Wall Street Breakfast

by: SA Editors
SA Editors
Seeking Alpha's flagship daily business news summary, gives you a rapid overview of the day's key financial news. It is published before 7:00 AM ET every market day and delivered to over 900,000 email subscribers.


Realtors More Pessimistic on Home Sales

The sharpest U.S. housing downturn in 16 years appears to be getting worse as the National Association of Realtors on Wednesday predicted a greater-than-expected 2007 drop in existing home sales. The trade group of real estate agents now says existing home sales will drop 11% from 2006 levels to a five-year low, coming in at 5.78M units -- down from 6.48M last year and below the 5.92M it forecast last month. It would be the lowest annual sales number since 2002 when 5.63M units were sold. The October report marked the eighth straight downward revision for the group and the 10th time this year it had lowered some part of its monthly forecast. New-home sales are expected to fall 24% to 805,000 this year from 1.05M in 2006, which would be the worst level since 804,000 newly constructed homes were sold in 1997. The group expects existing home sales to climb to 6.12M in 2008, which is 2.4% below its September forecast, while 752,000 new homes are expected to be sold next year. The "good" news is that it now expects the national median sales price for existing homes to drop just 1.3% to $219,000 rather than the 1.7% decline it had predicted last month. The median price for sales of new homes is expected to drop 2.1% to $241,400.
Sources: AP, Bloomberg
Commentary: Housing Market in DesperationHome Sales Hit New Lows, Market Believes It's All Priced InA Robust Segment of the Housing Market

Greenspan: Credit Crunch Will Take Toll

Former Fed Chairman Alan Greenspan said Wednesday the credit crunch will have an effect on the U.S. economy, and put the odds of a recession at somewhat less than 50:50. "The critical question is the price level of homes in the United States, which are almost certainly going to fall," he said at the World Business Forum in New York. Depending on how long it lasts, the housing slump could eventually force consumers to restrain their spending. If stock prices continue to rise, though, the odds against a recession will continue to improve. Greenspan called the credit crunch "an accident waiting to happen" in view of the low level of credit spreads that prevailed for so long. "If it wasn't subprime, it would have been something else," he said. Some hold Greenspan accountable for the housing bubble and the perceived erosion of fiscal discipline in Washington. In related news, Reuters reported that information leaked from the International Monetary Fund indicates that the Fund has revised its 2008 projections for the U.S. economy downward to 1.9% from the 2.8% it forecast in July.
Sources: International Herald Tribune, Reuters I, II, Forbes
Commentary: Economists Reduce 2008 Growth Outlook for Third TimePoole: Markets Stabilizing But Fragile; Yellen: I'm Open To More Rate MovesUnderstanding Greenspan
Stocks/ETFs to watch: SPY, DIA, QQQQ

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Lam Research Higher on FQ1 Sales Beat

Semiconductor equipment maker Lam Research reported selected financial results for its fiscal first quarter on Wednesday, omitting details of its bottom line due to an ongoing internal review of its stock option granting practices. Sales for the quarter rose 13% to $684.6 million, topping analyst expectations of $675.8M. Operating income grew 2% to $197.9M. However, gross margin declined to 50.2% from 51.8% last year, while shipments were down 11% sequentially to $621M. During Lam's earnings conference call, CEO Steve Newberry said current quarter revenue is expected to be in the range of $580M to $600M, which is consistent with prior calendar year 2007 guidance for 15% to 20% growth, but short of the $613.5M analysts' had forecasted (full transcript). Ahead of Lam's earnings release, Stifel Nicolaus analyst Patrick Ho commented, "We continue to hold a very favorable fundamental stance on the company, barring any extraneous implications from the investigation, in terms of its market share position and its business model." Shares of Lam Research gained 2.3% to $55.01 during the regular session Wednesday and added another 0.6% to $55.35 in extended trading.
Sources: Press release, MarketWatch, TheStreet.com
Commentary: LAM Research Mixed ResultsValue In Growth At Semis Lam Research, Verigy Inc.Semi Equipment Downturn Still Misunderstood
Stocks/ETFs to watch: LRCX. Competitors: AMAT, NVLS


