Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:55 AM EST
S&P 500: +3.10; 1,504.20
NASDAQ 100: +6.25; 1,905.00
Dow: +22.00; 13,270.00
NIKKEI 225: 17,394.92 (05/02)
HANG SENG: +1.44%; 20,681.58 (+293.09)
S&P/ASX 200: +0.13%; 6,245.60 (+7.90)
BSE SENSEX 30: +1.48%; 14,078.21 (+205.84)
FTSE 100: +0.51%; 6,517.60 (+33.10)
CAC 40: +0.19%; 6,001.69 (+11.56)
XETRA-DAX: +0.10%; 7,463.54 (+7.61)
Commodity Futures (Reuters/Jefferies CRB)
Oil: +0.22%; $63.82 (+$0.14)
Gold: +0.33%; $677.30 (+$2.20)
Natural Gas: -0.71%; $7.68 (-$0.06)
Silver: +0.37%; $13.385 (+$0.05)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
Initial Jobless Claims, Productivity and Unit Labor Costs -- All Better Than Expected
Initial unemployment claims dropped a surprising 21,000 to 305,000, the Labor Department reported; economist forecasts had been for a rise of 4,000 claims. Last week's claims were revised from down 20,000 to down 15,000. The four-week average for initial claims fell 4,500 to 328,750. In other unemployment figures, the number of U.S. citizens receiving unemployment benefits fell 93,000 to 2.5 million. The largest increases in initial claims were in Massachusetts (+5,564) and Michigan (+3,451); the largest decrease was in New York (-13,569). Separately, U.S. Q1 productivity climbed surprisingly strongly at an annualized rate of 1.7%, the Labor Department reported, well ahead of economist expectations of 0.8%. Unit labor costs, a much-watched inflation signal, rose at only 0.6% annualized, way below Street expectations of 2.1%. In the manufacturing sector the figures were higher: Productivity was up 2.7% while unit labor costs grew as well at 2.7%.
Sources: Initial Claims release, Productivity release, MarketWatch I, II
Commentary: A Dow 14,000 “Melt-Up” Would Not Surprise Us • Economic Data Shows Room For Hope. Maybe. • Analyst Bearishness Reaches Multi-Year High
Stocks/ETFs to watch: S&P 500 Index (NYSEARCA:SPY), Diamonds Trust Series 1 ETF (NYSEARCA:DIA), iShares Lehman Aggregate Bond (NYSEARCA:AGG)
Hit By Subprime Woes, GM Misses On EPS By a Wide Margin
General Motors missed Wall Street's EPS estimates by a wide margin, largely a result of loses stemming from subprime woes at its partly-owned GMAC financing unit. Excluding a $0.06 a share restructuring charge, EPS would have been $0.17 on revenue of almost $44 billion; that compares to EPS of $1.06 and revenue of $52 billion in the prior year period. Thomson Financial consensus estimates predicted EPS of $0.87 on revenue of $40.9 billion. There were a few positives in the quarter: GM sold a record number of vehicles worldwide at 2.26 million units, adjusted automotive operating cash flow was $300 million and it cut its net loss from N. American operations to $46 million, down from $292 million a year earlier. But GMAC financial Services, of which GM is a 49% owner, cost the company $115 million in the quarter including tax benefits, on non-prime lending woes. Financial services and insurance revenue fell to just under $1 billion from nearly $9 billion a year earlier. Strong overseas results lifted GM's profit to above breakeven. GM shares rose 3.6% to $32.44 in anticipation of earnings yesterday. In pre-market action, shares are flat as of 8:00 A.M. Thursday.
