Wall Street Breakfast: Must-Know News

SA Eli Hoffmann profile picture
SA Eli Hoffmann
  • Freddie misses, slashes dividend. Mortgage financer Freddie Mac (FRE) loses $821M, more than estimates, and cuts its dividend to $0.05 to $0.25 (see below). Subprime and low-quality mortgage writedowns were $1B. "We remain committed to raising $5.5B of new capital, and will evaluate raising capital beyond this amount depending on our needs and as market conditions mandate," CEO Richard Syron said. Shares down 11% premarket.
  • Ambac losses exceed forecasts. Bond insurer Ambac (ABK) loses $1.53/share on an operating basis, worse than expected (see below). ABK anticipates another $1.1B in CDO claims - bringing likely impairments to more than $3B. "We won't know for sometime whether Ambac is going to be one of the long-term survivors," CreditSights' Rob Haines says. Shares, which have shed 92% of their value over the past year, are up 5% premarket.
  • After you finish reading Wall Street BreakfastSeeking Alpha's Market Currentswill keep you current all day long.
  • Fed holds steady; statement indicates more of the same. The Fed's FOMC held its fed funds target rate at 2%, as expected. Once again, Dallas Fed president Richard Fisher was the lone dissenter. The accompanying statement was perhaps more dovish than many expected. "Although downside risks to growth remain, the upside risks to inflation are also of significant concern to the Committee." Gone were both references to diminished downside risks and increased inflation expectations (today, June). Fed funds futures fell to a 52% chance of a rate hike over the next two FOMC meetings, down from 62% yesterday and as high as 80% last week. Pimco's Bill Gross calls any talk of a rate hike comical: "We're in a recession. When has the Fed ever raised rates in a recession? Unemployment is headed toward 6%, mortgage rates on home buyers are at 7%, and these guys want to raise rates?"
  • Cisco takes slowdown in stride. Cisco posted FQ4 earnings and revenue that were slightly better than analyst estimates (see below). The tech bellwether's CEO John Chambers told analysts during the firm's earnings call he remains unclear exactly when customers will begin spending again, but said he expects current challenges to remain "for the next few quarters." Still, U.S. IT spending did bounce to +13% from 6% last quarter. Over the long-term, Chambers said he remains confident in CSCO's growth forecast of 12-17%.
  • Sony buys the rest of Sony BMG. Sony (SNE) pays $900M to buy out Bertelsmann, its JV partner in Sony BMG Music Entertainment. CEO Howard Stringer says soon-to-be-renamed Sony Music Entertainment will "provide a deeper integration between the music company and Sony's [consumer electronic] products." The price tag amounts to only 4.5x 2008 earnings before interest, taxes, depreciation, and amortization, or Ebitda, analyst Richard Greenfield says. Publicly owned Warner Music Group (WMG) trades at a multiple of 7x. Key Sony stars include Bruce Springsteen, Justin Timberlake, Celine Dion, and Alicia Keys.
  • Morgan Stanley rumored to freeze thousands of home-equity credit lines. A source alleges Morgan Stanley (MS) has frozen home-equity credit withdrawals for thousands of clients. This comes as property values continue to slide, and home-owners in the first quarter fell behind on home-equity credit lines at the fastest rate in two decades. A Morgan Stanley spokesman confirms that "a segment of clients was recently notified of a change in the status of their home-equity line of credit," but declines to share the dollar amount of the frozen credit lines.
  • Yahoo recount paints bleaker picture. Yahoo's (YHOO) vote counter Broadridge admits it goofed in its tally of YHOO's board elections: Originally it said 85.4% of shareholders approved CEO Jerry Yang; now it says 33.7% of investors withheld votes, giving him just 66.3% of the vote. 39.6% withheld on chairman Roy Bostock; board members Ronald Burkle and Arthur Kern saw their withheld tallies jump to 37.9% and 31.7%. While the outcome of the vote doesn't change, the recount does paint a very different picture of how shareholders view the board post MSFT, Carl Icahn etc.
  • Xstrata makes £5B pass at Lonmin. Xstrata (OTC:XSRAF) bids $9.8B in cash for South Africa's Lonmin, which it has coveted for years. A buy would make it the world's third biggest platinum producer. Lonmin calls the bid entirely unwelcome, even as shares rise 51%.
  • ISM's non-manufacturing index increased by 1.3% in July to 49.5%, ahead of 48.8% consensus. While the sub-50 ISM Services number indicates contraction, the good news is it's moving in the right direction. Prices at 80.8, down from 84.5, remain elevated - but the drop offers a ray of hope inflation may be moderating.
  • ICSC Retail Sales were flat on a wk/wk basis (previous week +1.2%) and +2.9% yr/yr. Redbook said U.S. retail sales rose 1.4% in July vs. June and rose 3.5% yr/yr.

