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Thursday, July 24, 2003 5:59:11 PM
RobBlack.com MarketWrap
http://www.robblack.com/rb_marketwrap.shtml
Chatter of a Smith Barney S&P futures sell order, and a move by Tom Ridge to raise the Terror Alert level from Yellow (Elevated) tonight squashed an earlier rally in equities. A bout of futures-related selling wiped out gains tied to a government report that fewer than 400,000 American sought unemployment benefits last week for the first time since February. The S&P 500 shed 7 points (-0.7%) to 981 after rising as much as 1 percent. The DJIA fell 81 points (-0.9%) to 9112. The Nasdaq Composite lost 17 points (-1.0%) to 1701. Stocks also dropped after the Philadelphia Inquirer reported that a plane entered a no-fly zone while President George W. Bush was visiting Philadelphia around noon, some traders said. Four F- 16 fighter jets forced the Cessna four-seat plane to land at an airport in New Jersey, the Inquirer said. The U.S. Secret Service is investigating the incident. After five months of a bull market, one cannot expect huge moves to the upside. But one can expect consolidation. We have advanced 4-1/2 months without a major correction, and the bargains of March and April have become the mature valuations of July. In general, earnings exceeded analysts' estimates. Earnings so far are trending at 7.5 percent growth year-over-year, ahead of the 5.5 percent expected. Meanwhile, a drop in weekly first-time jobless claims to a five-month low of 386,000 sent Treasury prices lower Thursday. Tomorrow sees some key numbers on durable goods and housing activity, and we digest a slew of earnings that come after the close.
Strong Sectors: wireless, internet, chemical, casino, homebuilding, auto
Weak Sectors: drug, defense, biotech, oil driller, furniture, semiconductor, computer hardware
Top Stories . . . First-time filings for jobless benefits fell below 400,000 for the first time since early February, a government report showed, suggesting the pace of job cuts may be easing.
The dollar rose against the euro and yen after a government report showed jobless claims unexpectedly fell last week, adding to signs the U.S. economy is gaining strength.
U.S. Treasury notes fell in New York trading, driving 10-year yields near a seven-month high, after a government report showed initial jobless claims unexpectedly dropped last week in a sign the labor market is recovering.
AT&T, the biggest U.S. long- distance telephone company, had a better-than-expected second- quarter profit as cost cutting countered a drop in sales to the lowest level in 14 years.
Bristol-Myers Squibb and Eli Lilly posted higher quarterly profits, helped by sales of schizophrenia medications. AstraZeneca, Europe's second-biggest pharmaceutical company, raised its 2003 earnings forecast after net income fell less than analysts expected.
American International Group, the world's largest insurer, said second-quarter profit rose 26 percent to a record after the company raised prices on property and casualty coverage.
Quotes of Note . . . ``We're all kind of shocked it's so low (referring to the jobless report). Two key things missing for this economy are an improved jobs picture and improved capital spending. So any time you see a hint of good news on either of these aspects, the market is going to jump.'' said Jeff Swensen, a trader at John Hancock Advisers.
``The market's going to love that number. This is going to set the direction after a mixed picture from earnings this week.” said Scott Nations, trader at Sovereign Capital speaking from the Chicago Mercantile Exchange.
Gurus . . . Earnings for the S&P500 companies should strengthen in the next few quarters, said Steve Wieting, an economist at Citigroup Global Markets. Wieting raised his estimate of 2003 earnings to $53 a share from $52.15 and 2004 earnings to $58.40 from $57.75. The higher forecast comes after Citigroup lowered its estimate of second-quarter gross domestic product to 1 percent. "We believe the factors that slowed growth over most of the first half will boost economic activity considerably by the third quarter," he wrote. For 2004, Citigroup sees the U.S. economy growing 4.2 percent, Europe growing 1.9 percent and Japan growing 0.5 percent.
David Briggs, head trader for Federated Investors -- which runs $185-billion, says money managers are putting fresh money into industrial, health care, energy, and utility stocks that have trailed the market advance. Meanwhile, rising share prices have attracted the public. According to AMG Data Services, June saw investors add $19.9-billion into equity funds, the biggest inflow since March of 2002.
Lesson Of Note . . . CYCLICALS AND RATES ARE RISING TOGETHER: Over the past month, long-term rates have been rising along with economically-sensitive cyclical stocks. The reasons for both moves may be the same -- expectations for economic strength. Cyclicals usually do better when investors think the economy is strengthening. That also causes them to sell bonds, which pushes yields higher. That's good news for cyclical stocks; bad news for bonds.
Wall Street Wisdom . . . Remember the old admonition of "sell in May, and stay away?" Like all bromides, this one doesn't work all the time. Not only has the market done well since May, but volume has held up. July has seen average volume of 1.4-billion shares, almost reaching the level of June, which was the busiest month of 2003. This year, some investors are shifting into so-called cyclical stocks, including shares of industrial and materials companies. Such a move results in more trading on the New York Stock Exchange than NASDAQ. The NYSE gets about 2/3's of its value from industrial or service companies, while NASDAQ gets about 1/3.
Market Comments . . . The rise in interest rates also bears important implications for the equity market. Indeed, higher yields lead to greater competition among asset classes, and dividend-paying stocks in particular. At this stage, only 9% of S&P 500 stocks pay a dividend yield currently in excess of the ten-year Treasury yield. This compares to about 17% in early June. More importantly, perhaps, the rise in yields has had a significant impact on the valuation of the equity market. The fair value threshold for the S&P 500 has gone from a little over 1100 a month ago to 980 at this juncture. Note that the entire move in fair value is the result of higher corporate bond yields. The good news for stocks is that the second-quarter earnings season is turning out to be quite friendly — granted it got some help from declining bond yields and a drop in the dollar. Still, the feel-good effect is in full force. The interesting development is that the better-than-expected earnings season has had little impact on rest-of-the-year estimates so far. This could be a sign that the second quarter is not viewed as a turning point in the earnings cycle, but rather as a one-off event. Financials still hold the key to the second-half earnings outlook as they represent 43% of the S&P 500 earnings growth. In other words, interest rates are key to the equity outlook. Although it is clear that the equity market is vulnerable to the interest-rate outlook at this juncture, it seems unlikely that bond yields
will continue to rise at such a torrid pace for long. Indeed, with the Fed still talking about a rate cut and the topic of excess capacity still in the limelight, the ten-year Treasury bond yield is unlikely to move further north from here. The upward move in bond yields is coming to an end.
The most interesting development to come out of second-quarter reporting season is that companies with a proven ability to gain on the competition, market share gainers, have seen their earnings estimates for the second half of the year rise at a much faster pace than any other stock screen. Indeed, looking at the universe of companies that have already reported, trends in estimates for the market share gainers have risen 0.6% in aggregate. This compares to a 0.3% rise for high-margin companies, a 0.4% increase for high-beta segments, and a 0.6% loss for high-dividend-paying stocks. Surely, it is ill-advised to generalize or extrapolate too much from these results; however, they could imply that analysts are continuing to look for a sub-par growth environment in the second half of the year, and are feeling more comfortable with the earnings of companies that have been able to get a greater share of the pie during the past four quarters — in other words, those with a track record!
Eco Speak . . . Initial claims for state unemployment benefits fell to a nearly six-month low in the latest week. Initial claims in the most recent week dropped by 29,000 to stand at 386,000, the lowest level since the week ended February 8. In the week ended July 19, seasonally adjusted first-time claims over the past four weeks averaged 419,250, down 5,500 from the previous week, the government agency said. As a general rule of thumb, initial claims above 400,000 mean job destruction is greater than job creation, economists say. The four-week average for new claims has been above 400,000 for the past 21 weeks.
Financials . . . MBNA second quarter net income rose 20 percent over the same period last year to $543 million. The credit card company said earnings were 42 cents a share. The results beat analysts' expectations by three cents a share. Loan receivables at the end of the quarter were $29.3 billion, an increase of $4.9 billion over the second quarter of 2002. The company added 3 million new accounts in the quarter.
Old National Bancorp reported lower net income of $27.1 million, or 43 cents per share, vs. $28.5 million, or 44 cents per share last year. The bank beat the forecast of 41 cents per.
American Home Mortgage reported earnings of $26.9 million, or $1.55 per share, well above its year-ago profit of $6.1 million, or 49 cents per share. A single analyst was looking for earnings of $1.01 per share in the quarter from the mortgage lending services. Revenue jumped 220 percent in the latest three months to $129.5 million from $40.5 million in the same period a year earlier. Loan originations totaled $6.2 billion in the quarter, up from $2 billion in last year's equivalent period. American Home expects higher interest rates to slow its loan origination business while improving its servicing business. The company added that, upon completion of its merger with Apex Mortgage and its reorganization as a real estate investment trust, it expects to be able to pay an annual dividend of $2.20 per share in 2004. Looking ahead, American Home reaffirmed its outlook for earnings of $3.95 to $4.05 per share in 2003, and $3.05 to $3.15 per share in 2004.
American International Group reported net income of $2.28 billion, or 87 cents a share, up from $1.8 billion, or 68 cents a share in the same period a year ago, driven by strength in its general and life insurance and financial services businesses. Excluding special items, earnings were 96 cents a share, topping the average analyst forecast of 94 cents. Net premiums written increased 30 percent to $8.84 billion.
E-Loan reported earnings of $8.1 million, or 12 cents per share, up from its year-ago profit of $900,000, or 2 cents per share. A single analyst was looking for a profit of 11 cents per share in the quarter from the online financial services provider. Revenue soared 119 percent in the latest three months to $45.9 million from $21 million in the same period a year earlier. The company noted its diversified product revenue, which is comprised of purchase and non-prime mortgage, home equity, and auto loans, totaled $21 million in the period, an increase of 104 percent from last year's quarter. Looking ahead, E-Loan raised its outlook for the year to earnings of about $25 million, or 37 cents per share, on revenue of $165 million. It had been looking for earnings of 35 cents per share on revenue of $155 million in 2003.
