Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 9:05 AM ET
S&P 500: -10.50; 1,542.00
NASDAQ 100: -13.00; 2,183.75
Dow: -61; 13,906
NIKKEI 225: +0.89%; 17,106.09 (+150.78)
HANG SENG: +0.57%; 29,465.05 (+166.34)
SHANGHAI SE COMPOSITE: -3.50%; 5,825.28 (-211.00)
BSE SENSEX 30: -3.83%; 17,998.39 (-717.43)
FTSE 100: -1.07%; 6,606.20 (-71.50)
CAC 40: -1.22%; 5,748.10 (-70.70)
XETRA-DAX: -0.82%; 7,919.98 (-65.43)
Commodity Futures (Reuters/Jefferies CRB)
Oil: +0.59%; $87.92 (+$0.52)
Gold: +0.83%; $768.60 (+$6.30)
Natural Gas: -0.67%; $7.41 (-$0.05)
Silver: +0.51%; $13.82 (+$0.07)
U.S. Breaking Newssee today's Wall Street Breakfast for earlier news
Bank of America Drops on Earnings Miss
Bank of America shares dropped more than 3% in pre-market trading Thursday after the number-two U.S. bank missed estimates, posting a 32% drop in Q3 earnings, due in part to $607 million in trading losses, a $247 writedown on LBO loans, and increased credit-loss provisions. Net earnings were $3.7 billion ($0.82/share) on revenue of $16.3 billion, down from $5.42 billion ($1.18/share) on revenue of $18.49 billion a year ago. Analysts expected earnings of $1.06/share on revenue of $18.3 billion. BofA set aside $2.03 billion in credit-loss provisions, up sharply from $1.17 billion a year earlier. Earnings in the nation's number-one retail bank and credit-card issuer's consumer unit were down 16% to $2.45 billion on increased credit costs, while the unit's revenues gained 6.2%. Wealth-management revenue jumped 24% to $2.2 billion and earnings increased 17% to $599 million, after BofA acquired U.S. Trust from Schwab in July for $3.3 billion. Global Corporate and Investment Banking net fell 93% to $100 million from $1.43 billion a year earlier. Its Capital Markets unit, which deals with credit products and equities, posted a $717 million net loss, vs. net income of $298 million in 2006, including a $607 million trading loss due to ineffective hedges. "While the significant dislocations in the capital markets have hurt most participants, we are still very disappointed in our third quarter performance," CEO Kenneth Lewis said (full earnings call transcript later today). JPMorgan, which boasts double BofA's international income, said yesterday its Q3 net rose 2% (full story). "The next couple of quarters will be messy for Bank of America," said fund manager Andrew Seibert. "You are only seeing the beginning. The banks will be putting up a lot of money for reserves."
Commentary: Leverage in Reverse: Not a Pretty Sight • The MLEC: Who's Going to Fund It... You? • BofA and JPM to Write Down Total of $3 Billion - Analyst
Stocks to watch: BAC. Competitors: C, BK, WB, WFC. ETFs: IYF, KBE
Earnings call transcript: Bank of America Q2 2007
UnitedHealth Beats, But Q4 Outlook Soft; Announces $7B Buyback
UnitedHealth Group reported third-quarter net income rose 15.4% to $1.28 billion, or $0.95/share, beating analysts' average estimate of $0.92, but revenue growth of 3.9% to $18.68B missed analyst expectations of $18.99B. UnitedHealth said it plans to repurchase $7B of its shares by the end of 2008. UnitedHealth bought back $2B of its common stock during the quarter. Q3 operating margins improved to 11.5%, compared to 10.4% last year and 10.9% in Q2. It credited margin gains in its Health Care Services segment and stable or improved margins across its divisions. UnitedHealth warned Q4 EPS are "expected to be slightly below third quarter results – due to projected seasonal increases in health care costs for UnitedHealthcare and seasonally increased levels of Medicare Advantage sales and marketing expenditures." Analysts were expecting $0.94/share. The company offered EPS guidance of $3.49 to $3.50 for full year 2007 (+18% y/y) and $3.95 to $4.00 for 2008 (est. +14% y/y). Analysts on average had forecast EPS of $3.48 and $3.95, respectively. UnitedHealth's earning conference call is at 8:45 A.M., check later for its earnings call transcript. Shares of UnitedHealth rose 0.2% to $48.60 on Wednesday.
