Q3 2009 Earnings Call

October 29, 2009; 11:00 am ET

The Fairholme Fund have bounced back nicely in 2009, showing a 30% gain for the year. Quick summary follows but you can view Berkowitz's portfolio moves in this spreadsheet.

• Their new positions seem to indicate that Berkowitz has changed his mind regarding some lukewarm comments about Berkshire Hathaway's (BRK.A) low growth potential a while back. He added about $150M to BRK.A and BRK.B positions. Fairholme's other notable new position is yet another ode to the equipment rental industry, RSC Holdings (RRR). They already have positions on industry peers, United Rentals (URI) and Hertz Global Holdings (HTZ). Berkowitz has mentioned his attraction to the industry's counter-cyclical free cash flows on numerous occasions.
• The only noteworthy divestiture was Canadian Natural Resources (CNQ). Berkowitz made a great sell call on the energy space near last year's peak (which I should have heeded!) and continues to avoid the space.
• Sizable accumulations during the quarter included the aforementioned HTZ, Humana (HUM), Spirit Aerosystems (SPR) and St Joe (JOE). HUM and SPR seem to be company-specific plays since the fund sold sizable chunks of related players like Boeing (BA), Northrop Grumman (NOC), Wellpoint (WLP) and UnitedHealth Group (UNG). As for JOE, Berkowitz has been a long-time (and long-term) bull on its play in Florida land development and continues to stand by that view with conviction.
• Fairholme decided to book the quick gain on American Express (AXP), reducing that position by over 70% as the stock rose.

Mohnish Pabrai's fund is no longer tracked in the pages of Barron's but I would guess his funds are also rebounding better than the broader market. He held his hand for the most part during the quarter as shown in this spreadsheet of Pabrai's holdings.

As part of a great conversation in the comments over at The Sovereign Speculator, I prepared a list of short-sale candidates meeting the following criteria:

Total assets > 50 * tangible book
EBITDA(ttm) / EV yield less than 5%
Debt > 3 * market cap
Interest coverage ratio MRQ < 1.5

