Wednesday, November 5, 2008

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Eli Hoffmann

  • Obama wins, futures move lower. European markets and U.S. futures traded lower overnight (see data below) as investors, perhaps, emerged from their election-induced elation and began thinking about the mess President-elect Barack Obama will inherit. Still, analysts at BNP Paribas were optimistic about the leadership change: "Obama has strong personal, political and institutional assets... his program is relatively well adapted to America's needs, in the fields of energy, healthcare, social cohesion and competitiveness." UBS analysts said winners of an Obama victory would be hospitals and nursing-home operators, life-sciences, natural gas firms, solar and life insurers, while losers would include big pharma, managed care, high-end consumer, coal and utilities and integrated oils. More.
  • MT misses, paints gloomy picture. ArcelorMittal (MT) reported Q3 profit rose 29% to $3.82B, short of $5.82B analyst estimates, and sales were up 37.9% Y/Y to $35.2B. However, the company warned Q4 earnings (before Ebitda) could fall to $2.5B-$3B from $8.58B in Q3, while analysts expect the current fall in steel prices to hurt Arcelor well into 2009. The company also announced plans for steep production cuts. Output of flat carbon steel will be cut by up to 35% in the U.S. and up to 30% in Europe. Stainless steel supplies and output will be reduced in Asia and Africa. Shares -18% premarket.
  • Mixed bag for e-shopping. Online retailers say sales growth will slow this holiday season, but will still beat last year's by 15%. "Online retailers are resilient when it comes to the economy, but they're not immune," one industry official said, adding, "It's challenging to keep up those really high growth rates." On the other hand, the ease with which online shoppers can comparison shop and saving on gas could appeal to cash-strapped shoppers. Most retailers say they'll offer free shipping, although some are raising the minimum purchase requirement.
  • Consumer spending dries up. MasterCard Advisors reported consumers slashed spending in October, especially on larger purchases, as the financial crisis made for lighter wallets and heavier economic worries. Michael McNamara, vice president at MasterCard Advisors, said 'the numbers for October are very negative across the board,' and in particular 'sales above $1,000 just aren't really moving.' Savings-conscious spenders helped fast food restaurant sales rise 1%. Lowlights: Home decor -20.6%. Electronics -19.9%. Women's apparel -18.2%.
  • Lending rates ease, but still elevated. Three-month Libor fell 20 BPs to 2.51% today, down from 4.82% on Oct. 10. Still, the rate remains 151 BPs higher than the Fed's target of 1% - compared to its average spread of just 22 BPs. "Banks are cutting back, the economy is in a deepening recession and in that environment, I don't think banks are going to become a lot more willing to extend credit soon," Goldman Sachs economist Jan Hatzius said.
  • CDS data less daunting than feared. Data released by the DTCC shows credit-default swap traders took out a net $22.7B of contracts on Italy's debt, $16.7B against Spain and $12.5B on Deutsche Bank (DB). Outstanding transactions total $33.6T, a smaller sum than many had estimated, which may ease concerns that the much-maligned instrument is at fault for much of the recent financial market volatility. "Far too much mistrust has been engendered by the lack of transparency," CreditSights' Brian Yelvington said. "There's still a lot here that's not captured. But it's a step in the right direction." For instance, outstanding contracts on Lehman debt were only $72B, while estimates ranged as high as $400B. After subtracting redundant trades, only $5.2B actually changed hands.
  • FCC signs off on Sprint/Clearwire combo. The FCC approved Sprint's (S) acquisition of Clearwire (CLWR), a merger considered critical to Sprint's survival in the wireless market. The Justice Department must still sign off on the deal. Afterhours S +7.2%, CLWR +21.8%.
  • Diabetes drug delay. The FDA said it isn't satisfied with data supporting a once-weekly version of the diabetes drug Byetta, currently injected twice a day. The likelihood of a delay of the drug's introduction sent its developers Amylin (AMLN) plunging 25.8% and Alkermes (ALKS) down 9.8%.
  • Factory Orders fell 2.5% in September, far worse than the -0.7% consensus. It was the second consecutive monthly decrease. Ex-transportation, orders were off 3.7%, the largest percent decrease since 1992.
  • National chain store sales fell 1.2% in the four weeks of October vs. September, Redbook says, but gained 0.6% vs. a year ago. According to ICSC, chain-store sales rose 0.9% last week vs. a year ago and 0.6% vs. the week before. Consumers continued to spend on everyday items.

