Friday, February 13, 2009

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • Obama considers mortgage subsidies. Obama is working on a new plan to stem foreclosures using mortgage subsidies. In a major departure from existing programs, the initiative would aim to help homeowners before they fall behind on their payments. Sources say the plan, which is still evolving, would see homes undergo a standardized reappraisal and then homeowners would face a uniform eligibility test. The administration may also lower the threshold for relief eligibility; currently, loans are reworked if borrowers spends more than 38% of their gross income on mortgage payments.
  • Weeding out the failed banks. A growing body of research by economists and finance experts suggests some of the country's largest banks are essentially insolvent and the banking system will need significantly more aid. Without a cure for the problem of bad assets, the credit crisis dragging down the economy will continue. The answer, according to these economists and experts, is a much larger and more direct government role than the one outlined by Treasury this week. Instead of a private-public investment fund, the government needs to roll up its sleeves, get rid of the weakest banks, sell off bad assets and pour money into the surviving banks. The researchers point to the success of similar plans in Japan and Sweden, and in the U.S. during the savings and loan crisis.
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  • Toyota trims payroll, compensation. Toyota (TM) is offering job buyouts to 18,000 U.S. workers, will cut pay for executives and blue-collar workers in North America, and is cutting the workweek at some of its American plants by 10% to bring down costs. An analyst warns the company may soon cut working hours in Japan as well. The world's No. 1 automaker, with a corporate philosophy of employment preservation, said the North American moves are meant to keep as many of its North American workers on the payroll as possible.
  • Nat-gas fire sale. Parallel Petroleum Corp. (PLLL) will turn over half its interest in a natural gas field rather than pay to drill wells, underscoring how falling oil and gas prices have left smaller energy producers desperate for cash. Parallel will give half of its 35% stake in a Texas gas field to Chesapeake Energy (CHK), which already owned most of the remaining 65%. Parallel will get no cash for the deal, but will avoid paying $51.5M to cover its share of this year's drilling costs. According to Parallel CEO Larry Oldham, the company has been hit so hard by falling prices that "we're just going to hunker down."
  • Coming soon to a mall near you... In a targeted effort to catch up with rival Apple's (AAPL) retail business, Microsoft (MSFT) announced plans to open up its own chain of branded stores. The company hired David Porter, a former Wal-Mart executive and most recently the head of global product distribution at DreamWorks Animation, to be corporate vice president of retail stores. Microsoft didn't specify a timeline, how many stores it plans to open, or which products would be on sale. Though the retail store model has been very successful for Apple, the strategy has failed for other tech companies and it remains to be seen whether Microsoft can sufficiently jazz up its unfashionable image to make these stores worthwhile.
  • Instant Starbucks. As part of a continued effort to shake its expensive image, Starbucks (SBUX) will unveil an instant coffee brand called Via which will be available starting next month. According to the company, Via has been in the works for over 20 years and replicates the cost of its coffee. Starbucks will come up against some well-established competitors in the $17B global instant coffee market, including Nestle's (NSRGY.PK) Nescafe and Kraft's (KFT) Sanka. Three single-serve Via packets will sell for $2.95, and 12 packets will be $9.95.
  • Aussies okay stimulus. Australia's parliament has approved a stimulus plan worth A$42B ($28B) after initially rejecting the plan. The package, which includes A$12.7B in payments to low and middle income earners and A$28.8B for schools, bicycle paths and environmental projects, is aimed at preventing the country's first recession in 18 years.
  • Retail sales beat expectations. January Retail Sales beat expectations, coming in at +1% vs. -0.8% consensus. However, the numbers are still -9.7% from a year ago. December's sales were revised to -3% from -2.7%. Net of auto sales, +0.9% vs. -0.4% consensus. Gasoline sales are -35.5% from last year.
  • More joblessness. Initial Jobless Claims were 623,000 vs. consensus of 610,000. Last week's numbers were revised to 631,000 from 626,000. Continuing claims up 11,000 to 4,810,000. Unemployment numbers are going to be bad for a while, says Huntington's Peter Sorrentino. "The market is deeply cynical of what's going on, and no one in Washington has any more idea than a goat what they're doing."
  • Biz inventories fall. Business Inventories fell 1.3% in December (vs. -0.8% consensus), but remain 0.9% higher Y/Y, the Census Bureau reported. Combined sales fell 3.2% to $1.017T, and are down 11.8% Y/Y.

