Q3 2009 Earnings Call

October 16, 2009 8:30 am ET

• Google goes for growth. Encouraged by a stronger economy and uplifting third-quarter profits, Google (GOOG) said it is gearing up for expansion. "While there is a lot of uncertainty about the pace of economic recovery, we believe the worst of the recession is behind us and now feel confident about investing heavily in our future," said CEO Eric Schmidt. The Internet search company said on Thursday that third-quarter revenue rose 7% over last year's same period, to $5.94 billion, as Internet advertising business brightened. Net income jumped 27% to $1.6 billion from a year ago. Google shares rose in after-hours trading. (read Google's Q3 earnings call transcript)
• U.S. calls on China to loosen up. The U.S. Treasury took a fresh swipe at China's currency policy, saying in a semiannual report released Thursday that, "Both the rigidity of the renminbi and the reacceleration of reserve accumulation are serious concerns which should be corrected to help ensure a stronger, more balanced global economy consistent with the G-20 framework." Treasury, which stopped short of accusing China of manipulating its currency, said it continues to believe the renminbi is "undervalued." The G-20 framework calls for sustaining global growth and smoothing trade and investment flows.
• Music merger in antitrust showdown. Ticketmaster Entertainment Inc. (TKTM) and Live Nation (LYV) are facing intense antitrust scrutiny for their proposed merger, announced in February, and may be forced to make concessions to complete the deal, sources say. The outcome could have potential repercussions for other high-profile deals such as Comcast’s (CMCSA) proposal to take a majority stake in General Electric’s (GE) NBC Universal. Ticketmaster and Live Nation, which have a combined stock-market value of $1.3B, had planned to close the deal by the end of this year. But the U.S. Justice Department may not rule before late November or 2010. The deal marks the first high-profile merger to come up for antitrust review during the Obama administration, which has vowed to take a tough antitrust stance.
• Ken's annus horribilis. Embattled Bank of America (BAC) CEO Ken Lewis, already facing a slew of woes, now must forfeit his entire bonus and salary for 2009. U.S. pay czar Kenneth Feinberg said Lewis should pay back the $1M he has already received and give up the rest of his $1.5M pay for 2009. Lewis is bowing to Feinberg's demand, saying it's "not in the best interest of Bank of America for him to get involved in a dispute with the paymaster." However, Lewis – who is leaving this year – will be able to keep his retirement pay, currently worth between $69.3M and $120M.
• Telephone partnership loosing connection? Nokia (NOK), the world’s largest phone maker, has raised questions about its commitment to Nokia Siemens Networks, after carving more than $1B off the value of its telephone-network venture with Siemens AG (SI) on Thursday, essentially wiping out all of the JV’s goodwill. Some say the writedown may be in preparation for a sale. The partnership saw its market share fall to 20% in Q2 from 26% a year earlier, while rival Ericsson (ERIC) is out in front with 32%. Nokia Siemens posted losses of more than €1.6B in the previous two years.
• U.S. will hold world back - Soros. Billionaire investor George Soros says the U.S. will be a drag on world growth, and that the U.S. dollar ought to be falling against the Chinese yuan to allow the U.S. to contain its current-account deficit. Soros said Thursday that the world's current "currency arrangements" are fraught with danger and that the world needs global regulation.
• CVC derails Express deal. CVC Capital Partners slammed the brakes on plans to buy Britain's bus and rail company, National Express, for $1.3B. The buyout firm provided no reason, saying only that it and Spain's Cosmen family, the transport company's biggest investor, won't press ahead. London's Takeover Panel said today was the "put up or shut up" deadline to make a firm offer or walk away for at least six months. National Express, which will now explore a stock sale, saw its shares plunge as much as 33% in London trading.
• Historic pay package lives on. Lazard CEO Bruce Wasserstein, who died this week, was notorious for his blockbuster hostile takeovers. Now, he is achieving fresh notoriety for the enormous pay he commanded. Some 4.4M restricted stock units he held – worth $188M at today's prices – will be vested due to his death. The payout makes the legendary CEO one of history's most richly compensated investment bankers, at a time when Wall Street chieftains are under fire for taking outsized pay packages. Wasserstein's 2008 pay package was worth $20.4 million, most of it in restricted stock.
• ... while Goldman plays it down. As the Wall Street bonus controversy blazes on, Goldman plunked a smaller chunk of revenue into its compensation pool. But employees need not cinch their belts: they are still on track to pocket an average of $630,000 each – rivaling record bonuses in 2007. Goldman has already set aside some $16.7B for bonuses this year, and looks headed toward the $20B mark. The firm may be hoping its recent show of austerity will quiet critics, but numbers like these make that unlikely.
• Manufacturing continues to fuel U.S. growth. Manufacturing gains are catalyzing U.S. economic growth, today’s latest September Industrial production numbers is expected to show. Economists expect industrial production to climb for a third consecutive month, with output at factories, mines and utilities up 0.2% following increases of 0.8% and 1% in August and July. However, another report may show that consumer sentiment has moderated following the highest level it has seen in more than a year (see today's economic calendar below).
• Mixed messages from industry. New York State manfacturing took a big turn for the better, with the NY Fed's Empire State Manufacturing Survey jumping to 34.57 vs. 18.88 last month and 19 expected - the highest level in 5 years. Employment index jumped to 10.4 from -8.3 last month. New orders surged to 30.8 from 19.8. Meanwhile, in Philadelphia the recovery was less apparent, with the Philly Fed's Business Outlook survey dropping to 11.5 vs. 14.1 last month and consensus of 12. Employment index -6.8 vs. -14.3 last month. New orders moved up to 6.2 from 3.3. Shipments were 3.3 vs. 8.2. Inventories fell to -31.8 vs. -18.1.
• Job losses moderate. Weekly jobless claims fell to the lowest level since early January, dropping to 514,000 from 524K last week, just short of the 515K economists predicted. Continuing claims fell by 75K to 5.991M from 6.067M.

