Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 9:03 AM ET
S&P 500: -6.90; 1,518.50
NASDAQ 100: -9.75; 2,202.75
Dow: -47; 13,660
NIKKEI 225: -0.56%; 16,358.39 (-92.19)
HANG SENG: -0.15%; 29,333.53 (-43.33)
SHANGHAI SE COMPOSITE: +1.21%; 5,843.11 (+69.72)
BSE SENSEX 30: +0.11%; 18,512.91 (+20.07)
FTSE 100: +0.29%; 6,532.90 (+18.90)
CAC 40: +0.33%; 5,723.86 (+18.81)
XETRA-DAX: -0.06%; 7,838.05 (-4.74)
Commodity Futures (Reuters/Jefferies CRB)
Oil: -0.20%; $85.10 (-$0.17)
Gold: -0.39%; $760.10 (-$3.00)
Natural Gas: -0.68%; $6.72 (-$0.05)
Silver: -0.73%; $13.55 (-$0.10)
U.S. Breaking Newssee today's Wall Street Breakfast for earlier news
Merrill Lynch Down 3% on $7.9B Write-Off
Wall Street investment bank Merrill Lynch said Wednesday it would take $7.9 billion in write-down charges on collateralized debt obligations and subprime mortgages, significantly more than the $4.5 billion the company forecast during its pre-earnings release on Oct. 5 (full story). "In light of difficult credit markets and additional analysis by management during our quarter-end closing process, we re-examined our remaining CDO positions with more conservative assumptions. The result is a larger write-down of these assets than initially anticipated," CEO Stan O'Neal said (full earnings call transcript later today). Q3 2007 total net revenue of $577 million plunged 94% from $9.8 billion in the prior-year period and from $9.7 billion last quarter. Net loss from continuing operations was $2.3 billion ($2.85/share), after net earnings of $2.22/share last quarter and $3.14/share in the year-ago Q3. Analysts surveyed by Reuters were expecting a net loss of $0.45/share on revenue of $2.86 billion. "This is a bloodbath for certain," Johnson Family Funds analyst Bill Fitzpatrick said. "It speaks very poorly to Merrill's risk management practices. Clearly, heads are going to roll... Merrill has lost credibility in its write-down projections. My gut feeling is that they tried to kitchen-sink the losses in the third quarter, so future write-downs will be smaller." Merrill's Global Wealth Management unit was a bright spot, generating Q3 revenue of $3.5 billion, up 29%. "With the other business lines, you're looking at some good numbers," Deutsche Bank's Owen Fitzpatrick said. Shares are down 3.4% to $64.88 in pre-market trading.
Commentary: Investment Banks: Not Dead Yet • Goldman Analyst Slashes Targets for Merrill • Global Rescue Fund Seeks Participants - WSJ
Stocks to watch: MER. Competitors: GS, MS, JPM, BSC, LEH. ETFs: IAI, KCE
Earnings call transcript: Merrill Lynch Q2 2007
Boeing Paces Aerospace Sector with Strong Q3 Beat and Raise
Boeing reported a 61% jump in third-quarter net income to $1.11 billion, or $1.44/share, easily beating analysts' average estimate of $1.24/share. Revenues rose 12% to $16.5b, also topping expectations of $16B. Boeing raised its full-year EPS outlook to $5.05 to $5.15, from $4.80 to $4.95 previously, citing core business performance and lower corporate costs. Analysts were expecting $5.06/share, on average. Q3 operating margins improved to 11.4% vs. 10.6% last year. Boeing said backlog expanded to a record level of $295B. Separately, General Dynamics reported a 25% increase in net income to $546M, or $1.34/share, on sales growth of 12.6% to $6.83B. Both figures beat Street estimates of $1.25/share on sales of $6.1B. General Dynamics also raised its full-year EPS guidance, to $5.00 to $5.05, from $4.85 to $4.90 previously, versus analyst estimates of $4.95. General Dyanmics' operating margins improved 50 basis points to 11.7%. Northrop Grumman also reported better-than-expected earnings early Tuesday. Net income climbed 62% to $489M, or $1.41/share, as sales increased 7% to $7.93B. Analysts had forecast $1.27/share on sales of $7.92B. The company raised its full-year EPS outlook to around $5.10, from $4.90 to $5.05 previously, compared to analyst expectations of $5.05. Operating margins jumped to 10.2% from 7.4% last year. Lockheed Martin reported a beat and raise quarter on Tuesday (full story). Raytheon reports on Thursday. Shares of Boeing and Northrop Grumman were mostly flat on Tuesday closing at $94.95 and $79.53, respectively, while General Dynamics rose 1.4% to $87.10. Boeing was last up 1.2% to $96.10, while General Dynamics was unchanged and Northrop Grumman was down 0.8%, all in very thin pre-market trading.