Sources: Bloomberg, MarketWatch, Wall Street Journal, CNN Money [check back later today for GM's conference call transcript]
Commentary: Note to US Auto Manufacturers - Adapt or Die • April U.S. Auto Sales Suffer Worst Decline Since 1998 • GM's Shift to Emerging Markets: Still a Long Way to Go
Stocks/ETFs to watch: General Motors (NYSE:GM). Competitors: Ford (NYSE:F), DaimlerChrysler (DCX), Toyota (NYSE:TM), Honda (NYSE:HMC), Nissan (OTCPK:NSANY)
Conference call transcripts: General Motors Q4 2006 Earnings Call Transcript
Related: GM Investor Relations
Shell Posts Surprise Earnings Beat on Chemicals, Stock Market Gains
Royal Dutch Shell plc, #1 European oil refiner, reported a surprise increase in Q1 income on strong refining revenue, chemical production, and equity portfolio gains. Net profit was up 5.4% to $7.28 billion ($1.15/share). Excluding one-time items, profit was $6.6 billion, way ahead of the $5.61 billion median analyst estimate. ING analyst Jason Kenney: "These numbers are quite phenomenal," adding the real surprise was in its strong chemical revenues; profit at the unit more than tripled to $480 million. Bloomberg reports Shell is the fourth oil major to report higher profits from refining as U.S. consumers pay close to $3/gallon for gasoline. Last week BP reported a 17% drop in profits while ExxonMobil saw a 10% jump. The company said it will resume oil production in Nigeria, where supplies have been inhibited because of militant attacks; it is the country's biggest foreign oil producer. Shell's corporate financing arm reported profits of $801 million (up from $227 million last year) due to the "realization of gains on the sale of the equity portfolio held by the group insurance companies." Oil production was down 6.4% to 3.5 million barrels/day due to lower natural gas production and the Nigerian shutdown. Average selling price was $54.45/barrel vs. $57.39 last year. Shares are up 2% to $72.08 in pre-market trading.
Sources: Press release, Bloomberg, AP
Commentary: Can Royal Dutch Shell's Shale Extraction Technique End 'Peak Oil' Paranoia? • The New Seven Sisters: Today's Most Powerful Energy Companies • Royal Dutch Shell: Growing Investor Interest?
Stocks/ETFs to watch: Royal Dutch Shell (NYSE:RDS.A). Competitors: ExxonMobil Corp. (NYSE:XOM), BP plc (NYSE:BP), ConocoPhillips (NYSE:COP), Chevron Corp. (NYSE:CVX), Total S.A. (NYSE:TOT). ETFs: SPDR Oil & Gas Exploration & Production ETF (NYSEARCA:XOP), iShares Dow Jones U.S. Oil & Gas Exploration/Production (BATS:IEO)
CBS Q1 Net Falls 6%, But Adjusted EPS Beats
CBS reported Q1 net income declined 5.9% to $213.5 million, or $0.28/share, but adjusted EPS from continuing operations of $0.33 (vs. $0.31 last year) topped analysts' average estimate by a penny. Sales rose 2.2% to $3.66b, beating the Street's forecast of $3.62b. A Sanford C. Bernstein analyst commented, "The drivers for CBS right now are network profitability and local station advertising growth." TV revenues increased 2% to $2.6b, while advertising revenues grew 9%, helped by its broadcast of the Super Bowl. Radio sales meanwhile, fell 9% to $398m and 17 small-market stations were sold during the quarter. Outdoor advertising sales rose 2% to $462m and publishing sales climbed 27% to $229m. CBS reported a 17% increase in free cash flow to $752.9m. It said its outlook for revenue and operating income this year is comparable to that of '06. Shares of CBS lost 0.5% to $31.81 during normal trading on Wednesday.