Google Leads in Global Search, But Rivals Are on Radar

On Wednesday, comScore released its first-ever worldwide search patterns report, which indicates that while Google remains the go-to search engine for most users in the world, China's Baidu.com and South Korea's NHN Corp. have managed to crack the top five. The comScore qSearch 2.0 service shows that over 37.1 billion searches went through Google in August, representing about 60% of all searches. That figure beat Google's 50% U.S. result for that month. Yahoo was a distant second with 8.5 billion, followed by Baidu with 3.3 billion, Microsoft with 2.2 billion and NHN with 2 billion. Though the figures offer what Danny Sullivan, editor-in-chief of Search Engine Land, calls "an extremely rough guide" to the state of the industry, they are not believed to provide a financial picture. "This is a data set that investors understand has its useful purpose, and predicting quarterly (financial) results is not its useful purpose," said Rob Sanderson of American Technology Research. Still, comScore's new computational method "more accurately measures search traffic sources that are core to customer engagement and enables advertisers to get the most out of search," according to Brad Goldberg, general manager of search marketing at Microsoft’s search unit.
Sources: comScore press release, AP, ZDNet, Barron's, News.com.au
Commentary: Back-to-School Lifts September Search VolumeGoogle Hits All-Time High on Continued Search Gains, Analyst NotesBaidu: Beware Downside Risk
Stocks/ETFs to watch: GOOG, BIDU, YHOO, MSFT. ETFs: HHH, FDN
Earnings call transcript: Baidu.com Q2 2007, Google Q2 2007, Microsoft F4Q07, Yahoo! Q2 2007


GE May Sell NBC After Olympics -- FT

General Electric will decide the fate of NBC Universal, its media and entertainment unit valued at approximately $40 billion, after the Beijing Olympics next August, the Financial Times reports, citing sources close to the matter. GE owns an 80% stake in NBC, with Vivendi owning the rest and the right to ask GE to buy back its stake or to force a listing. Vivendi itself is reportedly not considered a potential acquirer or a long-term shareholder. GE declined to comment, but executives have apparently said any decision to sell will depend on the impact on the overall company, with top concerns being valuation and tax rates. GE owns U.S. TV rights to the Beijing games and is expected to receive a windfall in advertising revenues and an estimated $500M in Olympics-related sales across the company's business units. Meanwhile, NBC CEO Jeff Zucker has instituted a $700M cost savings program and has been acquiring cable TV channels including the recently announced $925M deal for Oxygen Media (full story). GE reports Q3 earnings on Friday. Its shares fell 0.5% to $41.81 on Wednesday.
Sources: Financial Times
Commentary: Is GE About To Sell NBC?GE Reiterates Earnings GuidanceAmazon's Unbox Grabs NBC Programming From iTunes
Stocks/ETFs to watch: GE, OTCPK:VIVEF
Earnings call transcript: General Electric Q2 2007

Madonna Close to Leaving Warner Music -- WSJ

Pop star Madonna is nearing a $120M deal to jump from Warner Bros. Records to concert promoter Live Nation Inc., the latest evidence of a shifting landscape in the music industry. According to the Wall Street Journal, under the 10-year deal with Live Nation, the Material Girl would receive a mix of cash and stock in exchange for rights to sell three studio albums, promote concert tours, sell merchandise and license her name. People familiar with the deal say the package includes a general $17.5M advance and $50M-$60M in advance payments for the albums. Madonna is still committed to an album for Warner Records, part of the Warner Music Group, which is not going down without a fight. The company, according to the Journal, has enlisted IAC/InterActiveCorp., the parent of TicketMaster, to partner in an attempt to counter the Live Nation deal. Given the minimal profitability of concert promoters, Live Nation, the world's largest, has been seeking additional sources of income. If Madonna does leave, Warner Music would retain rights to her catalog of albums over the past 20 years, as well as the yet-to-be-released album. One large Warner Music shareholder apparently isn't concerned, saying the cost of keeping her may have been too high.
Sources: Wall Street Journal, 24/7 Wall Street
Commentary: Warner Music Won't Bid for EMIMedia Companies Slow to Bridge the Digital Divide
Stocks/ETFs to watch: LYV, WMG, IACI. Competitors: OTC:EMIPY. ETFs: PBF, PEJ
Earnings call transcript: Warner Music Group F3Q07


