Tuesday, December 9, 2008

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • Tribune tanks. The Tribune Company filed for Chapter 11 bankruptcy protection yesterday, covering its eight major daily papers, including the Los Angeles Times and Chicago Tribune, as well as the company's string of local television stations. CEO Sam Zell, who led the $8.2B buyout last year to take the company private, said the company will continue to operate normally while it tries to rework its debt. Zell expects the company to remain intact, though he said he is open to selling assets other than the Tribune's Chicago Cubs baseball franchise. Tribune's bankruptcy filing listed $7.6B of assets and $12.9B of debt. Creditors on the hook for losses include JPMorgan Chase (JPM) and Deutsche Bank (DB).
  • Extra-credit money. A new multi-billion dollar government initiative is on the way, as federal regulators prepare a rescue plan for a handful of large credit unions. The plan is expected to be announced this week, and will tap the $41B lending facility that Congress made available to credit-union regulators in September. The goal is to help several big credit unions, none of which deal with the general public, that have been facing heavy paper losses on mortgage-backed securities. Michael Fryzel, chairman of the National Credit Union Administration, the industry's federal regulator, said the initiative isn't a taxpayer-funded bailout, but rather a short-term "mechanism to stabilize the credit-union system" while regulators work on other steps, to be announced early in 2009.
  • Not so sunny at Sony. Sony (SNE) announced plans to cut 8,000 jobs, or around 5% of its electronics division’s workforce, "in response to the sudden and rapid changes in the global economic environment." The company will also curb investments, outsource production and move away from unprofitable businesses as part of an effort to save over ¥100B ($1.1B) by March 2010. The world’s second-largest maker of consumer electronics, Sony had previously cut its full year outlook in October on slowing sales and a strong yen. Since then, the severe slump in consumer spending has persisted, even as the holiday shopping season approaches, and the yen is now up 21% against the dollar this year.
  • Auto aid advances. Congress and the White House inch closer to a Big Three bailout, and details of the draft legislation are beginning to emerge. The proposed auto aid plan would see the government get stock warrants equal to 20% of the $15B loans (the 7-year loans would have a 5% interest rate for the first five years, and a 9% interest rate for the last two); the President gets to appoint a car czar; no dividends will be paid while the loans are in place; executive compensation will be limited; and automakers may not challenge state laws. (More restrictions.) In a sign of how messy a reorganization could become, the United Auto Workers union will likely seek an equity stake in General Motors (GM) and a seat on its board. In the meantime, General Motors, Ford (F) and Chrysler's Canada divisions have asked the Canadian government for at least C$6B - C$2.4B, C$2B, and C$1.6B respectively.
  • Quotables. House Speaker Nancy Pelosi on the auto industry bailout: "It may take more than $15 billion to get to March 31," but "there is not going to be an endless flow of money... Everybody has to take a haircut."
  • Yahoo search narrows. Though a decision is still at least several weeks away, Yahoo (YHOO) has narrowed its search for a new CEO and is checking references on a few key candidates. Board members will still be able to propose new names, but sources say the short-list includes Arun Sarin, former chief executive of Vodafone Group (VOD). The Yahoo board has been looking for a seasoned technology executive with experience running a public company from the start, criteria that Sarin meets, and needs to find someone who can tackle the challenge of pulling Yahoo out of a multiyear slump.
  • FedEx: The not-so-chipper shipper. FedEx (FDX), widely seen as a bellwether for the general economy, lowered its 2009 earnings due to the economic downturn. The company still sees FQ2 EPS of $1.58 vs. $1.54 consensus, but dropped full-year 2009 EPS to $3.50-4.75 vs $5.15 consensus, and down from earlier forecasts of $4.75-$5.25. "Significantly weaker macroeconomic conditions are expected to offset the benefits from lower fuel prices and the announced departure of DHL from the U.S. domestic package market," the company said.
  • Japan pledges to prop up economy. Japan's economy contracted 0.5% in Q3 from the previous quarter, down from the -0.1% the government announced last month. The revised number brings annualized shrinkage to 1.8% for the July-September period vs. an original 0.4%. The worse-than-expected data prompted Japanese officials to pledge further measures to prop up the economy. The government has already committed ¥5T ($54B) to the economy, prompting some critics to question whether stimulus packages alone will be enough to pull Japan out of its deep recession.
  • German confidence grows. German investor confidence unexpectedly rose in December for the second month in a row. The ZEW index rose to -45.2 from -53.5 vs. an expected drop to -57. The rise came after the ECB cut interest rates by an unprecedented amount and German lawmakers approved a €32B ($41B) stimulus plan.

Earnings: Tuesday Before Open

  • AutoZone (AZO): FQ1 EPS of $2.23 beats by $0.05. Revenue of $1.5B (+1.6%) in-line. (PR)

Earnings: Wednesday After Close

  • H&R Block (HRB): FQ2 EPS of -$0.40 in-line. Revenue of $351M (-1.5%) vs. $397M. (PR)
  • National Semi (NSM): FQ2 EPS of $0.14 misses by $0.07. Revenue of $422M (-15.4%) vs. $427M. Sees FQ3 revenue of $295M vs. $385M due to "significantly lower-than-usual demand levels in the post-holiday season, especially for personal mobile devices." (PR)

Today's Markets

  • Asia markets closed mixed. Nikkei +0.8% to 8,396. Hang Seng -1.9% to 14,753. Shanghai -2.5% to 2,038. BSE closed.
  • In Europe at midday, London +1.0%. Paris +1.7%. Frankfurt +0.6%.
  • U.S. futures: Dow +0.3%. S&P +0.5%. Nasdaq +1.1%. Crude -0.4% to $43.52. Gold +0.1% to $770.10.

Tuesday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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