Commentary: United Health: Promising Stock, Under $50 • Waiting For News On Sierra Health Services- Unitedhealth Group Merger • Virtual Silence Regarding Sierra Health Services/UnitedHealth Group Merger
Stocks to watch: UNH. Competitors: AET, CI, CVH, HUM, WLP. ETFs: IHF, XLV, IYH
Continental, Southwest Top Estimates With Higher Prices, 'Load'
Continental Airlines managed to offset rising fuel costs by raising prices and filling seats in record numbers, reporting profit growth of 1.7% and topping consensus analyst expectations (check back later for CAL's latest earnings call transcript). That growth, which amounts to net income of $241 million, or EPS of $2.15, includes an investment gain of $0.86 a share in the prior-year period, making it even more impressive. Excluding one-time costs from a $0.10-a-share pilot pension charge, EPS was $2.25, well above consensus analyst estimates of adjusted EPS of $2.17. Sales jumped 8.6% to $3.83 billion. The percent of seats filled, or 'load', rose to a record 84.3%, while revenue per available seat mile increased 6%. Fuel costs rose 4.3%, an increase CFO Jeff Misner hopes to fight going forward with "a couple of major supplier cost reduction initiatives that, along with several other smaller initiatives, should save us approximately $100 million annually."
Meanwhile, Southwest Airlines also beat expectations despite a 7.6% rise in the average price it paid for fuel in its latest quarter. Similar to Continental, it credited increased ticket prices and fuller planes for its relatively strong performance in Q3. Southwest said it filled 76.6% of its seats in the quarter. Net income nearly quadrupled to $162 million, good for EPS of $0.22, versus $0.06 a year earlier. Consensus estimates were for EPS of $0.21 (check back later for LUV's latest earnings call transcript).
Commentary: Earnings Improvement In The Airline Business Continues • Southwest Airlines Should Put LUV in Its Logo • 21 Airline Stocks to Keep You Flying High This Summer
Stocks to watch: CAL, LUV. Competitors: CAL, UAUA, AMR, DAL
Earnings call transcript: Continental Airlines Q2 2007 • Southwest Airlines Q2 2007
Bank of New York Mellon Blows Past Estimates in First Combined Quarter
Bank of New York Mellon Corp. said Thursday net income jumped 82% during its first quarter as a combined entity, beating analyst estimates. Net income of $640 million ($0.56/share) on revenue of $3.6 billion was up from Bank of New York's $352 million ($0.49/share) on revenue of $1.61 billion last year. Excluding integration costs, EPS was $0.73/share. Analysts were expecting EPS of $0.61 on revenue of $3.49 billion, on average. Return on equity fell to 8.9%, from 11.6% in 2006. Net interest margin (the spread between the bank's borrowing costs and lending rates) was up 0.13% to 2.02%. Assets under management at the global asset manager increased 19% to $1.106 trillion. "During a volatile market environment, we delivered strong double-digit increases in revenue and profit reflecting a combination of impressive organic growth and the positive impact of market volatility on our securities servicing businesses," CEO Robert Kelly said. "While the asset management environment during the quarter was challenging, we capitalized on our strength in money market funds and won a landmark mandate in China. Our pipelines are in great shape, credit quality remains strong, we launched our new brand and the integration is proceeding well" (full earnings call transcript later today). In a pre-earnings note, Fox-Pitt analyst Andrew Marquardt wrote, "Integrating cultures and aligning businesses while cutting costs may prove more challenging than originally planned. While potential revenue synergies details will likely be positive, the impact on long-term growth prospects for the combined entity will likely remain uncertain until management's more detailed presentation next spring." Shares were up 0.8% in pre-market trading.
Commentary: Russia Sues Bank of New York for $22.5 BillionA
Stocks to watch: BK. Competitors: C, BAC, HBC, JPM. ETFs: KBE, PFI, RKH
Earnings call transcript: The Bank of New York Mellon Q2 2007
Eli Lilly Q3 Beats; Wyeth In-Line
Eli Lilly posted third-quarter net income growth of 6% to $926.3 million, or $0.85/share, with adjusted EPS of $0.91 topping the Street's estimate of $0.87. Rival Wyeth reported a 1% dip in Q3 profit to $1.15B, or $0.84/share, with adjusted EPS of $0.90 in-line with analyst estimates. Wyeth's revenues rose 9.4% to $5.62B, driven by its "broad portfolio of drugs, vaccines and biotech products," according to CEO Robert Essner. Analysts had forecast sales of $5.56B. Wyeth announced a $5B share repurchase program with no time limit. Eli Lilly's Q3 revenues climbed 19% to $4.59B, compared to analysts' average estimate of $4.53B. "Our ongoing focus on volume-based revenue growth and cost containment again allowed us to leverage double-digit sales growth into robust earnings per share results for the quarter on a pro forma adjusted basis," commented CEO Sidney Taurel. Lilly said it expects Q4 adjusted EPS of $0.86 to $0.91 vs. analyst estimates of $0.87. Lilly raised its full year EPS outlook to $3.50 to $3.55. Analysts had expected $3.48/share. Check later for Lilly's and Wyeth's earnings call transcripts. Shares of Eli Lilly lost 0.35% to $56.95 on Tuesday. Wyeth shares gained 0.85% to $46.35. Lilly was last up 1% to $57.50 and Wyeth down 1.6% to $45.61, both thinly traded in pre-market activity.