Homebuilders . . . KB Home downgraded at JMP to Market Perform from Market Outperform. While the companie's valuation remains attractive, firm believes visibility for new orders and backlog growth is much lower than for other large homebuilders, and are concerned about the company's ability to generate earnings growth in 2004 and its overall ability to generate historic returns on capital in its new markets.
Pulte Homes raised its full-year earnings outlook to $9 to $9.25 a share, above the average analyst forecast of $8.37 a share, amid a strong operating and financial performance in the second quarter and a backlog of orders valued at more than $4.2 billion. For the second quarter, net income was $121.7 million, or $1.95 a share, up from $1.45 a share in the year-earlier period. Revenue rose 16 percent to $1.96 billion. Analysts had been anticipating earnings of $1.74 a share and revenue of $1.86 billion.
Oil & Gas . . . Apache reported earnings of $243 million, or $1.49 a share, up from $143 million, or 95 cents a share in the comparable period a year ago. Excluding a charge related to foreign currency fluctuations, earnings were $1.76 a share, topping the average analyst forecast of $1.74 a share. Total revenue rose 61 percent to $1.05 billion. Oil production rose 40 percent to 211,701 barrels per day and natural gas production increased 15 percent to 1.25 billion cubic feet per day. The oil and gas exploration company noted that it completed its acquisition of British Petroleum assets in the North Sea and the Gulf of Mexico early in the quarter.
Baker Hughes reported an increase in second-quarter profit, as international markets improved and U.S. land drilling increased. The oil services company said it earned $81.6 million, or 24 cents a share, vs. $72.4 million, or 21 cents a share, in the second quarter of 2002. Analysts were expecting 20 cents a share, on average. Baker Hughes expects to earn 26 to 29 cents a share in the third quarter and 97 cents to $1.07 for the full year 2003. The estimates are in line with analyst expectations.
Royal Dutch/Shell said net income rose 28 percent to $2.8 billion. It said adjusted current cost of supply earnings for the quarter rose 51 percent to $3.3 billion. It said its interim dividend rose 2.8 percent to 74 eurocents per share. Royal Dutch said its U.S. downstream performance improved for the second consecutive quarter, and said its $12 billion investment program for 2003 is on track. It said there will not be further share buybacks this year as "balance sheet management and attractive incremental investment opportunities will continue to take priority."
Dow Chemical reported net income of $393 million, or 43 cents a share, up from 26 cents a share in the same period a year ago as "substantial" cost reductions and improved prices helped offset an increase in energy and feedstock prices. Revenue rose 14 percent to $8.24 billion, amid a 16 percent increase in price and a 2 percent decline in volume. The volume decline was attributed to economic uncertainty, particularly in the Asia Pacific region. Analysts had been expecting earnings of 35 cents a share and revenue of $8.15 billion, on average.
Burlington Resources reported net income of $278 million, or $1.38 a share, up from 84 cents a share in the year-earlier period, due primarily to higher commodity prices. The results include a $30 million charge for the impairment of several properties. Total revenue rose 35 percent to $1.06 billion, versus the average analyst forecast of $998.6 million.
Sunoco's second-quarter income improved nine-fold, as all of its businesses posted a profit and results from retail marketing and chemicals improved. Sunoco reported net income of $81 million, or $1.04, in the second quarter vs. a profit of $9 million, or 12 cents a share. Analysts were expecting Sunoco to earn $1.18 on average.
Marathon Oil reported a second quarter profit of $248 million, or 80 cents a share, vs. $168 million, or 54 cents a share, in the second quarter of 2002. Adjusted for special items, Marathon earned $263 million, or 85 cents a share, vs. $193 million, or 62 cents a share, a year ago. Analysts were expecting 94 cents a share.
Paper . . . International Paper reported net earnings of $88 million or 19 cents a share, down from earnings of 45 cents a share in the year-earlier period amid high energy and weather-related wood costs, price declines on uncoated paper and slightly lower volumes. Earnings of 19 cents a share, excluding special items, topped the average analyst estimate of 17 cents a share. Net sales declined 1.6 percent to $6.2 billion, matching analyst forecasts.
Transports . . . CSX reported net earnings of $127 million, or 59 cents a share, down from 63 cents a share in the same period a year ago, amid a 6.3 percent decline in revenue to $1.94 billion, amid slowed railroad operations and a "significant" increase in labor expenses. Meanwhile, the results exceeded the average analyst forecasts of 58 cents a share and $1.93 billion.
Jetblue Airways reported earnings of $0.38 per share, which excludes $0.17 gain from EWTSA compensations, $0.10 better than the consensus of $0.28. Revenues rose 63.9% year/year to $244.7 million versus the $237.0 million consensus.
Goodrich net income fell nearly 70 percent to $14 million or 12 cents a share in the second quarter, including charges for plant closings and layoffs. Revenue rose to $1.09 billion from $900 million. Earnings were slightly ahead of the 11 cents per share expected by analysts. Looking ahead, the aerospace company said it still expects earnings of 80 to 95 cents per share in 2003 but says sales should be $4.4 billion versus $4.3 billion previously estimated. The company increased its cash-flow expectations, and lowered estimates of capital expenditures.
Defense & Aerospace . . . Lockheed Martin said net income was $242 million, or 54 cents per share vs. $351 million, or 78 cents per share in the year-ago period. The aerospace giant beat the forecast of 52 cents per share. Second quarter results included a pre-tax charge of $41 million, which decreased earnings from continuing operations by $27 million, or 6 cents per share. Net sales were $7.7 billion, a 23 percent increase. The company cranked up its 2003 sales forecast to $30.5-$31.5 billion, up from $28.7-$29.8 billion amid volume increases in its aeronautics and space systems businesses on contracts for the F-35 Joint Strike Fighter and F/A-22 programs. 2003 EPS are targeted at $2.25-$2.35, up from earlier guidance of $2.20-$2.30. Wall Street is expecting EPS of $2.30 per share for the year. Lockheed Martin sees 2004 revenues of $31.5-33 billion versus consensus is $31 billion.
Raytheon reported net income of $186 million, or 45 cents a shares, down from 54 cents a share in the same period a year ago. Excluding a gain from the sale of an investment, earnings were 42 cents a share, exceeding the average forecast of 40 cents a share. A non-cash pension expense reduced results by 14 cents a share. Net sales for the period rose 7.3 percent to $4.4 billion, just ahead of analyst forecasts of $4.3 billion. The defense contractor raised its outlook for full-year sales growth to 9 to 10 percent from 6 to 7 percent due primarily to increased expectations for government and defense sales. The full-year earnings forecast of $1.70 to $1.80 remains unchanged.
L-3 hit on all cylinders in 2nd quarter, reporting better than expected organic sales growth, eps, free
cash flow and bookings. EPS of $0.53 was $0.02 better than the consensus estimate of $0.51, aided by organic sales growth of 9.3%. Perhaps most impressively, organic defense sales grew 11.8%, bolstered by strong growth in Intelligence, Surveillance, and Reconnaissance programs and systems, as well as solid growth in Training and Communication products. The strong growth in defense sales more than offset the 14.4% decline in commercial products (commercial aviation, commercial space, and telecommunications). Organic bookings rose 12.8%. Excluding the sharp decline in Explosive Detection Systems bookings, indigenous orders rose 27.3%. Despite the strong growth in sales, L-3 was still able to generate $81 million of free cash flow, a conversion rate of 152%. Backing out the deferred tax benefit ($17.3 million) and the under run ($3.6 million) of capital expenditure to D&A, L-3’s free cash flow still exceeded earnings by 13%. Perhaps L-3 EBIT margin (10.5% vs. 10.0% in 1st quarter 2003 and 10.2% in 2nd quarter 2002) was the only disappointment during the quarter.
Food & Beverage . . . Adolph Coors reported earnings of $76.3 million, or $2.09 per share, up from its year-ago profit of $67.6 million, or $1.84 per share. Analysts were looking for earnings of $1.88 per share in the period, on average. The beer maker attributed the higher earnings to a reduction in its effective tax rate in the latest quarter, and a 5 percent increase in sales in the latest three months to $1.1 billion from $1.05 billion in the same period a year earlier. The company noted its operating income, however, dipped due to softness in the U.S. beer industry, and challenges in a few of its high-share markets.
Archer Daniels reported fourth-quarter net income of $95 million, or 15 cents per share, compared with $112 million, or 17 cents per share, last year. Sales rose 19 percent to 8.05 billion, up from $6.76 billion. The latest quarter included a charge of $13 million, or a penny per share, for the abandonment and write-down of long-lived assets. A survey of analysts forecasted earnings of 15 cents per share. The agricultural giant cited strong corn processing results on improved selling prices and volumes.
PepsiCo declared a quarterly dividend of 16 cents per share.
Consumer Products . . . Black & Decker reported net income of $75.7 million, or 97 cents per share, versus net income of $66.1 million, or 81 cents per share, in the same period a year ago. The results topped Wall Street's consensus forecast of 93 cents. Sales were flat at $1.12 billion. Black & Decker said it expects a low single-digit decline in sales this year, excluding the effects of foreign currency. The company estimates third quarter earnings per share in the range of $1 to $1.05 and full-year earnings per share of $3.65 to $3.75. Black & Decker declared quarterly cash dividend of $0.12 per share.
Retail . . . Safeway reported earnings of $0.47 per share, excluding ($0.02) related to pre-tax restructuring and other expenses, in line with the consensus of $0.47. Revenues rose 3.1% year/year to $7.74 billion versus the $7.63 billion consensus. The company also guides, sees 3rd quarter EPS of $0.47-0.50 versus consensus of $0.50, and reaffirmed 2003 EPS of $2.13 versus estimate of $2.13.