Sources: Press release, Bloomberg, MarketWatch
Commentary: CBS' Video Distribution Deals: Give Quincy Smith A Hand • Viacom Needs to Team Up With Google, Rather Than Sue It • CBS Earnings Conference Call Transcript (later today)
Stocks/ETFs to watch: CBS Corp. (NYSE:CBS), Viacom Inc. (NYSE:VIA). Competitors: Time Warner Inc. (NYSE:TWX), News Corp. (NASDAQ:NWS), Walt Disney Company (NYSE:DIS), Clear Channel Communications Inc. (NYSE:CCU). ETFs: PowerShares Dynamic Media Portfolio ETF (NYSEARCA:PBS), PowerShares Dynamic Leisure & Entertainment (NYSEARCA:PEJ)
UBS AG Misses Forecasts on Hedge Fund Loss, Shares Drop on Downgrade
Swiss bank UBS AG said its Q1 profit dropped 7% to $2.71 billion, falling short of analyst forecasts, because of troubles within its Dillon Read hedge fund. EPS were 1.62 francs ($1.34), down from 1.69 francs a year ago and short of analyst estimates of $1.40/share. The bank announced it would close its Dillon Read Capital Management hedge fund, saying running the fund outside of its investment banking arm was too complex and expensive and that "it did not meet our expectations." UBS will refund third-party investors and move its proprietary funds into its investment banking division. The closure caught the Street by surprise: Florian Esterer of Swisscanto called it an "unbelievable misstep," saying there must have been huge problems, because "Once UBS agrees on a strategy, they normally stick to it." The fund is less than two years old; its $150 million in losses this quarter were related to difficulties in the U.S. subprime lending sector. Morgan Stanley analysts said in a note the closure signals "considerable staff departure risk;" the firm cut its UBS rating to Underweight from Equal-weight. CFO Clive Standish expressed hope that the year would still be one of strong growth, noting all divisions achieved record growth in Q1. Shares are down 5.6% to $61.79 in pre-market trading, representing a $7.1 billion drop in market cap.
Sources: Press release I, II, Bloomberg, MarketWatch, AP, Yahoo Finance
Commentary: UBS: Creative Definition of 'Restricted' • Acquisitions Binge Makes UBS a Sell
Stocks/ETFs to watch: UBS AG (NYSE:UBS). Competitors: Credit Suisse Group (NYSE:CS), Deutsche Bank AG (NYSE:DB), Barclays PLC (NYSE:BCS), ABN Amro Holding N.V. (ABN), Morgan Stanley (NYSE:MS), JPMorgan & Chase Co. (NYSE:JPM), Citigroup Inc. (NYSE:C). ETFs: iShares MSCI Switzerland (NYSEARCA:EWL)
Cablevision Posts Narrower Q1 Loss, In-line with Estimates
Cablevision Systems reported a Q1 net loss of $26.3 million, or $-0.09/share (vs. -0.20/share last year), in-line with analysts' forecast. Sales rose 12.5% to $1.59b, compared to the Street's estimate of $1.58b. Cablevision reiterated its full-year 2007 guidance as follows: total revenue growth and adjusted operating cash flow growth in the mid-teens, basic video subscriber growth of 1%-2%, revenue generating unit net additions of 850k - 950k and capex of $600m - $650m. Bloomberg reports Cablevision's cable customers spent $116.95/month on average during the quarter, or 21% higher than rival Comcast's. An analyst at Buckingham Research commented, "The shares are not trading on fundamentals but on how much the Dolans are willing to pay." Shares of Cablevision jumped 9.9% to $35.90 on Wednesday, following news the company will sell itself to the Dolan family for $10.6b in cash, or $36.26/share. Some investors however, believe the offer is too cheap, such as Mario Gabelli's Gamco Investors -- the firm's second-largest outside shareholder, with an 8.5% stake.