Q2 2009 Earnings Call

July 30, 2009 11:00 am ET

• Reactions to Microhoo. Reactions to the Microsoft (MSFT) and Yahoo (YHOO) search deal announced yesterday have been mixed. Some investors wondered why Yahoo agreed to a deal with no upfront fee, after previously saying any deal would be conditioned on 'a boatload of cash,' and doubts about the deal's benefits to Yahoo helped pull shares down 12% (Microsoft closed up 1.4%, and the deal may mark an important turning point for CEO Steve Ballmer). Still, others felt "dropping the dead weight of search isn’t a horrible idea" for a company that has no realistic chance of beating Google (GOOG). The deal could face antitrust concerns but will likely be approved.
• TARP exit for AmEx. American Express (AXP) has officially exited TARP after repurchasing warrants from the government for $340M. The company said the warrant buyback, along with $74.4M of dividend payments it made, provided taxpayers with an annualized 26% return. Analysts noted the repurchase price was in line with the $1.1B Goldman Sachs (GS) paid, indicating the Treasury has indeed taken a tougher negotiating stance on the warrant purchases in light of congressional pressure.
• FDIC to break up banks. In an effort to entice more buyers, the FDIC is poised to start breaking up failed banks into good and bad pieces. The goal is to sell the most distressed parts of failed banks to private equity firms and other investors that are willing to take a larger risk on bad assets. The 'good' pieces of failed banks, including deposits and branches, could then be sold to traditional banks.
• Sanofi buys out Merck's JV stake. Sanofi-Aventis (SNY) agreed to buy Merck's (MRK) half of their joint Merial animal-health venture for $4B in cash, and said the companies may work together again in the future to form the world’s largest maker of animal treatments. Sanofi and Merck had collaborated on Merial for over ten years, building it into a company with $2.6B in annual sales. The deal should help Merck allay antitrust concerns over its proposed purchase of Schering-Plough (SGP). Premarket: SNY -0.9% (7:00 ET).
• Mortgage fraud probe includes Goldman, Deutsche. A Senate panel reportedly subpoenaed financial firms including Goldman Sachs (GS) and Deutsche Bank (DB) in search of evidence of mortgage fraud during last year's market meltdown. The probe is focused on whether bankers had private doubts about the financial soundness of the mortgage-related securities they were publicly promoting. Washington Mutual, now largely owned by JPMorgan Chase (JPM), may also have been among the firms that received a subpoena.
• Citi advances asset sales. Citigroup (C) is 'moving extremely fast' on asset sales, said CEO Vikram Pandit. Citigroup announced today it had agreed to sell its stake in a Japanese asset management unit to Sumitomo Trust & Banking, Japan’s fifth-largest bank, for ¥112.4B ($1.18B).
• New help for homeowners. The White House is planning to announce new guidelines today to help homeowners struggling with Federal Housing Administration-insured mortgages. The guidelines will narrow the gap between the FHA's mortgage-modification program and the White House's foreclosure-prevention plan, and will "offer borrowers an opportunity to stay in their homes, make payments that are manageable and defer [payment of] the money owed to a later time when, hopefully, home values have improved."
• Fidelity signs IPO pact with Deutsche. Fidelity Investments struck a deal with Deutsche Bank (DB) allowing Fidelity's individual investors to participate in initial public offerings underwritten by Deutsche as of this week. Fidelity reached a similar deal last month with private equity group Kohlberg Kravis Roberts, but the Deutsche deal carries more weight because Deutsche is one of the 10 busiest underwriters of stock offerings in the U.S. For Deutsche, access to Fidelity's customers will broaden the range of IPOs it can land.
• Beige Book sees recession moderating. The Federal Reserve's Beige Book was released yesterday, and noted the recession seems to be growing less severe. Some regions said the downturn's pace has moderated, and others reported that activity is stabilizing. Retail sales are still sluggish, and wages and benefits are steady or falling in most districts. (Read the Fed's Beige Book summary)
• China seeks to reassure on monetary policy. In a volatile day of trading, Chinese stocks managed to close up 1.7% after China's central bank released a statement aimed at calming jittery investors. After the Chinese stock market fell 5% on Wednesday, its largest daily drop in eight months, the central bank pledged to maintain loose monetary policy in order to support an economic recovery and to ensure sustainable credit growth, seemingly without relying on a strict, central bank-directed quota system used in the past.
• Boeing gets squeezed. British Airways (BAIRY.PK) is pressuring Boeing (BA) to renegotiate installment payments on its 787 Dreamliner orders. Predelivery payments can total tens of millions of dollars per jetliner, and as airlines find it increasingly difficult to bankroll the payments, plane makers like Boeing are getting squeezed. In other bad news for Boeing, a contractor said yesterday that the Dreamliner's braking system is still incomplete because of a dispute over who should pay for the work, and S&P downgraded Boeing's credit rating by one notch over concerns of additional production cuts due to airline order deferrals and cancellations.
• PennyMac a few pennies short on IPO. PennyMac Mortgage Investment Trust, the distressed-mortgage investment company run by former Countrywide No. 2 Stanford Kurland and 10 other former Countrywide officials, raised $320M in its initial public offering, $80M less than planned. The company sold 16M shares at $20 each.