Spending on Teen Fashion Slides

Teens may still be spending lots of time and dollars in the malls, but a cutback in spending by their parents, possibly due to worries about economic conditions, has led to a sharp decline in total fashion spending for the group. According to Piper Jaffray & Co.'s biannual "Taking Stock With Teens" survey, total fashion spending tumbled 24% from its spring 2007 survey, with declines most pronounced for young women, where spending was down 18%, while spending among young men dropped 9%. Last week, Wet Seal Inc. lowered its third-quarter outlook citing weak store transactions and more discounting. The research firm cited "a gradual maturing of the fashion cycle" for the declines. Teens continued to spend a "significant" among of money on fashion, the survey noted, with the most popular store being Hollister for the sixth straight time, followed by West Coast Brands, American Eagle, Abercrombie & Fitch and Forever 21. In the food category, Starbucks was the clear winner followed by Chipotle and McDonald's. "The fashion category still represents 42% of the total teen budget for the fall 2007 season despite moderation in spending habits," said Jeff Klinefelter, senior retail research analyst at Piper. "However, we found that spending expectations remain largely unchanged, as nearly 50% of the students plan to spend the same amount of money on apparel this season. We believe the discrepancy between budget dollars and expectations may be due to a decline in contributions from parents." The study covered some 980 students and field trips to malls in 10 cities across the U.S., while a separate study indicated that parental spending on their teens was down 33% from the spring survey and 19% y/y Parents also said they were spending less on themselves, 23% less from spring and 26% y/y.
Sources: Press release, Reuters
Commentary: Looking for Strength and Weakness in RetailConsumer Spending: A Mixed Bag
Stocks/ETFs to watch: WTSLA, AEO, ANF, MCD, SBUX. ETFs: RTH, XRT, PMR

MGM Mirage Plans $5B Atlantic City Project

MGM Mirage said Wednesday it will spend $4.5B-$5B to develop a major resort casino complex on a 72-acre property it owns at Renaissance Pointe in Atlantic City, N.J., adjacent to its Borgata Hotel Casino & Spa joint venture with Boyd Gaming Corp. The project, which will dominate the city's skyline as its tallest building, will include a 3,000-room hotel, a large casino, a 1,500 seat theater, restaurants, night club and entertainment concepts, a spa, a 500,000-sq. ft. retail center and a convention center. "We will continue to raise the bar, and by doing so, hope to re-energize the city's resort offerings and attract a new market of affluent East Coast customers," said CEO Terry Lanni. Groundbreaking is expected next year with an anticipated opening in 2012. MGM shares are down 0.9% to $98.89 after dipping as much as 5% in pre-market trading.
Sources: Press release, Wall Street Journal
Commentary: MGM Mirage: The Most Attractive Gambling StockGame is Not Over for Macau: LVS is the Best Bet
Stocks/ETFs to watch: MGM. Competitors: HET, LVS, TRMP, BYD, STN
Earnings call transcript: MGM Mirage Q2 2007


Boeing Delays First Dreamliner Delivery by Six Months

Boeing announced Wednesday it is delaying delivery of it new 787 Dreamliner by six months because of issues with the completion of the first plane. The commercial-plane maker now predicts deliveries will begin in late November or early December. Boeing is having problems with work that suppliers should have completed at their own plants, and yet-to-be-finished flight software from Honeywell. "Notwithstanding the challenges that we are experiencing in bringing forward this game-changing product, we remain confident in the design of the 787, and in the fundamental innovation and technologies that underpin it," said CEO Jim McNerney. Boeing had previously admitted to struggling with putting the plane together (full story), but this is the first time it has pushed back the delivery date. Boeing already has $120 billion worth of orders for the Dreamliner. Shares of the company are down 2.7% to $98.75 in midday trading Wednesday.
Sources: Press Release, Bloomberg
Commentary: Boeing Tops Airbus in Q3 OrdersBoeing Claims It Can Deliver 787 Dreamliner On Time
Stocks/ETFs to watch: BA, HON. Competitors: LMT, NOC. ETFs: ITA, UXI
Earnings call transcript: Boeing Q2 2007

