Thursday, December 18, 2008

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • Slow-motion car crash. President Bush says the auto industry bailout is coming 'relatively soon,' but that may not be soon enough. Chrysler has announced it will shut all 30 of its plants, beginning tomorrow, for at least a month, and is tightening its terms for dealerships. Ford (F) will idle most of its North American plants for the first week in January. General Motors (GM) is halting a key new engine factory and, as part of its efforts to shrink the number of models it sells, might downsize the Pontiac brand, its third-highest selling brand, from six models to one. Out of desperation, GM and Chrysler have restarted merger talks abandoned only weeks ago, and Cerberus has signaled its willingness to give away part of its Chrysler ownership. Bush seems to want an automaker agreement before Christmas, but even if a deal is put in place by Dec. 25, there's no guarantee the Big Three will see the money anytime soon.
  • Markets shrug off OPEC cuts. OPEC members agreed to slash output by a record 2.2M barrels/day in addition to the 1.7M barrels/day cut over the past three months. Effective as of January 1, the larger-than-expected cut was meant to send a strong message that OPEC members are ready to act to put a floor beneath plummeting oil prices. Two non-members, Russia and Azerbaijan, said they may contribute an extra 600,000 barrels/day in cuts as a show of support. Within minutes of the announcement, however, benchmark crude prices fell sharply and closed down 8.12% to $40.06.
  • Schapiro to shape up SEC. President-elect Obama will announce Mary Schapiro as his nominee for SEC chairwoman at a press conference later today. A top brokerage regulator, Schapiro will probably try to overhaul financial-market regulations and may push for a merger between the SEC and the Commodity Futures Trading Commission [CFTC]. The appointment comes at a critical time for the SEC, which has seen its reputation dragged through the mud in recent months for lax oversight and 'deeply troubling' acts of negligence. At the press conference, Obama is also expected to name Daniel Tarullo to an open seat on the Federal Reserve Board and Gary Gensler to head the CFTC.
  • Goldman says sayonara to Sanyo. Panasonic (PC) finally reached a deal with Sanyo Electronics' (SANYY.PK) three largest shareholders. Panasonic will buy a 70% stake in the smaller electronics rival from Goldman Sachs (GS), Sumitomo Mitsui Banking Corp. and Daiwa Securities SMBC for ¥131 ($1.48) per share, one yen higher than a previously rejected offer. The deal values Sanyo at around ¥800B. A combined Panasonic-Sanyo would rival Hitachi (HIT) as Japan's largest electronics maker. Sanyo -3.5% to ¥138 in Tokyo.
  • Airline merger fails to take off. British Airways (BAIRY.PK) and Australia's Qantas Airways have ended merger talks after failing to agree on key terms of a deal that would have been worth over $6B. Many analysts had questioned the rationale of the deal in the first place and Qantas CEO Alan Joyce had warned of significant hurdles in moving the merger forward. British Airways is now free to pursue a deal with Spain's Iberia, while Qantas may pursue ties with Asian airlines.
  • Deficit shrinks. The U.S. Current Account Deficit narrowed to $174.1B in Q3, better than the $179B expected by economists. The deficit on goods decreased to $214.7B, while the surplus on services increased to $38.2B.

  • German confidence flags. German business confidence fell to its lowest level since 1982 this month as the country is dragged deeper into recession. The business climate index fell to 82.6 from 85.8, worse than the 84 consensus.
  • Earnings: Thursday Before Open

    • Covance (CVD): Sees 2008 EPS of $3.02 vs. $3.14 consensus "due to a combination of a lower level of new project initiations and increased project delays." Sees 2009 EPS of $3.00-3.20 vs. $3.44. (PR)
    • Ingersoll-Rand (IR): Sees Q4 EPS of $0.20-0.30 vs. consensus of $0.60 and revenue of $3.7B vs. $4.1B. "The rate of decline accelerated compared with prior expectations... The rate of deterioration in European economic activity was especially severe over the last six weeks." (PR)
    • Lennar (LEN): Q4 EPS of $0.43 beats by $2.04. Revenue of $1.3B (-41.3%) vs. $1.1B. (EPS excludes a $0.94/share charge related to valuation adjustments and other write-offs; and a $4.61/share charge related to a non-cash deferred tax asset valuation allowance.) (PR)

    Earnings: Wednesday After Close

    • Nike (NKE): FQ2 EPS of $0.80 beats by $0.02. Revenue of $4.6B (+6%) vs. $4.69B. "I see the current state of our industry and the world as an incredible opportunity for Nike to be a better and stronger leader, and we’re going to seize that opportunity." (PR)
    • Paychex (PAYX): FQ2 EPS of $0.39 misses by $0.01. Revenue of $524M (+3.2%) vs. $533M. "Over the past six months, we experienced companies going out of business increasing 12%, new business starts declining 13%, checks per client decreasing 1.5%, and we saw lower levels of new hire reporting." (PR)
    • Take-Two Interactive Software (TTWO): Q4 EPS of $0.02 misses by $0.03. Revenue of $323M (+10.5%) vs. $326M. Sees Q1 EPS of ($0.70-0.85) vs. $0.22 and revenue of $175-225M vs. $318M. Shares -19% after hours. (PR)

    Today's Markets

    • Asia markets closed in the green. Nikkei +0.6% to 8,667. Hang Seng +0.2% to 15,498. Shanghai +2.0% to 2,016. BSE +3.7% to 10,076.
    • In Europe at midday, London +0.1%. Paris -0.8%. Frankfurt +0.8%.
    • U.S. futures: Dow +0.5%. S&P +0.4%. Nasdaq +0.5%. Crude +1.4% to $40.61. Gold +0.8% to $875.10.

    Thursday's Economic Calendar

    Seeking Alpha editor Eli Hoffmann contributed to this post.

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