Earnings: Thursday Before Open

• AmerisourceBergen (ABC): FQ3 EPS of $0.42 beats by $0.03. Revenue of $18.39B (+2.2%) vs. $18.11B. (PR)
• Aon (AOC): Q2 EPS of $0.76 beats by $0.02. Revenue of $1.9B (-4%) in-line. (PR)
• Art Technology Group (ARTG): Q2 EPS of $0.06 beats by $0.02. Revenue of $44M (+6%) in-line. Shares +3.2% premarket (8:20 ET). (PR)
• AstraZeneca (AZN): Q2 EPS of $1.64 beats by $0.24. Revenue of $8B (+0%) vs. $7.8B. Shares +3.5% premarket (6:40 ET). (AstraZeneca's press release (.pdf))
• Automatic Data Processing (ADP): FQ4 EPS of $0.45 in-line. Revenue of $2.1B (-4.5%) in-line. Issues downside guidance for FY '10, sees EPS of $2.29-2.39 vs. $2.44 consensus, sees revenue down 1-4%, or to roughly $8.51-8.78B, vs. $8.94B consensus. (PR)
• Avon (AVP): Q2 EPS of $0.38 beats by $0.04. Revenue of $2.47B (-9.7%) in-line. (PR)
• Barrick Gold (ABX): Q2 EPS of $0.49 beats by $0.11. Revenue of $2B (+3%) vs. $1.9B. Shares +3.5% premarket (8:10 ET). (PR)
• Becton, Dickinson and Co. (BDX): FQ3 EPS of $1.30 beats by $0.06. Revenue of $1.8B (-2%) in-line. (PR)
• BioCryst Pharmaceuticals (BCRX): Q2 EPS of -$0.23 beats by $0.02. Revenue of $4.8M (+80%) vs. $4.1M. R&D expenses decreased to $11.2M from $13.4M a year ago. (PR)
• CIGNA (CI): Q2 EPS of $1.14 beats by $0.18. Revenue of $4.5B (-8%) vs. $4.8B. (PR)
• Cincinnati Financial (CINF): Q2 EPS of -$0.03 misses by $0.21. Revenue of $874M (-5%) vs. $912M. (PR)
• CMS Energy (CMS): Q2 EPS of $0.26 misses by $0.02. Reaffirms guidance for FY '09, sees EPS of $1.25 vs. $1.27 consensus. (PR)
• Colgate-Palmolive Company (CL): Q2 EPS of $1.07 beats by $0.02. Revenue of $3.75B (-5.5%) in-line. Gross margin increased 2 points to 58.8%, driven by easing raw and packaging material costs, and continued benefit from higher prices already implemented and its ongoing aggressive savings programs. (PR)
• CONSOL Energy (CNX): Q2 EPS of $0.62 misses by $0.19. Revenue of $1.1B (-12%) in-line. (PR)
• Covidien (COV): FQ3 EPS of $0.74 beats by $0.08. Revenue of $2.5B (-3%) in-line. (PR)
• Cummins (CMI): Q2 EPS of $0.30 beats by $0.04. Revenue of $24.3B (+525%) vs. $2.5B. (PR)
• Digital Realty Trust (DLR): Q2 FFO of $0.71 in-line. Revenue of $155M (+25.2%) vs. $161M. (PR)
• Dow Chemical (DOW): Q2 EPS of $0.05 beats by $0.14. Revenue of $11.3B (-40%) vs. $13B. (PR)
• Eastman Kodak (EK): Q2 EPS of -$0.71 misses by $0.34. Revenue of $1.77B (-28.9%) vs. $1.83B. Sees loss from continuing ops at the low end of its previous $200-400M range. Shares -0.9% premarket (8:00 ET). (PR)
• Endo Pharmaceuticals (ENDP): Q2 EPS of $0.73 beats by $0.06. Revenue of $373M (+22%) vs. $358M. (PR)
• ExxonMobil (XOM): Q2 EPS of $0.84 misses by $0.18. Revenue of $74.46B (-46.1%) vs. $71.29M. Production was down 3%. Lower margins reduced earnings by $1B. Shares -1.8% premarket (8:30 ET). (PR (.pdf))
• GrafTech International Ltd (GTI): Q2 EPS of $0.12 beats by $0.08. Revenue of $158M (-51%) vs. $143M. (PR)
• International Paper (IP): Q2 EPS of $0.20 beats by $0.20. Revenue of $5.8B (-0.1%) in-line. (PR)
• Iron Mountain (IRM): Q2 EPS of $0.25 beats by $0.02. Revenue of $746M (-3%) vs. $741M. (PR)
• KBR Inc. (KBR): Q2 EPS of $0.42 beats by $0.01. Revenue of $3.1B (+17%) vs. $2.9B. (PR)
• Kimco Realty (KIM): Q2 EPS of $0.31 misses by $0.01. Revenue of $189M (+3%) in-line. (PR)
• Mack-Cali Realty (CLI): Q2 EPS of $0.87 beats by $0.06. Revenue of $173M (-3%) vs. $167M.
• MasterCard (MA): Q2 EPS of $2.67 beats by $0.25. Revenue of $1.28B (+2.7%) in-line. Net revenue was up 7% on a constant currency basis. Gross dollar volume was down 0.6%; purchase volume was down 0.7%. Shares +7.2% premarket (8:30 ET). (PR)
• Motorola (MOT): Q2 EPS of -$0.01 beats by $0.03. Revenue of $5.5B (-32%) vs. $5.6B. Issues downside guidance for Q4 (Dec), sees EPS of -$0.01 to $0.01 vs. $0.05 consensus. Shares +7.3% premarket (7:45 ET). (PR)
• Mylan (MYL): Q2 EPS of $0.32 beats by $0.02. Revenue of $1.3B (+5%) vs. $1.2B. (PR)
• Newell Rubbermaid (NWL): Q2 EPS of $0.47 beats by $0.12. Revenue of $1.5B (-18%) in-line. (PR)
• Noble Energy (NBL): Q2 EPS of $0.66 beats by $0.11. Revenue of $491M (-59%) vs. $588M. (PR)
• NRG Energy (NRG): Q2 EPS of $1.56 vs. consensus of $0.74 (may not be comparable). Revenue of $2.2B (+70%) vs. $2.1B. (PR)
• NYSE Euronext (NYX): Q2 EPS of $0.51 beats by $0.06. Revenue of $1.1B (+9.5%) in-line. (PR)
• OfficeMax (OMX): Q2 EPS of $0.04 beats by $0.03. Revenue of $1.66B (-16.5%) in-line. "Given the projected weak economic climate and our anticipation of a soft Back-to-School season, OfficeMax remains very cautious in its expectations for the second half of 2009." (PR)
• Oshkosh Truck (OSK): FQ3 EPS of -$0.30 misses by $0.12. Revenue of $1.23B (-36.1%) vs. $1.38B. "For Q4, we expect solid performance from our defense and fire & emergency segments, while we expect that our access equipment and commercial segments will both continue to face tough market conditions." (PR)
• Parker-Hannifin (PH): FQ4 EPS of $0.31 beats by $0.09. Revenue of $2.2B (-34%) in-line. Shares -1% premarket (7:50 ET). (PR)
• Patterson-UTI Energy (PTEN): Q2 EPS of -$0.12 in-line. Revenue of $161M (-69%) vs. $167M. (PR)
• Regal Entertainment Group (RGC): Q2 EPS of $0.26 misses by $0.03. Revenue of $789M (+17%) vs. $769M. (PR)
• Rockwell Collins (COL): FQ3 EPS of $0.91 beats by $0.01. Revenue of $1.1B (-9%) in-line. (PR)
• Royal Dutch Shell (RDS.A): Q2 EPS of $0.62 vs. consensus of $0.93 (may not be comparable). Revenue of $63.9B (-51%) vs. $60.5B. Shares -0.65% premarket (6:50 ET). (PR)
• Sally Beauty (SBH): FQ3 EPS of $0.16 in-line. Revenue of $673M (-0.5%) vs. $684M. (PR)
• Sony (SNE): FQ1 net loss of ¥37.1B ($390M) vs. consensus of -¥110B and vs. a net profit of ¥35B a year ago. Still sees full-year loss of ¥120B. Revenue fell 19% to ¥1.6T. Shares +7.2% premarket (8:10 ET). (DJ)
• Spirit AeroSystems (SPR): Q2 EPS of $0.61 beats by $0.02. Revenue of $1.1B (-0.2%) in-line. Shares +2.3% premarket (8:00 ET). (PR)
• Taiwan Semiconductor (TSM): Q2 EPS of $0.14 beats by $0.01. Revenue of $2.2B (-23%) in-line. (PR)
• Travelers (TRV): Q2 EPS of $1.26 misses by $0.02. Revenue of $6.2B (-2%) in-line. (PR)
• Tyco International (TYC): FQ3 EPS of $0.58 beats by $0.13. Revenue of $4.2B (+0.6%) vs. $4.3B. (PR)
• Ventas (VTR): Q2 FFO of $0.68 beats by $0.06. "Our high-quality, diversified healthcare and seniors housing assets are performing very well due to demographic and need-driven demand." (PR)
• Waste Management (WMI): Q2 EPS of $0.52 misses by $0.02. Revenue of $2.95B (-15.5%) vs. $3B. Company is changing its ticker symbol to WM as of August 5, 2009. Issues downside guidance for FY '09, sees EPS of $1.95-1.99 vs. $2.02 consensus. (PR)
• Xcel Energy (XEL): Q2 EPS of $0.25 in-line. Revenue of $2B (-23%) vs. $2.6B. (PR)