Boeing 787 Delay Has Ripple Effect On Suppliers

The shares of some of Boeing's suppliers took hits Wednesday following the announcement by the aircraft manufacturer that deliveries of its 787 Dreamliner will be delayed. Rockwell Collins, which is providing the plane's navigation systems, shed 2.4% to $74.04; Spirit Aerosystems, which is making the 787's fuselage and wing parts, dropped 6.4% to $35.92; Honeywell, which is making the cockpits, was down 0.87% to $60.71; BE Aerospace, manufacturer of the 787's cabin and seating, fell 3% to $43.71; LMI Aerospace, which is providing structural components, was off 2.9% to $27.83; Esterline Technologies fell 5% to $54.89; Titanium Metals was down 1.2% to $33.50; and Precision Castparts lost 2.9% to $147.48. The DJIA Wilshire Aerospace index fell nearly 2% at 7601.18. Spirit said the delay could result in lower shipments for the next six months. GE and Rolls Royce, which are making the 787's engines, are also expected to feel an impact from the delay. Also likely to be affected are Dreamliner customers International Lease Finance, Qantas, Air Canada, Japan Airlines, Air India and Continental. One possible beneficiary is Airbus, a unit of EADS, which might experience new interest in its A350 XWB extra-wide-body.
Sources: MarketWatch I, II, Reuters, AP I, II, 24/7 Wall Street, Dow Jones
Commentary: Boeing Delays First Dreamliner Delivery by Six MonthsGotta Love the Boeing BacklogBoeing Claims It Can Deliver 787 Dreamliner On Time
Stocks/ETFs to watch: BA, COL, ESL, SPR, PCP, GE, BEAV, HON, LMIA, TIE
Earnings call transcript: Boeing Q2 2007

Chrysler, UAW Reach Tentative Agreement, Ending Strike

After a whirlwind six-hour strike Wednesday, Chrysler and the United Auto Workers union [UAW] reached a tentative four-year labor agreement. Although exact details of the agreement are being withheld until it can be ratified, the new pact between Chrysler and the UAW is fairly similar to the accord reached between the UAW and GM in September (full story). Among the finer points, Chrysler will create a multibillion-dollar fund to cover the rising costs of retiree health care. Chrysler, 80% of which was bought by Cerberus Capital Management earlier this year (the remaining 20% is held by former parent Daimler), also offered employee safety by guaranteeing certain models would continue to be made in the U.S. As a concession to Chrysler, which is trying to rein in costs following unprecedented losses in 2006, it can hire new workers at lower wages and reduced benefits compared to what existing union members receive. Said UAW President Ron Gettelfinger, “This agreement was made possible because UAW workers made it clear to Chrysler that we needed an agreement that rewards the contributions they have made to the success of this company." Assuming it receives UAW member approval, the UAW has only Ford left to contend with. Those negotiations may be tougher than those with Chrysler and GM due to Ford's compromised financial situation, industry analysts say.
Sources: Press Release, Wall Street Journal, CNNMoney, TheStreet.com
Commentary: The Invisible Hand of Cerberus [WSJ Deal Journal] • UAW / GM Reach Tentative Agreement; Strike HaltedThe Quotable Bob Nardelli: What His Appointment Means For Chrysler
Stocks/ETFs to watch: DAI. Competitors:GM, F, TM, HMC
Earnings call transcript: DaimlerChrysler Q2 2007

