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Tuesday, January 27, 2009

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby


  • Jilted Rohm files suit. Rohm & Haas (ROH) have filed a lawsuit against Dow Chemical (DOW) to force Dow to complete its $15.3B purchase of the specialty-chemicals company. Dow had announced on Sunday that it doesn't plan to complete the pending acquisition on or before the Jan. 27 deadline, sending Rohm shares down over 13% yesterday. Dow blamed 'the continued crisis in global financial and credit markets' and the collapse of a JV agreement with Kuwait that would have helped Dow finance the deal for making the closing 'untenable at this time.' Rohm's lawsuit blasts Dow for creating 'intolerable uncertainty' for shareholders, customers and suppliers.
  • Job loss avalanche. The global payroll lost over 76,000 jobs yesterday as major firms in the U.S. and Europe took additional steps to survive the worsening economic downturn. Leading the retreat were U.S. companies including Caterpillar (CAT) (20,000 job cuts), General Motors (GM) (2,000), Sprint Nextel (S) (8,000), Texas Instruments (TXN) (3,400) and Home Depot (HD) (7,000), while Pfizer (PFE) said around 19,500 jobs would be lost as a result of its mega-merger with Wyeth (WYE). If there's any silver lining to be found, strategists point out that major layoffs are often a late-cycle indicator.
  • Fannie/Freddie need more cash. Fannie Mae (FNM) and Freddie Mac (FRE) could tap up to $51B from the government in the coming weeks to continue operating, exceeding Wall Street estimates of how much the two entities would need. Rising delinquencies and falling securities values have accelerated, and both mortgage giants are facing Q4 losses. Fannie will likely ask the government to draw $11B-$16B under its $100B senior preferred purchase agreement, while Freddie could seek $30B-$35B. "Their losses are going to be much higher than anyone anticipated," analyst Paul Miller says, noting the GSEs were in the habit of classifying subprime and Alt-A loans as prime.
  • FDIC looks for new approach. The FDIC will meet today and is bringing some new proposals to the table, according to industry consultant Bert Ely. With banks failing at the fastest pace in 17 years, Ely says the FDIC will consider limiting the interest rates being offered by banks with less-than-adequate capital to prevent banks from paying too much to raise revenue. The FDIC may also limit certain banks on higher-cost sources of funding, including brokered deposits. With three banks closed in January so far, the FDIC must replenish its reserves, and is preparing to do so by doubling premiums.
  • AmEx hit by loan losses. Q4 earnings fell 72% at American Express (AXP) on higher loan losses, lower customer spending and a stronger U.S. dollar. The company said it will "remain cautious about the economic outlook through 2009, and expect cardmember spending to remain soft with past-due loans and write-offs rising from current levels," while CEO Kenneth Chenault called this "one of the most difficult operating environments we have seen in decades." Analysts expressed concern about whether the company was setting enough money aside to cover losses. (see earnings details below)
  • Siemens gets energy lift. Siemens (SI) reported an 81% drop in FQ1 profit after last year's sale of its automotive electronics division, but had an otherwise solid quarter on strong growth from its energy division. Profit dropped to €1.23B ($1.6B) from €6.48B after the asset sale, but 'total sectors profit' (measuring profit at the main industry, energy and healthcare divisions) rose 20% to €2B while revenue rose 7% to €19.63B. The company expects fiscal year total sectors profit to reach €8B-€8.5B. Shares +5.2% premarket (7:00 ET).
  • Geithner confirmation. As expected, Tim Geithner was confirmed as the new Treasury Secretary in a 60-34 Senate vote. Geithner promised quick action to help the economy. Sources say William Dudley will take over as president of the New York Fed.
  • Home sales jump. Existing home sales rose unexpectedly in December, jumping 6.5% to a seasonally adjusted 4.74M units vs. consensus of 4.4M. "The higher monthly sales gain and falling inventory are steps in the right direction, but the market is still far from normal balanced conditions."
  • Bump in leading indicators. Conference Board's Leading Indicators rose a surprising +0.3% in December, while economists expected -0.2%. Weakness in employment, building permits etc. were somewhat offset by "the continued and very large positive contribution from real money supply" and an improving yield spread.