Earnings: Wednesday After Close

• AFLAC (AFL): Q2 EPS of $1.20 beats by $0.06. Revenue of $4.3B (flat) vs. $4.7B. Announced planned acquisition of Continental American for $100M. (PR)
• Agnico-Eagle Mines (AEM): Q2 EPS of $0.01 misses by $0.11. Revenue of $139M (+58%) vs. $126M. EPS includes noncash currency loss of $0.12/share and stock option expense of $0.03/share. (PR)

• Akamai Technologies (AKAM): Q2 EPS of $0.40 misses by $0.01. Revenue of $205M (-2.7%) vs. $211M. (PR)

Q1 2009 Earnings Call

April 30, 2009 11:00 am ET

Q4 2008 Earnings Call

February 26, 2009 11:00 am ET

Based on our proprietary Signal Rank™ methodology, The Manual of Ideas estimates that Bruce Berkowitz’s top three ideas are AmeriCredit (NYSE: ACF), United Rentals (NYSE: URI) and Hertz Global Holdings (NYSE: HTZ). While these companies are not in Fairholme’s top ten holdings by dollar value, our proprietary metrics suggest that those are the stocks in which Bruce Berkowitz may have the highest level of conviction at this time. Please see below for an explanation of the MOI Signal Rank™ methodology.