Monro Muffler reported net of $0.62 a share, 2 cents better than the consensus. Sales increased 8.4% to $73.6 million versus consensus $74.9 million. The company "tightens" full year range to $1.74-$1.80 versus consensus $1.77.
The Wall Street Journal's "Heard on the Street" column suggests the recent runup in Ann Taylor stock can be attributed to its fashion show which debuts its fall collection on Wednesday. However, the article points to the same predicament occurring in 2000 taking the stock from $28 to $18 in late summer and finally to the midteens by summer's end. Wachovia's analyst suggests the stock could fall to the low 20's if the new fashion line fails to connect with customers. Investors are counting on designer Mark Eisen, who previously headed his own firm and joined the co last year, to connect with shoppers. The looming debut of its fall collection is the first for Mr. Eisen at the retailer.
Apparel . . . Reebok said net income was $26 million, or 41 cents per share, compared with $25 million, or 39 cents per share in the year-ago period. The figure of 41 cents per share matched the Wall Street forecast. Excluding a year-ago effect of a one-time favorable settlement, its 2nd quarter earnings per share increased 28 percent. Revenue rose 12 percent to $803 million. U.S. footwear backlog increased 13 percent, the first double-digit increase in U.S. footwear backlog reported in more than five years. The firm said it's on track to achieve its sales and earnings goals for the year.
Skechers USA reported a loss of $2.1 million, or 6 cents per share, down from its year-ago profit of $21.3 million, or 52 cents per share, and below the average estimate. Sales dipped in the latest three months to $229.3 million from $256.7 million in the same period a year earlier. The footwear firm said its results were hurt by aggressive advertising expenses, the difficult retail environment, abnormal weather conditions, and higher unemployment. Looking ahead, the company forecast between a loss of 5 cents per share and a profit of 5 cents per share on sales ranging from $205 million to $215 million in the third quarter. Wall Street's current consensus estimate for the September quarter is for earnings of 28 cents per share. Skechers believes early shipments of inventory from factories will have a negative impact on margins in the short-term.
Restaurants . . . Wendy's said same-store sales in the U.S. declined 2.3 percent. Sales including franchised restaurants rose 9.3 percent to a record $2.6 billion. Total revenues increased 14.9 percent to $786. Earnings per share were 53 cents versus 54 cents a year ago. "Same-store sales were lower than expected at Wendy's and Baja Fresh. We were comparing against very strong sales during the same period a year ago, and factors such as rising unemployment, low consumer confidence and high gasoline prices are still challenging," the company said. The Company reiterated expectation for 4-7 earnings per share growth goal for 2003. Wendy's reaffirmed 2003 EPS guidance of $1.97-2.03 versus consensus of $1.98.
Panera Bread reported s 1.6% increase in same-store sales.
Healthcare . . . Bausch & Lomb reported earnings of $28.3 million, or 53 cents per share, up from its year-ago profit of $21.8 million, or 40 cents per share, and a nickel ahead of the average estimate. The eyecare products firm said it generated sales gains in nearly every product category, and that its profitability improvement programs remain on or ahead of schedule, resulting in a surge in gross margins. Citing positive business trends, the company raised its earnings outlook for 2003 to roughly $2.20 per share with revenue growth approaching 10 percent. Bausch & Lomb also said it plans to issue securities to refinance at least a portion of the $185 million in debt that is scheduled to mature in the second half.
Aetna started with an Overweight at Morgan Stanley and $75 target; after two years of culling unprofitable enrollment and refocusing its efforts both internally and externally. The firm believes the company is returning as a formidable competitor; initiates 2003-04 estimates above consensus.
Drugs . . . Bristol-Myers Squibb said that second-quarter profit jumped to $878 million, or 45 cents per share, compared with $479 million, or 25 cents per share, in the 2002 second quarter. The company had been expected to earn 38 cents per share.
Wyeth downgraded at Goldman Sachs to In-Line from Outperform based on valuation as well as the increasing probability of downward earnings revisions. The firm is cautious on fundamentals based on management's renewed concern on Premarin trends, modest disappointments in stents and Enbrel, and approaching competition for Effexor (LLY's Cymbalta) and Protonix (OTC Prilosec).
Eli Lilly reported net income of $692.2 million, or 64 cents a share, up from 61 cents a share in the year-earlier period, and above the average analyst estimate of 60 cents a share. Revenue rose 11 percent to $3.1 billion, amid strength in sales of Zyprexa, Humalog, Gemzar and Evista. Gross margins, as a percent of sales, decreased 1.9 percentage points to 79.2 percent, due primarily to costs associated with quality improvements. Looking ahead, the drug maker expects to earn, excluding non-recurring items, 65 to 67 cents a share in the third quarter and $2.50 to $2.60 for the full year, versus current analyst projections of 66 cents and $2.55, respectively.
MedImmune raised its outlook for sales this year, citing stronger than expected growth in Synagis in the first half of the year. It now sees 30-36 percent growth in revenue to $1.1-1.15 billion. It also raised R&D spending guidance on costs associated with advancing and expanding its product pipeline. MedImmune posted second quarter revenue up 85 percent to $118 million. Net earnings rose to $13 million, or 5 cents a share on a GAAP basis. In the 2002 second quarter, MedImmune reported a net loss of $29 million, or 12 cents per share, on a GAAP basis. Adjusted, the company said earnings per share were 6 cents. Analysts had expected per share earnings of 3 cents. For 3rd quarter, company sees an adjusted loss of $0.08-$0.11 on revs of $85-$95 million consensus -$0.03, $108.21 million. MEDI puts full year adjusted EPS at $0.88-$0.93 on revenues of $1.1-$1.15 billion versus consensus $0.92 and $1.14 billion. "MedImmune has increased its 2003 guidance for total revenues, product sales and Synagis sales due to stronger than expected growth in Synagis in the first half of the year. The company also increased its R&D guidance due to costs associated with advancing and expanding the product pipeline."
Taro Pharma reported earnings of $0.50 per share, $0.01 better than the consensus of $0.50. Revenues rose 50.8% year/year to $74.8 million versus the $71.0 million consensus.
Biotech . . . Biogen reported a 33 percent jump in earnings as sales grew 14 percent. Biogen earned $58 million, or 38 cents a share versus $43 million, or 29 cents a share, in the second quarter of 2002. Analysts were looking for the drug maker to earn 36 cents a share, on average. The company reaffirmed that it expects to earn $1.72 to $1.85 a share for the full year 2003.
Celgene said strong sales of it Thalomid cancer drug helped lift the company to profit in the second quarter. The company earned $2.9 million, or 3 cents per share, compared to a loss of $1.7 million, or 2 cents per share a year ago. Analysts had expected the company to earn 2 cents per share in the quarter.
Chiron upgraded at RBC to Outperform from Sector Perform based on expectations for healthy accretion from CHIR's acquisition of PowderJect Pharma. The firm continues to believe the PJP acquisition is a strong strategic play, as they project long-term growth of 26% (up from 19%) and a U.S. beachhead with a #2 U.S. position with PJP's Fluvirin vaccine. The firm raised target to $60 from $50.
Enzon’s ongoing Phase II trial for PEG-Camptothecin for the treatment of gastric and gastroesophageal junction cancers has met its interim safety and efficacy criteria and will be advanced for that indication.
Elan and Biogen said a Phase III trial of Antegren (natalizumab), a treatment for Crohn's Disease, did not meet its primary endpoint, due to a larger than anticipated placebo response rate. The company noted, however, that natalizumab and its mechanism of action "have an important effect" on inflammation. The companies, which are collaborating on the development and marketing of natalizumab, said an analysis was underway to regarding the "unusually high" placebo response rate.
Media . . . Viacom reported operating income of $1.32 billion, up 12 percent from the same period a year ago. Net earnings were $659.6 million, or 37 cents a share, up from last year's 31 cents a share, and a penny a share above the estimate. Revenue rose 10 percent to $6.42 billion, slightly above the $6.25 billion expected by analysts. The media giant said strength in its cable networks and television division, as well as in its outdoor and video units, offset the continued softness in local advertising markets. Looking ahead, the company expects percentage growth in the "high-single digits" for revenue and in the "double digits" for operating income in 2003.
Viacom announced the initiation of a dividend of 6 cents a share.
Sina.com target raised to $32 at Piper Jaffray after the company reported solid results and raised guidance. The firm believes SINA has upcoming catalysts such as the introduction of gaming revenue and the acceleration of paid search, which should prove to be a large opportunity.
The Wall Street Journal reports Comcast has decided to take a preliminary look at Vivendi's assets. Currently, the company has bidders which includes Liberty Media, General Electric, Metro-Goldwyn-Mayer and an investor group led by Edgar Bronfman Jr.
AOL reported better-than-expected 2nd quarter 2003 results with total revenue growing 6% to $10.8 billion, versus 1.9% growth estimate. Excluding unexpected impairment charges and a gain on sale, EBITDA (now renamed "operating income before depreciation and amortization") grew almost 6% to $2.3 billion, ahead of 1.7% estimate and, we believe, consensus. AOL traded down 7% yesterday due to: (1) Expectations that guidance would be raised more than it was; (2) cable high-speed data net adds declined year-over-year for the first time; and (3) domestic net subscriber losses at America Online were higher-than-anticipated, at 846,000 (although with some mitigating factors). Full-year 2003 guidance was raised marginally and is now in line with existing estimates. However, analysts have raised 2003 revenue estimate to 5.4% growth from 3.9% growth (to $43.2 billion), and raised 2003 and 2004 EBITDA estimates to 6.6% and 10.4% growth. respectively. AOL is well on-track to achieve its 2003 year-end net debt target of $24 billion and 2004 target of $20 billion. At this point balance sheet concerns are unwarranted as the company has the liquidity
necessary to invest, grow, and maintain its credit rating. Management continues to gain credibility as it executes on its debt reduction strategy and delivers on its guidance. Maintain a Peer Perform rating in a Market Overweight sector (a positive ranking).
