Wall Street Breakfast: Must-Know News

by: Wall Street Breakfast
Wall Street Breakfast
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.

Top Stories
Apple annual net profit passes $41B. Apple's (NASDAQ:AAPL) FQ4 EPS undershot Street forecasts despite rising to $8.67 from $7.05 a year ago, with lower-than-expected iPad sales helping to account for the miss. However, it's worth pointing out that net profit hit $8.2B for the quarter and a gargantuan $41.7B for the whole year vs. $25.9B in FY 2011. That's taken the company's cash mountain to $121.3B. Apple predicted FQ1 revenue of $52B and EPS of $11.75. Both figures are below consensus, but so what?

Whatever Apple can do, Samsung can too. Samsung's (OTC:SSNLF) Q3 net profit soared 91% to 6.56T won ($6B) - the company's third straight quarter of record profit - while revenue jumped 26% to 52.2T won. As ever, earnings were boosted by Samsung's mobile unit, where sales of the Galaxy S III helped operating profit more than double to 5.63T. However, Samsung indicated that momentum may stall in Q4, saying it "expects market competition to intensify" and "muted" seasonal demand due to the global economy.

Amazon makes first net loss since 2003. Amazon (NASDAQ:AMZN) continued its race for growth at the expense of profits in Q3, swinging to an adjusted loss per share of $0.23 from a profit of $0.14 a year ago despite sales jumping 27% to $13.81B. Earnings missed expectations, but one suspects that Jeff Bezos isn't too troubled, with operating expenses rising 28% to $13.8B. Perhaps more concerning is the $169M charge on Amazon's investment in Living Social, which took the net loss to $274M.

Top Stock News
Windows 8 goes on sale. Microsoft's (NASDAQ:MSFT) long-awaited Windows 8 operating system and Surface tablet are officially going on sale today. It's a big moment for Microsoft as it looks to connect computers, smartphones, tablets and its Xbox gaming machine in an attempt to overcome the cannibalizaton of Windows sales due to the success of the iPad. However, reviews for the new operating system have been mixed.

U.S. states widen Libor probe. New York Attorney General Eric Schneiderman and his Connecticut counterpart have widened their probe into Libor manipulation, issuing subpoenas to nine additional banks in August and September, the WSJ reports. The lenders include Bank of America (NYSE:BAC), Credit Suisse (NYSE:CS), Lloyds (NYSE:LYG) and Royal Bank of Canada (NYSE:RY). The number of subpoenas issued is now 16.

Lockheed Martin faces $1.1B F-35 liability. Lockheed Martin (NYSE:LMT) faces a potential termination liability of $1.1B on the F-35 Joint Strike Fighter unless it receives government funding for a sixth batch of the jets by the end of the year. The Pentagon has refused to release the money until the sides settle a dispute over a fifth set, so Lockheed and its suppliers have used their own funds to work on the sixth batch in order to meet the government's delivery timetable.

BofA employees could be charged over Countrywide loans. Bank of America (BAC) staff could face civil fraud charges as part of a government lawsuit that accuses the company of misrepresenting the quality of home loans its Countrywide unit sold to Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC), causing losses of over $1B to taxpayers. It would be a rare move given the lack of cases brought against individuals over the financial crisis.

KKR labors to reach fund goal. KKR (NYSE:KKR) is struggling to reach its target of raising $8B for its new North America fund, having attracted less than $6.5B in total and under $1B since February, Bloomberg reports. KKR's difficulties stem from the under-performance of its last North American fund, which the firm closed in 2006 with $17.6B.

Pearson, Bertelsmann in talks to create publishing powerhouse. Pearson (NYSE:PSO) is in talks to merge its Penguin publishing unit with Bertelsmann's Random House, Pearson said yesterday. The WSJ reports that the deal would create a company worth $2B-$3B and account for over 25% of global English-language consumer book sales. However, there are fears that the tie-up could be hit by antitrust concerns, particularly in Europe.

