Morning Earnings Call

by: Karl Denninger

Thursday morning we got a passel of earnings that I found quite interesting.

Let's start with McDonalds (NYSE:MCD) since everyone loves the American Heart Attack symbol dotting the landscape (just kidding - kinda):

The Oak Brook, Ill.-based fast-food chain said net income fell to $1.09 billion, or 98 cents per share, from $1.19 billion, or $1.04 per share in last year's quarter.

Excluding a 10-cent-per-share gain a year ago from the sale of McDonald's minority interest in Pret A Manger, the company earned 94 cents per share in the 2008 quarter.

That's a bit of a miss. Same-store sales, however, were bright, rising 4.8% globally and 3.5% in the US. Revenue was down 7% but this was blamed on currency translation - I'll buy that explanation given the same-store sales numbers.

One thing I've commented on in the past is that McDonalds has over the last few years gone from "a cheap place to stuff your face right now" to a "moderately cheap place to stuff your face right now." More to the point I distinctly recall 99 cent quarter-pounders (another 20 cents for the cheese) and 99 cent Cokes, leading to a $2 meal (even if it did set you up for $250,000 bypass surgery 20 years later!) I confess to eating many of those $2 lunches.

Try that today; although the company has brought the "McDouble" back in most outlets at a buck its not a quarter pounder, and the drinks, well, consider that a fountain drink costs the company more for the cup than the soda in it. Nice margin.

Point being that people expected significantly-stronger same-store sales from the company's coffee push and the "trade down" effect but it looks like while their coffee bar concept is working the "trade down" may be going all the way down to Americans' kitchens, instead of stopping at McDonalds! Shares are under a bit of pressure this morning.

3M (NYSE:MMM) was indicated significantly higher Thursdsay morning after reporting earnings that were down 15.8% - a beat of expectations, however, at $1.12/share .vs. estimates of 94 cents. Revenues were off 15% though, although the company did raise estimates for full-year results based on stronger health-care and consumer electronics expectations. The latter looks more like seasonal demand and a shift toward "eco-friendly" products (3M makes components that go into LCD panels) and the former due to H1N1 (Swine Flu) - specifically, the firm's line of surgical masks that have flown off shelves worldwide. Expect the latter to get even more legs if the flu bites hard in Round #2 this fall and winter in the US (an outcome that I am expecting, sadly.)

AT&T (NYSE:T) continued the trend with a report of 54 cents a share down from 63 last year, but again, three cents ahead of a bar placed on the ground and easily walked over. More troubling was the fact that AT&T added 1.4 million net subscribers, most of them contract (1.2 million) but revenue declined by 0.45 percent. In other words the subsidies for the iPhone and operating expenses are not being cut fast enough to keep up with what looks like a decline in ARPU. That's going to bite them in coming quarters if they don't do something about it, and "doing something about it" is likely to prove difficult. The street reaction was to pop the stock somewhat pre-market, but I'd be very cautious here - the big attraction in this stock appears to be the dividend which is a rich 6.7% at yesterday's closing price - if they can maintain it.

Finally, UPS (NYSE:UPS). You can't like this; profit was down by nearly 50% on a yearly-comparison basis to 44 cents, adjusted reported as 49, a "meet" on expectations. But revenue was down to 10.83 billion from 13.0 billion a year earlier, continuing the trend of significant revenue declines. Their CEO said:

Declines in both our domestic and international businesses appear to be stabilizing but volumes will remain significantly below last year's levels.

Yeah, not good; volume was down across the board both domestic and international. The stock got hit a bit - down about a buck and a half premarket.

UPS' report should make one wonder about Amazon (NASDAQ:AMZN), due out this evening. Nearly everything that they sell ships via UPS; the stock has been skyrocketing and eBAY's (NASDAQ:EBAY) results last night (which I didn't think was all that great) ramped them even higher in the aftermarket. If Amazon surprises to the downside things get interesting fast, and those UPS numbers certainly should make one wonder..... we'll see what we get after the market today.

Also due out after the bell is Broadcom (BRCM); given Qualcomm's (NASDAQ:QCOM) results (one of their competitors) and the market's reaction (pretty bad) this is also an earnings report I will be watching for. I consider Broadcom to be one of the best-run firms out there in the custom hybrid ASIC market - an essential component of high-tech communications devices (cellphones and similar), and they've also been on an absolute tear stock wise the last couple of weeks. Last night in my technical video (available to gold donors on the forum at I mentioned that I might be inclined to put on a bearish put spread or even short Broadcom outright Thursday ahead of earnings - I'll be watching their price action closely today and if we get yet another Nasdaq ramp job I'm likely to enter that trade today going into the bell.

Disclosure: No direct positions in any of the mentioned companies; contemplating a bearish play on Broadcom today.