Commentary: Medtronic, Wyeth, & Pfizer Plan On Revenue Growth in China • Lilly Blossoming in China
Stocks to watch: LLY, WYE. ETFs: PPH, XLV, IYH
St. Jude Reports Increase in Profits
St. Jude Medical announced Thursday its quarterly earnings increased 39%, beating analysts' estimates. Net income came in at $160.2 million ($0.46/share), compared to $115 million ($0.46/share) last year, which included a $0.06/share restructuring charge. Sales increased 13% to $927 million. Analysts at Thomson Financial forecasted $0.45/share on revenues of $926 million. The medical device maker noted sales of implantable cardioverter defibrillators, ICDs, increased 17% to $318 million. "Our third quarter results reinforce our confidence that our long-term growth program is on track. We are raising our earnings per share guidance for 2007 and expect to enter 2008 well positioned to deliver earnings per share growth of at least 15%," said CEO Daniel Starks. The company projects fourth quarter earnings of $0.47-$0.48/share, which is in-line with estimates, and sees full-year 2007 earnings coming in between $1.72 - $1.73/share. Shares of STJ were up 1.0% to $45.55 in pre-market trading Thursday.
Commentary: China Rejects St. Jude Pacemakers In Move That Smacks of Retaliation • Amended Agreement With St. Jude Medical Expands Cambridge Heart’s Reach
Stocks to watch: STJ. Competitors: BSX, MDT. ETFs: IHI, HHE.
Earnings call transcript: St. Jude Medical Q2 2007
Dow Jones Q3: Digital Ad Gains Offset Print Ad Weakness
Soon-to-be-acquired media conglomerate Dow Jones & Co. said Thursday Q3 earnings dropped to $13.8 million ($0.16/share) on a 19.6% revenue gain to $493 million, from $105.4 million ($1.26/share) on revenue of $412 million a year ago. Net of special items, EPS more than doubled to $0.27 from $0.11 due to the year-ago quarter's $1.07 tax-related gain, in line with analyst estimates of $0.27/share on revenue of $493 million. Declines in print advertising revenue were offset by strong increases in the company's online ad revenues, enterprise-media group (which includes Factiva and Dow Jones Newswires), and gains in print circulation. Print advertising at the company's flagship Wall Street Journal were down 2.9%, while Dow Jones's small-town newspaper unit saw a steeper 8.8% ad revenue decline. Newsprint costs fell by more than $10 million to $21 million, possibly a result of the newspaper's slimming down. Enterprise-media revenue jumped 80% due to the December $160 million acquisition of Reuters's 50% stake in Factiva; based on full ownership, the unit's revenue rose 6.1%. Ad revenue for the company's digital network rose 7.8%. Index business revenue was up 29%. Paid subscribers to the Journal's website were up 25.5% to 989,000, though future owner Rupert Murdoch has publicly stated he's considering making the site free, favoring increased ad revenue over subscriber fees. "To win in this new media environment, we're in the midst of transforming Dow Jones from a newspaper company to a content-driven diversified media company," CEO Rich Zannino said (full earnings call transcript later today).