Earnings: Tuesday Before Open

  • Ashland (ASH): FQ1 EPS of $0.11 misses by $0.04. Revenue of $2.2B (-8.7%) vs. $2.1B. (PR)
  • BJ Services (BJS): FQ1 EPS of $0.56 beats by $0.10. Revenue of $1.43B (+11.4%) in-line. (PR)
  • Canadian Pacific Railway (CP): Q4 EPS of $1.15 beats by $0.06. Revenue of $1.26B (+5.8%) vs. $1.22B. (PR)
  • Delta Air Lines (DAL): Q4 EPS of -$0.50 misses by $0.16. Revenue of $7.8B (-0.3%) vs. $8.0B. (PR)
  • DuPont (DD): Q4 EPS of -$0.28 misses by $0.04. Revenue of $5.8B (-16.7%) vs. $6.2B. (PR)
  • Hershey Foods (HSY): Q4 EPS of $0.59 beats by $0.05. Revenue of $1.37B (+2.6%) in-line. (PR)
  • Kinetic Concepts (KCI): Q4 EPS of $0.98 beats by $0.13. Revenue of $492.5M (+63.0%) vs. $505.7M. (PR)
  • Lexmark (LXK): Q4 EPS of $0.75 in-line. Revenue of $1.08B (-17.3%) vs. $1.1B. (PR)
  • Steris (STE): FQ3 EPS of $0.53 beats by $0.18. Revenue of $319.5M (+1.8%) vs. $317.3M. (PR)
  • Tellabs (TLAB): Q4 EPS of $0.09 beats by $0.04. Revenue of $408M (-13.0%) vs. $410M. (PR)
  • Travellers (TRV): Q4 EPS of $1.58 beats by $0.12. Revenue of $5.8B (-10.6%) vs. $6.4B. (PR)
  • Waddell & Reed Financial (WDR): Q4 EPS of $0.21 misses by $0.04. Revenue of $191M (-19.1%) vs. $195M. (PR)
  • Waters (WAT): Q4 EPS of $1.07 beats by $0.11. Revenue of $418.3M (-4.3%) vs. $416.8M. (PR)

Earnings: Monday After Close

  • American Express (AXP): Q4 EPS of $0.21 misses by $0.01. Revenue of $6.5B vs. $7.22B. Loss provisions: $1.4B. RoE of 21.7% vs. 37.3% a year ago. (PR)
  • Amgen (AMGN): Q4 EPS of $1.06 misses by $0.01. Revenue of $3.75B vs. $3.79B. Sees 2009 EPS in line, revenue of $14.8-15.2B vs. $15.4B. (PR)
  • CON-WAY (CNW): Q4 EPS of $0.10 beats by $0.13. Revenue of $1.13B (-6.2%) vs. $1.17B. Suspends annual guidance due to the uncertainty of the global economy and lack of visibility into future business volumes and market trends. (PR)
  • McKesson (MCK): FQ3 EPS of $1.05 beats by $0.19. Revenue of $27.1B vs. $27.2B. Sees 2009 EPS of $4.15-4.30 vs. $4.03. (PR)
  • Netflix (NFLX): Q4 EPS of $0.41 beats by $0.07. Revenue of $360M vs. $354M. Initiates $175M share buyback. Sees 2009 EPS of $1.43-1.59 vs. $1.49 and revenue of $1.58-1.63B vs. $1.54B. (PR)
  • PAREXEL International (PRXL): FQ2 EPS of $0.23 beats by $0.04. Revenue of $276M (+15.5%) vs. $270M. (PR)
  • QLogic (QLGC): FQ3 EPS of $0.34 beats by $0.05. Revenue of $164M (+3.6%) in-line. (PR)
  • Texas Instruments (TXN): Q4 EPS of $0.21 beats by $0.09. Revenue of $2.49B (-30%) vs. $2.37B. Sees Q1 EPS of -$0.11 to -$.0.03 vs. $0.04 and revenue of $1.62-2.12B vs. $2.1B. Will reduce workforce by 12% (about 2,800 jobs). "We are not counting on a near-term economic rebound for improvement. The actions we are taking to reduce expenses and inventory will position TI to deliver solid financial results, even in a period of prolonged economic weakness."(PR)
  • VMware (VMW): Q4 EPS of $0.36 beats by $0.10. Revenue of $515M vs. $512M. Sees Q1 revenue of $475M vs. $497M. "Current uncertainty in global economic conditions makes it particularly difficult to predict product demand and other related matters and makes it more likely that VMware's actual results could differ materially from expectations. Because of this uncertainty, VMware is not providing revenue guidance for the full year 2009." (PR)
  • Zions Bancorp (ZION): Q4 EPS of -$0.32 misses by $0.02. Revenue of $508M (+6.2%) vs. $559M. (PR)

  • Today's Markets

  • Asia markets that traded today closed solidly up. Nikkei +4.9% to 8,061. BSE +3.8% to 9,004. Hang Seng closed. Shanghai closed.
  • In Europe at midday, London -1.5%. Paris -1.2%. Frankfurt -1.0%.
  • U.S. futures: Dow +0.6%. S&P +0.5%. Nasdaq -0.1%. Crude +1.3% to $46.33. Gold -1.7% to $893.60.

Tuesday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.


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