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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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