Earnings Strong, Economic Reports Poor
By Rick Paler
This week has been a rollercoaster ride for investors. As expected Wall Street continued to ignore positive earnings news and focus on economic reports that give indications on inflation and the economy. Mergers continued to be announced this week, giving some reason for the bulls to come out of hibernation.
One third of the S&P 500 companies have reported earnings for the first quarter. Earnings continue to come in very strong causing the street to up their estimates for the quarter. Just a few weeks ago analyst had expected the S&P 500 to post earnings growth of 7%. Now it stands at 8.6% and some analyst are expecting double digit growth year over year for the index. Strong earnings reports came from the likes of Coca-Cola, Johnson & Johnson, Pfizer, Amgen, Kinder Morgan Inc., and Sherwin-Williams. Each company beat the streets earnings estimates for the quarter.
Coca-Cola Co. (KO) beat analyst earnings estimates of $0.43 per share posting $0.47 per share excluding items, causing the stock price to jump 3.5% on the news. Revenues at the beverage company also rose 4% to $5.27 billion. Worldwide case volume increased 3% but North American sale remain soft.
Johnson & Johnson (JNJ) posted first quarter earnings of $0.97 beating the streets estimate of only $0.92 per share. Sales at the company grew a strong 11% to $12.8 billion. Additionally, the company upped their full year 2005 guidance.
Pharmaceutical giant Pfizer (PFE) reported first quarter earnings of $0.54 per share a penny ahead of Wall Streets estimates. Revenues at the company grew by 5% to $13.09 billion. Giving guidance for the full year, the company reduced its outlook to $1.04 from $1.16. The suspension of the company’s anti-arthritis drug Bextra and questions about Celebrex continue to hurt the company.
Amgen Inc.’s (AMGN) earnings came in higher then expected for the first quarter. Earnings came in at $0.72 per share and revenues grew to $2.83 billion or 21%. Revenue estimates for the company had been $2.88 billion. 2005 earnings guidance for the company is $2.80 to $2.90 per share.
Kinder Morgan Inc. (KMI) announced this week that they would increase their dividend to $0.76 per share or 8%. Additionally the company increased their share buyback program to $800 million from $750 million. Earnings for the first quarter were $1.16 per share, while revenues came in at $336.9 million. Analysts were looking for earnings of $1.15 per share.
Paint manufacture Sherwin-Williams Co. (SHW) continues to ride the housing wave. Net income at the company increased 62% for the quarter. The company earned $0.58 per share, besting estimates of only $0.55 per share. Sale increased to $1.54 billion or 17%.
Mergers news continues to excite investors as the New York Stock Exchange announced that they would acquire Archipelago Holdings (AX). The nation’s oldest exchange would become a publicly traded company if the deal goes through. By acquiring Archipelago the NYSE would move into electronic trading and possibly offer longer trading hours.
Adobe Systems Inc. (ADBE) announced a deal to purchase Macromedia Inc. (MACR) in an all stock deal estimated at $3.4 billion. Shareholders of Macromedia will receive 0.69 shares of Adobe.
The oracle of Wall Street Warren Buffett‘s company Berkshire Hathaway Inc. (BRKA) (BRKB) and Anheuser-Bush Cos. (BUD) this week announced that Berkshire Hathaway had taken a large position in the company. Neither company released any details, but said that Berkshire Hathaway had become a “significant” shareholder. Shares of Anheuser-Bush shot up 5.3% on the news.
Traders concerned about inflation and the economy had some very important reports to digest this week. The PPI, CPI and Federal Reserves Beige Book were all released. Starting the week off was a better than expected PPI report. The core rate of the Producers Price Index, an index which measures inflation at the wholesale level came in at 0.1% versus economist estimates of 0.2%. This gave the market a reason to rally since it appeared that inflation was under control. This was followed up by the CPI, which measures inflation at the consumer level. The CPI core rate showed the largest increase since October of last year. The March Consumer Price Index was up 0.6%, economist were looking for 0.5% and the core rate increased 0.4% versus estimated of only 0.2%. The Federal Reserves Beige Book, a report that gives insight into the economy had two bad comments that traders focused on. The report said that “upward price pressures have strengthened” and that “high energy prices were already, or could soon be, damping consumer demand”. Both the poor CPI and Fed Beige Book caused the market to give up the gains it had received from the good PPI report.