Earnings: Fri. Before Open

• Bank of America (BAC): Q3 EPS of -$0.26 misses by $0.05. Revenue of $26.04B (+32.7%) vs. $27.61B. Adds $2.1B to credit loss reserves. "Obviously, credit costs remain high, and that is our major financial challenge going forward. However, we are heartened by early positive signs, such as the leveling of delinquencies among our credit card customers." (PR)
• GE (GE): Q3 EPS of $0.27 beats by $0.07. Revenue of $37.8B (-20%) vs. $40.03B. CEO Jeff Immelt on GE Capital: "While it remains a tough environment for GE Capital, we are seeing signs of stabilization. Every segment at GE Capital was profitable with the exception of Real Estate, which is experiencing a tough environment but where we believe the risks are well understood and manageable." (PR)
• First Horizon National (FHN): Q3 EPS of -$0.24 beats by $0.08. Revenue of $495M (-6.4%) vs. $504M. (PR)
• Halliburton (HAL): Q3 EPS of $0.31 beats by $0.05. Revenue of $3.59B vs. $3.42B. "Overall market dynamics remained difficult in North America... Although I am more confident in our view of the international markets than I was last quarter, project deferrals together with pricing pressure, driven by our customers’ desire to reduce input costs, cause us to continue to expect a softer near-term margin outlook for international markets." (PR)
• Mattel (MAT): Q3 EPS of $0.63 in-line. Revenue of $1.79B (-8.2%) in-line. ""As expected, revenues continue to be challenging this year due to the overall economic environment, retailers tightly managing inventory, foreign exchange rates and the lack of entertainment-inspired toy lines." (PR)

Earnings: Thur. After Close

• Advanced Micro Devices (AMD): Q3 EPS of -$0.26 beats by $0.16. Revenue of $1.4B (-22%) vs. $1.26B. Sees Q4 product revenue up modestly. Shares -3.7% AH. (PR)
• Google (GOOG): Q3 EPS of $5.89 beats by $0.47. Revenue of $4.38B (+7%) vs. $4.24B. Paid clicks +14%; cost per click -6%. "While there is a lot of uncertainty about the pace of economic recovery, we believe the worst of the recession is behind us and now feel confident about investing heavily in our future." Shares +3.6% premarket. (PR)
• IBM (IBM): Q3 EPS of $2.40 beats by $0.02. Revenue of $23.6B (-7%) vs. $23.4B. Raises full-year EPS guidance to at least $9.85 from $9.70, vs. $9.78. "We saw improved revenue trends in our business and share gains in software and hardware." Remains "well ahead of pace" for 2010 roadmap of $10-$11/share. Shares -3.9% AH. (PR)
• People's Bank (PBCT): Q3 EPS of $0.08 in-line. Net interest income of $145M (-9%). Shares -1.5% AH. (PR)
• Tempur-Pedic International (TPX): Q3 EPS of $0.34 beats by $0.08. Revenue of $224M (-11%) vs. $196M. Shares +12.7% AH. (PR)