UAW Ratifies Labor Pact; GM Sees Big Savings Ahead

The United Auto Workers [UAW] rank-and-file membership voted convincingly in favor of the tentative agreement reached between the union and General Motors in late September. Among production workers, 66% voted yes, while 64% of skilled trades workers supported the pact. The accord was reached following a two-day strike. UAW President Ron Gettelfinger praised the union's steadfastness and "solidarity" and claimed a victory for "protecting jobs, wages and benefits for both active and retired General Motors workers -- and we helped protect middle-class manufacturing jobs in communities throughout the United States.” Gettelfinger's self-congratulatory assertions aside, the Wall Street Journal writes the deal may save GM as much as $4 billion a year, as it tries to close the $30-an-hour wage gap with Japanese competitors like Toyota. The Journal claims that "buried in the pages" of the accord, changes to workers' current pension and benefits plans, and more significantly, changes to what future GM employees can expect to receive, place compensation on par with what Toyota's U.S. workers receive. GM is expected to be able to replace 33% to 40% of its current UAW workforce within 4 years, through buyouts and 'forced' early retirements, meaning savings from the accord are just around the corner for the U.S.'s number one auto manufacturer by volume. GM shares have risen 30.5% over the last month.
Sources: Press Release, Wall Street Journal, AP, UAW Report
Commentary: GM, UAW Considering New Employee BuyoutsAnalysts Doubt Advertised Savings in GM DealUAW / GM Reach Tentative Agreement; Strike Halted
Stocks/ETFs to watch: GM. Competitors: F, DAI, TM, HMC, OTCPK:NSANY
Earnings call transcript: General Motors Q2 2007

IRobot Issues Q3 Warning

Shares of iRobot Corp. were down Wednesday after the company warned it expects a third-quarter pre-tax loss because of production issues and litigation expenses. The company said when it announces earnings on October 26th, it estimates reporting a pre-tax loss of $1 million to $1.5 million for the quarter on revenues between $63 million and $64 million. Analysts had predicted earnings of $0.19/share on revenues of $67.48 million, according to Reuters. The robotics company said the production delays would push some revenue into the fourth quarter, but that they would not impact its 2007 outlook. For the year, the company still expects a pre-tax income of $3 million to $5 million on $233 million to $243 million in revenue. The company's shares dropped 7.3% to $18.30 in late morning trading on Wednesday.
Sources: Press Release, Reuters
Commentary: iRobot Jumps As Pentagon Stocks Up On RobotsiRobot's R&D Investments Could Go A Long Way
Stocks/ETFs to watch: IRBT. Competitors: LMT, GD. ETFs: PPA


Global Oil Demand to Drop Amid High Prices - IEA

Record high oil prices will likely curb global demand as consumers cut back on consumption and/or seek alternative energy sources, the International Energy Agency [IEA] said Thursday in its monthly Oil Market Report. The IEA now estimates world oil demand growth of 2.03 million barrels per day in Q4 vs. a year ago -- 320,000 barrels less than its previous estimate. It also cut its forecast for global demand growth in Q1 2008 by 50,000 bpd to 2.55 million bpd. "There has been a bit of substitution going on, natural gas for oil, which is essentially a price effect. There have also been some small downward adjustments to economic growth, which have also played a role," the IEA's Lawrence Eagles said in an interview. World crude supply increased by 415,000 bpd over the month, a trend the IEA says should continue through year-end due to the end of seasonal maintenance and easing hurricane risks. The IEA also trimmed its world economic growth estimates "slightly." According to media reports, the IMF's World Economic Outlook, to be issued next week, will slash its 2008 world growth forecast to 4.8% percent from 5.2%. Oil prices fell back from early gains following the release, but closed up $0.32 to $81.62 a barrel.
Sources: Oil Market Report highlights, Reuters
Commentary: Stocks and Oil: Charting a Burst BubbleForecasted Oil Price Hike Presents Many Opportunities
Stocks/ETFs to watch: USO, OIL