Apax, Apollo lead race for McGraw-Hill Education unit. Apax Partners and Apollo Global Management (NYSE:APO) are the frontrunners in the race for McGraw-Hill's (MHP) Education unit, the WSJ reports, with a deadline for bids closing yesterday. McGraw-Hill could still decide to spin off the subsidiary, which previous reports said could be worth $3B, and is due to make a decision by the year-end.

Samsung retains smartphone crown. Samsung (OTC:SSNLF) didn't say in its latest earnings report, but research firm Strategy Analytics estimates that the Korean firm shipped 56.9M smartphones in Q3, taking its market share to 35.2% and ensuring it retained its position as the world's leading smartphone vendor. Apple (AAPL) kept second place with 26.9M handsets, or 16.6% share, but Nokia (NYSE:NOK) slipped out of the top three for the first time. Total global shipments grew 35% on year to 162M units.

Top Economic & Other News
Economic growth expected to have accelerated in Q3. The final GDP figures before the election are due out this morning, with economists estimating that growth increased to 1.9% on year in Q3 from 1.3% in Q2. Consumer spending, which accounts for 70% of activity, is expected to have been a main driver of the expansion, rising 2% last quarter vs 1.5% previously. However, the growth would still not be enough to significantly move the needle on unemployment.

Freddie Mac resisted mortgage refinancing due to profit fears. Freddie Mac (OTCQB:FMCC) resisted allowing mortgage-borrowers to refinance to cheaper loans partly due to concerns the move would hurt profits and prevent it from paying back its bailout, a ProPublica investigation finds. More aggressive refinancing from Freddie and Fannie Mae (OTCQB:FNMA) could have helped an extra 9M people and saved them almost $75B in interest payments, economist Christopher Mayer estimates.

World's spare oil capacity rises, but so do Iranian exports. Global spare oil output capacity excluding Iranian production rose to 2M bpd in September-October from 1.8M bpd in the previous two months, Reuters reports, citing EIA estimates. The latest level is historically low but does give Western powers room to continue squeezing Iran over its nuclear program. Despite that pressure, though, preliminary data shows that Iranian crude exports have slightly increased since July.

Woe deepens in Spain's job market. Spanish unemployment rose to a new record high of 25% in Q3 from 24.6% in Q2 and vs consensus of 25.1%. The trend was exacerbated by labor reform making it easier to fire workers.

Japan remains mired in deflation. Japanese CPI fell 0.1% on year in September vs consensus of -0.2%, with the continued deflation increasing the pressure - not least from the government - on the Bank of Japan to announce further easing at a policy meeting next week. Economist Yoshimasa Maruyama expects that "the BOJ will top up its asset-buying program by 10T yen ($125B)."

China loses trillions in illegal outflows. China hemorrhaged $3.79T in money that was smuggled out the country between 2000 and 2011, research and advocacy group Global Financial Integrity estimates. The pace of the outflow, which comes from corruption, crime or tax evasion, is also speeding up. In contrast, legal foreign direct investment was $310B. "The social, political, and economic order is not sustainable in the long-run given such massive illicit outflows," says GFI.

Editors' Picks
Energy: A Compelling Sector To Own
Chevron: Capital Appreciation In The Long Term
Investing Means Years, Not Months

Today's Markets:
In Asia, Japan -1.4% to 8933. Hong Kong -1.2% to 21546. China -1.7% to 2066. India -0.7% to 18625.
In Europe, at midday, London -0.9%. Paris -0.4%. Frankfurt -0.6%.
Futures at 7:00: Dow -0.75%. S&P -0.8%. Nasdaq -0.6%. Crude -0.55% to $85.58. Gold -0.55% to $1703.60.

Today's economic calendar:
8:30 GDP Q3
9:55 Reuters/UofM Consumer Sentiment

Notable earnings before today's open: ACI, AON, ARLP, AXL, B, CMCSA, CVH, DAN, DLR, EGO, ERIC, GT, HMSY, IMGN, IPG, KKR, LM, LYB, MCO, MRK, OHI, OSK, QSII, TASR, TCB, VTR, WY

Notable earnings after today's close: CYMI

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