Hotel & Leisure . . . Starwood Hotels & Resorts posted second quarter adjusted earnings of 28 cents, beating the consensus 21 cent figure but lower than the year ago's 41 cents EPS. Income from continuing operations was $87 million, a rise of 14.5 percent. It said Westin and W Hotels performed "exceedingly well" and the company's market share rose for the third consecutive quarter. It sees full year net income of $280-$299 million and EPS of $1.35-1.45 per share.
Penn National Gaming reported earnings of $0.47 per share, $0.02 better than the consensus of $0.45. Revenues rose 98.2% year/year to $325.0 million versus the $309.4 million consensus. The company reaffirmed 2003 guidance of $1.52 versus consensus of $1.53, revenues $1.1 billion, consensus $1.15 billion. Results, guidance and consensus estimates exclude Shreveport casino operations.
Telecom . . . Regional phone carrier Alltel reported second-quarter net income of $244.0 million, or 78 cents a share, from $222.8 million, or 71 cents, a year ago. Revenue rose 18 percent to $2.01 billion from $1.70 billion a year ago. Alltel was projected to earn 77 cents, according to the consensus of analysts. Alltel said wireless post-pay churn was 2.03 percent, the lowest in more than three years. The company said more than 17,000 DSL customers were added in the quarter.
Level 3 reported a loss of $0.56 per share, excluding $190 million expense or ($0.39) per share related to premium paid for full conversion of convertible, $0.04 worse than the consensus of ($0.50). Revenues rose 25.5% year/year to $941.0 million versus the $949.5 million consensus.
AT&T Wireless upgraded at Merrill Lynch after solid 2nd quarter results. The firm believes that AWE can further improve earnings and free cash flow through rationalization of its balance sheet, margin expansion, and possibly capex reductions. The firm also notes that 2nd quarter US wireless results have exceeded their expectations regarding subscriber growth and ARPU. Target is $10.
SBC Communications said second-quarter earnings registered $1.39 billion, or 42 cents a share, compared with $1.78 billion, or 53 cents, a year ago. That was a penny ahead of the 41-cent consensus of analysts. Revenue fell 6 percent to $10.2 billion. In the prior quarter, revenue totaled $10.3 billion. Cingular sales totaled $3.8 billion, up 1 percent from the year-ago quarter. Results of the wireless unit, joint venture with BellSouth, are reported separately.
AT&T earned $536 million, or 68 cents a share, in the second quarter, reversing a loss of $12.8 billion a year earlier, a period that included major onetime costs for discontinued operations. That beat the 53-cent consensus of analysts. Revenue fell 8.2 percent to $8.8 billion. Ma Bell said it would raise its quarterly dividend and spend $2 billion buying back debt.
IT Services . . . EDS downgraded at Friedman Billings Ramsey to Underperform from Market Perform after the company issued guidance below consensus. The firm cited the company's continued cloudy outlook, TTM bookings below rev, problem contracts, and a tough market where firm believes the co is losing market share. The firm cuts target to $15 from $18.
EMS . . . Celestica reported an adjusted second-quarter loss of $12.1 million, or 7 cents per share, compared to earnings of $69.4 million, or 28 cents per share in the year-ago period. Revenue fell 29 percent to $1.59 billion, from $2.25 billion, but rose 1 percent from the first quarter. The electronics manufacturing services firm fell short of the forecast for a loss of 4 cents per share and revenue of $1.62 billion. The company said third-quarter adjusted results will range between a loss of 5 cents per share and a gain of 2 cents per share. Wall Street is forecasting a gain of a penny per share.
Storage . . . Western Digital received bankruptcy court approval to acquire substantially all of Read-Rite's assets for $95.4 million in cash. The disk drive maker said it plans to fund the purchase, which is expected to close within 10 days, through working capital.
Veritas Software upgraded at Deutsche and raised their target to $35 from $25. The firm says the company's strong quarterly results and outlook are especially impressive in light of the still tough environment, and the improvement in license revenues is a salient and positive sign.
Network Equipment . . . Corning plans to sell 45 million shares of its common stock for $8.15 each. The offering will be made under Corning's existing $5 billion universal shelf registration statement. The company plans to use the proceeds of the offering to reduce debt, and for general corporate purposes.
Foundry Networks downgraded at RW Baird to Neutral from Outperform based on high valuation and lack of a major near-term catalyst. The firm raised target to $16 from $15.
Qualcomm reported pro-forma 3rd quarter 2003 earnings of $0.33, ahead of estimates of $0.29 and consensus estimates of $0.30. Chipset shipments were also in line with guidance of 23 million. However, the company stated that it would ship 19-20 million chipsets in 4th quarter 2003 (3rd quarter 2003), below estimates of 24 million. The guidance was also below consensus estimates. Based on additional checks and reports from Motorola, Samsung, and Nokia, estimate that CDMA handset sales were app. 22-23 million in the June quarter, in line with end market demand. This is somewhat below Qualcomm’s estimate of 26 million. Additionally, we now estimate that Nokia gained more CDMA market share than initially thought. As a result of this inventory burn-off in September, Qualcomm’s chipset sales could be up quarter/quarter in the December quarter, in line to slightly below CDMA handset sales, depending on the success of Nokia. Analysts are estimating 26 million chipset sales in the December quarter. Analysts remain concerned about issues that could result in limited earnings growth in QUALCOMM’s business over the next several quarters. Based on these concerns, which are dominated by concerns over Nokia’s CDMA success, analysts are lowering 2004 estimates to $1.32 from previous estimates of $1.37. The current fiscal 2004 First Call EPS estimate is $1.41.
Semiconductor Equipment . . . Taiwan Semiconductor reported a better-than-expected 26 percent jump in net profits in the second quarter as it posted its best quarterly earnings in over two years on rising demand for its made-to-order chips. "Second quarter results of NT$11.7 billion in net income marks TSMC's highest net income since the industry's recession in 2001." said CFO Harvey Chang. "For two consecutive fiscal quarters TSMC has gained solid improvements in its operating results. We expect the performance of the coming quarter will be at least in line with that of the second quarter."
Lam Research upgraded at RBC to Outperform from Sector Perform following in-line results. The firm continues to believe that managementt is executing well in its ongoing strategy to outsource manufacturing and certain administrative functions, and that over the course of the next few quarters the co will have made significant improvements in operating leverage compared to the last industry cycle. Target is $25.
Kulicke & Soffa reported a fiscal third quarter net loss of $11.4 million, or 23 cents a share, versus a loss of 37 cents a share in the same period a year ago. Revenue fell 3.5 percent to $127.7 million. Analysts had been expecting a loss of 22 cents a share and revenue of $126.9 million. The semiconductor equipment maker said cost reduction efforts, while resulting in positive long-term improvements, affected short-term results.
Ultratech reported net income of $2 million, or 9 cents per share, compared to a loss of $1.7 million, or 7 cents per share in the year-ago period. Net sales were $24.8 million, compared to $20.7 million last year. A survey of analysts forecasted a loss of a penny per share and revenue of $23.29 million. The chip equipment maker said it's "poised to surpass its first-half fiscal success" amid increased demand for its products.
Semiconductors . . . LSI Logic upgraded at Wachovia to Outperform from Market Perform, citing valuation as well as solid execution on cost savings; sees valuation range at $7-$14.
Software . . . NetIQ (network management software) reported fourth quarter sales that missed expectations, and indicated that it would miss fiscal 2004 estimates. First Albany followed by downgrading the stock to "neutral" from "strong buy," and by cutting his fiscal 2004 earnings and revenue forecasts. "Despite a security sector rebound, core systems management revenue performance was disappointing, and appears unlikely to rebound sharply in the short term," said Damian Rinaldi.
Microsoft will introduce a new communication device for its Xbox games by the end of the year. The new device, Xbox Live Now, will allow players to talk to each other while they are playing an interactive game and to save game results for future competition. Peter Moore, vice president of Microsoft's Home Entertainment Division, told a news conference that the company has been focusing on creating a so-called social community through the Xbox. The company also announced plans to reduce Xbox Live subscriptions to 680 yen a month or 4,980 yen for a year.
Hyperion Solutions downgraded at First Albany to Neutral from Buy based on merger integration concerns. While the acquisition of BRIO fills a hole in HYSL's product suite and could eventually move HYSL in the right strategic direction, firm anticipates some bumps in the road as HYSL replaces its Crystal OEM deal with BRIO, customers await a product road map, and the sales forces clash over customer assignments.
Computer Assoc upgraded at CSFB to Outperform from Neutral following 1st quarter results, based on accelerating bookings, cash flow, and earnings. The firm raises target to $29 from $23.
Borland downgraded at Piper Jaffray to Market Perform from Outperform. The firm feels their estimates could be at risk due to recent upper level mgmt departures, maturing Java market, and their expectation of a slower adoption of the new C# product cycle. Target is $11.
Microsoft will hire between 4,000 and 5,000 new employees during its new fiscal year. The company made the hiring announcement as it began its analyst day meeting in Redmond, Wash. Chairman Bill Gates led off the software giant's analyst meeting Thursday by saying the company would increase its research and development spending up to 8 percent in its current fiscal year. The increase would boost Microsoft's R&D spending to almost $7 billion.