Our analysis is based on Form 13F-HR filed by Fairholme Capital Management on February 13, 2009. We also consider Fairholme’s past 13F-HR filings, recent 13G and 13D filings as well as the latest market prices of the portfolio holdings.

Q3 2008 Earnings Call

October 29, 2008 11:00 am ET

In their 13F-HR filing for Q2 2008, Bruce Berkowitz and his cohorts at the Fairholme Fund continue their shift from energy into healthcare:

• Fairholme opened huge (relative) positions in Pfizer (PFE), Forest Labs (FRX) and UnitedHealth Group (UNH). The UNH position echos Seth Klarman’s endorsement. I don’t follow the pharma industry too closely but it seems as if Berkowitz traded Glaxo (GSK) and Bristol Meyers Squibb (BMY) for PFE. I’ve been seeing more positive financial press coverage on Pfizer so perhaps momentum is building toward looking past Lipitor’s pending patent expiration. Read his thoughts on PFE here. I took a quick Google Finance look at Forest Labs and that stock looks promising. Great cash flows, rock-solid balance sheet with no debt but maybe some patent and pipeline issues — I’ve added this stock to my watchlist.
• Berkowitz also added substantially to their Sears (SHLD) and United Rentals (URI) positions. Berkowitz’s thoughts on Sears and its chairman, Eddie Lampert, are well-known. SHLD seems to be a pseudo-value-investing watermark position — all the cool kids own it. I’ve glanced at it briefly but haven’t put in the time to value its real estate and branding assets.
• Fairholme continues the reduction of their energy exposure as Berkowitz discussed back in March 2008 on Bloomberg. The Canadian Natural Resources (CNQ) position was reduced significantly and if you watch the interview in the link provided, he talks about costs rising as fast if not faster than revenues for producers like CNQ. In fact, I’ve discussed this aspect of energy investing in the past — what I call the “receding horizon” effect, especially in the oil sands area (which is why I have only backdoor oil sands exposure via Devon). Curiously, he also sold off a good chuck of St Joe’s (JOE), which he had been talking up fairly recently. I don’t know whether the thesis on JOE has changed or if he just saw better opportunities.

Robert Rodriguez oversees the First Pacific Advisors family of funds [FPA], of which he handles the main fund with others running the others. Q2 2008 holdings are revealed for all funds in the latest 13F filing:

Q2 2008 Earnings Call

July 30, 2008 11:00 am ET

• SEC extends naked shorting ban, maybe more to come. The SEC extended the temporary restrictions on naked short selling of 19 financial stocks to Aug. 12. It did not broaden the stock universe covered by the ban, and it said it won't be extended beyond Aug. 12. SEC chief Christopher Cox said that after the current rule expires, the agency will consider rule changes that would focus on the broader market. It is said to be studying numerous ideas. Shares of the 19 firms enjoyed an initial bounce, but many (MER, FNM, LEH) have since fallen and now approach previous lows - calling the ban's efficacy into question.
• Housing market rescue plan gets presidential ok. President Bush signs homeowner / Freddie (FRE) and Fannie (FNM) rescue plan into law. "We look forward to putting in place new authorities to improve confidence and stability in markets, and to provide better oversight for Fannie Mae and Freddie Mac," spokesman Tony Fratto said. The program will allow the FHA to insure up to $300B in refinanced loans for about 400,000 borrowers struggling with monthly payments - after lenders agree to trim the mortgage balance.
• Inconclusive test results send Wyeth and Elan tumbling. Shares of Wyeth (WYE -5%) and Elan (ELN -29%) drop in the pre-market after announcing full results of a mid-stage study of their experimental Alzheimer's treatment (bapineuzumab). They're sticking to a prior decision to move the drug into late-stage trials, but the inconclusive results underwhelmed experts. Concerns include an apparent randomness to the drug's success, 3 deaths of trial participants, and 12 cases of fluid buildup in the brain.
After you finish reading Wall Street BreakfastSeeking Alpha's Market Currentswill keep you current all day long.
• Car lending cutbacks. Dramatic drops in sales of pickups and SUVs has killed their resale value, forcing domestic carmakers to reassess their leasing strategies. Ford (F) raised prices on leased vehicles "due to extreme losses Ford Credit is taking on off-lease vehicles." "If you have any customers that want to lease any of [the affected] vehicles, the time is now," it told dealers in a memo. GM (GM) stopped lending to risky buyers.
• One less charge for UBS. The NY Supreme Court dismissed a lawsuit charging UBS (UBS) with fraudulently earning more that $100M by misusing its knowledge of the trades of one of its hedge funds.
• Tumbling profits. Earnings of the 291 S&P 500 component companies that had reported as of Tuesday have dropped 24% from a year ago; as recently as July 3, analysts predicted a drop of just 11%.
• No place to hide. Economists polled by Reuters didn't have much cheer in their market expectations for G8 nations, calling picking a global market "a bit like choosing between deck chairs on the Titanic." Resource economies are seen as the least-worst; Russia and Canada may benefit from high commodity prices, they said.
• Corporate debt default surge seen. S&P said Tuesday it sees the default rate on high-yield corporate debt rising to 4.9% over the next 12 months - from a current 1.9%.
• WTO talks break up. Global trade talks broke down Tuesday over an obscure but complicated plan to help poor countries protect farmers against import surges. "It's a massive blow to confidence in the global economy," ETC spokesman Peter Power said. (Implications, winners and losers). Still, negotiators said that despite the breakdown, the round of talks was not over. "My initial reaction is not a reaction of throw in the towel," WTO chief Pascal Lamy said.
• ADP: Private employment +9,000 vs. -60,000 consensus. "Though July’s figures showed a slight employment gain, the ... three-month average of -14,000 suggests that the weakened employment situation continues."
• MBA Mortgage Applications: -14.1% vs -6.2% prior.
• Consumer Confidence: 51.9 vs. 50.1 consensus and 51 in June - "suggesting there has been no significant improvement, nor significant deterioration, in business or labor market conditions."
• S&P/CaseShiller: Home prices fell by 15.8% - just less than 16% consensus. Last month: -15.2%. All 20 cities posted declines, including nine record lows, and 10 double-digit drops.
• Redbook: U.S. retail sales rose 1.2% during July's first three weeks, slightly less than the 1.4% forecast.