Commentary: Friday's Profit-Taking a Prelude to a Positive Earnings Week • Lockheed Beats and Raises, But Street Expects More
Stocks to watch: BA, GD, NOC. Competitors: LMT, RTN, EADS (Paris: 005730). ETFs: DIA, ITA, PPA
ConocoPhillips Net Falls, In Line With Estimates
International energy company ConocoPhillips said Wednesday its Q3 net income fell from a year ago, to $3,673 million ($2.23/share), from $3,876 million ($2.31/share) in 2006. Revenue fell $2 billion to $46.1 billion. Earnings exceeded analyst estimates of $2.19/share. Earlier this month Conoco said its Q3 refining margins would be "significantly lower," and that its daily production fell by 180,000 barrels as a result of its withdrawal from Venezuela (full story). Conoco's refining and marketing profit fell 11% y/y to $1.31 billion, but plunged 45% from last quarter. Exploration-and-production net was up 9.3% to $2.08 billion, but last year's profits were hurt by new tax legislation. Higher crude prices during the quarter were offset by lower volumes and natural-gas prices. Conoco also noted earnings from its 20% stake in Russian Lukoil fell 21% to $387 million. The firm repurchased $2.5 billion in shares in Q3, and said it would buy another $2-3 billion in Q4. "We continue to progress our long-term strategic investment plans, and we remain focused on improving our operations and financial flexibility," CEO Jim Mulva said (full earnings call transcript later today). Conoco recently announced an agreement with Archer Daniels Midland to collaborate on the development of renewable transportation fuels from biomass. Shares are flat in pre-market trading. They're up 15.7% YTD and 36.7% over the past year.
Commentary: ConocoPhillips Needs No Favors From Hugo Chavez • ConocoPhillips: Grit Your Teeth and Sell
Stocks to watch: COP. Competitors: XOM, BP, CVX, TOT, RDS.A. ETFs: DIG, IGE, PRFE
Earnings call transcript: ConocoPhillips Q2 2007
Freeport-McMoRan’s Profits and Revenues Jump
Freeport-McMoRan Copper & Gold announced Wednesday its third-quarter income doubled, while revenue tripled. Earnings from continuing operations came in at $763 million ($1.85/share) compared to $351 million ($1.67/share) one year ago. The boost in income and revenue was largely attributable to the inclusion of Phelps Dodge's production, which Freeport bought earlier this year (full summary). The latest earnings also included a one-time charge of $0.67/share. Revenue jumped to $5.1 billion from $1.6 billion last year. Analysts were looking for earnings of $2.26/share on $5.12 billion of revenue. James Moffett, Chairman of the Board, and Richard Adkerson, CEO said, "Our third-quarter performance reflects a continuation of positive market conditions for copper, gold and molybdenum and strong operating results at our North American, South American and Indonesian operations." Prices for copper and gold continued to rise in the past quarter. FCX bought Phelps Dodge in March for $25.9 billion. Shares of Freeport-McMoRan jumped 4.1% in Tuesday's session, and after the strong earnings figures, the company traded up another 1.3% to $112.62 in pre-market activity.
