Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:50 AM ET
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Commodity Futures (Reuters/Jefferies CRB)
Oil: +0.44%; $89.86 (+$0.39)
Gold: +0.60%; $773.30 (+$4.60)
Natural Gas: -1.06%; $7.30 (-$0.08)
Silver: +0.74%; $13.905 (+$0.102)
U.S. Breaking Newssee today's Wall Street Breakfast for earlier news
McDonald's Posts Jump in Net as Expected
McDonald's reported Q3 net income climbed 27% to $1.07 billion, or $0.89/share, with adjusted EPS of $0.83 (ex. a $0.06/share gain from the sale of Boston Market) matching its own forecast a week ago and in-line with analysts' upward revised expectations. Revenues rose 7.2% to $5.9B, but missed analyst estimates of $6.05B. McDonald's said quarterly global comparable sales rose 6.9% and reported a positive forex impact of 4%. In a statement, CEO Jim Skinner emphasized the company's strategic focus is expanding by "being better not just bigger." McDonald's operating margins improved to 25.8%, compared to 23.4% last year. The company repurchased $927M of common stock during the quarter. McDonald's earnings conference call is at 10:30 A.M., check back later for its earnings call transcript. Shares of McDonald's were last trading down 0.8% to $56.34 in thin pre-market activity. McDonald's lost 0.3% to $56.79 on Thursday.
Commentary: McDonald’s Q3 Forecasts Well Ahead of Estimates • McDonald's: The Best Is Yet To Come • McDonald's Pleases Investors and Analysts with Promises of More Cash
Stocks to watch: MCD. Competitors: YUM, BKC, SBUX. ETFs: DIA, XLY, PBJ, PEJ
Caterpillar Misses Estimates, Guides Down
Shares of global conglomerate Caterpillar Inc. fell 2.5% in pre-market trading Friday after the company posted earnings per share that trailed analyst estimates and lowered its full-year outlook, partially due to weakness in the U.S. housing market. Net income climbed 20.5% to $927 million ($1.40/share) on sales of $11.4 billion (+8%), from $769 million ($1.14) on sales of $10.52 billion in Q3 2006. Analysts had estimated earnings of $1.42/share on sales of $10.9 billion. The company said it expects machinery and engines sales outside North America to gain 25% y/y ($4.6 billion), more than offsetting a $2.5 billion, 12% drop in North America. "Despite weakness in U.S. markets... we continue to see remarkable growth outside of the United States with particular strength in key industries like mining, oil and gas, electric power and marine engines. The industries we serve are becoming increasingly global, and the investments we are making to achieve our 2010 goals have us well positioned to meet their needs," CEO Jim Owens said in a statement (full earnings call transcript later today). Caterpillar lowered its full-year earnings guidance to $5.20-5.60, from a previous $5.30-5.80 forecast. For 2008, it gave a preliminary outlook of a sales and revenues increase of 5-10% and EPS increase of 5-15% from the mid-point of the 2007 outlook range. "We continue to believe CAT is one of the best ways to play the global infrastructure spend as shares represent a compelling investment for long term investors," Credit Suisse analysts told investors in an Oct. 12 note. "CAT will likely provide conservative 2008 guidance next week and the market will likely overreact. As such, in the event of pullback, we would encourage investors to use this as a buying opportunity."
Commentary: Riding Through Caterpillar's Transition • This Week's Key Earnings Reports
Stocks to watch: CAT
Earnings call transcript: Caterpillar Q2 2007
Wachovia Misses on Investment Banking Losses
Number-four U.S. bank Wachovia said Friday Q3 profits fell 10.1% due to trading losses caused by disruption in capital markets, and a quadrupling of its loan-loss provisions. Net profit was $1.69 billion ($0.89/share), down from $1.88 billion ($1.17/share) a year earlier. Net of merger expenses, Wachovia's profit per share was $0.90, well short of analyst forecasts of $1.03/share. Revenue rose 4.3% to $7.35 billion, short of the $8.02 billion analysts expected. As has been the case with other banks, loan-loss provisions surged to $408 million from $108 million. General banking operations income was up 33%, and its capital-markets unit posted a 19% earnings gain; both units are benefitting from recent acquisitions of Golden West Financial and A.G. Edwards respectively. Meanwhile corporate and investment banking earnings dropped 80%, hit by a $591 million loss in consumer and commercial mortgage-structured products, $438 million on structured credit products, and $272 million on LBO loans. Return on equity fell to 9.6% from 14.8%. "Disruption in the fixed income markets in the third quarter... had a disappointing impact on the results of market-oriented businesses," CEO Ken Thompson said. "While the impact of the market disruption was significant, it’s worth noting that the majority of the lower market valuations in the third quarter largely arose from a repricing of risk in the marketplace, and do not reflect deterioration in the underlying credit quality of the assets in our leveraged finance and commercial real estate securitization businesses," he said (full earnings call transcript later today), echoing closely the thoughts of Thornburg CEO Larry Gladstone Wednesday (full story). Shares are down 2.3% in pre-market trading.