Bond rates for the week were higher on the short end and lower on the long bond as the yield curve continues to flatten. A flattening yield curve usually signifies that the market is expecting a slowdown in the economy. The 5 year Treasury closed yielding 3.91%. The 10 year’s yield increased to 4.24%, while the 30 year bond fell to 4.57%.
Next week will continue to be a volatile week. Again a flood of earnings reports will be released, but traders will again be looking for signed of inflation and a slowdown in the economy. Oil will be a major factor with the price of crude directing the market. President Bush will be meeting with Prince Abdullah of Saudi Arabia next week to discuss increasing production to help stem the price oil and gasoline.
Companies releasing earnings reports next week are Chubb Corp (CB), Du Pont (DD), Eastman Chemical (EMN), ITT Industries (ITT), Newell Rubbermaid (NWL), Northrop Grumman (NOC), Proctor & Gamble (PG), Stanley Works (SWK), Synovus Financial (SNV), Aflac Inc (AFL), Anheuser-Bush (BUD), Bristol-Myers Squibb (BMY), ConocoPhillips (COP), Fuji Photo (FUJIY), Estée Lauder (EL), ParternRe (PRE), Rayonier Inc (RYN), Telefonos de Mexico (TMX), Wm Wrigley Jr. (WWY), Black& Decker (BDK), Bright Horizons Family (BFAM), Cognizant Tech (CTSH), Kronos Inc (KRON), and SEIC Investments (SEIC).
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Friday, April 22, 2005
Friday, April 15, 2005
Weekly Market Report 04-15-2005
Stocks get whacked
By Rick Paler
Thank goodness this week is over, since it was a bloody one for traders. Stocks were pummeled across the board as the market bears firmly took hold of market sentiment. An earnings report from IBM and a warning from Ford did not help. Economic reports and the FOMC minutes from the March 22 meeting added to the bear’s arsenal.
The Dow was off over 373 points by weeks end and the NASDAQ was down 91 points for the week. Stocks were off across all sectors this week. The week started off with Ford Motor Co. (F) cutting their full year guidance citing energy prices, steel prices and health care cost. The company now expects earnings of $1.25 to $1.50. Their prior guidance had been $1.75 to $1.95. Not helping was Standard & Poor’s when they cut the rating on their corporate debt to negative from stable. The debt rating was maintained at the BBB- level for now, but that might change in the future if things do not turn around for the company. Both Ford and General Motors are being killed by the escalating cost of union employee benefits and a lack of inspirational vehicles.
International Business Machines (IBM) caused a large sell off in the technology sector. The company reported that their first quarter earnings fell short of the street estimate by a wide margin. Earnings came in at $0.85 per share versus the streets expectation of $0.90 per share. Revenues also fell short by close to a billion dollars. Revenues came in at $22.9 billion.
Financial giant Citigroup (C) missed Wall Streets earnings estimates of $1.02 per share, reporting earnings of $0.99 per share. Revenues also missed coming in at $21.53 billion. Citigroup’s board of directors increased the company’s repurchase program by $15 billion. The total authorization to repurchase shares now stands at $16.3 billion.
General Electric (GE) had a positive report when they announced that they had earned $0.38 per share, beating analyst estimates by a penny. Revenues also grew to $39.4 billion up 19% from the prior year. Additionally, the company announced that it was upping their 2005 full year guidance to $1.78 to $1.84 per share.
United Health Group (UNH) upped full year 2005 guidance and beat earnings estimates. The health care provider earned $1.16 per share versus the streets estimate of only $1.13 per share. Full year guidance now stands at $4.85 to $4.90 per share. Wall Street 2005 estimate had been $4.82 per share.
PepsiCo (PEP) posted nice numbers for the first quarter. The diversified snack and beverage producer reported earnings of $.053 per share beating estimates by two cents. The company also upped their full year guidance by a penny to $2.56 per share.
BB&T Corp. (BBT) reported a 20% increase in their first quarter earnings. Citing “excellent credit quality, disciplined expense control and reasonably strong loan growth”, the company reported earnings of $415.8 million or $0.75 per share. Credit quality at the bank was the best in four years.