Commentary: Commodities' Golden Future • Five Ways to Invest in Copper, the Forgotten Metal
Stocks to watch: FCX. Competitors: NEM, PCU. ETFs: VAW, RTM
Nasdaq Net Soars on Record Volume, LSE Stake Sale
U.S. exchange Nasdaq Stock Market Inc. said Wednesday net profit surged on record high trading volume, increased market share, and a one-time gain on the sale of its stake in the LSE. Q3 net was $365.0 million ($2.41/share), up from $30.2 million ($0.22/share) year-over-year. Included in the gain are pre-tax gains of $431 million on the sale of its 31% stake in the London Stock exchange (full story), net of which, together with other items, EPS was $0.42/share. Revenue was $652 million, up 62% from 2006, while net exchange revenue (excluding liquidity rebates, brokerage, clearance and exchange fees) was up 22.7% to $210 million. Analysts had forecast earnings of $0.39/share on exchange revenue of $210 million. Nasdaq shares are up 42% since CEO Robert Greifeld said on June 30 he would sell the LSE stake and expand into Europe though what emerged as a joint bid for Sweden's OMX AB with Borse Dubai (full story). "The volatility in the equity market is actually great for exchanges. As long as you've got high volumes, Nasdaq and the New York Stock Exchange will benefit," one analyst said. Nasdaq boosted its full-year revenue forecast to between $800 million and $810 million, from a July estimate of as much as $790 million. Operating expenses will be $435-$445 million, vs. July's forecast of $415 million. Nasdaq's matched market share (trades executed internally instead of being routed to other venues) fell to 47.3% from 48.7%, but its share of trades in NYSE Euronext's listed stocks jumped to 18% from 12%. It said it captured 56 new listings during the quarter, of which 24 were IPOs (full earnings call transcript later today). Shares are up 2% in pre-market trading.
Commentary: The Publicly Held Exchange Industry: Is There Any Value Left? • Nasdaq is not a Strategic Asset • An Exchange ETF Would Have Been a Top Performer Over Recent Years
Stocks to watch: NDAQ. Competitors: CME, NYX, ISE, ICE
Earnings call transcript: The Nasdaq Stock Market Q2 2007
Corning Tumbles on Soft Guidance
Shares of LCD glass and fiber optic cable maker Corning Inc. plummeted in pre-market action Wednesday following earnings that beat by a penny, in-line sales and weak forward guidance. Profit rose 41% on "excellent performance in our Display Technologies and Telecommunications segments," according CEO Wendell Weeks. The company had predicted strong Q3 performance a month ago (full summary). Net income was $617 million, good for EPS of $0.38, versus EPS of $0.27 a year ago. Sales climbed 21% to $1.55 billion; consensus analyst estimates were for EPS of $0.37 on revenue of $1.55 billion. Looking to next quarter, Corning expects EPS in a range of $0.36 to $0.38 on sales of between $1.5 billion to $1.55 billion. Wall Street had been expecting EPS of $0.39 on sales of $1.62 billion. CFO James B. Flaws commented, "The overall display market appears healthy heading into the fourth quarter. Retail market indicators continue to point toward a strong consumer holiday buying season for electronic goods such as LCD televisions, laptop computers and flat screen monitors," (full transcript later today). Despite his enthusiasm, Corning's shares were down 7% in pre-market action as of 7:47 AM ET. Through yesterday's close, shares were up 32% YTD.
Commentary: Corning Sees Profits at High End of Forecasts • Corning Comes Under Pressure In All Three Divisions • Cramer on GLW
Stocks/ETFs to watch: GLW. Competitors: LPL, PHG, AUO. ETFs: BDH, IGN
Earnings call transcript: Corning Q2 2007
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• Midwest bank and mortgage originator National City Corp. (NCC) saw its Q3 profits tumble 80%, largely on mortgage-related losses. Shares were down nearly 3% in pre-market trading (as of 8:24 AM ET) as a result. Net income was $106 million, good for EPS of $0.18, vs. EPS of $0.86 in the year-earlier period. Mortgage-related losses shaved off $0.25 a share in earnings. Consensus analyst estimates were for EPS of $0.33. The company reported loan-loss provisions of $361 million - five times what they were a year ago. CEO Peter Raskind blamed "unprecedented disruption and weakness in the mortgage and housing markets" for his company's weak results. NCC's shares are down 35% this year (through Tuesday's close), vs. a 13% drop in the Philadelphia KBW Bank Index. (source: Reuters)
• Oil and Gas major Occidental Petroleum Corp. (NYSE:OXY) reported net income rose to $1.32 billion in its recent quarter, good for EPS of $1.58, vs. $1.36 a share earnings a year ago. Net sales were $4.84 billion; consensus analyst estimates were for EPS of $1.30 on net sales of $3.73 billion. The strong beat propelled OXY's shares higher by 1.27% in pre-market action (as of 8:14 AM ET). (source: AFX News)
• Newspaper publisher Tribune Co. (TRB) reported a 7% drop in Q3 earnings, as the U.S. housing slump hurt real estate newspaper advertising revenues. EPS doubled to $1.22, despite a decline in net to $152.8 million from $164.3 million a year ago, due to a 50% decrease in the number of shares outstanding. Ad revenue fell 9% to $674.5 million. EPS was $0.38 on an adjusted basis; consensus estimates had called for adjusted EPS of $0.26. (source: Thomson Financial)
Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
The Dow Industrials made a triple-digit day climb yesterday on the backs of technology stocks -- especially Apple Inc. (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOG) and Research In Motion (RIMM).