Commentary: Financials Rally in the Face of Analyst Cuts • 3 Large Cap Bank Stocks With Big Yields and Little Multiples
Stocks to watch: WB. Competitors: C, BAC, JPM
Schlumberger Tops Estimates On Continued International Strength
Schlumberger Limited, the world's largest oilfield services company, saw its Q3 earnings climb 35% and topped estimates despite weakness performance from the its N. American operations. Net income was $1.35 billion, good for EPS of $1.09, versus EPS of $0.81 a year earlier. Revenue rose 20% to $5.93 billion; consensus analyst estimates were for EPS of $1.06 on revenue of $5.89 billion. N. American revenue fell 3% to $1.3 billion, but was offset by strong growth in Latin America, Russia, China and Indonesia. According to CEO Andrew Gould, "Growth in the third quarter was driven by international markets." The company didn't provide forward guidance. Schlumberger shares gapped up about 1% Friday morning in pre-market trading only to reverse to a loss. Shares were down 1.45% as of 7:43 a.m. ET. Shares are up nearly 77% YTD. Check back later for SLB's latest earnings call transcript.
Commentary: Schlumberger, Halliburton Poised To Gain On Higher Oil Prices • Schlumberger Beats As Strong International Operations Offset N. American Weakness • Cramer on SLB
Stocks to watch: SLB. Competitors: HAL, BHI, BHS. ETFs: IEZ, OIH, VDE
Earnings call transcript: Schlumberger Q2 2007
Honeywell Reports Slight Miss
Honeywell International Inc. announced earnings before the bell Friday, reporting a narrow third-quarter earnings miss accompanied by a positive outlook for its full-year earnings. Net income increased to $618 million ($0.81/share) compared to $541 million ($0.66/share) last year. Revenues climbed 9.8% to $8.74 billion. The company fell slightly short of analysts' earnings projections of a profit of $0.82/share on $8.58 billion of sales. CEO Dave Cote said in the release (full transcript available later today), "Great positions in good industries are driving Honeywell's consistent performance and global growth… We believe that the company is well positioned for continued growth and we remain confident in our business outlook." The company said it now sees full-year profits coming in on the high-end of its projections of $3.14 - $3.16/share and upped its full-year revenue target by $300 million to $34.2 billion. For the year, shares of Honeywell are 34% higher, however the company's third-quarter earnings disappointed investors, and sent shares lower by 2.5% to $59.20 in pre-market trading.
Commentary: Honeywell's $16B Deal With Airbus • Honeywell Sweeter than Boeing During Dreamliner Delay
Stocks to watch: HON. Competitors: GR, JCI, UTX. ETFs: VIS, UXI
Earnings call transcript: Honeywell Q2 2007
Xerox Q3 Net Down, But Beats By a Penny
Xerox reported a 53% drop in third-quarter net income to $254 million, or $0.27/share, due to a net $0.31/share one-off gain last year, but was still able to beat analyst estimates by a penny. Revenues rose 12% to $4.3B, topping expectations of $4.24B. Xerox said it expects Q4 EPS of $0.39 to $0.41 and full-year EPS of $1.18 to $1.20. Analysts on average had forecasted $0.41 and $1.18/share, respectively. Equipment sales increased 14% to $1.16B, while Post-sale revenues rose 12% to $2.94B. Financial income fell 2% to $204M. Revenue from color printing grew 13%, representing more than half of equipment revenue and 39% of total revenue. Q3 gross margins were 40.1%, compared to 40.3% in Q2 and 40.2% last Q3. "This quarter’s solid results are proof positive that our business model is on track, generating double-digit profit growth and fueling a strong annuity pipeline that serves us well for the long term," commented CEO Anne Mulcahy in a statement. Xerox's earnings conference call is at 10:00 A.M. (check later for Xerox's earnings call transcript). Shares of Xerox gained 0.8% to $17.21 on Thursday.
