Thursday, February 5, 2009

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • Profits amiss, Swiss Re gets Buffett boost. Warren Buffett's Berkshire Hathaway (BRK.A) will invest around 3B Swiss francs ($2.6B) in Swiss Reinsurance (SWCEY.PK) to help the firm raise its capital levels and protect its AA credit rating. In return, Swiss Re will issue a bond with a coupon of 12% which can later be converted into shares, potentially giving Berkshire a stake of over 20% in the world's second-biggest reinsurer. Swiss Re, which has suffered heavy losses from its credit default swaps exposure and wrote down 6B Swiss francs in toxic assets, expects to post a net loss of around 1B Swiss francs for 2008 and may eventually seek another 2B Swiss francs in addition to Buffett's capital injection. The company will also cut its dividend and disband part of its asset-management unit. CEO Jacques Aigrain said the company was "disappointed with our overall results in 2008," but that Buffett's investment "is a testament to the strength of our franchise." Shares -16.6% in Switzerland (7:00 ET).
  • Buy American, sort of. The Senate has softened the 'Buy American' plan in its $900B stimulus bill after Obama expressed concern that the original language could trigger a trade war. The new amendment requires the Buy American provision to be "applied in a manner consistent with U.S. obligations under international agreements," providing some relief to Canada, Mexico, the EU and other major trading partners. Some Senators went even further, trying to remove the Buy American provision altogether, but failed to garner the necessary votes. McCain, an opponent of the provision, warned it has "echoes of the disastrous Smoot-Hawley tariff act... It sends a message to the world that the United States is going back to protectionism." Meanwhile, many foreign firms, trying to win a piece of the stimulus package, are increasing their American presence.
  • Watchdog calls for government investment strategy. According to a report issued today by a government watchdog, the U.S. needs to develop an investment strategy for its recently acquired holdings. To date, the U.S. government has collected over $271M in dividends from ownership stakes in American banks and holds $279.2B in preferred shares from 319 financial institutions, as well as common stock warrants from 230 institutions. The report also raised questions about potential fraud issues in the Fed's Term Asset-Backed Loan Facility (TALF).
  • Parts suppliers want part of bailout. U.S. auto-parts makers are seeking up to $25.5B in federal aid as the auto industry gets slammed, forcing broad production cuts among automakers. Suppliers are asking for $8B in direct federal loans, $7B to flow through automakers so suppliers can be paid in ten days instead of the traditional 45, and $10.5B to guarantee receivables of suppliers whose customers have taken federal loans. Without immediate aid, industry representatives say hundreds of parts suppliers will close or file for bankruptcy.
  • Revolving door for Volvo. Looking for cash to avoid a federal bailout, sources say Ford (F) is in talks to sell its Volvo unit to China's Geely Automobile Holdings. Ford has also approached two other Chinese automakers, and will likely recoup less than the $6.4B it paid for Volvo in 1999. The U.S. automaker has already received commitments from Export-Import Bank of China to provide the necessary financing for an acquisition. Ford creditors would likely receive some or all of the proceeds from a Volvo sale.
  • P&G gamble on getting out of pharma. Procter & Gamble (PG) is looking to exit the pharmaceutical business, and has hired Goldman Sachs (GS) to identify possible buyers for its pharmaceutical brands. P&G's pharma unit accounts for global sales of over $2B. The company announced in December that it had stopped investing in new drug development, citing the need to create 'maximum value' for shareholders.
  • Cisco profit chill. Cisco (CSCO) posted a 27% drop in FQ2 earnings on weaker sales and higher costs, though the firm still managed to report slightly better figures than Wall Street expected (see earnings details below). Cisco also issued a disappointing sales forecast for the current quarter, forecasting a 15-20% drop from last year, or roughly $7.8B-$8.3B less. Analysts had expected sales of about $8.7B. CEO John Chambers expressed optimism about the company, telling analysts "this downturn, in my opinion, is both the biggest challenge of our lifetime, but also represents the biggest opportunity to transform our company as well as our economy through a series of bold steps." (Read the earnings call transcript.)
  • Overseas credit use lifts Visa. Profit rose 35% at Visa (V), thanks to a gain in non-U.S. consumers using credit and debit cards (see earnings details below). CEO Joe Saunders said Visa is 'steadfast' in its guidance that EPS will rise at least 20% this year, highlighting the company's "processed transaction growth, the strength of debit, and the global diversity of our business." Total volume rose 44% in Central Europe, the Middle East and Africa, 27% in Latin America and the Caribbean and 20% in the Asia-Pacific region vs. just 7.1% growth in the U.S.
  • Congressional hearings on Madoff. Harry Markopolos testified before Congress yesterday, slamming the SEC for 'financial illiteracy' on the Madoff case and for 'an abject failure by the regulatory agencies we entrust as our watchdog.' Markopolos also lodged a serious accusation against the Wall Street Journal, saying "I believe that senior editors of the [Wall Street] Journal respected and feared Mr. Madoff" and wouldn't allow senior investigative reporter John Wilke to pursue the matter when contacted in December 2005. (Read Markopolos' full testimony - .pdf)
  • Job cuts soar. According to Challenger, firing announcements rose an astounding 222% last month from January 2008, to 241,749. "Even if the stimulus package is successful, it could take months to make a noticeable impact on the employment picture. There is no light at the end of the tunnel." ADP reported nonfarm employment decreased 522,000 in January, a drop less than the 535K consensus. The goods-producing sector declined for the 24th consecutive month. Employment in the manufacturing sector fell for the 28th time over the last 29 months.
  • Online recruiting weakens again. Monster's online employment index dipped 13 points in January to 118 as online recruiting slowed for the fourth straight month. It's down 26% from a year ago - a more negative pace than the previous three months, suggesting further deterioration in labor market conditions. Arts, entertainment, and recreation remains the weakest trending industry, indicating further softening in consumer leisure spending activity. "The fact that employers have chosen to begin recruiting in 2009 on a cautious note is not surprising given the uncertain nature of the global economy," it said.
  • Non-mfg sector contracts. Economic activity in the non-manufacturing sector contracted in January, registering 42.9% on the ISM Index vs. December's 40.1%. This was the fourth month in a row of sector contraction, though the rate has slowed slightly.
  • BoE rate cut. The Bank of England cut its key lending rate to 1% from 1.5%, as expected. BoE has brought its rate down from 5% in October as the world economy worsened and the U.K. slipped into recession.