AAPL reported a 67% increase in earnings on Monday night, impacting yesterday's opening, and AMZN ran up ahead of earnings reported after Tuesday's close. RIMM was strong based on a deal to sell its Blackberry wireless devices in China, and GOOG ran up just because "that's what it does."
But even though it was the more glamorous tech stocks that were in the spotlight, there were some big blue chips, such as American Express (NYSE:AXP) which reported an 11% rise in Q3 profits, that helped propel the Dow Jones Industrial Average.
However, not all was sweetness and light, especially in retail land as giant Wal-Mart (NYSE:WMT) shocked analysts when it said it was not only cutting expenditures for FY 2008 but it expects sales to grow at a slower pace for the next two years. The news meant the stock closed down $1.32. Not to be outdone, Target (NYSE:TGT) cut its October same-store sales guidance, and Coach (COH) said that Q4 would be a bummer and its stock dropped $4.87.
But despite the disappointing retail outlook, the tech sector managed to pull off an impressive rally and the Dow Jones Industrials closed the day at 13,676, up 109 points. The S&P 500 gained 13 points, closing at 1,520, and the Nasdaq gained 45 points at 2,799 and was again the leader, up 1.45%, almost double that of the Industrials and SPX.
Volume on the NYSE came in at 1.3 billion shares, and on the Nasdaq 2.4 billion shares were traded. Advancers were ahead of decliners on the New York by 11-to-5 and ahead on the Nasdaq by 17-to-11.
Crude oil (December contract) fell by 75 cents to $85.27 a barrel, and the Amex Energy SPDR (NYSEARCA:XLE) gained 88 cents closing a trading gap opened on Monday at $74.40 to $73.96. Gold (November contract) gained $3.10, closing at $763.10 per troy ounce, and the Philadelphia Gold/Silver Index [XAU] gained $5.30 to close at $175.
What the Markets Are Saying
Despite two positive days, the internal indicators are still somewhat oversold. Yet the indices are in the middle of their trading ranges and momentum has just turned positive. However the sentiment indicators are still too bullish (which is not good), and volume in everything except the technology sector continues to lag.
So one group of indicators offsets the other, and this tends to support the view that we are again confined to a well-defined trading zone in the Dow of about 500 points (13,270 to 13,770) and in the S&P 500 of about 50 points (1,490-1,540).
But if earnings in the technology sector continue to beat estimates and if volume would pick up in the other sectors, we could beat the odds and break out. However, for someone like me who wants to have the odds in his favor, this mini-rally should be a cash producer and not a cash burner.
Today's Trading Landscape
The only economic report due today is the existing-home sales (the consensus expects $5.24 million).
Look for earnings from Aaron Rentals, Acme, Advent Software, Affymetrix, Agnico Eagle Mines, Air Products & Chemicals, Airgas, Akamai Technologies, Alcon, Allegheny Technologies, Alliance Capital Management Holdings, Ambac Financial Group, American Electric Power, Americredit, Ameriprise Financial, Amgen, Anheuser Busch, Axsys Technologies, Boeing, CoBoston Properties, Cadence Design System, Carlisle, Celadon Group, Certegy, Chicago Mercantile Holdings, Choice Hotels International, Choicepoint, Cirrus Logic, Cohen & Steers, Columbia Bancorp, Commerce Energy Group, Compuware, ConocoPhillips, Convergys, Core Laboratories, Corning, Covance, Cullen Frost Bankers, Cyberoptics, Cybex International, Dover, Dr. Reddy's Labs, Dyax, Eastgroup Property, Ethan Allen Interiors, Express Scripts, First Industrial Realty, Fiserv, Freeport-Mcmoran Copper & Gold, Gardner Denver, General Dynamics, Genzyme, GlaxoSmithkline, Grace W.R. & Co., Harsco, Hercules, Ibis Technology, Insituform Technologies, Kennametal, Kirby, Legg Mason, Lennox International, LSI Logic, Marine Products, Merrill Lynch & Co, Midland, Monster Worldwide, Moody's, Murphy Oil, National City, Norfolk Southern, Northrop Grumman, Nova Chemicals, Occidental Petroleum, Paccar, Peoples Bancorp, Pixelworks, Praxair, Pulte Homes, Quantum, Quest Diagnostics, Questar, Rollins, Ryder Systems, Ryland Group, Sangamo Biosciences, Sealed Air, Snap-On, Stanley, Ruger, Symantec, USB Holdings, Varian Medical Systems, VCA Antech, Wabtec, WellPoint, W.M. Wrigley Jr., Zarlink Semiconductor, and many, many more.