Earnings: Wednesday Before Open

  • Agrium (AGU): Q3 EPS of $2.31 beats by $0.42. Revenue of $3.11B (+214.8%) vs. $2.24B. (PR)
  • Ambac (ABK): Q3 EPS of -$7.81 misses by $7.31. Net mark-to-market losses on credit derivatives of $2.7B. Shares -19%. (PR)
  • ArcelorMittal (MT): Q3 EPS of $2.79 misses by $1.22. Revenue of $35.2B (+37.9%) vs. $38.8B. "We remain optimistic about the industry's medium-term growth prospects, but it is appropriate to pause our growth strategy until we have a more settled economic outlook." Shares -16.2%. (PR)
  • Becton Dickinson (BDX): FQ4 EPS of $1.13 beats by $0.02. Revenue of $1.84B (+11.2%) vs. $1.81B. (PR)
  • Donnelley & Sons (RRD): Q3 EPS of $0.87 beats by $0.01. Revenue of $2.86B (-1.6%) vs. $3.04B. (PR)
  • Foster Wheeler (FWLT): Q3 EPS of $0.89 misses by $0.02. Revenue of $1.72B (+32.2%) in-line. (PR)
  • General Growth Properties (GGP): Q3 FFO of $0.64 misses by $0.12. Revenue of $815M (+5.7%) vs. $865M. Sees full-year FFO of $2.85-2.95 vs. $3.31. (PR)
  • Gerdau AmeriSteel (GNA): Q3 EPS of $0.73 beats by $0.09. Revenue of $2.51B (+80%) vs. $2.68B. (PR)
  • Kimco Realty (KIM): Q3 FFO of $0.68 in-line. Sees full-year FFO of $2.20-2.45 vs. $2.68. (PR)
  • Marsh & McLennan (MMC): Q3 EPS of $0.21 misses by $0.11. Revenue of $2.84B (+4.5%) in-line. (PR)
  • Medco Health Solutions (MHS): Q3 EPS of $0.63 beats by $0.01. Revenue of $12.56B (+15%) in-line. (PR)
  • MetroPCS Communications (PCS): Q3 EPS of $0.13 misses by $0.02. Revenue of $687M (+23.3%) vs. $711M. (PR)
  • MF Global (MF): FQ2 EPS of $0.21 beats by $0.02. Revenue of $373M (-14.4%) vs. $367M. (PR)
  • Quanta Services (PWR): Q3 EPS of $0.29 beats by $0.03. Revenue of $1.05B (+60.6%) in-line. (PR)
  • Sara Lee (SLE): FQ1 EPS of $0.32 beats by $0.09. Revenue of $3.35B (+9.7%) in-line. Sees full-year EPS of $0.77-0.84 vs. $0.96 and revenue of $13-13.3B vs. $13.89B. (PR)
  • Time Warner (TWX): Q3 EPS of $0.30 beats by $0.03. Revenue of $11.71B (+0.3%) vs. $11.9B. (PR)
  • Time Warner Cable (TWC): Q3 EPS of $0.31 beats by $0.03. Revenue of $4.34B (+8.5%) in-line. (PR)
  • Total (TOT): Q3 profit of €4.07B vs. €3.85B consensus. EPS of €1.81 vs. €1.32 a year ago. Despite crude's recent fall, Total expects higher oil prices in the medium to long term. (Bloomberg)

Earnings: Tuesday After Close

  • Blue Nile (NILE): Q3 EPS of $0.15 misses by $0.01. Revenue of $67.4M vs. $68.8M. Shares -12.5%. (PR)
  • BRE Properties (BRE): Q3 FFO of $0.72 beats by $0.03. Revenue of $89.4M (+7.5%) vs. $86.1M. Shares +2.4%. (PR)
  • D.R. Horton (DHI): Sees FQ4 home sales revenue of $1.5B vs. $1.59B consensus, and net loss of $800-900M. Sees land impairment charges of $1.1B. "Market conditions in the homebuilding industry deteriorated during our fourth fiscal quarter and October, characterized by rising foreclosures, high inventory levels of both new and existing homes and reduced liquidity in the mortgage markets." Shares +3.7%. (PR)
  • HealthSouth (HLS): Q3 EPS of $0.15 beats by $0.08. Revenue of $456M (+6.5%) in-line. Shares +10%. (PR)
  • Jack Henry & Associates (JKHY): FQ1 EPS of $0.26 misses by $0.01. Revenue of $183M (+4.7%) vs. $187M. Shares -0.8%. (PR)
  • Pioneer Natural Resources (PXD): Q3 EPS of $0.91 misses by $0.30. Revenue of $612M (+33.4%) vs. $664M. Shares -10.4%. (PR)
  • The Andersons (ANDE): Q3 EPS of $0.70 beats by $0.06. Revenue of $906M (+63.6%) vs. $806M. Shares +0.4%. (PR)
  • Ultra Petroleum (UPL): Q3 EPS of $0.78 beats by $0.07. Revenue of $298M (+153.9%) in-line. Shares +2.1%. (PR)
  • USEC (USU): Q3 EPS of $0.06 in-line. Revenue of $590M (-7%) vs. $463M. Shares -6%. (PR)
  • Ventas (VTR): Q3 FFO of $0.69 misses by $0.02. Revenue of $125M (+5.2%) vs. $121M. (PR)
  • Weight Watchers (WTW): Q3 EPS of $0.70 beats by $0.03. Revenue of $353M (+4.5%) in-line. Shares +5.9%. (PR)
  • Yamana Gold (AUY): Q3 EPS of $0.05 misses by $0.05. Revenue of $247M (+23.9%) vs. $317M. (PR)

Today's Markets

  • Asia markets were mainly higher. Nikkei +4.46% to 9,521. Hang Seng +3.17% to 14,840. Shanghai +3.16% to 1,761. BSE Sensex -4.81% to 10,120.
  • In Europe, markets are lower at midday. London -1.45%. Paris -2.1%. Frankfurt -1%.
  • U.S. futures are down. Dow -0.8%. S&P -1.1%. Nasdaq -1%. Crude -2.5% to $68.73. Gold +0.5% to $761.

Wednesday's Economic Calendar

Seeking Alpha editor Rachael Granby contributed to this post.

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