Electronic Arts reported $0.13 in EPS for 1st quarter 204, beating consensus by $0.11. Upside in the Quarter was attributable to game sales outperformance and $0.03 in EPS from the elimination of carriage fee expenses. On the top-line, absent a $21 million foreign exchange benefit, revenue would have been flat year-over-year. Management slightly raised its outlook for the remainder of the year with no changes in top-line guidance and largely flowed through the EPS upside in the quarter. Additionally, the Company provided initial 2nd quarter 2004 guidance range which is within our current estimates. Analysts are increasing our EPS estimates for 2004 to account for the quarter’s $0.12 upside and by an incremental $0.03 for the elimination of costs related to the AOL carriage agreement. This takes 2004 EPS estimate to $3.32 from previous estimate of $3.18. Looking to the September quarter, Management provided solid early indications of sell-through on NCAA Football (400,000 in its first week) and pre-order demand for Madden Football 2004 (100,000 thus far). Additionally, the September quarter looks promising with a solid line-up of 26 SKU’s driven by EA Sports releases. Maintain a positive fundamental outlook on EA and its “best of breed” status, but believe that valuation is too rich in front of a challenging holiday season. With the shares trading at 22.1 times our calendar 2004 estimate, recommend new investors remain on the sidelines at this time.
Management reiterated its belief that the sector’s fundamentals remain strong, maintaining its 2003 projections for North America. Specifically, Management expects growth of 25%-30% for the PS2 software market, 20% -25% growth for the Xbox software market, 15-20% growth for the GameCube software market, and 0% to 5% for the PC software market. For 2003, the Company believes that, in North America, the PS2 installed base will grow 9 to 10 million units, the Xbox will grow another 2.5 to 3 million, and the GameCube will 2 to 2.5 million units. In Europe, the company projects that the PS2 installed base will grow 8 to 9 million units, the Xbox will grow another 2 to 2.5 million units, and the GameCube will 1.5 to 2 million units. Management communicated a high- level of confidence that AAA titles will continue to hold their premium price point at $49.99, even at this point of the cycle.
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Chatter of a Smith Barney S&P futures sell order, and a move by Tom Ridge to raise the Terror Alert level from Yellow (Elevated) tonight squashed an earlier rally in equities. A bout of futures-related selling wiped out gains tied to a government report that fewer than 400,000 American sought unemployment benefits last week for the first time since February. The S&P 500 shed 7 points (-0.7%) to 981 after rising as much as 1 percent. The DJIA fell 81 points (-0.9%) to 9112. The Nasdaq Composite lost 17 points (-1.0%) to 1701. Stocks also dropped after the Philadelphia Inquirer reported that a plane entered a no-fly zone while President George W. Bush was visiting Philadelphia around noon, some traders said. Four F- 16 fighter jets forced the Cessna four-seat plane to land at an airport in New Jersey, the Inquirer said. The U.S. Secret Service is investigating the incident. After five months of a bull market, one cannot expect huge moves to the upside. But one can expect consolidation. We have advanced 4-1/2 months without a major correction, and the bargains of March and April have become the mature valuations of July. In general, earnings exceeded analysts' estimates. Earnings so far are trending at 7.5 percent growth year-over-year, ahead of the 5.5 percent expected. Meanwhile, a drop in weekly first-time jobless claims to a five-month low of 386,000 sent Treasury prices lower Thursday. Tomorrow sees some key numbers on durable goods and housing activity, and we digest a slew of earnings that come after the close.
Strong Sectors: wireless, internet, chemical, casino, homebuilding, auto
Weak Sectors: drug, defense, biotech, oil driller, furniture, semiconductor, computer hardware
Top Stories . . . First-time filings for jobless benefits fell below 400,000 for the first time since early February, a government report showed, suggesting the pace of job cuts may be easing.
The dollar rose against the euro and yen after a government report showed jobless claims unexpectedly fell last week, adding to signs the U.S. economy is gaining strength.
U.S. Treasury notes fell in New York trading, driving 10-year yields near a seven-month high, after a government report showed initial jobless claims unexpectedly dropped last week in a sign the labor market is recovering.
AT&T, the biggest U.S. long- distance telephone company, had a better-than-expected second- quarter profit as cost cutting countered a drop in sales to the lowest level in 14 years.
Bristol-Myers Squibb and Eli Lilly posted higher quarterly profits, helped by sales of schizophrenia medications. AstraZeneca, Europe's second-biggest pharmaceutical company, raised its 2003 earnings forecast after net income fell less than analysts expected.
American International Group, the world's largest insurer, said second-quarter profit rose 26 percent to a record after the company raised prices on property and casualty coverage.
Quotes of Note . . . ``We're all kind of shocked it's so low (referring to the jobless report). Two key things missing for this economy are an improved jobs picture and improved capital spending. So any time you see a hint of good news on either of these aspects, the market is going to jump.'' said Jeff Swensen, a trader at John Hancock Advisers.
``The market's going to love that number. This is going to set the direction after a mixed picture from earnings this week.” said Scott Nations, trader at Sovereign Capital speaking from the Chicago Mercantile Exchange.
Gurus . . . Earnings for the S&P500 companies should strengthen in the next few quarters, said Steve Wieting, an economist at Citigroup Global Markets. Wieting raised his estimate of 2003 earnings to $53 a share from $52.15 and 2004 earnings to $58.40 from $57.75. The higher forecast comes after Citigroup lowered its estimate of second-quarter gross domestic product to 1 percent. "We believe the factors that slowed growth over most of the first half will boost economic activity considerably by the third quarter," he wrote. For 2004, Citigroup sees the U.S. economy growing 4.2 percent, Europe growing 1.9 percent and Japan growing 0.5 percent.
David Briggs, head trader for Federated Investors -- which runs $185-billion, says money managers are putting fresh money into industrial, health care, energy, and utility stocks that have trailed the market advance. Meanwhile, rising share prices have attracted the public. According to AMG Data Services, June saw investors add $19.9-billion into equity funds, the biggest inflow since March of 2002.
Lesson Of Note . . . CYCLICALS AND RATES ARE RISING TOGETHER: Over the past month, long-term rates have been rising along with economically-sensitive cyclical stocks. The reasons for both moves may be the same -- expectations for economic strength. Cyclicals usually do better when investors think the economy is strengthening. That also causes them to sell bonds, which pushes yields higher. That's good news for cyclical stocks; bad news for bonds.
Wall Street Wisdom . . . Remember the old admonition of "sell in May, and stay away?" Like all bromides, this one doesn't work all the time. Not only has the market done well since May, but volume has held up. July has seen average volume of 1.4-billion shares, almost reaching the level of June, which was the busiest month of 2003. This year, some investors are shifting into so-called cyclical stocks, including shares of industrial and materials companies. Such a move results in more trading on the New York Stock Exchange than NASDAQ. The NYSE gets about 2/3's of its value from industrial or service companies, while NASDAQ gets about 1/3.
Market Comments . . . The rise in interest rates also bears important implications for the equity market. Indeed, higher yields lead to greater competition among asset classes, and dividend-paying stocks in particular. At this stage, only 9% of S&P 500 stocks pay a dividend yield currently in excess of the ten-year Treasury yield. This compares to about 17% in early June. More importantly, perhaps, the rise in yields has had a significant impact on the valuation of the equity market. The fair value threshold for the S&P 500 has gone from a little over 1100 a month ago to 980 at this juncture. Note that the entire move in fair value is the result of higher corporate bond yields. The good news for stocks is that the second-quarter earnings season is turning out to be quite friendly — granted it got some help from declining bond yields and a drop in the dollar. Still, the feel-good effect is in full force. The interesting development is that the better-than-expected earnings season has had little impact on rest-of-the-year estimates so far. This could be a sign that the second quarter is not viewed as a turning point in the earnings cycle, but rather as a one-off event. Financials still hold the key to the second-half earnings outlook as they represent 43% of the S&P 500 earnings growth. In other words, interest rates are key to the equity outlook. Although it is clear that the equity market is vulnerable to the interest-rate outlook at this juncture, it seems unlikely that bond yields
will continue to rise at such a torrid pace for long. Indeed, with the Fed still talking about a rate cut and the topic of excess capacity still in the limelight, the ten-year Treasury bond yield is unlikely to move further north from here. The upward move in bond yields is coming to an end.
The most interesting development to come out of second-quarter reporting season is that companies with a proven ability to gain on the competition, market share gainers, have seen their earnings estimates for the second half of the year rise at a much faster pace than any other stock screen. Indeed, looking at the universe of companies that have already reported, trends in estimates for the market share gainers have risen 0.6% in aggregate. This compares to a 0.3% rise for high-margin companies, a 0.4% increase for high-beta segments, and a 0.6% loss for high-dividend-paying stocks. Surely, it is ill-advised to generalize or extrapolate too much from these results; however, they could imply that analysts are continuing to look for a sub-par growth environment in the second half of the year, and are feeling more comfortable with the earnings of companies that have been able to get a greater share of the pie during the past four quarters — in other words, those with a track record!
Eco Speak . . . Initial claims for state unemployment benefits fell to a nearly six-month low in the latest week. Initial claims in the most recent week dropped by 29,000 to stand at 386,000, the lowest level since the week ended February 8. In the week ended July 19, seasonally adjusted first-time claims over the past four weeks averaged 419,250, down 5,500 from the previous week, the government agency said. As a general rule of thumb, initial claims above 400,000 mean job destruction is greater than job creation, economists say. The four-week average for new claims has been above 400,000 for the past 21 weeks.
Financials . . . MBNA second quarter net income rose 20 percent over the same period last year to $543 million. The credit card company said earnings were 42 cents a share. The results beat analysts' expectations by three cents a share. Loan receivables at the end of the quarter were $29.3 billion, an increase of $4.9 billion over the second quarter of 2002. The company added 3 million new accounts in the quarter.
Old National Bancorp reported lower net income of $27.1 million, or 43 cents per share, vs. $28.5 million, or 44 cents per share last year. The bank beat the forecast of 41 cents per.