Sources: Press release [pdf], Bloomberg, MarketWatch
Commentary: Dolan Family to Take Cablevision Private for $10.6 Billion; Shares Rise • Comcast and Cable Stocks: Pressured By Apple? • Cablevision Earnings Conference Call Transcript (later today)
Stocks/ETFs to watch: Cablevision Systems Corp. (NYSE:CVC). Competitors: Verizon Communications Inc. (NYSE:VZ), Comcast Corp. (NASDAQ:CMCSA), DirecTV Group Inc. (NYSE:DTV). ETFs: Consumer Discretionary SPDR (NYSEARCA:XLY), PowerShares FTSE RAFI Consumer Services (PRFS)
IBM: New Chip Breakthroughs Bring More Speed and Less Power Usage
IBM is set to announce a new method for developing semiconductor chips using nanotechnology in a self-assembling process described as being similar to how snowflakes form. The benefits include smaller chips sizes and up to a 35% increase in speed, or a 15% reduction in energy consumption. BusinessWeek reports analysts acknowledge the significance of IBM's breakthroughs, saying they could 'fundamentally change the way chips are made and dramatically improve their efficiency.' The report also mentions the timing of IBM's announcement appears deliberate, as Intel will be hosting its annual meeting with analysts. IBM's S. VP of technology says the new chips will probably be ready for use in 2009, and will be licensed to its partners including AMD, Freescale Semi, Sony and Toshiba. The new process involves an advanced polymer used to create millions of air pockets that serve as vacuums, replacing silicon as an insulator. The IBM executive likens it to breaking the code of the holy grail of insulators. Shares of IBM lost 0.9% to $102.22 in normal trading.
Sources: BusinessWeek, Reuters, The Wall Street Journal
Commentary: IBM Steps Up Dividend, Buyback Program • How's Business? Answers from Technology Conference Calls • IBM Announces 3-D Chip Stacking
Stocks/ETFs to watch: International Business Machines (NYSE:IBM), Intel (NASDAQ:INTC), Advanced Micro Devices (NASDAQ:AMD). ETFs: HOLDRS Semiconductors (NYSEARCA:SMH), iShares Goldman Sachs Semiconductor Index Fund (IGW), PowerShares Dynamic Semiconductor (NYSEARCA:PSI), Internet Architecture HOLDRs (NYSE:IAH)
Conference call transcripts: IBM Q1 2007
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Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
The statistics are impressive: 21st advance in 24 days, 17th time this year the Dow reached a new high, Dow 13,000 broken and the S&P 500 at almost 1,500.
Yesterday, it wasn't just earnings that drove the market. It was also more deals and a solid indication that the economy is still growing. After a slow start, buyers emerged at midmorning following the release of the factory orders report, which came in at 3.1% when the Street was expecting 2.1%. That report overcame a pre-opening jobs report indicating that private-sector jobs rose by only 64,000 -- the weakest monthly growth in four years.
There was still much interest in the Dow Jones (DJ)/News Corp. (NWS) deal, especially because of rumors that more bidders for DJ may emerge. In another takeover, Citicorp (C) said that it will buy Bisys Group (BSG), and Cablevision (CVC) rallied on news that it had agreed to be taken private.
As for earnings, yesterday's anticipation that General Motors (GM) would exceed estimates today sent the big automaker higher by more than a point, and MasterCard (NYSE:MA) posted a blowout quarter. YUM! Brands (NYSE:YUM) beat Q1 expectations, and Time Warner (TWX) also beat analysts' estimates.
At the end of the trading day, the Dow Industrials set another new closing high at 13,212, up 76 points, the S&P 500 gained 10 at 1,496 and the Nasdaq was up 26 to close at 2,558. Volume on the NYSE was 1.6 billion shares, and 2.1 billion traded on the Nasdaq. Breadth was positive on both exchanges, at 3-to-1 on the NYSE and 20-to-9 on the Nasdaq.
Crude oil (June contract) fell again, this time by $1.13 to $63.68 a barrel, and the Amex Energy SPDR (NYSEARCA:XLE) gained 64 cents to close at $64.29. Despite the recent fall in crude, the XLE made a new high yesterday -- and this may indicate that gasoline prices will maintain their high levels with the summer travel season approaching.
Gold (June contract) extended its slide by dropping $2.20 to $675.10 per troy ounce, but the Philly Gold and Silver Index [XAU] posted a reversal by advancing $3.60 and closing at $139.92. The XAU stochastic flashed a buy signal, and this could foreshadow the end of the recent decline in that index.
What the Markets Are Saying
Both the U.S. market and the global markets are rising, and the advance in our markets has taken on a very broad base. But even as new highs are being made, many investors are choosing to remain on the sidelines.