Today's Markets

Asian markets were mixed Friday. European stocks have added modest gains, while futures are flat as investors await another batch of big-name Q3 earnings reports.

Mattel

Guidance

Analysts are looking for EPS of 63c on revenue of $1.78B. The consensus range is 58c-67c for EPS, and revenue of $1.7B-$1.83B, according to First Call. In July the company forecast net savings of $40M-$50M evenly spread in Q3 and Q4, and said it hadn't made a decision on price increases for spring toys. The company is currently executing a cost-cutting plan and looks to save $180M-$200M over two years.

MONDAY:

Mattel Inc. (MAT) is expected to release its third quarter results on Oct 16. The Zacks Consensus Estimate is pegged at 64 cents per share. The company had reported earnings of 66 cents per share in the year-ago period.

Mattel’s second quarter earnings of 6 cents per share were 4 cents, ahead of the Zacks Consensus Estimate. Despite a significant drop in sales in the quarter, quarterly results were ahead of estimates as the company benefited from cost containment measures.

Not such a good week!

Last week was FANTASTIC. We had 28 winning trades out of 36 with an average gain of 42% on the winners and an average loss of 12% on the losers - now THAT’S A GOOD WEEK. We were stopped out of most of our bearish trades on Monday but we took a lot of new ones, which I’ll get into later... Of course, since we are rangish and play both ends, the good news is we still had our "losers" and puts that we sold on long positions. Those turned into huge winners in just 5 days:

By Hao Jin

One of the most popular ways for investors to select stocks is to focus on companies with long track records of increasing dividends. On Feb 27, 2009, General Electric (GE), once the most prominent dividend aristocrat, cut its dividend 68%, the first time since 1938.

One of the most popular ways for investors to select stocks is to focus on companies with long track records of increasing dividends. On Feb 27, 2009, General Electric (GE), once the most prominent dividend aristocrat, cut its dividend 68%, the first time since 1938. Who might be next?

I examined four types of high dividend stocks. Please note all these companies have great balance sheets, greater than 3.5% yield, low P/Es, and low short ratios.

By David Russell

At least one investor is bullish on Mattel (MAT) and apparently thinks that the toymaker will keep climbing through early 2010.

Bullish Calls:

Atmos Energy (ATO), Dominion Resources (D): "That's a sign of strength (at a 52-week high), but since I buy utilities based on yield, I prefer Dominion right here."

4:04 PM, Jul 17, 2009 --

• DJIA up 31.74 (0.3%) to 8,743.56.
• S&P 500 down 0.37 (0.04%) to 940.37.
• Nasdaq up 1.58 (0.08%) to 1,886.61.