American Home Mortgage reported earnings of $26.9 million, or $1.55 per share, well above its year-ago profit of $6.1 million, or 49 cents per share. A single analyst was looking for earnings of $1.01 per share in the quarter from the mortgage lending services. Revenue jumped 220 percent in the latest three months to $129.5 million from $40.5 million in the same period a year earlier. Loan originations totaled $6.2 billion in the quarter, up from $2 billion in last year's equivalent period. American Home expects higher interest rates to slow its loan origination business while improving its servicing business. The company added that, upon completion of its merger with Apex Mortgage and its reorganization as a real estate investment trust, it expects to be able to pay an annual dividend of $2.20 per share in 2004. Looking ahead, American Home reaffirmed its outlook for earnings of $3.95 to $4.05 per share in 2003, and $3.05 to $3.15 per share in 2004.
American International Group reported net income of $2.28 billion, or 87 cents a share, up from $1.8 billion, or 68 cents a share in the same period a year ago, driven by strength in its general and life insurance and financial services businesses. Excluding special items, earnings were 96 cents a share, topping the average analyst forecast of 94 cents. Net premiums written increased 30 percent to $8.84 billion.
E-Loan reported earnings of $8.1 million, or 12 cents per share, up from its year-ago profit of $900,000, or 2 cents per share. A single analyst was looking for a profit of 11 cents per share in the quarter from the online financial services provider. Revenue soared 119 percent in the latest three months to $45.9 million from $21 million in the same period a year earlier. The company noted its diversified product revenue, which is comprised of purchase and non-prime mortgage, home equity, and auto loans, totaled $21 million in the period, an increase of 104 percent from last year's quarter. Looking ahead, E-Loan raised its outlook for the year to earnings of about $25 million, or 37 cents per share, on revenue of $165 million. It had been looking for earnings of 35 cents per share on revenue of $155 million in 2003.
Homebuilders . . . KB Home downgraded at JMP to Market Perform from Market Outperform. While the companie's valuation remains attractive, firm believes visibility for new orders and backlog growth is much lower than for other large homebuilders, and are concerned about the company's ability to generate earnings growth in 2004 and its overall ability to generate historic returns on capital in its new markets.
Pulte Homes raised its full-year earnings outlook to $9 to $9.25 a share, above the average analyst forecast of $8.37 a share, amid a strong operating and financial performance in the second quarter and a backlog of orders valued at more than $4.2 billion. For the second quarter, net income was $121.7 million, or $1.95 a share, up from $1.45 a share in the year-earlier period. Revenue rose 16 percent to $1.96 billion. Analysts had been anticipating earnings of $1.74 a share and revenue of $1.86 billion.
Oil & Gas . . . Apache reported earnings of $243 million, or $1.49 a share, up from $143 million, or 95 cents a share in the comparable period a year ago. Excluding a charge related to foreign currency fluctuations, earnings were $1.76 a share, topping the average analyst forecast of $1.74 a share. Total revenue rose 61 percent to $1.05 billion. Oil production rose 40 percent to 211,701 barrels per day and natural gas production increased 15 percent to 1.25 billion cubic feet per day. The oil and gas exploration company noted that it completed its acquisition of British Petroleum assets in the North Sea and the Gulf of Mexico early in the quarter.
Baker Hughes reported an increase in second-quarter profit, as international markets improved and U.S. land drilling increased. The oil services company said it earned $81.6 million, or 24 cents a share, vs. $72.4 million, or 21 cents a share, in the second quarter of 2002. Analysts were expecting 20 cents a share, on average. Baker Hughes expects to earn 26 to 29 cents a share in the third quarter and 97 cents to $1.07 for the full year 2003. The estimates are in line with analyst expectations.
Royal Dutch/Shell said net income rose 28 percent to $2.8 billion. It said adjusted current cost of supply earnings for the quarter rose 51 percent to $3.3 billion. It said its interim dividend rose 2.8 percent to 74 eurocents per share. Royal Dutch said its U.S. downstream performance improved for the second consecutive quarter, and said its $12 billion investment program for 2003 is on track. It said there will not be further share buybacks this year as "balance sheet management and attractive incremental investment opportunities will continue to take priority."
Dow Chemical reported net income of $393 million, or 43 cents a share, up from 26 cents a share in the same period a year ago as "substantial" cost reductions and improved prices helped offset an increase in energy and feedstock prices. Revenue rose 14 percent to $8.24 billion, amid a 16 percent increase in price and a 2 percent decline in volume. The volume decline was attributed to economic uncertainty, particularly in the Asia Pacific region. Analysts had been expecting earnings of 35 cents a share and revenue of $8.15 billion, on average.
Burlington Resources reported net income of $278 million, or $1.38 a share, up from 84 cents a share in the year-earlier period, due primarily to higher commodity prices. The results include a $30 million charge for the impairment of several properties. Total revenue rose 35 percent to $1.06 billion, versus the average analyst forecast of $998.6 million.
Sunoco's second-quarter income improved nine-fold, as all of its businesses posted a profit and results from retail marketing and chemicals improved. Sunoco reported net income of $81 million, or $1.04, in the second quarter vs. a profit of $9 million, or 12 cents a share. Analysts were expecting Sunoco to earn $1.18 on average.
Marathon Oil reported a second quarter profit of $248 million, or 80 cents a share, vs. $168 million, or 54 cents a share, in the second quarter of 2002. Adjusted for special items, Marathon earned $263 million, or 85 cents a share, vs. $193 million, or 62 cents a share, a year ago. Analysts were expecting 94 cents a share.
Paper . . . International Paper reported net earnings of $88 million or 19 cents a share, down from earnings of 45 cents a share in the year-earlier period amid high energy and weather-related wood costs, price declines on uncoated paper and slightly lower volumes. Earnings of 19 cents a share, excluding special items, topped the average analyst estimate of 17 cents a share. Net sales declined 1.6 percent to $6.2 billion, matching analyst forecasts.
Transports . . . CSX reported net earnings of $127 million, or 59 cents a share, down from 63 cents a share in the same period a year ago, amid a 6.3 percent decline in revenue to $1.94 billion, amid slowed railroad operations and a "significant" increase in labor expenses. Meanwhile, the results exceeded the average analyst forecasts of 58 cents a share and $1.93 billion.
Jetblue Airways reported earnings of $0.38 per share, which excludes $0.17 gain from EWTSA compensations, $0.10 better than the consensus of $0.28. Revenues rose 63.9% year/year to $244.7 million versus the $237.0 million consensus.
Goodrich net income fell nearly 70 percent to $14 million or 12 cents a share in the second quarter, including charges for plant closings and layoffs. Revenue rose to $1.09 billion from $900 million. Earnings were slightly ahead of the 11 cents per share expected by analysts. Looking ahead, the aerospace company said it still expects earnings of 80 to 95 cents per share in 2003 but says sales should be $4.4 billion versus $4.3 billion previously estimated. The company increased its cash-flow expectations, and lowered estimates of capital expenditures.
Defense & Aerospace . . . Lockheed Martin said net income was $242 million, or 54 cents per share vs. $351 million, or 78 cents per share in the year-ago period. The aerospace giant beat the forecast of 52 cents per share. Second quarter results included a pre-tax charge of $41 million, which decreased earnings from continuing operations by $27 million, or 6 cents per share. Net sales were $7.7 billion, a 23 percent increase. The company cranked up its 2003 sales forecast to $30.5-$31.5 billion, up from $28.7-$29.8 billion amid volume increases in its aeronautics and space systems businesses on contracts for the F-35 Joint Strike Fighter and F/A-22 programs. 2003 EPS are targeted at $2.25-$2.35, up from earlier guidance of $2.20-$2.30. Wall Street is expecting EPS of $2.30 per share for the year. Lockheed Martin sees 2004 revenues of $31.5-33 billion versus consensus is $31 billion.
Raytheon reported net income of $186 million, or 45 cents a shares, down from 54 cents a share in the same period a year ago. Excluding a gain from the sale of an investment, earnings were 42 cents a share, exceeding the average forecast of 40 cents a share. A non-cash pension expense reduced results by 14 cents a share. Net sales for the period rose 7.3 percent to $4.4 billion, just ahead of analyst forecasts of $4.3 billion. The defense contractor raised its outlook for full-year sales growth to 9 to 10 percent from 6 to 7 percent due primarily to increased expectations for government and defense sales. The full-year earnings forecast of $1.70 to $1.80 remains unchanged.
L-3 hit on all cylinders in 2nd quarter, reporting better than expected organic sales growth, eps, free
cash flow and bookings. EPS of $0.53 was $0.02 better than the consensus estimate of $0.51, aided by organic sales growth of 9.3%. Perhaps most impressively, organic defense sales grew 11.8%, bolstered by strong growth in Intelligence, Surveillance, and Reconnaissance programs and systems, as well as solid growth in Training and Communication products. The strong growth in defense sales more than offset the 14.4% decline in commercial products (commercial aviation, commercial space, and telecommunications). Organic bookings rose 12.8%. Excluding the sharp decline in Explosive Detection Systems bookings, indigenous orders rose 27.3%. Despite the strong growth in sales, L-3 was still able to generate $81 million of free cash flow, a conversion rate of 152%. Backing out the deferred tax benefit ($17.3 million) and the under run ($3.6 million) of capital expenditure to D&A, L-3’s free cash flow still exceeded earnings by 13%. Perhaps L-3 EBIT margin (10.5% vs. 10.0% in 1st quarter 2003 and 10.2% in 2nd quarter 2002) was the only disappointment during the quarter.
Food & Beverage . . . Adolph Coors reported earnings of $76.3 million, or $2.09 per share, up from its year-ago profit of $67.6 million, or $1.84 per share. Analysts were looking for earnings of $1.88 per share in the period, on average. The beer maker attributed the higher earnings to a reduction in its effective tax rate in the latest quarter, and a 5 percent increase in sales in the latest three months to $1.1 billion from $1.05 billion in the same period a year earlier. The company noted its operating income, however, dipped due to softness in the U.S. beer industry, and challenges in a few of its high-share markets.