Earnings: Before Wednesday's Open

• American Tower (AMT): Q2 EPS of $0.12 in-line. Revenue of $394M (+9.8%) in-line. [PR]
• ArcelorMittal (MT): Q2 EPS of $4.19 beats by $1.38. Revenue of $37.84B (+39%) vs. $35.09B. Shares +7.5% in Amsterdam. [PR]
• Avon (AVP): Q2 EPS of $0.55 beats by $0.08. Revenue of $2.71B (+17.5%) vs. $2.6B. [PR]
• Comcast (CMCSA): Q2 EPS of $0.21 misses by $0.02. Revenue of $8.55B (+10.9%) in-line. Shares +0.2%. [PR]
• Corning (GLW): Q2 EPS of $0.49 in-line. Revenue of $1.69B (+19.3%) in-line. Approves $1B share buyback. [PR]
• Garmin (GRMN): Q2 EPS of $0.93 misses by $0.07. Revenue of $912M (+22.9%) vs. $956M. [PR]
• Gartner (IT): Q2 EPS of $0.30 beats by $0.07. Revenue of $344M (+17.5%) vs. $335M. [PR]
• Hess (HES): Q2 EPS of $2.76 in-line. Revenue of $11.72B (+57.9%) vs. 8.39B. Shares [PR]
• Lazard (LAZ): Q2 EPS of $0.54 beats by $0.03. Operating revenue of $494M (+12.4%). [PR]
• Lloyds (LYG): First-half profit falls to £576M ($1.1B), short of the £881M consensus. Bad loans jumped 31% to £1.1B. Lloyds took a £585M writedown on credit-related assets. Shares -4.75% in London.
• Moody's (MCO): Q2 EPS of $0.51 beats by $0.04. Revenue of $488M (-24.5%) vs. $468M. Now sees first-half weakness extending through year-end. [PR]
• Nintendo (NTDOY.PK): FQ1 net profit of ¥107.27B ($992M) vs. ¥83.7B consensus. Sales of ¥423B up 24% from ¥340B. Nintendo sold 5.2M Wiis in Q1, 1.7M more than a year ago. [WSJ]
• Noble Energy (NBL): Q2 EPS of $1.93 misses by $0.15. Revenue of $1.21B (+57.7%) vs. $1.02B. [PR]
• IAC/InterActiveCorp (IACI): Q2 EPS of $0.35 beats by $0.04. Revenue of $1.6B (+6.9%) in-line. [PR]
• Interpublic Group (IPG): Q2 EPS of $0.17 beats by $0.01. Revenue of $1.84B (+11.1%) vs. $1.75B. [PR]
• Office Depot (ODP): Q2 EPS of $0.04 beats by $0.03. Revenue of $3.61B (-0.7%) in-line. [PR]
• Owens Corning (OC): Q2 EPS of $0.25 beats by $0.04. Revenue of $1.57B (+22.8%) vs. $1.41B. [PR]
• Siemens (SI): FQ3 net profit of €1.42B vs. consensus of €948M. Sales of €19.18B (+10%) vs. €18.68B. Shares +4.3%. [MarketWatch]
• SPX Corp. (SPW): Q2 EPS of $1.70 beats by $0.13. Revenue of $1.56B (+28.8%) in-line. [PR]
• Temple-Inland (TIN): Q2 EPS of $0.07 beats by $0.123. Revenue of $991M (-3.1%) vs. $978.5M. Shares +1.15%. [PR]
• Timken (TKR): Q2 EPS of $0.96 beats by $0.03. Revenue of $1.54B (+13.8%) in-line. [PR]
• Tyco Electronics (TEL): FQ3 EPS of $0.70 beats by $0.03. Revenue of $3.91B (+19.7%) vs. $3.8B. [PR]

