Wednesday, October 22, 2008

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • Third time's the charm? The Federal Reserve launched its third attempt to ease money markets strains, announcing a program to fund purchases of up to $600B in money market mutual fund assets. In its official statement, the Fed said the initiative "should improve the liquidity position of money market investors" and increase their ability to meet future redemption requests. The Fed, which will announce the program's start date by the end of the week, could lend up to $540B to five "special purpose vehicles" established to buy CDs and commercial paper from highly rated institutions. Around $500B has been withdrawn from prime money-market funds since August.
  • Bernanke stands behind stimulus package. Federal Reserve's Bernanke voiced his support for a congressional stimulus package, testifying a stimulus "seems appropriate" for an economy that will be weak for several quarters and faces "some risk of a protracted slowdown." Democrats are considering a $150B initiative, though some economists are pushing for twice as much, arguing that significantly more money will have to be pumped into the economy and the banking sector in order to survive the downturn. Policy makers are also pushing forward with efforts to overhaul government regulation of the financial sector, calling for greater transparency and oversight.
  • Asian countries move to shore up economy. Thailand has proposed a plan for Asian countries to pool $350B, or 10% of their foreign exchange reserves, to help cushion their economies in the event of a global recession. Around $150B would be earmarked for currency protection, if necessary, while the other $200B would be used to buy equities, bonds and fund infrastructure projects. Meanwhile, acting unilaterally, South Korea says it is prepared to follow up its $100B bailout plan with whatever measures are necessary, including a possible fiscal stimulus package, in order to restore confidence in its financial system; China will inject $19B into the Agricultural Bank of China, completing a reorganization of China's banking system that has cost the government $500B so far; and Bank of Japan may announce plans to begin paying interest on reserves deposited at the central bank.
  • Trio creates gas cartel. Iran, Qatar and Russia met on Tuesday and agreed to form an OPEC-style group for gas-exporting countries. Gas producing nations have long discussed the possibility of creating a "gas OPEC" but building a cartel could be difficult since gas markets, unlike oil markets, are mostly fragmented and regional. Moreover, trade volume is relatively small and prices are often pegged to oil, making it harder for a cartel to control prices. The U.S. imports virtually no natural gas from Iran, Qatar or Russia, but U.S. politicians and Western allies worry closer ties between Russia and Iran could harm strategic political relationships.
  • Auto woes continue. Tracinda Corp, the investment company of billionaire Kirk Kerkorian, sold shares worth about $18M in Ford (F) at a major loss and is considering selling its remaining 6% stake, raising concerns about the automaker's health. To raise cash, Ford may have to sell its roughly 33% stake in Mazda (MZDAF.PK), while uncertainty about the future Ford-Mazda relationship sent Mazda shares down by the most in over eight years in Tokyo trading. Kerkorian's move, along with efforts by Cerberus to sell its Chrysler stake, could leave the auto industry short of funding at the same time sales are heading to a 26-year low. General Motors (GM), the preferred buyer for Chrysler, is looking for a large capital injection from an outside investor as a possible alternative to a Chrysler deal, while Chrysler is exploring a possible alliance with Nissan (NSANY) and Renault.
  • Samsung drops buyout offer. Samsung abandoned its $5.85B ($26/share) hostile bid for SanDisk (SNDK), citing tough economic conditions and failure to make "meaningful progress" with the bid over the last six months. A successful bid would have been Samsung's largest acquisition and a good chance to widen its lead over Toshiba (TOSBF.PK). Analysts believe Samsung may launch a renewed bid at a later date to gain access to SanDisk's patents, but a Samsung spokesman said "we withdrew our offer and there should not be further room for speculation." Pre-market: SNDK -10.5% to $13.21. Samsung -2.1% in Seoul.
  • Apple shines after Jobs talks up prospects. Share of Apple (AAPL) are up 9.3% in early pre-market trading after beating analyst expectations despite a contracting economy (see below). CEO Steve Jobs made a surprise appearance on Apple's analyst conference call (transcript), likely to talk up the company's prospects amid a close-to-recessionary U.S. economy and a 54% drop in its shares YTD. "I think this economic downturn may present some extraordinary opportunities to companies that have cash," he said, adding Apple is comfortable with its cash, and doesn't feel it's "burning a hole in our pocket." Jobs told investors Apple, as it always has, understates its results.
  • Yahoo's so-so Q3 gets boost from job cuts. Yahoo (YHOO) reported Q3 net income of just $54M, down 64% from a year ago and in line with consensus (see below). Yahoo also said it plans to cut its global workforce of 15,000 by at least 10% during the current quarter, as part of a broader cost-cutting plan, as CEO Jerry Yang tries to orchestrate a turnaround despite a softening economy and internet-advertising landscape (conference call transcript). Shares gained 5.2% in extended trading, but Cowen's Jim Friedland was circumspect: "Cost cutting is important, but I wouldn't call that a positive longer-term sign."
  • Retail sales. ICSC chain-store sales rose 0.9% last week vs. a year ago and fell 1.6% vs. the week before. Stores continue to face a "tough retail landscape" as consumers spend cautiously. Redbook reported a 0.8% gain last week from a year ago, but a 1.1% fall in October vs. September.
  • Consumers far from confident. ABC's Consumer Confidence Index dropped 7 points in the last two weeks to a dismal -50, one point away from the lowest rating in 22 years of weekly polling, and markedly worse than this year's -40 average.