Progressive's Profits Fall

Progressive Corp. reported late Wednesday profits dropped 27% in its third-quarter earnings. The first of the large insurers to report, the company's net income came in at $299.2 million ($0.42/share), compared to last year's $409.6 million ($0.53/share). Analysts expected a net income of $273.3 million ($0.37/share). Net premiums earned were down 2.3% to $3.461 billion from $3.544 billion last year, despite the number of policyholders increasing 3.9%; the company has been lowering prices to compete with other insurance companies. "Aggressive pricing actions have yet to generate meaningful improvements in new business production," said Thomas Cholnoky, an analyst at Goldman Sachs. In September, Progressive retained $0.052 for each dollar collected after paying claims and expenses. A year ago, the company retained $0.131 for each dollar collected. The company's progressively worse performance has been reflected in its price, as shares of Progressive are down 18% this year. After outgaining every stock in the Standard & Poor's 500 Insurance Index in 2001-2006, it is the second worst performer in the 24 member index in 2007. In Wednesday's session, Progressive's shares were down 1.64% to $19.83.
Sources: RTT News, Bloomberg
Commentary: Why Does Progressive Corporation Yield Such a Low Dividend?Stocks With the Least Analyst Love
Stocks/ETFs to watch: PGR.Competitors: ALL. ETFs: PIC

RBS Consortium to Assume Control of ABN Amro

The three-bank consortium led by Royal Bank of Scotland that just purchased Dutch bank ABN Amro for $101 billion will begin to take control when its executives are named to ABN's supervisory and management boards, the FT reported Thursday. RBS CEO Fred Goodwin and the CEOs of Fortis and Santander will join the supervisory board. ABN CEO Rijkman Groenink said he will resign his position when the bank confirms the new board appointments. "During the first 45 days (of ownership) we intend to validate our base-line plans for the changes intended for ABN Amro and the transfer of businesses to the appropriate consortium partner," the trio said. The banks plan to cut jobs in the short term but add them in the long term. Most of management will stay in place, in part to satisfy Dutch regulators concerned about ABN's stability during the breakup. On Wednesday, following the completion by Fortis of a €13 billion rights issue that was the final link in the financing of the mostly cash deal, the consortium declared its bid unconditional. Arthur Martinez, the chairman of ABN's supervisory board, said the deal is good for shareholders. "No one likes the sort of emotional aspect of dismembering any institution," he said, "But this is a very Darwinian world in which we live these days...It was a fantastic price."
Sources: Financial Times, AFP, AP, Reuters, Wall Street Journal
Commentary: RBS Must Now Justify ABN Amro Purchase - BloombergABN Amro Shareholders Expected to Approve Consortium Takeover On Friday - WSJWinner of the Day: Santander
Stocks/ETFs to watch: ABN, FORSY, RBSPY.PK. Competitors: HBC, DB, UBS. ETFs: RKH, EWN, KBE
Earnings call transcript: ABN Amro Q2 2007


Taxol Ineffective for Most Common Form of Breast Cancer - Study

The chemotherapy drug Taxol, manufactured by Bristol-Myers Squibb and also available in generic form, is not effective for the most common form of breast cancer and helps far less patients than was previously believed, according to a study released Wednesday by the New England Journal of Medicine. If the study's results are confirmed through additional research, over 20,000 women in the U.S. per year could be spared the drug's side effects without putting them at higher risk of a return of their cancer. "We want to make sure these data are correct before withholding it (Taxol) from some patients ... the stakes are high," said lead researcher Dr. Daniel Hayes. "On the other hand, we don't want to keep a therapy that doesn't work." The study indicated that Taxol was most effective in women who had overactive HER-2 genes, the target of rival cancer treatment Herceptin, manufactured by Genentech. It had no significant effect on women with HER-2 negative tumors, the more common form of breast cancer. The study is a reevaluation of research conducted in the 1990s, before today's genetic tools became available. Cancer specialist Dr. Julie Gralow said doctors will be reluctant to withhold Taxol for fear they might be sued if the cancer recurs. "It's just so much easier to give the chemotherapy and know you've been super-aggressive," she said.
Sources: Study, Editorial, , AP, Reuters
Commentary: Super Results for Genentech/Immunogen's "Super-Herceptin" CollaborationGenentech's Herceptin: Heart Risk Stable Over Five Years
Stocks/ETFs to watch: BMY, DNA, OTCQX:RHHBY. ETFs: PPH, IHE


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