Earnings: After Tuesday's Close

• Ace (ACE): Q2 EPS of $2.18 beats by $0.28. Net premiums written $3.6B (+16.7%) vs. $3.38B. Shares +1.6%. [PR]
• Chicago Bridge & Iron Company (CBI): Q2 EPS of -$1.47 misses by $-0.16. Revenue of $1.43B (+41.2%) vs. $1.51B. Shares +0.15%. Shares -2.7%. [PR]
• Centex (CTX): FQ1 EPS of -$1.36 misses by $0.25. Revenue of $1.13B (-40.8%) vs. $1.3B. "The housing market worsened in the June quarter, and I don't expect to see it improve this fiscal year." Shares +0.8%. [PR]
• Cephalon (CEPH): Q2 EPS of $1.25 beats by $0.18. Revenue of $485M vs. $470M. Sees Q3 EPS of $1.25-1.35 vs. $1.22. Shares +1.1%. [PR]
• CommScope (CTV): Q2 EPS of $1.00 beats by $0.13. Revenue of $1.09B (+2.1%) in-line. Shares -5.5%. [PR]
• Dreamworks Animation SKG (DWA): Q2 EPS of $0.30 beats by $0.07. Revenue of $141M (-36.7%) vs. $122M. Shares +1.15%. "Q3 results are expected to be driven by Kung Fu Panda's continued box office performance." [PR]
• Electronic Arts (ERTS): FQ1 EPS of -$0.42 misses by $0.09. Revenue of $609M (+41%) vs. $640M. Shares -1.4%. [PR]
• Embarq (EQ): Q2 EPS of $1.38 beats by $0.10. Revenue of $1.55B (-3.5%) in-line. [PR]
• EOG Resources (EOG): Q2 EPS of $2.52 beats by $0.14. Revenue of $1.03B vs. $1.75B. Shares +0.8%. [PR]
• Fiserv (FISV): Q2 EPS of $0.83 beats by $0.04. Revenue of $1.3B (+38%) in-line. [PR]
• FMC Corp. (FMC): Q2 EPS of $1.29 beats by $.011. Revenue of $807M (+22.6%) vs. $726M. Shares +3.5%. [PR]
• Genworth Financial (GNW): Q2 EPS of $0.49 misses by $0.06. Revenue of $2.92B (+3.6%) vs. $3.04B. [PR]
• Hanesbrands (HBI): Q2 EPS of $0.65 misses by $0.03. Revenue of $1.07B (-4.4%) in-line. Shares -18.9%. [PR]
• Integrated Device Technology (IDTI): FQ1 EPS of $0.23 beats by $0.02. Revenue of $188M (-5.4%) vs. $184M. Shares -2.7%. [PR]
• Lam Research (LRCX): FQ4 EPS of $0.60 beats by $0.20. Revenue of $566M (-7.8%) vs. $549M. Shares +1.8%. [PR]
• Lincoln National (LNC): Q2 EPS of $1.32 misses by $0.02. Revenue of $2.58B (+37%) vs. $2.68B. Shares -2.8%. [PR]
• MetLife (MET): Q2 EPS of $1.30 misses by $0.21. Revenue of $13.72B vs. $13.89B. Shares -9.8%. [PR]
• OfficeMax (OMX): Q2 EPS of $0.24 beats by $0.06. Revenue of $1.98B (-6.9%) vs. $2.02B. Shares -9.5%. [PR]
• RF Micro Devices (RFMD): FQ1 EPS of $0.03 beats by $0.02. Revenue of $240.5M (+0%) vs. $237M. Shares +10%.
• Silver Wheaton (SLW): Q2 EPS of $0.10 misses by $0.04. Revenue of $49.7M (+1.5%) vs. $61.25M. Shares -1%. [PR]
• United Rentals (URI): Q2 EPS of $0.62 misses by $0.05. Revenue of $831M (-13.6%) vs. $880M. [PR]
• Viacom (VIA): Q2 EPS of $0.64 beats by $0.05. Revenue of $3.86B (+21.1%) vs. $3.55B. Shares -3.8%. [PR]