Commentary: Xerox's Q2 Was Truly Mediocre • Xerox Takes On HP With New Color Printer • Would You Buy Xerox's New 'Green' Paper?
Stocks to watch: XRX. Competitors: CAJ, HPQ. ETFs: PTF, PHW
Related: Xerox Investor Relations Q3 Materials
Luminent Sues HSBC Over Inequitable Bond Sales
U.S. real estate fund Luminent Mortgage is suing HSBC Holdings, saying the UK Bank's U.S. mortgage trading unit placed an unjustifiably low valuation on subprime-mortgage bonds used by Luminent as collateral for loans, thereby profiting at its expense. According to the Wall Street Journal, HSBC used an artificially low valuation to buy the bonds at subpar, in at least one case using an auction that included only one other bidder. On Aug. 27, the firm alleges, HSBC contacted Luminent and said it had auctioned nine bonds, and emailed Luminent a spreadsheet with the auction prices. "HSBC, conveniently, had submitted the highest bid for all of the bonds." The face value of the bonds in question is $24 million. The suit highlights the problems investment firms and banks had putting a face value on thinly-traded securities, the market for which suddenly dried up in the August credit market crunch.
Commentary: Full Recovery from Credit Crisis May Take Time - Bernanke • Credit Crisis Yields LBO Arbitrage Opportunities • Just How Widespread is the Fallout from the Unfolding Credit Crisis
Stocks to watch: HBC, LUM
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• Medical device maker Boston Scientific Corp. (NYSE:BSX) swung to a loss in Q3, as it was forced to spend to restructure its expenses. EPS was -$0.18 on net income of -$272 million, vs. a gain of $76 million a year earlier. Excluding one-time items, EPS would have been $0.20, vs. $0.18 a year ago. Revenue rose 1% to $2.04 billion. Coronary stent sales fell 16%, amid industry-wide declines. The company had predicted EPS of $0.12 to $0.17 on revenue of $2 billion to $2.1 billion. Shares rose 1.4% in pre-market action. (source: Wall Street Journal)
• Motorcycle maker Harley-Davidson (NYSE:HOG) saw earnings in its latest quarter fall 15% on week U.S. sales, but still manage to top consensus estimates. Net income was $265 million, good for EPS of $1.07, vs. EPS of $1.20 a year ago. Sales dropped 5.8% to $1.54 billion; consensus estimates were for EPS of $1.04 on sales of $1.52 billion. (source: Reuters)
Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
Talk about a turnaround. Yesterday first looked bleak before the opening when Bank of America (NYSE:BAC) came in short of estimates by 24 cents, with a decline in net profit of 32%.
The start of the session was grim, with the Dow Industrials falling almost 70 points in the first 30 minutes of trading, but that turned out to be the day's low, with big tech stocks leading the charge back. Nokia (NYSE:NOK) and eBay (NASDAQ:EBAY) beat estimates, as did Big Pharma stock Pfizer (NYSE:PFE).
Crude oil prices again hit new highs and, even though it may not have been the focus of attention yesterday, traders are still keeping a wary eye on the price and the events in northern Iraq. An invasion of the Kurdish areas would most certainly create panic in the oil pits where traders expect the price of crude to break through $100 a barrel should that happen.
The economic news turned out to be no news yesterday as unemployment figures for the week ending Oct. 13 rose slightly, but the long-term trend is still favorable. Additionally, the Leading Indicators for September rose 0.3%, right on target, and the Philadelphia Fed Index for October was just slightly lower than expected.
At the close, the Dow Jones Industrial Average (DJI) fell just under four points to 13,889. The S&P 500 (SPX) lost a point at 1,540, and the Nasdaq gained over six points and closed at 2,799. Volume on the NYSE totaled 1.4 billion shares and almost 2.4 billion shares traded on the Nasdaq. Advancers barely exceeded decliners on both exchanges.
The November crude oil contract hit a new intraday high at over $89 a barrel to close at $87.12, off 21 cents. The Amex Energy SPDR (NYSEARCA:XLE) gained 37 cents and closed at $77.94. The December gold contract gained a scant 30 cents and closed at $762.30 per troy ounce, but the Philadelphia Gold/Silver Index [XAU] had a big day, gaining $4.62 to close at $177.36.
What the Markets Are Saying
So far, Q3 earnings have been mixed, with the techs coming in ahead of estimates and the financials under expectations. That was forecast, but what wasn't predicted was the news from northern Iraq and the resulting surge in the price of crude.
