Friday, February 20, 2009

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • Chrysler rethinks GM merger. Chrysler has renewed the idea that a merger with General Motors (GM) is the 'best option' for survival. GM is unlikely to agree to such a merger without being forced into it by the government, analysts say, suggesting that Chrysler has re-aired the merger idea with the hope that the auto panel meeting for the first time today might force a 'shotgun marriage.' In its Feb. 17 filing for fresh aid, Chrysler said a GM merger "would create a company better positioned to compete with Toyota and other non-U.S. automakers."
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  • NY AG puts spotlight on Lewis. Bank of America's (BAC) Ken Lewis has been subpoenaed by New York Attorney General Andrew Cuomo regarding the bank's purchase of Merrill Lynch. Cuomo is investigating whether BoA withheld information from investors in violation of state law. Specifically, Cuomo is trying to determine whether investors were misled about the extent of Merrill's 2008 losses and whether details of Merrill bonuses, which were outlined in a non-public document, should have been made available to investors. Lewis is the highest-profile subject of Cuomo's investigation thus far.
  • U.S. sues UBS for more account details. A day ago, UBS (UBS) agreed to settle a criminal tax-evasion probe by paying $780M and turning over the details of 250 accounts. Now, the Justice Department is suing the Swiss bank to gain access to 52,000 accounts belonging to U.S. clients. Sources say the legal suit was expected as part of a parallel civil inquiry but the number of accounts requested was around 30,000 more than UBS had anticipated. UBS has responded that it has 'substantial defenses' to fight the U.S. request and that Swiss financial privacy laws prevent the disclosure of that information. Shares -14.5% premarket (5:30 ET).
  • DoJ hits JNJ. The Justice Department is joining two whistleblower lawsuits against Johnson & Johnson (JNJ), alleging the company marketed its heart drug Natrecor for a use not approved by the FDA. The suit alleges that off-label marketing of Natrecor caused 'false and fraudulent claims' to be submitted to federal health care programs, which could have created hundreds of millions of dollars in damages. J&J could pay triple these damages if it loses the case. A J&J spokesman said the company has "reviewed the allegations thoroughly and will be prepared to address them through the courts."
  • Citi readies Redecard sale. Sources familiar with the matter say Citigroup (C) is planning to sell a large piece of its minority stake in Brazilian credit card company Redecard. Citi owns around 17% of Redecard's outstanding shares and plans to sell a significant stake to Brazil's Banco Itau, a co-owner of Redecard. Though it's unclear just how much of its stake Citi is prepared to offload, the bank hopes to generate as much as $1B. An official announcement of the sale could come as early as next week.
  • NYT ends dividend. The New York Times (NYT) has suspended its Q1 dividend on Class A and Class B common shares. The move follows a November decision to cut the firm's Q4 dividend to $0.06/share from $0.23, and is meant to help the company decrease its $1.1B debt and improve liquidity. The Ochs-Sulzberger Family Trust, which owns 19% of NYT's common shares, said the suspension "is in the best interests of all shareholders" considering the poor economy and the many challenges facing the media industry.
  • U.K. at risk for 10-year slump. John Gieve, Bank of England's Deputy Governor, thinks England could be at risk for a decade-long slump. In a speech at the London School of Economics yesterday, he said "Do we face a ten-year depression like Japan? That is a risk, and a risk that we and other policy makers are taking very seriously," but "I don't think it's inevitable." Gieve said BoE will probably start quantitative easing in the next few weeks.
  • Producer prices rise. Producer Price Index +0.8% in January from a month ago, vs. consensus of +0.3%. Core PPI +0.4% vs. +0.1% consensus. Year-over-year PPI -1% vs. -2.4% consensus, and core +4.2% vs. +3.8%. Takeaway: for the second straight month, producer prices surprise to the upside - with the biggest jump in wholesale inflation in six months.
  • Jobless claims hold steady. Initial Jobless Claims 627,000 vs. consensus of 620,000, unchanged from last week's revised 627K. Continuing claims up 170,000 to 4,987,000.
  • Leading indicators improve. Conference Board's Leading Indicators rose 0.4% in January, better than the 0.0% economists expected. Indicators increased for the second consecutive month, but it's too soon to say whether the contraction that started July 2007 is coming to an end.
  • Philly Fed falls. The Philadelphia Fed's Business Outlook survey dove to -41.3 from January's -24.3 and -25 consensus. New orders were down and shipments fell "markedly" to the lowest in at least 40 years. Inventories remain too high, firms reported.