In general corporate news game maker Electronic Arts (ERTS) announced they had signed an exclusive agreement with Collegiate Licensing Co. to manufacture college football video games. The agreement covers all videogame systems and allows them to use the college teams and their stadiums. This comes right after the announcement of a similar deal with the NFL. Both deals lock out all competitors from producing the popular football video games.
In economic news, several closely watched economic indicators shook the markets confidence along with a worrisome interpretation of the release FOMC minutes. The trade deficit widened to a record level exceeding economist estimates by a wide margin. The deficit rose to $61.0 billion up from $58.5 billion. Exports barely increased coming in at $100.5 billion, while imports rose to $161.5 billion. The increase was not due to consumer demand, but was caused by higher oil prices.
Preliminary University of Michigan’s Consumer Confidence Survey for April fell to 88.7 from 92.6 in March. The expected number was a decrease to 91.5. Additionally, the New York Empire State manufacturing survey dropped to 3.1 from 20.2 in March. A reading above zero indicates growth, but the number suggests that economic growth in the region is slowing. The March industrial production report was not any better. The report indicated the production grew 0.3%, but the core manufacturing component indicated almost zero growth coming in at 0.1%.
On top of this the markets digested the release of the March FOMC minutes and did not like what they saw. The market focused on the statement that “the required amount of cumulative tightening may have increased.” The statement by some indicates that the Federal Reserve will raise the Fed Funds rate higher than they had expected.
These reports could indicate a perfect storm brewing in the economy. One in which consumer spending and manufacturing slows, while interest rates rise. Remember the stagflation of the 1970’s? A sharp slowdown in the economy with higher interest rates could also become the pin that pops the housing bubble. People have been flocking to adjustable rate mortgages to get the lower rates they provide. This has allowed many to qualify to purchase homes they would otherwise not be able to afford. If interest rates continue to rise and the economy slows these people will see the interest rate on the mortgages increasing their monthly payments y to a level they can not meet. This has the potential to become a disaster.
Several weeks ago Alan Greenspan while testifying before Congress said that it was a conundrum why yields on the long end of the yield curve had not moves higher, but in fact had come down. The market is always forward looking and the answer appears to be that bond traders feel that the economy is slowing causing the yield curve to flatten. The question now becomes are they right and will the yield curve continue to flatten until we have an inverted yield curve? An inverted yield curve is one in which short term rates yield more the long term rates. This week the 5 year Treasury note closed at 3.86%. The 10 year Treasury note yield fell to 4.23% and the 30 year bond yield fell to 4.59%.
Next week will be a big week for earnings, but traders might focus only on the economic reports due to be released. Both the April PPI and CPI are to be released giving an indication on inflation. The Fed’s Beige Book report, that reports national economic conditions is also due to be released. All of these reports have the ability to move the markets. Overall, I do feel that the economy is slowing and that the Federal Reserve might note raise rates at their next meeting. I also feel that overall this quarter’s earnings season will be a positive one. These conditions might lead to a buying opportunity in the future.
Companies that are releasing earnings next week that will be watched are Coca Cola (KO), Johnson & Johnson (JNJ), Pfizer (PFE), US Bancorp (USB), Amgen (AMGN), Autoliv (ALV), and Fortune Brands (FO).
By Rick Paler
Thank goodness this week is over, since it was a bloody one for traders. Stocks were pummeled across the board as the market bears firmly took hold of market sentiment. An earnings report from IBM and a warning from Ford did not help. Economic reports and the FOMC minutes from the March 22 meeting added to the bear’s arsenal.
The Dow was off over 373 points by weeks end and the NASDAQ was down 91 points for the week. Stocks were off across all sectors this week. The week started off with Ford Motor Co. (F) cutting their full year guidance citing energy prices, steel prices and health care cost. The company now expects earnings of $1.25 to $1.50. Their prior guidance had been $1.75 to $1.95. Not helping was Standard & Poor’s when they cut the rating on their corporate debt to negative from stable. The debt rating was maintained at the BBB- level for now, but that might change in the future if things do not turn around for the company. Both Ford and General Motors are being killed by the escalating cost of union employee benefits and a lack of inspirational vehicles.