The market has been reacting surprisingly well to this, so the bulls are heartened that they might just pull out of Q3 and launch an attack on the domestic market highs before the turkey hits the plate at the end of November.
However, the technical story of the market just doesn't support their optimism. Sentiment (though moderated) is still too bullish and the internal indicators are still overbought, though not as much as two weeks ago. But momentum has ground to a halt and the indices that usually predict a booming economy (the utility and transport indices) are in intermediate downtrends.
For now, it's probably better to look forward to turkeys, not bulls, or you could be the one getting carved up.
Today's Trading Landscape
There are no significant economic reports today, but news may come from the G-7 Finance Ministers who are meeting in Washington D.C. today.
Earnings should be reported today from 3M, Arch Coal, Boston Scientific, Caterpillar, Mohawk Industries, New York Community Bancorp, Sonoco, Wilmington Trust, Xerox and others.
Schlumberger (NYSE:SLB) beat estimates by 2 cents. Wachovia (NASDAQ:WB) missed estimates by a wide margin, but Fifth Third Bank (NASDAQ:FITB), Xerox (NYSE:XRX), Boston Scientific (BSX), and Harley-Davidson (HOG) all surpassed expectations and Honeywell (NYSE:HON) was in line. The market will be looking closely at companies' Q4 estimates today, as well as a move in crude oil from its current position at $90 a barrel.
Asian Headlines (via Bloomberg.com)
Asian Stocks Decline, Led by Mizuho on Banks Earnings, Yen; BHP Slides Asian stocks fell, completing their first weekly decline in more than a month, after Bank of America Corp. reported a profit drop from the worst U.S. housing slump since 1991, reigniting concern that lenders' earnings will suffer.
Yen Rises as Stock Market Declines Prompt Investors to Reduce Carry Trades The yen rose to the highest in more than a week against the euro as a decline in Asian stocks and the increased risk of holding corporate debt prompted investors to sell higher-yielding assets bought with loans in Japan.
Bank of Japan Remains Committed to Increasing Interest Rates, Muto Says The Bank of Japan remains committed to raising interest rates as the world's second-largest economy extends its expansion, Deputy Governor Toshiro Muto said.
Kirin in Talks to Buy Kyowa Hakko to Add Drug Sales as Beer Unit Struggle Kirin Holdings Co., Japan's biggest brewer, is in talks to buy Kyowa Hakko Kogyo Co. to triple the size of its drug unit as beer sales stall.
KDDI Second-Quarter Profit Rises 4.7 Percent on Mobile Phone User Increase KDDI Corp., Japan's second-biggest mobile-phone carrier, posted a second straight increase in quarterly profit after it attracted customers from larger rival NTT DoCoMo Inc.
ICICI Bank's Profit Rises 33 Percent, Beating Estimates, on Higher Loans ICICI Bank Ltd., India's second- biggest bank by assets, said second-quarter profit rose 33 percent as it earned more from loans and other financial products in Asia's third-biggest economy.
European Headlines (via Bloomberg.com)
U.K. Economy Grew Faster Than Forecast in Third Quarter, Led by Services The U.K. economy grew faster than economists forecast in the third quarter, driven by services from airlines to banks, a sign higher borrowing costs have yet to cool expansion.
Crude Oil Tops $90 for First Time After Dollar Extends Decline Versus Euro Crude oil surpassed $90 a barrel for the first time and is set for the biggest weekly gain since March after the dollar traded near a record low against the euro, enhancing the appeal of commodities as an investment.
European Oil Stocks Gain as Crude Rises; HSBC, Commerzbank Lead Banks Down European energy stocks climbed as crude rallied to a record in New York. BP Plc, the region's second-largest oil company, and Repsol YPF SA of Spain advanced.
Credit Risk Increases Most in Three Months as Concern Over SIVs Persists Credit-default swaps rose the most in three months this week as plans for an $80 billion fund to rescue structured investment vehicles failed to prevent two funds warning they may be unable to repay all of their debt.
WPP Drops After Saying Ad Market May Slow in 2009; Sales Miss Estimates WPP Group Plc, the world's second- biggest advertising company, fell the most in 4 1/2 years in London trading after third-quarter sales missed analysts' estimates and it said the ad market may slow in 2009.
Sanofi Seeks Drug Purchases to Replace Best-Sellers Facing Generic Rivals Sanofi-Aventis SA, France's biggest drugmaker, will seek to acquire products to help offset a revenue decline when its best-sellers face generic competition.