Earnings: Friday Before Open

  • Abercrombie & Fitch (ANF): Q4 EPS of $1.10 beats by $0.10. Revenue of $998M (-18.8%) in-line. Comps fell 25%. No guidance due to unclear outlook. (PR)
  • Cognizant (CTSH): Q4 EPS of $0.41 beats by $0.03. Revenue of $753M (+25.5%) vs. $743M. Sees Q1 EPS of $0.41-0.42 vs. $0.38, and full-year EPS of at least $1.72 vs. $1.58. (PR)
  • PepsiCo (PEP): Q4 EPS of $0.88 in-line. Revenue of $12.73B (+3.1%) vs. $12.8B. (PR)
  • Wyndham Worldwide (WYN): Q4 EPS of $0.47 beats by $0.07. Revenue of $911M (-11.7%) vs. $989M. (PR)

Earnings: Thursday After Close

  • Amkor Technology (AMKR): Q4 EPS of -$3.40 including goodwill impairment charge of $3.67 vs. consensus of $0.00. Revenue of $549M (-26.5%) vs. $546M. Sees Q1 EPS of -$0.49 to -$0.34 vs. -$0.34. Shares -9.4% AH. (PR, earnings call transcript)
  • Cephalon (CEPH): Q4 EPS of $1.46 beats by $0.10. Revenue of $535M vs. $528M. Shares +0.3% AH. (PR, earnings call transcript)
  • Cheesecake Factory (CAKE): Q4 EPS of $0.15 beats by $0.01. Revenue of $400M (-1.5%) vs. $403M. Shares -8.4% AH. (PR, earnings call transcript)
  • Embarq (EQ): Q4 EPS of $1.34 beats by $0.09. Revenue of $1.48B in-line. (PR)
  • Gardner Denver (GDI): Q4 EPS of $0.74 beats by $0.12. Revenue of $524M (+2.7%) vs. $517M. Shares +14.7% AH. (PR)
  • McAfee (MFE): Q4 EPS of $0.53 in-line. Revenue of $424M (+18.9%) vs. $421M. Shares +4.1% AH. (PR)
  • Netgear (NTGR): Q4 EPS of -$0.08 misses by $0.15. Revenue of $161.4M (-18.6%) vs. $157.2M. Sees Q1 revenue of $135-145M vs. $154M. Shares -8.1% AH. (PR, earnings call transcript)
  • Panera Bread Company (PNRA): Q4 EPS of $0.86 beats by $0.02. Revenue of $358M (+18.9%) vs. $353M. Shares -0.1% AH. (PR)
  • RealNetworks (RNWK): Q4 EPS of -$0.10 misses by $0.07. Revenue of $152.6M (-2.7%) vs. $153.8M. Expects 2009 to be a challenging year for consumer spending, online advertising and corporate IT spending. (PR, earnings call transcript)
  • Sunstone Hotel Investors (SHO): Q4 FFO of $0.76 beats by $0.16. Revenue of $256M (-7.4%) vs. $251M. Won't give guidance amid economic uncertainty. Shares +2.5% AH. (PR)
  • ValueClick (VCLK): Q4 EPS of $0.23 beats by $0.08. Revenue of $150M (-14.6%) vs. $142M. Sees Q1 EPS of $0.17-0.18 vs. $0.13. Shares +10.1% AH. (PR, earnings call transcript)
  • Wells Fargo (WFC): Lowers Q4 EPS to $0.70 from $0.75 after realizing a loss on securities that were carried at fair value at year-end. Shares -3.2% AH. (PR)

Today's Markets

  • Asia markets moved higher Friday led by China, which continues to outperform. Nikkei +0.96% to 7,779. Hang Seng +2.47% to 13,555. Shanghai +3.23% to 2,321. BSE Sensex +1.78% to 9,635.
  • Europe stocks are higher at midday, set to post their first gain in four sessions. London +1.3%. Paris +2.2%. Frankfurt +1.6%.
  • U.S. stock futures traded in a tight range overnight. Dow -0.3% to 7910. S&P -0.3% to 833. Nasdaq +0.1%. Crude +0.3% to $34.10. Gold -1.1% to $938.80.
  • Treasurys move lower overnight after a volatile session Thursday that saw substantial gains evaporate in extended trading when stocks began climbing. 30-year -0.94% to 128-02. 10-year -0.45%. 5-year -0.24%. 2-year -0.08%.

Friday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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