Earnings: Thursday Before Open

  • Bunge (BG): Q4 EPS of -$1.89 misses by $1.60. Revenue of $10.9B (-12.3%) vs. $12.0B. (PR)
  • Burger King (BKC): FQ2 EPS of $0.33 misses by $0.04. Revenue of $634M (+3.4%) vs. $659M. (PR)
  • Cardinal Health (CAH): FQ2 EPS of $0.93 beats by $0.03. Revenue of $25.1B (+7.8%) vs. $24.5B. (PR)
  • CIGNA (CI): Q4 EPS of $0.49 beats by $0.08. Revenue of $4.8B (+6.7%) vs. $4.75B. (PR)
  • Deutsche Bank (DB): Q4 net loss of €4.8B - its first in more than 50 years - including a €5.8B trading loss. Net interest income rose to €3.76B from €2.69B a year ago. But January revenue rose "significantly" to €2.8B, giving CEO Josef Ackermann "confidence" for 2009. Shares -3.4% premarket. (Bloomberg)
  • Kimco Realty (KIM): Q4 EPS of $0.04 misses by $0.03. Revenue of $197M (+10.7%) vs. $190M. (PR)
  • MF Global (MF): FQ3 EPS of $0.13 in-line. Revenue of $422M (+0.9%) vs. $368M. (PR)
  • Spectra Energy (SE): Q4 EPS of $0.32 beats by $0.02. Revenue of $1.3B (-9.1%) in-line. (PR)