Earnings: Wednesday Before Open

  • Air Products and Chemicals (APD): FQ4 EPS of $1.26 beats by $0.01. Revenue of $2.7B (+14.5%) vs. $2.6B. [PR]
  • Arkansas Best (ABFS): Q3 EPS of $0.61 in-line. Revenue of $496M (+2.0%) vs. $498M. [PR]
  • Baker Hughes (BHI): Q3 EPS of $1.29 misses by $0.06. Revenue of $3.0B (+12.4%) vs. $3.1B. [PR]
  • Dover (DOV): Q3 EPS of $1.01 beats by $0.03. Revenue of $2.0B (+5.4%) in-line. [PR]
  • Kinetic Concepts (KCI): Q3 EPS of $0.96 beats by $0.09. Revenue of $503M (+22.5%) vs. $507M. [PR]
  • Knight Capital Group (NITE): Q3 EPS of $0.40 beats by $0.16. Revenue of $270M (+31.7%) vs. $212M. [PR]
  • Philip Morris (PM): Q3 EPS of $0.93 beats by $0.03. Revenue of $7.0B (+17.5%) vs. $6.6B. [PR]
  • WellPoint Health Networks (WLP): Q3 EPS of $1.60 beats by $0.10. Revenue of $15.3B (+2.2%) vs. $15.5B. [PR]

Earnings: Tuesday After Close

  • Amylin Pharmaceuticals (AMLN): Q3 EPS of -$0.57 misses by $0.07. Revenue of $218M (+14.9%) vs. $229M. Shares +4.5%. (PR, earnings call transcript)
  • Apple (AAPL): FQ4 EPS of $1.26 beats by $0.15. Revenue of $7.89B (+27%) vs. $8.05B. Sees Q1 EPS of $1.06-1.35 vs. $1.65, and revenue of $9-10B vs. $10.57B. Shares +13.25%. (
  • Boston Scientific (BSX): Q3 EPS of $0.16 beats by $0.05. Revenue of $1.98B (-3.4%) in-line. Shares +5.6%. (PR)
  • Broadcom (BRCM): Q3 EPS of $0.31 beats by $0.09. Revenue of $1.3B (+36.7%) in-line. Shares +8.7%. (PR, earnings call transcript)
  • Canadian National Railway Company (CNI): Q3 EPS of $1.16 beats by $0.17. Revenue of $2.26B (+11.6%) vs. $2.15B. [PR]
  • Century Aluminum Company (CENX): Q3 EPS of -$0.57 misses by $0.89. Revenue of $552M (+21.5%) vs. $549M. [PR]
  • Cerner (CERN): Q3 EPS of $0.57 beats by $0.01. Revenue of $423M (+13.4%) in-line. Shares +5.1%. (PR, earnings call transcript)
  • E*TRADE Financial (ETFC): Q3 EPS of -$0.09 beats by $0.19. Provision for loan losses triples to $518M. While ETFC continues to make progress toward returning to profitability, it does not expect to report a quarterly profit Q4. ETFC plans to take advantage of the government's bailout plan. Shares +0.4%. (PR, earnings call transcript)
  • Illumina (ILMN): Q3 EPS of $0.22 beats by $0.06. Revenue of $150M (+54.2%) vs. $146M. Shares (PR, earnings call transcript)
  • Sigma-Aldrich (SIAL): Q3 EPS of $0.64 misses by $0.01. Revenue of $541M (+7.4%) vs. $564M. Shares -7.2%. (PR)
  • VMware (VMW): Q3 EPS of $0.24 beats by $0.04. Revenue of $472M (+32.1%) vs. $463M. Operating margin of 24.4% vs. guidance of 20-22%. Shares +24.6%. (PR, earnings call transcript)
  • Yahoo (YHOO) Q3 EPS of $0.09 in-line. Revenue of $1.32B (+3.3%) vs. $1.37B. Shares +5.2%. [PR]

Today's Markets

  • Asia markets closed broadly down. Nikkei -6.8% to 8,675. Hang Seng -5.1% to 14,267. Shanghai -3.2% to 1,896. BSE -4.8% to 10,170.
  • In Europe: London -2.8%. Paris -2.8%. Frankfurt -2.9%.
  • U.S. futures: Dow -1.4%. S&P -1.7%. Nasdaq -0.8%. Crude -4.7% to $70.89. Gold -1.4% to $757.20.

Wednesday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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