Earnings: Wednesday Before Open

  • Ambac (ABK): Q2 EPS of -$1.53 misses by $0.34. Revenue of $1.33B vs. $446M. Shares +5%. [PR]
  • Foster Wheeler (FWLT): Q2 EPS of $0.98 beats by $0.14. Revenue of $1.7B (+43%) in-line. Shares +2.8%. [PR]
  • Freddie Mac (FRE): Q2 EPS of -$1.63 misses by $1.22. Revenue of $1.7B vs. $2.2B. Dividend falls to $0.05 from $0.25. Shares -11%. [PR]
  • Hospira (HSP): Q2 EPS of $0.57 misses by $0.05. Revenue of $902M vs. $926M. Shares -3.2%. [PR]
  • Nasdaq (NDAQ): Q2 EPS of $0.48 beats by $0.05. Revenue of $380M (+36.6%) vs. $373M. [PR]
  • Polo Ralph Lauren (RL): FQ1 EPS of $0.93 beats by $0.21. Revenue of $1.11B in-line. Shares +4%. [PR]
  • Qwest (Q): Q2 EPS of $0.11 beats by $0.01. Revenue of $3.38B (-2.3%) vs. $3.40B. [PR]
  • Sprint Nextel (S): Q2 EPS of $0.06 beats by $0.03. Revenue of $9.05B (-10.9%) vs. $9.17B. Loses 776,000 postpaid wireless customers, but churn fell by 45 bps to less than 2%. Plans to sell $3B in shares. -5.2%. [PR]
  • Time Warner (TWX): Q2 EPS of $0.24 beats by $0.01. Revenue of $11.55B (+5.2%) vs. $11.45B. [PR]
  • Time Warner Cable (TWC): Q2 EPS of $0.34 beats by $0.02. Revenue of $4.3B (+7.1%) in-line. [PR]
  • Transocean (RIG): Q2 EPS of $3.45 beats by $0.22. Revenue of $3.10B (+116.3%) vs. $3.05B. [PR]
  • Yingli Green Energy (YGE): Q2 EPS of $0.26 beats by $0.05. Revenue of $290M (+120.5%) vs. $234M. Shares +0.5%. [PR]

Earnings: Tuesday After Close

  • Bidz.com (BIDZ): Q2 EPS of $0.14 beats by $0.04. Revenue of $55M vs. $49M. Shares +9%. [PR]
  • Blue Nile (NILE): Q2 EPS of $0.20 beats by $0.03. Revenue of $74M in-line. Shares -2.6%. [PR]
  • Cisco Systems (CSCO): FQ4 EPS of $0.40 beats by $0.01. Revenue of $10.4B vs. $10.31B. Shares -0.9%. [PR]
  • Harris (HRS): FQ4 EPS of $0.95 misses by $0.03. Revenue of $1.43B in-line. Shares -1.2%. [PR]
  • Herbalife (HLF): Q2 EPS of $1.01 beats by $0.09. Revenue of $640M vs. $613M. Sees 2008 EPS of $3.64-3.69 vs. $3.59 Shares +0.6%. [PR]
  • Liberty Global (LBTYA): Q2 EPS of $1.11 vs. consensus of -$0.01 (?). Revenue of $2.73B in-line. Shares +0.4%. [PR]
  • News Corp. (NWS): FQ4 EPS of $0.43 beats by $0.09. Revenue of $8.59B vs. $8.5B. Shares +9.8%. [PR]
  • ON Semiconductor (ONNN): Q2 EPS of $0.23 beats by $0.04. Revenue of $563M vs. $552M. Shares +8.9%. [PR]
  • Priceline.com (PCLN): Q2 EPS of $1.55 vs. $1.44. Revenue of $514M vs. $496M. Shares -17%. [PR]
  • Sotheby's (BID): Q2 EPS of $1.46 beats by $0.09. Revenue of $320M in-line. [PR]
  • Wendy's (WEN): Q2 EPS of $0.30 misses by $0.07. Revenue of $632M (-0.2%) vs. $627M. Shares +2.7%. [PR]
  • Whole Foods Market (WFMI): FQ3 EPS of $0.24 misses by $0.07. Revenue of $1.84B (+21.6%) vs. $1.91B. Sees FQ4 EPS of $0.13-0.15 vs. $0.27. Shares -13%. [PR]

Today's Markets

  • Asian markets closed higher Wednesday. Nikkei +2.63% to 13,255. Shanghai +1.06% to 2,719. BSE +0.75% to 15,074. Hang Seng was closed due to an approaching cyclone.
  • Europe at midday: London +0.1%. Paris +0.6%. Frankfurt -0.15%.
  • Futures give little sense of direction. Dow -0.35%. S&P -0.29%. Nasdaq +0.19%. Crude -0.06% to $119.10. Gold +0.87% to $893.80.

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This article was written by

SA Eli Hoffmann profile picture
Seeking Alpha mourns the loss of Eli Hoffmann, beloved manager, friend and guiding light. Please read the testaments, below. ------------------ I am Seeking Alpha's COO and Editor-in-Chief. My love for the stock markets goes back to when I was a kid. Who else remembers combing through the stock quotes at the back of the business section of your local paper?I joined Seeking Alpha in 2006 and launched Wall Street Breakfast and Market Currents, now known as Breaking News, our top-of-class short-form breaking news for investors. In 2010 I became editor-in-chief and in 2015 I became CEO. In March 2020, David Jackson, our founder, stepped back in as CEO and appointed me COO.I live in Jerusalem with my wife and a bunch of exceptional kids. Most days, you'll find me making the commute from Jerusalem to Raanana. Occasionally I get to work from my home-office, from where I keep an eye on the beautiful Judean Hills. (Note: Until further notice, I am ONLY working from Jerusalem, with all my kids standing on my head. I look forward to getting back to a more normal schedule together with everyone else.)

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