Earnings: Wednesday After Close

  • 99 Cents Only Stores (NDN): FQ3 EPS of $0.18 misses by $0.01. Revenue of $351M (+8%) vs. $327M. Shares +0.1% AH. (PR)
  • Akamai Technologies (AKAM): Q4 EPS of $0.44 beats by $0.04. Revenue of $213M vs. $205M. Shares +7.1% AH. (PR)(earnings transcript)
  • Assurant (AIZ): Q4 EPS of $1.31 misses by $0.23. Revenue of $2.22B (+1.7%) vs. $2.32B. (PR)
  • Atmel (ATML): Q4 EPS of $0.01 beats by $0.04. Revenue of $335M vs. $339M. Won't provide Q1 guidance due to uncertain economic environment. Shares -3.7% AH. (PR)(earnings transcript)
  • AvalonBay Communities (AVB): Q4 FFO of $0.30 misses by $0.01. Sees 2009 FFO of $4.50-4.80 vs. $4.82. (PR)
  • BMC Software (BMC): FQ3 EPS of $0.64 beats by $0.05. Revenue of $488M (+6.4%) in-line. Sees 2009 EPS of $2.20-2.30 vs. $2.19. Shares +4.7% AH. (PR)(earnings transcript)
  • Cadence (CDNS): Q4 EPS of -$0.04 misses by $0.02. Revenue of $227M vs. $218M. Shares flat AH. (PR)(earnings transcript)
  • CBL & Associates Properties (CBL): Q4 FFO of $0.80 vs. consensus of $0.96. Revenue of $299M vs. $295M. Sees 2009 FFO of $3.10-3.25 vs. $3.21. Shares +16% AH. (PR)
  • Cisco Systems (CSCO): FQ2 EPS of $0.32 beats by $0.02. Revenue of $9.09B vs. $9B. Remains comfortable with long-term vision. Shares -4.4% AH. (PR)(earnings transcript)
  • EOG Resources (EOG): Q4 EPS of $0.74 vs. consensus of $1.04. Revenue of $1.63B (+27%) vs. $1.28B. Shares +0.6% AH. (PR)
  • Equifax (EFX): Q4 EPS of $0.61 beats by $0.02. Revenue of $447M (-9%) vs. $453M. Sees Q1 EPS of $0.52-0.57 vs. $0.59. (PR)
  • Equity Residential (EQR): Q4 FFO of -$0.13 misses by $0.02. Revenue of $530M (+5.4%) vs. $538M. Sees 2009 FFO of $2.00-2.30 vs. $2.37. Shares -2% AH. (PR)
  • Harman (HAR): FQ2 EPS of $0.18 misses by $0.35. Revenue of $756M (-29.1%) vs. $798M. Plans to shave another 1,100 bringing total to 2,000. Shares -10.6% AH. (PR)(earnings transcript)
  • Harris (HRS): FQ2 EPS of $1.08 beats by $0.06. Revenue of $1.52B vs. $1.47B. Sees 2009 EPS of $3.93-4.03 vs. $4.10. Shares -4.5% AH. (PR)(earnings transcript)
  • Novellus Systems (NVLS): Q4 EPS of -$0.21 misses by $0.04. Revenue of $188M in-line. Shares -6.4% AH. (PR)(earnings transcript)
  • ON Semiconductor (ONNN): Q4 EPS of $0.15 beats by $0.06. Revenue of $489M (+19.8%) vs. $485M. Sees Q1 revenue of $340-380M vs. $411M. Shares -1.6% AH. (PR)(earnings transcript)
  • Prudential Financial (PRU): Q4 EPS of -$2.04 vs. consensus of -$1.19. Revenue of $5.9B vs. $6.35B. Sees 2009 EPS of $5.25-5.65 vs. $5.56. Shares -1.5% AH. (PR)
  • Pulte Homes (PHM): Q4 EPS of -$1.33 vs. consensus of -$0.71. Revenue of $1.65B (-43.1%) vs. $1.44B. New home orders down 61% to 1,763. Backlog of $631M vs. $2.5B a year ago. Ends quarter with $1.7B in cash, no debt. Shares -2.6% AH. (PR)
  • Sunoco (SUN): Q4 EPS of $2.68 vs. consensus of $2.15. Revenue of $9.14B (-30.6%) vs. $12.46B. Record revenue from its non-refining business. Shares -2.1% AH. (PR)
  • THQ (THQI): FQ3 EPS of -$0.14 misses by $0.21. Revenue of $386M (-24.3%) vs. $403M. Continues to experience a cautious retail and consumer environment. No FQ4 guidance. Shares -15% AH. (PR)(earnings transcript)
  • Torchmark (TMK): Q4 EPS of $1.40 misses by $0.10. Revenue of $M in-line. Sees 2009 EPS of $6.05-6.25 vs. $6.24. Shares +1.5% AH. (PR)
  • Visa (V): FQ1 EPS of $0.78 beats by $0.12. Revenue of $1.74B vs. $1.68B. Payments volume +12% to $701B. Total volume +16% to $1.1T. Shares +7.9% AH. (PR)(earnings transcript)

Today's Markets

  • Asia markets closed mostly down. Nikkei -1.1% to 7,950. Hang Seng +0.9% to 13,179. Shanghai -0.5% to 2,098. BSE -1.2% to 9,091.
  • In Europe at midday, London -0.2%. Paris -0.8%. Frankfurt -0.5%.
  • U.S. futures: Dow +0.1%. S&P -0.1%. Nasdaq -1.5%. Crude +0.4% to $40.47. Gold +1.7% to $917.60.

Thursday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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