The markets are on edge waiting for the Merrill Lynch (MER) earnings as rumors swirl of more serious problems resulting from the subprime problems.
Asian Headlines (via Bloomberg.com)
Asian Stocks Slide, Erasing Gain, on Merrill Profit Concern; Canon Drops Asian shares fell, erasing early gains, after the New York Times reported Merrill Lynch & Co. will probably add $2.5 billion more in writedowns in the wake of the U.S. subprime mortgage crisis.
Buffett Says Investors Should Be `Cautious' About China Stocks After Rally Billionaire Warren Buffett said investors should be ``cautious'' about China's stocks after the country's benchmark index more than doubled this year.
Yen Strengthens on Report Merrill Will Add $2.5 Billion to Debt Writedowns The yen rose against all 16 of the most-active currencies after the New York Times reported Merrill Lynch & Co. will probably writedown about $2.5 billion more from third-quarter earnings.
S&P May Cut Ratings of 207 Australian, New Zealand Mortgage-Backed Bonds Standard & Poor's may cut the credit ratings of 207 Australian and New Zealand residential mortgage- backed securities as turmoil in the U.S. subprime market spreads to home-loan insurers.
Yamaha Motor to Sell New, Locally Built Models in India to End Losses Yamaha Motor Co., the world's second- largest motorcycle maker, will introduce new models in India to stem five years of losses from its operations in the country.
Japan's Norinchukin Bank Plans to Buy $26 Billion of Asset-Backed Bonds Norinchukin Bank Ltd., the biggest holder of asset-backed bonds among Japanese banks, plans to invest about 3 trillion yen ($26 billion) in such securities overseas, saying prices are attractive after the U.S. housing slump eroded demand.
European Headlines (via Bloomberg.com)
European Technology Stocks, STMicroelectronics Rise; AstraZeneca Declines European technology stocks advanced after STMicroelectronics NV, the region's largest maker of semiconductors, said it expects sales to increase this quarter as the company delivers more chips to mobile-phone makers.
Glaxo Profit Falls 5.8 Percent on Advair, Avandia; Drugmaker to Cut Jobs GlaxoSmithKline Plc, Europe's largest drugmaker, reported third-quarter profit fell 5.8 percent as its Advair asthma treatment and Avandia diabetes pill lost sales to competing medicines.
Rexel Arranging Funding for Hagemeyer Offer to Rival Sonepar, People Say Rexel SA, the world's biggest distributor of electrical equipment, is lining up financing for a possible bid for Hagemeyer NV that would rival a 2.51 billion- euro ($3.6 billion) offer from France's Sonepar, two people familiar with the plans said.
Services Growth in Europe Accelerates as Banks Recover From Credit Squeeze Growth in Europe's service industries accelerated in October as banks started to recover from higher credit costs sparked by defaults on U.S. subprime mortgages.
UBS to Acquire Commerzbank's French Asset Management Unit for $620 Million UBS AG, the world's biggest bank for the wealthy, agreed to buy Commerzbank AG's French money management unit for 435 million euros ($620 million) to double funds it oversees in Europe's third-largest economy.
Fiat Third-Quarter Net Trails Estimates as Costs Increase; Stock Declines Fiat SpA, Italy's biggest carmaker, reported third-quarter profit that trailed estimates as spending increased on reorganizations of its supplier network and farm- equipment unit. The stock dropped the most in seven weeks.