Commentary: FCC Commissioner Casts Aspersions on Media Mergers • WSJ: Free or Paid? Yes. • Rational Exuberance Over Free Content
Stocks to watch: DJ, NWS. Competitors: TWX, NYT, PSO, TSCM, CNET, YHOO, TOC, RTRSY, MORN, MHP
Earnings call transcript: Dow Jones Q2 2007
Mortgage Woes Slam Washington Mutual Earnings
Profits at Washington Mutual skidded some 70% in the third quarter to $210M ($0.23/share) from $748M ($0.77/share) a year ago, pressured heavily by the slumping housing market subprime crisis. The results were short of the $0.27/share average estimate of analysts polled by Thomson First Call. Given the credit crisis, the third-largest home lender in the U.S. allocated some $967M to cover potential borrower defaults, up from $166M in 2006. Losses at the banks home loan group widened to $348M from $23M in 2006, while home mortgage sales dropped to a loss of $222M from a gain of $192M. Subprime mortgage production plunged 95% to $9.4B from $483M. "I have never seen housing credit conditions change so significantly over such a short period of time, nor can I remember a period when there was less clarity about near-term housing and credit trends," CFO Tom Casey said (full earnings call transcript later today). Net interest income rose 3.4% to $2.01B while noninterest income dropped 12% to $1.38B.
Commentary: U.S. Banks Still Need To Come Clean on Subprime • Some Banks Never Learn
Stocks to watch: WM. Competitors: BAC, WB, WFC. ETFs: PJB, KBE
Earnings call transcript: Washington Mutual, Inc. Q3 2007
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• Union Pacific (NYSE:UNP) said Thursday its Q3 net income climbed to $532 million, vs. $420 million a year earlier. EPS was $2 on $4.19 billion in revenue vs. consensus estimates for EPS of $1.77 on revenue of $4.2 billion. The agricultural and chemicals segments were especially strong. The rail transport company's shares rose nearly 1% in pre-market action on the news. (source: AP)
• McGraw-Hill (MHP), educational textbook publisher and owner of Standard & Poor's, said Q3 profits rose 18%, topping consensus estimates, but warned next quarter's earnings would be soft. EPS climbed to $1.34, vs. $1.06 a year ago, well above analysts' predictions for EPS of $1.24. Revenue climbed nearly 10% to $2.2 billion. The company blamed generally "challenging [financial] conditions" and "softness" at its education unit for its soft 4Q forecast. (source: Bloomberg)
• Industrial conglomerate Textron Inc. (NYSE:TXT) saw its earnings jumped 51% to $1 per share, vs. EPS of $0.61 a year earlier. growth was propelled by continued strong demand for its Cessna Jets. Revenue climbed 15% to $3.26 billion, driven by a 21% increase in its revenue at Cessna. Analysts were predicting EPS of $0.77 on revenue of $3.14 billion. (source: AP)
Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
Yesterday's pre-opening looked very encouraging, especially for tech stocks, as Intel (NASDAQ:INTC), United Technologies (NYSE:UTX), IBM (NYSE:IBM), and Yahoo (YHOO) all reported earnings that exceeded analysts' forecasts. In minutes after the opening bell, the Dow Industrials were up more than 120 points, and buyers were active throughout the morning as more good earnings came in from Coca-Cola (NYSE:KO), JPMorgan (NYSE:JPM), and Altria Group (NYSE:MO).
But then a harsh dose of reality set in when the Turkish parliament authorized an offensive into northern Iraq, which could cut off a valuable oil pipe line. As a result, crude oil traded north of $89 and stocks took back all of their gains and then some.
Adding to investors' woes were government reports showing that housing starts fell 10.3% in September to a 14-year low. The Fed's Beige Book also provided evidence that the economy is slowing, then news hit that the IMF cut its global growth forecast.
By mid-afternoon, most major indices were in the red but late in the day, the tech sector rallied on the earlier good news and that put a bit of green back on the board as the broader indices closed on a plus. Treasury bonds also rallied following a report of a modest increase in inflation and the sharp drop in housing starts. The hope, of course, is that the Fed will again consider cutting rates late this month.
At the close, the Dow Industrials were off over 20 points at 13,894. The S&P 500 gained three points at 1,541, and the Nasdaq added 29 points to close at 2,793. Volume on the NYSE totaled 1.4 billion shares and the Nasdaq traded almost 2.4 billion. Breadth was slightly positive on both the Big Board and Nasdaq.
What the Markets Are Saying
Yesterday's market action shows a return of the volatility that we experienced several months ago.
One of the signs of a top is when prices fluctuate wildly. and yesterday's whipsaw was certainly an example of extreme price action in a single session. But despite that, some of the overbought condition of early October has been corrected.
However, the still very bullish (bad) sentiment numbers (Standard and Poor's points out that the Nasdaq volume is overwhelming NYSE volume) could put a lid on what even as late as last week looked like the prelude to a serious sell-off.