International Business Machines (IBM) caused a large sell off in the technology sector. The company reported that their first quarter earnings fell short of the street estimate by a wide margin. Earnings came in at $0.85 per share versus the streets expectation of $0.90 per share. Revenues also fell short by close to a billion dollars. Revenues came in at $22.9 billion.
Financial giant Citigroup (C) missed Wall Streets earnings estimates of $1.02 per share, reporting earnings of $0.99 per share. Revenues also missed coming in at $21.53 billion. Citigroup’s board of directors increased the company’s repurchase program by $15 billion. The total authorization to repurchase shares now stands at $16.3 billion.
General Electric (GE) had a positive report when they announced that they had earned $0.38 per share, beating analyst estimates by a penny. Revenues also grew to $39.4 billion up 19% from the prior year. Additionally, the company announced that it was upping their 2005 full year guidance to $1.78 to $1.84 per share.
United Health Group (UNH) upped full year 2005 guidance and beat earnings estimates. The health care provider earned $1.16 per share versus the streets estimate of only $1.13 per share. Full year guidance now stands at $4.85 to $4.90 per share. Wall Street 2005 estimate had been $4.82 per share.
PepsiCo (PEP) posted nice numbers for the first quarter. The diversified snack and beverage producer reported earnings of $.053 per share beating estimates by two cents. The company also upped their full year guidance by a penny to $2.56 per share.
BB&T Corp. (BBT) reported a 20% increase in their first quarter earnings. Citing “excellent credit quality, disciplined expense control and reasonably strong loan growth”, the company reported earnings of $415.8 million or $0.75 per share. Credit quality at the bank was the best in four years.
In general corporate news game maker Electronic Arts (ERTS) announced they had signed an exclusive agreement with Collegiate Licensing Co. to manufacture college football video games. The agreement covers all videogame systems and allows them to use the college teams and their stadiums. This comes right after the announcement of a similar deal with the NFL. Both deals lock out all competitors from producing the popular football video games.
In economic news, several closely watched economic indicators shook the markets confidence along with a worrisome interpretation of the release FOMC minutes. The trade deficit widened to a record level exceeding economist estimates by a wide margin. The deficit rose to $61.0 billion up from $58.5 billion. Exports barely increased coming in at $100.5 billion, while imports rose to $161.5 billion. The increase was not due to consumer demand, but was caused by higher oil prices.
Preliminary University of Michigan’s Consumer Confidence Survey for April fell to 88.7 from 92.6 in March. The expected number was a decrease to 91.5. Additionally, the New York Empire State manufacturing survey dropped to 3.1 from 20.2 in March. A reading above zero indicates growth, but the number suggests that economic growth in the region is slowing. The March industrial production report was not any better. The report indicated the production grew 0.3%, but the core manufacturing component indicated almost zero growth coming in at 0.1%.
On top of this the markets digested the release of the March FOMC minutes and did not like what they saw. The market focused on the statement that “the required amount of cumulative tightening may have increased.” The statement by some indicates that the Federal Reserve will raise the Fed Funds rate higher than they had expected.
These reports could indicate a perfect storm brewing in the economy. One in which consumer spending and manufacturing slows, while interest rates rise. Remember the stagflation of the 1970’s? A sharp slowdown in the economy with higher interest rates could also become the pin that pops the housing bubble. People have been flocking to adjustable rate mortgages to get the lower rates they provide. This has allowed many to qualify to purchase homes they would otherwise not be able to afford. If interest rates continue to rise and the economy slows these people will see the interest rate on the mortgages increasing their monthly payments y to a level they can not meet. This has the potential to become a disaster.
Several weeks ago Alan Greenspan while testifying before Congress said that it was a conundrum why yields on the long end of the yield curve had not moves higher, but in fact had come down. The market is always forward looking and the answer appears to be that bond traders feel that the economy is slowing causing the yield curve to flatten. The question now becomes are they right and will the yield curve continue to flatten until we have an inverted yield curve? An inverted yield curve is one in which short term rates yield more the long term rates. This week the 5 year Treasury note closed at 3.86%. The 10 year Treasury note yield fell to 4.23% and the 30 year bond yield fell to 4.59%.