Archer Daniels reported fourth-quarter net income of $95 million, or 15 cents per share, compared with $112 million, or 17 cents per share, last year. Sales rose 19 percent to 8.05 billion, up from $6.76 billion. The latest quarter included a charge of $13 million, or a penny per share, for the abandonment and write-down of long-lived assets. A survey of analysts forecasted earnings of 15 cents per share. The agricultural giant cited strong corn processing results on improved selling prices and volumes.
PepsiCo declared a quarterly dividend of 16 cents per share.
Consumer Products . . . Black & Decker reported net income of $75.7 million, or 97 cents per share, versus net income of $66.1 million, or 81 cents per share, in the same period a year ago. The results topped Wall Street's consensus forecast of 93 cents. Sales were flat at $1.12 billion. Black & Decker said it expects a low single-digit decline in sales this year, excluding the effects of foreign currency. The company estimates third quarter earnings per share in the range of $1 to $1.05 and full-year earnings per share of $3.65 to $3.75. Black & Decker declared quarterly cash dividend of $0.12 per share.
Retail . . . Safeway reported earnings of $0.47 per share, excluding ($0.02) related to pre-tax restructuring and other expenses, in line with the consensus of $0.47. Revenues rose 3.1% year/year to $7.74 billion versus the $7.63 billion consensus. The company also guides, sees 3rd quarter EPS of $0.47-0.50 versus consensus of $0.50, and reaffirmed 2003 EPS of $2.13 versus estimate of $2.13.
Monro Muffler reported net of $0.62 a share, 2 cents better than the consensus. Sales increased 8.4% to $73.6 million versus consensus $74.9 million. The company "tightens" full year range to $1.74-$1.80 versus consensus $1.77.
The Wall Street Journal's "Heard on the Street" column suggests the recent runup in Ann Taylor stock can be attributed to its fashion show which debuts its fall collection on Wednesday. However, the article points to the same predicament occurring in 2000 taking the stock from $28 to $18 in late summer and finally to the midteens by summer's end. Wachovia's analyst suggests the stock could fall to the low 20's if the new fashion line fails to connect with customers. Investors are counting on designer Mark Eisen, who previously headed his own firm and joined the co last year, to connect with shoppers. The looming debut of its fall collection is the first for Mr. Eisen at the retailer.
Apparel . . . Reebok said net income was $26 million, or 41 cents per share, compared with $25 million, or 39 cents per share in the year-ago period. The figure of 41 cents per share matched the Wall Street forecast. Excluding a year-ago effect of a one-time favorable settlement, its 2nd quarter earnings per share increased 28 percent. Revenue rose 12 percent to $803 million. U.S. footwear backlog increased 13 percent, the first double-digit increase in U.S. footwear backlog reported in more than five years. The firm said it's on track to achieve its sales and earnings goals for the year.
Skechers USA reported a loss of $2.1 million, or 6 cents per share, down from its year-ago profit of $21.3 million, or 52 cents per share, and below the average estimate. Sales dipped in the latest three months to $229.3 million from $256.7 million in the same period a year earlier. The footwear firm said its results were hurt by aggressive advertising expenses, the difficult retail environment, abnormal weather conditions, and higher unemployment. Looking ahead, the company forecast between a loss of 5 cents per share and a profit of 5 cents per share on sales ranging from $205 million to $215 million in the third quarter. Wall Street's current consensus estimate for the September quarter is for earnings of 28 cents per share. Skechers believes early shipments of inventory from factories will have a negative impact on margins in the short-term.
Restaurants . . . Wendy's said same-store sales in the U.S. declined 2.3 percent. Sales including franchised restaurants rose 9.3 percent to a record $2.6 billion. Total revenues increased 14.9 percent to $786. Earnings per share were 53 cents versus 54 cents a year ago. "Same-store sales were lower than expected at Wendy's and Baja Fresh. We were comparing against very strong sales during the same period a year ago, and factors such as rising unemployment, low consumer confidence and high gasoline prices are still challenging," the company said. The Company reiterated expectation for 4-7 earnings per share growth goal for 2003. Wendy's reaffirmed 2003 EPS guidance of $1.97-2.03 versus consensus of $1.98.
Panera Bread reported s 1.6% increase in same-store sales.
Healthcare . . . Bausch & Lomb reported earnings of $28.3 million, or 53 cents per share, up from its year-ago profit of $21.8 million, or 40 cents per share, and a nickel ahead of the average estimate. The eyecare products firm said it generated sales gains in nearly every product category, and that its profitability improvement programs remain on or ahead of schedule, resulting in a surge in gross margins. Citing positive business trends, the company raised its earnings outlook for 2003 to roughly $2.20 per share with revenue growth approaching 10 percent. Bausch & Lomb also said it plans to issue securities to refinance at least a portion of the $185 million in debt that is scheduled to mature in the second half.
Aetna started with an Overweight at Morgan Stanley and $75 target; after two years of culling unprofitable enrollment and refocusing its efforts both internally and externally. The firm believes the company is returning as a formidable competitor; initiates 2003-04 estimates above consensus.
Drugs . . . Bristol-Myers Squibb said that second-quarter profit jumped to $878 million, or 45 cents per share, compared with $479 million, or 25 cents per share, in the 2002 second quarter. The company had been expected to earn 38 cents per share.
Wyeth downgraded at Goldman Sachs to In-Line from Outperform based on valuation as well as the increasing probability of downward earnings revisions. The firm is cautious on fundamentals based on management's renewed concern on Premarin trends, modest disappointments in stents and Enbrel, and approaching competition for Effexor (LLY's Cymbalta) and Protonix (OTC Prilosec).
Eli Lilly reported net income of $692.2 million, or 64 cents a share, up from 61 cents a share in the year-earlier period, and above the average analyst estimate of 60 cents a share. Revenue rose 11 percent to $3.1 billion, amid strength in sales of Zyprexa, Humalog, Gemzar and Evista. Gross margins, as a percent of sales, decreased 1.9 percentage points to 79.2 percent, due primarily to costs associated with quality improvements. Looking ahead, the drug maker expects to earn, excluding non-recurring items, 65 to 67 cents a share in the third quarter and $2.50 to $2.60 for the full year, versus current analyst projections of 66 cents and $2.55, respectively.
MedImmune raised its outlook for sales this year, citing stronger than expected growth in Synagis in the first half of the year. It now sees 30-36 percent growth in revenue to $1.1-1.15 billion. It also raised R&D spending guidance on costs associated with advancing and expanding its product pipeline. MedImmune posted second quarter revenue up 85 percent to $118 million. Net earnings rose to $13 million, or 5 cents a share on a GAAP basis. In the 2002 second quarter, MedImmune reported a net loss of $29 million, or 12 cents per share, on a GAAP basis. Adjusted, the company said earnings per share were 6 cents. Analysts had expected per share earnings of 3 cents. For 3rd quarter, company sees an adjusted loss of $0.08-$0.11 on revs of $85-$95 million consensus -$0.03, $108.21 million. MEDI puts full year adjusted EPS at $0.88-$0.93 on revenues of $1.1-$1.15 billion versus consensus $0.92 and $1.14 billion. "MedImmune has increased its 2003 guidance for total revenues, product sales and Synagis sales due to stronger than expected growth in Synagis in the first half of the year. The company also increased its R&D guidance due to costs associated with advancing and expanding the product pipeline."
Taro Pharma reported earnings of $0.50 per share, $0.01 better than the consensus of $0.50. Revenues rose 50.8% year/year to $74.8 million versus the $71.0 million consensus.
Biotech . . . Biogen reported a 33 percent jump in earnings as sales grew 14 percent. Biogen earned $58 million, or 38 cents a share versus $43 million, or 29 cents a share, in the second quarter of 2002. Analysts were looking for the drug maker to earn 36 cents a share, on average. The company reaffirmed that it expects to earn $1.72 to $1.85 a share for the full year 2003.
Celgene said strong sales of it Thalomid cancer drug helped lift the company to profit in the second quarter. The company earned $2.9 million, or 3 cents per share, compared to a loss of $1.7 million, or 2 cents per share a year ago. Analysts had expected the company to earn 2 cents per share in the quarter.
Chiron upgraded at RBC to Outperform from Sector Perform based on expectations for healthy accretion from CHIR's acquisition of PowderJect Pharma. The firm continues to believe the PJP acquisition is a strong strategic play, as they project long-term growth of 26% (up from 19%) and a U.S. beachhead with a #2 U.S. position with PJP's Fluvirin vaccine. The firm raised target to $60 from $50.
Enzon’s ongoing Phase II trial for PEG-Camptothecin for the treatment of gastric and gastroesophageal junction cancers has met its interim safety and efficacy criteria and will be advanced for that indication.
Elan and Biogen said a Phase III trial of Antegren (natalizumab), a treatment for Crohn's Disease, did not meet its primary endpoint, due to a larger than anticipated placebo response rate. The company noted, however, that natalizumab and its mechanism of action "have an important effect" on inflammation. The companies, which are collaborating on the development and marketing of natalizumab, said an analysis was underway to regarding the "unusually high" placebo response rate.
Media . . . Viacom reported operating income of $1.32 billion, up 12 percent from the same period a year ago. Net earnings were $659.6 million, or 37 cents a share, up from last year's 31 cents a share, and a penny a share above the estimate. Revenue rose 10 percent to $6.42 billion, slightly above the $6.25 billion expected by analysts. The media giant said strength in its cable networks and television division, as well as in its outdoor and video units, offset the continued softness in local advertising markets. Looking ahead, the company expects percentage growth in the "high-single digits" for revenue and in the "double digits" for operating income in 2003.
Viacom announced the initiation of a dividend of 6 cents a share.