We're not out of the woods yet, especially since one of the most serious technical problems is the so-called "non-confirmation" of new highs by the Dow Jones Utility and Transportation Averages. This is serious and until they confirm the highs of the Industrial Average, we must conclude that the Industrials' breakout is "false" and will result in a pullback of the broader market of 5%-10%.
Keep your powder dry; it's not time to commit your reserves (cash) yet.
Today's Trading Landscape
Economic reports are due today from the Philadelphia Fed, the weekly jobs report, and September's Index of Leading Economic Indicators (the consensus expects +0.3%).
There are also a lot of earnings reports including Pfizer, Southwest Airlines (read above), United Health (read above), American Standard, Bank of NY (read above), Baxter International, BB&T, Briggs & Stratton, Capital One, Computer Programs & Systems, Continental Airlines (read above), Cree, Cypress Semi, Genuine Parts, Gilead Sciences, Google, Idex, Landstar, Molex, Novartis, Nucor, Omnicell, Orbital Sciences, Packeteer, Parker Hannifin, PMC-Sierra, PPG Industries, Reliance Steel, Rush Enterprises, SanDisk, SAP, St Jude Medical (read above), SunPower, SunTrust, Textron (read above), Hershey, McGraw Hill (read above), Union Pacific (read above), USA Truck, VF Corp, Watsco, WESCO, Wyeth (read above), Xilinx, and others.
BankAmerica (NYSE:BAC) badly missed estimates this morning (read above), reporting Q3 earnings of 82 cents versus an estimate of $1.60. But Nokia (NYSE:NOK) beat estimates, reporting 0.40 euros versus estimates of 0.21 euros.
The big marker mover again today could be the nasty situation in northern Iraq. Early reports say that Turkey is shelling the border in preparation for an incursion. If that is the case, crude oil could quickly run to $100 a barrel and the impact on stocks might be serious.
Asian Headlines (via Bloomberg.com)
Asian Stocks Climb, Led by Mizuho Financial, Banks; Hong Kong Index Gains Asian stocks gained for the first time in three days, led by Japanese banks, after JPMorgan Chase & Co. reported profit that beat analyst estimates. BHP Billiton Ltd. climbed after the mining company said the outlook for metals ``remains positive.''
China's Stocks Decline on Arbitrage Proposal; Hong Kong Share Index Climbs China's benchmark stock index fell the most in five weeks on speculation the securities regulator will adopt a plan that may narrow the price gap between shares traded simultaneously in Shanghai and Hong Kong.
Ranbaxy Net Jumps 48 Percent on Foreign Exchange Gains, Generic-Drug Sales Ranbaxy Laboratories Ltd., India's second-biggest drugmaker, said profit rose 13 percent in the third quarter.
Mitsubishi UFJ, Sumitomo Mitsui May Bid for JAL's Card Unit, People Say Mitsubishi UFJ Financial Group Inc., Japan's largest publicly traded bank, Sumitomo Mitsui Financial Group Inc. and Credit Saison Co. may submit bids for Japan Airlines Corp.'s credit card unit, five people with knowledge of the transaction said. The perceived risk of owning Japan Air's debt fell.
Hynix Semiconductor Posts Second Straight Profit Decline on Chip Prices Hynix Semiconductor Inc., the world's second-largest memory chipmaker, posted profit that fell more than analysts forecast because a glut drove down prices.
China Central Bank May Use More, Bigger Rate Increases to Curb Overheating China will step up measures to curb excess cash in the economy and may use more or bigger rate increases to prevent overheating, central bank chief Zhou Xiaochuan said.
European Headlines (via Bloomberg.com)
European Stocks Fall as U.S. Earnings Disappoint; Royal Bank, SAP Decline European stocks dropped, led by energy companies and banks, after analysts said shares of oil producers may lag behind the market and Bank of America Corp. of the U.S. reported earnings that missed estimates.
U.K. Retail Sales Climb More Than Estimated as Discounts Attract Shoppers U.K. retail sales rose more than economists forecast in September as stores resorted to the biggest discounts in almost three years to attract shoppers.
Europe Should Have Single Air-Traffic Control System, Airline Group Says The International Air Transport Association, representing 240 airlines, assailed governments today for failing to create a single air traffic management system in Europe to help lower carbon emissions.
Nestle Sales Advance 10 Percent After Ice Cream, Pet Food Prices Increase Nestle SA, the world's largest food company, increased third-quarter revenue by 10 percent after raising prices for Dreyer's ice cream and Purina pet food.