Next week will be a big week for earnings, but traders might focus only on the economic reports due to be released. Both the April PPI and CPI are to be released giving an indication on inflation. The Fed’s Beige Book report, that reports national economic conditions is also due to be released. All of these reports have the ability to move the markets. Overall, I do feel that the economy is slowing and that the Federal Reserve might note raise rates at their next meeting. I also feel that overall this quarter’s earnings season will be a positive one. These conditions might lead to a buying opportunity in the future.
Companies that are releasing earnings next week that will be watched are Coca Cola (KO), Johnson & Johnson (JNJ), Pfizer (PFE), US Bancorp (USB), Amgen (AMGN), Autoliv (ALV), and Fortune Brands (FO).
Friday, April 08, 2005
Weekly Market Report 04-08-2005
First quarter earnings season begins
By Rick Paler
This week officially kicked off the first quarter earnings season with Alcoa reporting on Wednesday. More M&A activity was announced as companies look to put record hordes of cash to use. There were no economic reports this week of great significance leaving traders once again focused on oil. Oil prices for the week close lower allowing the market to post a slight gain for the week.
The first quarter earnings season kicked off this week with Alcoa beating estimates. Overall Wall Street traders expect earnings once again to be strong, but well below last years torrid pace. Overall sediment is for the S&P 500 index to post year over year earnings growth of 8%. While 8% earnings growth is well below last years level, it is still very respectable and above historical growth levels. Overall, this should be a fairly positive earnings season given the low level of earnings warnings given by companies to date.
Alcoa (AA) started the earnings season by postings earnings excluding items a penny above Wall Street estimates. The aluminum company did feel the sting of higher prices for energy and restructuring cost but posted earnings of $0.40 per share and revenues of $6.3 billion. The company also said that it expects strong global demand going forward.
Research In Motion (RIMM) the manufacture of the popular BlackBerry wireless devices reported their fiscal fourth quarter earnings this week. The company topped analyst estimates of only $0.65 per share when they reported earnings excluding items of $0.71 per share. Revenues at the company rocketed 92% to $404.8 million. The shares traded down on the news, when the company also gave disappointing guidance going forward.
Accenture Ltd. (ACN) reported fiscal second quarter earnings of $0.35 per share up 59% and exceeding the streets estimates of $0.32 per share. Revenues grew 15% to $3.8 billion.
Companies rich with cash are continuing to look for the best ways to put the cash to use. For several months now we have seen companies do this. We had Microsoft’s special dividend, and the Oracle PeopleSoft merger to name a few. In coming months many more companies will increase their dividend payouts or pay special dividends this year. While others will look to repurchase their shares and others will look to buy out competitors through M&A activity. Allowing them to become more dominate players in the world wide economy. In each case, the company is looking to enhance shareholder returns.
This week Dell (DELL) announced that they will increase their share repurchase program to $2 billion, double their original numbers. M&A activity this week continues to be hot. Comcast (CMCSA) and Time Warner (TWX) announced a $17.6 billion dollar bid to buy Adelphia Communications (ADELQ). Earlier Cablevision (CVC) had offered $16.5 billion for the company. It was also reported this week that HSBC Holdings (HBC) may be considering a bid for Morgan Stanley (MWD) for $75 billion. Morgan Stanley also announced that they would be selling their Discover card unit for between $8 billion and $9 billion. ChevronTexaco (CVX) announced they would purchase Unocal (UCL) for $18 billion. The deal will boost Chevron’s oil reserves by 15%.
In economic news this week, oil prices hit a record high of $85 per barrel before closing the week at $53.32 per barrel. Alan Greenspan in a speech this week said that the “current price frenzy” in energy should moderate. But as we go into the summer driving months the street will start to focus more on gasoline supplies, since many analyst feel demand will out strip refineries production capabilities. The reason for all the focus on energy and gas prices is that higher energy prices will slow consumer discretionary spending thereby hurting corporate profits in coming months, slowing the economy and causing a spike in inflation.
The 5 year Treasury note closed this week yielding 4.13%. The 10 year note closed at 4.47% and the 30 year bond closed at 4.75%. Overall the yield curve continues to flatten as the Federal Reserve raises interest rates on the short end and trades anticipate a slowdown in economic growth. This has caused yields on the long end to rise, but not as much as one would have anticipated if the market did not foresee an economic slowdown in the future.