GLOBAL SENTIMENT

Q2 2009 Earnings Call

July 17, 2009 8:30 am ET

• Last gasps from CIT. Stating the obvious, Fitch Ratings said a "default of some kind appears imminent or inevitable" for CIT Group (CIT), and cut CIT's credit rating seven notches to C. CIT continues to 'evaluate alternatives' and look for $2-3B of private financing, while bondholders were discussing a plan last night to swap $5B in debt for equity. The lender's retail and manufacturing customers were less than reassured, and some companies stopped shipments ahead of an expected bankruptcy-related cash shortage. Sources reiterated a bankruptcy filing could come as soon as this morning.
• GE's profits shrink. Q2 profits at GE (GE) plunged 47%, exceeding analysts’ estimates (see below); GE's finance and media units dragged down aggregate performance. GE shares are down 56% over the past 12 months as investors fret its exposure to credit market losses, complicated by the loss of its coveted AAA rating, and after it cut its dividend for the first time in 60 years. CEO Jeff Immelt called the results "solid," and said GE is working to control costs and maintain its backlog, and is focusing on higher-margin services.
• Google beats but sales slow. Google (GOOG) posted better-than-expected earnings (see details below) but also reported slowing sales, suggesting a tech sector bounceback may take longer than some investors anticipated. Sales were up 2.9% for the quarter vs. a 6.2% gain in Q1. Google also received lower prices for its ads.
• Little learned in Paulson testimony. Former Treasury Secretary Henry Paulson testified in Congress yesterday on the government's role in the Bank of America (BAC) merger with Merrill Lynch, and said he acted appropriately in warning CEO Ken Lewis he could lose his job if he backed out of the deal. The hearing produced plenty of grandstanding as lawmakers angrily attacked Paulson but shed little light on what actually happened. (Read Paulson's testimony (.pdf))
• The Roubini rally. "Dr. Doom" Nouriel Roubini was surprised by media reports that he had improved his economic outlook and expected the recession to end this year, positive comments that helped lift stock markets. Roubini said his views haven't changed and that his comments were likely taken out of context. He does not expect any economic growth before the end of the year and forecasts "a shallow, below-par and below-trend recovery where growth will average about 1% in the next couple of years."
• RHJ bids $388M for Opel. In an attempt to beat out Magna International (MGA), RHJ International has submitted a formal bid for General Motor's Opel unit. RHJ wants to buy a 50.1% stake for €275M ($387.6M) and plans to initiate production cutbacks and pay cuts. The offer requires €3.8B in government guarantees, vs. the €4.5B Magna requested.
• House fights for auto dealerships. The House of Representatives approved a plan to force General Motors and Chrysler to restore agreements with dealerships that were cut loose during bankruptcy proceedings. The measure, which Obama opposes, passed with a fairly split vote of 219-208 and next goes to the Senate where its fate is unclear. Senate Majority Leader Harry Reid said plainly "when you have a bankruptcy, there are winners and losers,” which is "unfortunate, but that’s the way bankruptcy courts operate.”
• Berkshire is the mysterious 'Party M.' Berkshire Hathaway (BRK.A) is reportedly the secret 'Party M' mentioned in regulatory filings that offered $1.7B in cash to buy reinsurer IPC Holdings (IPCR) earlier this month. IPC ultimately rejected that bid in favor of a lower stock-and-cash offer from Validus Holdings (VR).
• IBM raises outlook. IBM (IBM) beat analysts' forecasts with its Q2 earnings (see details below) and sharply raised its full-year outlook. The company now expects 2009 earnings of at least $9.70 per share, up from $9.20 per share, as it benefits from its focus on higher-margin businesses in software and services. Despite a pullback in corporate spending, the company says it's well ahead of its plan to reach earnings of $10-11 per share in 2010.
• Jobless claims fall. Initial jobless claims came in at 522K, down 47K from a week ago (revised), better than the 535K consensus and the lowest since January. Continuing claims fell 642K to 6.27M.
• NAHB index pulls up. NAHB's homebuilder sentiment index rose to 17, the highest since last September and not far from the readings seen in late 2007. Though it's a marked improvement over January's all-time low of 8, anything below 50 is considered negative.
• Treasury International Capital. In May, net foreign purchases of long-term securities were -$19.8B, with foreigners picking up $7.9B in U.S. securities, and Americans buying $27.7B in foreign securities. Foreign holdings of T-bills were up by $53.1B.
• Philly business outlook. The Philadelphia Fed's Business Outlook registered -7.5, down from -2.2. The index has been negative for 19 of the past 20 months. The six-month activity index also fell, from 60.1 to 51.9.