Today's Markets

• Asia climbed Wednesday. Nikkei +1.58% to 13,368. Hang Seng +1.94% to 22,691. Shanghai -0.48% to 2,837. BSE +3.59% to 14,287.
• In Europe, markets are broadly higher at midday. London +1.3%. Paris +1.2%. Frankfurt +0.8%.
• Futures: Dow +0.32%. S&P +0.2%. Nasdaq +0.43%. Crude -0.02% to $122.16. Gold -1.13% to $906.

Sentiment has improved noticeably in the options market midday Tuesday. After rallying 1.32 points to 24.23 Monday, the CBOE Volatility Index (.VIX) is down 1.31 to 22.91 midday Tuesday and now not much changed on the week. Meanwhile, approximately 3.8 million call options and 3.2 million puts traded across the US options exchanges during the first half of Tuesday’s trading session. 

Bullish Flow

Here is my initial list of replacement candidates for the third quarter 2008 portfolio reshaping:

AA ACMR ACS ACXM ADP AEM AEO AET AFFM AHL AIB AINV ALL AME AN APA ARP ATWO AVID AVZA AXS AYR BAGL BCPC BDK BGC BHI BJS BKS BLL BP BRO BRS BSET CAM CBI CBK CCK CCRT CDNS CFI CKH CMI COG COLM COMS CPB CRDN CROX CSCO CSL CTB DD DELL DFG DLM DRYS DUK DVN EGLE ENH EP ETP FAST FCX FDRY FITB FLEX FLXS FRPT FRZ FSR FTEK FTO GFF GHM GIL GMT GNK HAIN HAL HAR HAST HCC HCN HCP HELE HK HLYS HNT HNZ HOC HON HRS HRZ HTH INFS IPSU IR IRE ISCA ISYS IVN JCI JNX JOSB KCI KEY KMX KOF LMC LPX LRCX LSTR LZB MAN MAS MCRL MGIC MHK MHP MI MKSI MOT MPS MPWR MWA/A MXGL MYE NBR NBTY NFX NG NM NRG NSHA NTGR NVS NWLIA OC OCR ODP OIS OKE OMAB ONNN ORI OSK OXY PAYX PBI PBY PCZ PHX PKD PKI PPC PPG PRE PRU PTEN PVA PWR PXP PZZA RCII RDC RDK ROP RS RTN SAFM SCX SENEB SFY SGIC SGY SI SII SJM SKM SKX SLB SLGN SNDK SNG SNX SNY SPSS STZ SVR SVU SWN TECUA TEX THOR TLK TMS TPX TRMA TRN TRV TSC TSO TTC TXT UNF UNT URI USU VE VLGEA VLTR VZ WAG WDC WFT WGOV WNC WRB WTI WTIU WTM WY XEL Y ZNT ZZ

Q1 FY08 Earnings Call

April 30, 2008, 11:00 AM ET

United Rentals (URI) is the first company many commercial, industrial, utilities, municipalities, and homeowners think of when they have large projects and need equipment and supplies to complete the job. URI has rental/retail locations in the US, Canada, and Mexico with nearly 700 locations. If you need to rent or purchase equipment such as backhoes, forklifts, compressors, pumps, generators, scissor lifts, boom lifts, pressure washers, water pumps, heaters, hand tools and trench safety equipment, then URI is where you go. It offers over 20K classes of rental equipment and services equipment.

URI also trains customers in specialized work, and offers an entire line of convenient supplies to its customers for their specific needs on the job. Commercial business is 75% of their revenue, while industrial is 15% and homeowners round out the last 10%. URI was a start-up business 10 years ago (founded in 1997) and has grown to a $3.6B+ per year business through acquisitions and internal growth. They compete in a highly fragmented business and have the #1 market share in North America with only 7% (This means lots of opportunity for growth).

Q4 FY07 Earnings Call

February 29, 2008, 11:00 AM ET

Lots of turnover here. 80% of the portfolio is in the top 4 holdings with Bed Bath & Beyond (BBBY) accounting for almost 40%.

Guidance