Last week, the public bullish-vs.-bearish numbers published by the American Association of Individual Investors [AAII] showed that just 39% of the public is bullish while 38% is bearish. Usually the bulls greatly outnumber the bears -- especially after a big move up like we've seen -- so the public is terrified and generally not participating in this move.
And this week, Investors Intelligence reported that it gleaned from its reading of investment advisers that just 51.7% of them are bullish, and this was a slight increase from the week before when 51.1% were bullish. In other words, the small increase in bullish sentiment shows that there is a great deal of skepticism in the market -- a great contra-indicator. The wall of worry continues to grow and, with it, the likelihood of reaching our long-term Dow Industrials target of 14,300 grows, too.
Today's Trading Landscape
There are several important economic reports due today, including jobless claims (no estimate) and productivity (down to 0.8% from 1.6% expected) at 8:30 a.m. Then at 10 a.m., the Institute for Supply Management's services numbers come in, where 53.5% is expected vs. 52.4% previously.
We'll get earnings announcements today from Checkpoint Systems (NYSE:CKP), Chesapeake Energy (NYSE:CHK), Diana Shipping (NYSE:DSX), Electronic Data Systems (NASDAQ:EDS), International Paper (NYSE:IP) and OfficeMax (NYSE:OMX), among others. General Motors (GM) (read above) just announced that it missed its earnings estimate by 70 cents, and that may drag down prices today. But the overseas markets are strong, especially in Asia, where record highs are being made in Japan, Australia, Singapore and Malaysia, and that might carry over to the U.S. markets as well.
Asian Headlines (via Bloomberg.com)
• Krishnan Makes a $4.6 Billion Offer for Maxis Communications in Malaysia Malaysian billionaire T. Ananda Krishnan offered to buy full control of Maxis Communications Bhd., the country's biggest mobile-phone company, for 15.8 billion ringgit ($4.6 billion) to facilitate its overseas expansion.
• Blackstone, Carlyle May Make $2.2 Billion Bid for Australia's Ten Network Blackstone Group LP and Carlyle Group may join forces to bid as much as A$2.7 billion ($2.2 billion) for Ten Network Holdings Ltd., Australia's third-ranked television broadcaster, two people with knowledge of the matter said.
• Asia May Agree to Pool $2.7 Trillion of Reserves to Avoid Repeat of Crisis Asian finance ministers will this week probably agree to pool part of the region's $2.7 trillion in foreign-exchange holdings to prevent a repeat of the crisis that depleted reserves ten years ago.
• Westpac Bank's First-Half Profit Rises to Record on Lending to Companies Westpac Banking Corp. (NYSE:WBK), Australia's best performing bank stock in the past six months, said first- half profit rose 12 percent to a record after the company increased its market share in corporate lending.
• Morgan Stanley Hires Credit Suisse's Oyarbide to Help Expansion in China Morgan Stanley (MS) hired former Credit Suisse banker Carlos Oyarbide as chief operating officer in China to help expand in the world's fourth-largest economy.
European Headlines (via Bloomberg.com)
• Norilsk Nickel Bids $4.3 Billion for LionOre of Canada, Tops Xstrata Deal OAO GMK Norilsk Nickel (OTCPK:NILSY), the world's largest nickel producer, offered C$4.73 billion ($4.28 billion) for LionOre Mining International Ltd. to break up Xstrata Plc's agreement to buy the Canadian company.
• Unilever Earnings Climb 2.3 Percent; Shares Advance the Most in Four Years Unilever (NYSE:UL), the world's second-largest maker of food and detergent, said first-quarter profit unexpectedly increased as sales grew at the fastest pace since 2005. The shares surged the most in four years.
• BMW's Profit Slides 38 Percent on Cost of New Models, Decline in Dollar Bayerische Motoren Werke AG, the world's largest maker of luxury cars, said first-quarter profit fell 38 percent with the dollar's decline against the euro and the cost to introduce new X5 and Mini models.