks dropped in Tuesday trade after media reports China may further tighten visa restrictions to Macau - hurting its growing casino and hotel industry. LVS -10.6%. MGM -9.4%. WYNN -4.3%.
- The July Producer Price Index soared 1.2% vs. 0.6% consensus. Core PPI gained a hot 0.7% vs. 0.2% consensus. Year-over-year PPI stands at a screaming 9.8% and core PPI is 3.5%.
- July Housing Starts were 965,000, 5,000 above consensus. Much-watched permits came in at 937K, short of the 970K consensus. Prior numbers were 1,084K and 1,138K respectively.
- ICSC said retail sales were up 0.1% wk/wk and 2.4% from the same week last year. Falling gas prices helped prop up discretionary spending despite weaker traffic. Redbook said U.S. retail sales fell 2% in the first two weeks of August vs. July but rose 1.4% vs. a year ago.
Earnings: Wednesday Before Open
- BJ's Wholesale Club (NYSE:BJ): Q2 EPS of $0.61 beats by $0.04. Revenue of $2.65B in-line. [PR]
- Mentor Graphics (NASDAQ:MENT): Q2 EPS of -$0.02 beats by $0.10. Revenue of $182M vs. $175M. Shares +4.2%. [PR]
Earnings: Tuesday After Close
- Analog Devices (NYSE:ADI): FQ3 EPS of $0.44 misses by $0.01. Revenue of $659M in-line. Sees FQ4 EPS of $0.44-0.46 vs. $0.46. Shares -2.5%. [PR]
- Hewlett-Packard (HPQ): FQ3 EPS of $0.86 beats by $0.03. Revenue of $28.03B vs. $27.41B. Sees FQ4 EPS of $1.01-1.03 vs. $1.00. Shares +2.8%. [PR]
- La-Z-Boy (NYSE:LZB): FQ1 EPS of -$0.05 beats by $0.01. Revenue of $322M (-6.5%) vs. $317M. Shares +0.4%. [PR]
- Open Text (NASDAQ:OTEX): FQ4 EPS of $0.63 beats by $0.05. Revenue of $200M vs. $191M. Shares +3.7%. [PR]
- TJX (NYSE:TJX): Sees 2009 EPS of $2.30-2.35 vs. $2.30. Will sell Bob's stores to private-equity duo Versa Capital Management and Crystal Capital. [PR]
- Veriphone (PAY) sees FQ4 EPS of $0.36-0.39 vs. consensus of $0.21. Sees 2009 EPS of $1.35-1.55 vs. $1.01. Sees revenue of $260-268M vs. $230M. Shares +34.3% AH. [PR]
- Asia markets closed mostly higher, fueled by Shanghai. Nikkei -0.1% to 12,852. Hang Seng +2.18% to 20,931. Shanghai +7.63% to 2,523. BSE Sensex +0.92% to 14,678.
- Europe bourses are up at midday. London +0.95%. Paris +0.55%. Frankfurt +0.42%.
- U.S. futures are higher at 7:10 AM. Dow +0.4%. S&P +0.28%. Nasdaq +0.42%. Crude +0.19% to $114.75. Gold +0.02% to $817.
Wednesday's Economic Calendar
7:00 MBA Mortgage Applications
10:35 EIA Petroleum Status Report
- Notable earnings before Wednesday's open: BJ, EV, MENT, ROST, STP
- Notable earnings after Wednesday's close: BYI, CRM, JDSU, LTD, PVH, SMTC, SNPS
Seeking Alpha editor Rachael Granby contributed to this post.
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