Earnings: Friday Before Open

  • Anglo American (AAUK): 2008 net profit fell 29% to $5.22B vs. consensus of $5.78B. Revenue fell 7.6% to $32.96B. Will cut 19,000 jobs and look for other cost-cutting opportunities. "The breadth and severity of the global economic downturn and its impact on growth rates in key sectors and economies are difficult to overstate." Shares -11.4% premarket. (MW)
  • Lowe's (LOW): Q4 EPS of $0.11 misses by $0.01. Revenue of $9.98B (-3.8%) vs. $10.06B. Sees Q1 EPS of $0.23-0.27 vs. $0.32. (PR)

Earnings: Thursday After Close

  • Brocade Communications Systems (BRCD): FQ1 EPS of $0.15 beats by $0.02. Revenue of $432M (+24.1%) vs. $442M. Shares -3% AH. (PR, earnings call transcript)
  • Century Aluminum Company (CENX): Q4 EPS of -$0.54 misses by $0.07. Revenue of $402M (-6.9%) in-line. Shares +2.8% AH. (PR, earnings call transcript)
  • Chiquita (CQB): Q4 EPS of -$0.74 misses by $0.54. Revenue of $839M (-0.1%) vs. $899M. Shares -9.6% AH. (PR, earnings call transcript)
  • Community Health Systems (CYH): Q4 EPS of $0.61 beats by $0.01. Revenue of $2.76B (+10.9%) vs. $2.82B. Shares flat AH. (PR)
  • Crocs (CROX): Q4 EPS of -$0.40 beats by $0.16. Revenue of $126.1M (-43.9%) vs. $102.5M. Sees Q1 EPS of -$0.32 to -$0.17 vs. -$0.09 consensus. Shares +9.9% AH. (PR)
  • Intuit (INTU): FQ2 EPS of $0.34 beats by $0.07. Revenue of $791M vs. $796M. Sees FQ3 EPS of $1.57-1.68 vs. $1.67, and full-year EPS of $1.78-1.89 vs. $2.03. Shares +6.2% AH. (PR, earnings call transcript)
  • Kindred Healthcare (KND): Q4 EPS of $0.56 beats by $0.18. Revenue of $1.05B (+8.7%) in-line. Sees Q1 EPS of $0.40-0.50 vs. $0.38. (PR)
  • LaSalle Hotel Properties (LHO): Q4 FFO of $0.49 beats by $0.08. Revenue of $157M (-3.5%) vs. $153M. Due to "rapidly changing and uncertain economy and the tremendous lack of visibility related to the economy, travel industry and our business," LHO won't provide 2009 outlook. (PR)
  • Mylan Laboratories (MYL): Q4 EPS of $0.26 beats by $0.12. Revenue of $1.19B (+3.7%) in-line. Shares +3.6% AH. (PR)
  • OSI Pharmaceuticals (OSIP): Q4 EPS of $0.44 misses by $0.03. Revenue of $98.4M (+16.7%) vs. $100.3M. Shares +1.9%. (PR, earnings call transcript)
  • Sapient (SAPE): Q4 EPS of $0.20 beats by $0.10. Revenue of $165M (+6.3%) vs. $172M. Shares +0.6% AH. (PR, earnings call transcript)
  • Tesoro (TSO): Q4 EPS of $0.99 beats by $0.08. Revenue of $4.33B (-33.8%) vs. $5.78B. (PR)
  • (TSCM): Q4 EPS of $0.00 in-line. Revenue of $16.5M (-17.1%) vs. $17.3M. Shares -3% AH. "Early indications suggest that the Y/Y decline in advertising revenue that we saw in the fourth quarter will increase in the first half of the year, while the pressure on the subscriber base is likely to continue as many investors are no longer market participants, and job reductions in the financial sector reduce the pool of interested consumers." (PR, earnings call transcript)

Today's Markets

  • Asia stocks posted a second day of losses, with Japan's broader Topix index closing at its lowest in more than 20 years, while China bucked the trend again. Nikkei -1.87% to 7,416. Hang Seng -2.49% to 12,699. Shanghai +1.54% at 2,261. BSE -2.21% to 8.843.
  • European markets are extending their losses, tumbling to a six-year low. At midday, London -2.4%. Paris -2.8%. Frankfurt -3.1%.
  • U.S. stock futures moved lower overnight, extending the downtrend that began Thursday morning. Dow -1.3% to 7362. S&P -1.4% to 768.50. Nasdaq -1.2%. Crude -3.3% to $38.86. Gold +1.6% to $991.50. 30-year bonds +0.97%.

Friday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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