Earnings: Friday Before Open

• Bank of America (BAC): Q2 EPS of $0.33 beats by $0.05. Revenue of $32.77B vs. $33.10B. Tier 1 ratio 11.93%. (PR)
• GE (GE): Q2 EPS of $0.26 beats by $0.03. Revenue of $39.08B (-16.6%) vs. $42.16B. 13% growth at Energy Infrastructure was more than offset by an 80% decline at Capital Finance and a 41% decrease at NBC Universal. Tier 1 ratio was 7.4%. Believes its share in stimulus-based projects, which has been limited, will increase in H2. (PR)
• First Horizon (FHN): Q2 EPS of -$0.58 misses by $0.25. Revenue of $491M (-18.7%) vs. $566M. Tier 1 ratio 9.5%. Provision for loan losses decreased to $260M from $300M in Q1. Net chargeoff ratio increased to 4.77% from 3.97% in Q1. (PR)
• Mattel (MAT): Q2 EPS of $0.06 beats by $0.06. Revenue of $898M (-19.3%) vs. $970M. (PR)

Earnings: Thursday After Close

• Cytec Industries (CYT): Q2 EPS of -$0.01 misses by $0.02. Revenue of $685M (-32%) vs. $660M. Sees FY09 EPS of $0.60-0.90 vs. $0.69. (PR)
• Google (GOOG): Q2 EPS of $5.36 beats by $0.27. Revenue of $4.1B ex-traffic acquisition costs (+3%) in-line. Y/Y: Site revenues up 3%; network revenues up 2%; paid clicks up 15%. (PR)
• IBM (IBM): Q2 EPS of $2.32 beats by $0.30. Revenue of $23.3B (-13%) vs. $23.6B. Sees FY09 EPS of at least $9.70 (had seen $9.20) vs. $9.15. (PR)
• People's United Financial (PBCT): Q2 EPS of $0.08 beats by $0.02. Net interest income of $142M. (PR)
• Tempur-Pedic International (TPX): Q2 EPS of $0.22 beats by $0.04. Revenue of $185M (-22%) vs. $173M. Reaffirms FY09 EPS of $0.70-0.90 vs. $0.79 and FY09 revenues of $700M-740M vs. $719M. (PR)

Today's Markets

Strong gains in Asia and Europe overnight, but futures are hugging breakeven.

Mattel

Guidance

Analysts are looking for EPS to be break even on revenue of $969.7M. The consensus range is (6c)-3c for EPS, and revenue of $899.8M-$1.04B, according to First Call.

This is the 1st Quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings series preface.

Next up on our series is Galleon Group. Galleon was founded by Raj Rajaratnam in 1997 and currently manages in excess of $7 billion. Raj previously worked for Needham & Company and when he left was responsible for a compounded rate of return of 37% over 4 years while overseeing $250 million. Raj received both a Bsc in Engineering and an MBA in Finance from the University of Pennsylvania. Galleon Group's Buccaneer fund was up 13.39% as of late February 2009. Additionally, its Diversified fund was up 9.87% through the same time period, as noted in our January & February hedge fund performances (March '09 numbers here). We'll be posting up more recent metrics here soon.

McDonald’s (MCD) beats street estimates, posting a 3.5% gain in earnings and a stellar 4.3% gain in same-store sales. So would you expect the stock to lose two percent at the opening bell? Not.

Micky D’s recovered from its opening-bell decline, and even posted a modest gain through the day yesterday, while other companies, like AT&T (T) – which also reported good earnings – are up slightly. But sometimes, even though companies have good news, nothing happens – or they even take an earnings-day hit. And if it’s bad news, well, then reach for the sky. So what’s the deal?

Of the 105 S&P 500 companies that have reported since Alcoa kicked off earnings season, 65% have beaten analyst estimates. But price reaction following earnings reports is the ultimate tell of whether or not investors liked the report. Below we highlight the 25 most positive and negative 1-day price moves for S&P 500 companies that have reported earnings this season. For companies that report after the close, we use the next day's change, and for companies that report before the open, we use that day's change.

As shown, Bed Bath and Beyond (BBBY) has gone up the most on its earnings at 24.26%, followed by USB, STT, CMA, MAT, COH, and AKS. Bank of America (BAC) has had the most negative reaction to its earnings report with a decline of 24.34% on its report day. NYT, ZION, GS, and BTU round out the worst five performers on earnings so far this reporting period.

MARKET DIRECTION

Stocks clung to modest late-afternoon gains, closing higher and allowing the major averages to log their sixth consecutive winning week. It's the best streak since May 2007. The Dow Jones Industrial Average closes up 0.6% for the week and finishes at a two-month high. The S&P 500 is up 1.5% this week.