Next week it will be all about earnings. The number of earnings release will ramp up to full swing next week. Companies that are worth watching next week are Abbott Laboratories (ABT), Advance Micro Devices (ADM), BB&T Corp (BBT), United Health Group (UNH), Genentech (DNA), Apple Computer (AAPL) PepsiCo (PEP), General Electric (GE), Citigroup (C) and Genuine Parts (GPC).
By Rick Paler
This week officially kicked off the first quarter earnings season with Alcoa reporting on Wednesday. More M&A activity was announced as companies look to put record hordes of cash to use. There were no economic reports this week of great significance leaving traders once again focused on oil. Oil prices for the week close lower allowing the market to post a slight gain for the week.
The first quarter earnings season kicked off this week with Alcoa beating estimates. Overall Wall Street traders expect earnings once again to be strong, but well below last years torrid pace. Overall sediment is for the S&P 500 index to post year over year earnings growth of 8%. While 8% earnings growth is well below last years level, it is still very respectable and above historical growth levels. Overall, this should be a fairly positive earnings season given the low level of earnings warnings given by companies to date.
Alcoa (AA) started the earnings season by postings earnings excluding items a penny above Wall Street estimates. The aluminum company did feel the sting of higher prices for energy and restructuring cost but posted earnings of $0.40 per share and revenues of $6.3 billion. The company also said that it expects strong global demand going forward.
Research In Motion (RIMM) the manufacture of the popular BlackBerry wireless devices reported their fiscal fourth quarter earnings this week. The company topped analyst estimates of only $0.65 per share when they reported earnings excluding items of $0.71 per share. Revenues at the company rocketed 92% to $404.8 million. The shares traded down on the news, when the company also gave disappointing guidance going forward.
Accenture Ltd. (ACN) reported fiscal second quarter earnings of $0.35 per share up 59% and exceeding the streets estimates of $0.32 per share. Revenues grew 15% to $3.8 billion.
Companies rich with cash are continuing to look for the best ways to put the cash to use. For several months now we have seen companies do this. We had Microsoft’s special dividend, and the Oracle PeopleSoft merger to name a few. In coming months many more companies will increase their dividend payouts or pay special dividends this year. While others will look to repurchase their shares and others will look to buy out competitors through M&A activity. Allowing them to become more dominate players in the world wide economy. In each case, the company is looking to enhance shareholder returns.
This week Dell (DELL) announced that they will increase their share repurchase program to $2 billion, double their original numbers. M&A activity this week continues to be hot. Comcast (CMCSA) and Time Warner (TWX) announced a $17.6 billion dollar bid to buy Adelphia Communications (ADELQ). Earlier Cablevision (CVC) had offered $16.5 billion for the company. It was also reported this week that HSBC Holdings (HBC) may be considering a bid for Morgan Stanley (MWD) for $75 billion. Morgan Stanley also announced that they would be selling their Discover card unit for between $8 billion and $9 billion. ChevronTexaco (CVX) announced they would purchase Unocal (UCL) for $18 billion. The deal will boost Chevron’s oil reserves by 15%.
In economic news this week, oil prices hit a record high of $85 per barrel before closing the week at $53.32 per barrel. Alan Greenspan in a speech this week said that the “current price frenzy” in energy should moderate. But as we go into the summer driving months the street will start to focus more on gasoline supplies, since many analyst feel demand will out strip refineries production capabilities. The reason for all the focus on energy and gas prices is that higher energy prices will slow consumer discretionary spending thereby hurting corporate profits in coming months, slowing the economy and causing a spike in inflation.
The 5 year Treasury note closed this week yielding 4.13%. The 10 year note closed at 4.47% and the 30 year bond closed at 4.75%. Overall the yield curve continues to flatten as the Federal Reserve raises interest rates on the short end and trades anticipate a slowdown in economic growth. This has caused yields on the long end to rise, but not as much as one would have anticipated if the market did not foresee an economic slowdown in the future.
Next week it will be all about earnings. The number of earnings release will ramp up to full swing next week. Companies that are worth watching next week are Abbott Laboratories (ABT), Advance Micro Devices (ADM), BB&T Corp (BBT), United Health Group (UNH), Genentech (DNA), Apple Computer (AAPL) PepsiCo (PEP), General Electric (GE), Citigroup (C) and Genuine Parts (GPC).
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