Sina.com target raised to $32 at Piper Jaffray after the company reported solid results and raised guidance. The firm believes SINA has upcoming catalysts such as the introduction of gaming revenue and the acceleration of paid search, which should prove to be a large opportunity.
The Wall Street Journal reports Comcast has decided to take a preliminary look at Vivendi's assets. Currently, the company has bidders which includes Liberty Media, General Electric, Metro-Goldwyn-Mayer and an investor group led by Edgar Bronfman Jr.
AOL reported better-than-expected 2nd quarter 2003 results with total revenue growing 6% to $10.8 billion, versus 1.9% growth estimate. Excluding unexpected impairment charges and a gain on sale, EBITDA (now renamed "operating income before depreciation and amortization") grew almost 6% to $2.3 billion, ahead of 1.7% estimate and, we believe, consensus. AOL traded down 7% yesterday due to: (1) Expectations that guidance would be raised more than it was; (2) cable high-speed data net adds declined year-over-year for the first time; and (3) domestic net subscriber losses at America Online were higher-than-anticipated, at 846,000 (although with some mitigating factors). Full-year 2003 guidance was raised marginally and is now in line with existing estimates. However, analysts have raised 2003 revenue estimate to 5.4% growth from 3.9% growth (to $43.2 billion), and raised 2003 and 2004 EBITDA estimates to 6.6% and 10.4% growth. respectively. AOL is well on-track to achieve its 2003 year-end net debt target of $24 billion and 2004 target of $20 billion. At this point balance sheet concerns are unwarranted as the company has the liquidity
necessary to invest, grow, and maintain its credit rating. Management continues to gain credibility as it executes on its debt reduction strategy and delivers on its guidance. Maintain a Peer Perform rating in a Market Overweight sector (a positive ranking).
Hotel & Leisure . . . Starwood Hotels & Resorts posted second quarter adjusted earnings of 28 cents, beating the consensus 21 cent figure but lower than the year ago's 41 cents EPS. Income from continuing operations was $87 million, a rise of 14.5 percent. It said Westin and W Hotels performed "exceedingly well" and the company's market share rose for the third consecutive quarter. It sees full year net income of $280-$299 million and EPS of $1.35-1.45 per share.
Penn National Gaming reported earnings of $0.47 per share, $0.02 better than the consensus of $0.45. Revenues rose 98.2% year/year to $325.0 million versus the $309.4 million consensus. The company reaffirmed 2003 guidance of $1.52 versus consensus of $1.53, revenues $1.1 billion, consensus $1.15 billion. Results, guidance and consensus estimates exclude Shreveport casino operations.
Telecom . . . Regional phone carrier Alltel reported second-quarter net income of $244.0 million, or 78 cents a share, from $222.8 million, or 71 cents, a year ago. Revenue rose 18 percent to $2.01 billion from $1.70 billion a year ago. Alltel was projected to earn 77 cents, according to the consensus of analysts. Alltel said wireless post-pay churn was 2.03 percent, the lowest in more than three years. The company said more than 17,000 DSL customers were added in the quarter.
Level 3 reported a loss of $0.56 per share, excluding $190 million expense or ($0.39) per share related to premium paid for full conversion of convertible, $0.04 worse than the consensus of ($0.50). Revenues rose 25.5% year/year to $941.0 million versus the $949.5 million consensus.
AT&T Wireless upgraded at Merrill Lynch after solid 2nd quarter results. The firm believes that AWE can further improve earnings and free cash flow through rationalization of its balance sheet, margin expansion, and possibly capex reductions. The firm also notes that 2nd quarter US wireless results have exceeded their expectations regarding subscriber growth and ARPU. Target is $10.
SBC Communications said second-quarter earnings registered $1.39 billion, or 42 cents a share, compared with $1.78 billion, or 53 cents, a year ago. That was a penny ahead of the 41-cent consensus of analysts. Revenue fell 6 percent to $10.2 billion. In the prior quarter, revenue totaled $10.3 billion. Cingular sales totaled $3.8 billion, up 1 percent from the year-ago quarter. Results of the wireless unit, joint venture with BellSouth, are reported separately.
AT&T earned $536 million, or 68 cents a share, in the second quarter, reversing a loss of $12.8 billion a year earlier, a period that included major onetime costs for discontinued operations. That beat the 53-cent consensus of analysts. Revenue fell 8.2 percent to $8.8 billion. Ma Bell said it would raise its quarterly dividend and spend $2 billion buying back debt.
IT Services . . . EDS downgraded at Friedman Billings Ramsey to Underperform from Market Perform after the company issued guidance below consensus. The firm cited the company's continued cloudy outlook, TTM bookings below rev, problem contracts, and a tough market where firm believes the co is losing market share. The firm cuts target to $15 from $18.
EMS . . . Celestica reported an adjusted second-quarter loss of $12.1 million, or 7 cents per share, compared to earnings of $69.4 million, or 28 cents per share in the year-ago period. Revenue fell 29 percent to $1.59 billion, from $2.25 billion, but rose 1 percent from the first quarter. The electronics manufacturing services firm fell short of the forecast for a loss of 4 cents per share and revenue of $1.62 billion. The company said third-quarter adjusted results will range between a loss of 5 cents per share and a gain of 2 cents per share. Wall Street is forecasting a gain of a penny per share.
Storage . . . Western Digital received bankruptcy court approval to acquire substantially all of Read-Rite's assets for $95.4 million in cash. The disk drive maker said it plans to fund the purchase, which is expected to close within 10 days, through working capital.
Veritas Software upgraded at Deutsche and raised their target to $35 from $25. The firm says the company's strong quarterly results and outlook are especially impressive in light of the still tough environment, and the improvement in license revenues is a salient and positive sign.
Network Equipment . . . Corning plans to sell 45 million shares of its common stock for $8.15 each. The offering will be made under Corning's existing $5 billion universal shelf registration statement. The company plans to use the proceeds of the offering to reduce debt, and for general corporate purposes.
Foundry Networks downgraded at RW Baird to Neutral from Outperform based on high valuation and lack of a major near-term catalyst. The firm raised target to $16 from $15.
Qualcomm reported pro-forma 3rd quarter 2003 earnings of $0.33, ahead of estimates of $0.29 and consensus estimates of $0.30. Chipset shipments were also in line with guidance of 23 million. However, the company stated that it would ship 19-20 million chipsets in 4th quarter 2003 (3rd quarter 2003), below estimates of 24 million. The guidance was also below consensus estimates. Based on additional checks and reports from Motorola, Samsung, and Nokia, estimate that CDMA handset sales were app. 22-23 million in the June quarter, in line with end market demand. This is somewhat below Qualcomm’s estimate of 26 million. Additionally, we now estimate that Nokia gained more CDMA market share than initially thought. As a result of this inventory burn-off in September, Qualcomm’s chipset sales could be up quarter/quarter in the December quarter, in line to slightly below CDMA handset sales, depending on the success of Nokia. Analysts are estimating 26 million chipset sales in the December quarter. Analysts remain concerned about issues that could result in limited earnings growth in QUALCOMM’s business over the next several quarters. Based on these concerns, which are dominated by concerns over Nokia’s CDMA success, analysts are lowering 2004 estimates to $1.32 from previous estimates of $1.37. The current fiscal 2004 First Call EPS estimate is $1.41.
Semiconductor Equipment . . . Taiwan Semiconductor reported a better-than-expected 26 percent jump in net profits in the second quarter as it posted its best quarterly earnings in over two years on rising demand for its made-to-order chips. "Second quarter results of NT$11.7 billion in net income marks TSMC's highest net income since the industry's recession in 2001." said CFO Harvey Chang. "For two consecutive fiscal quarters TSMC has gained solid improvements in its operating results. We expect the performance of the coming quarter will be at least in line with that of the second quarter."
Lam Research upgraded at RBC to Outperform from Sector Perform following in-line results. The firm continues to believe that managementt is executing well in its ongoing strategy to outsource manufacturing and certain administrative functions, and that over the course of the next few quarters the co will have made significant improvements in operating leverage compared to the last industry cycle. Target is $25.
Kulicke & Soffa reported a fiscal third quarter net loss of $11.4 million, or 23 cents a share, versus a loss of 37 cents a share in the same period a year ago. Revenue fell 3.5 percent to $127.7 million. Analysts had been expecting a loss of 22 cents a share and revenue of $126.9 million. The semiconductor equipment maker said cost reduction efforts, while resulting in positive long-term improvements, affected short-term results.
Ultratech reported net income of $2 million, or 9 cents per share, compared to a loss of $1.7 million, or 7 cents per share in the year-ago period. Net sales were $24.8 million, compared to $20.7 million last year. A survey of analysts forecasted a loss of a penny per share and revenue of $23.29 million. The chip equipment maker said it's "poised to surpass its first-half fiscal success" amid increased demand for its products.
Semiconductors . . . LSI Logic upgraded at Wachovia to Outperform from Market Perform, citing valuation as well as solid execution on cost savings; sees valuation range at $7-$14.
Software . . . NetIQ (network management software) reported fourth quarter sales that missed expectations, and indicated that it would miss fiscal 2004 estimates. First Albany followed by downgrading the stock to "neutral" from "strong buy," and by cutting his fiscal 2004 earnings and revenue forecasts. "Despite a security sector rebound, core systems management revenue performance was disappointing, and appears unlikely to rebound sharply in the short term," said Damian Rinaldi.
Microsoft will introduce a new communication device for its Xbox games by the end of the year. The new device, Xbox Live Now, will allow players to talk to each other while they are playing an interactive game and to save game results for future competition. Peter Moore, vice president of Microsoft's Home Entertainment Division, told a news conference that the company has been focusing on creating a so-called social community through the Xbox. The company also announced plans to reduce Xbox Live subscriptions to 680 yen a month or 4,980 yen for a year.
Hyperion Solutions downgraded at First Albany to Neutral from Buy based on merger integration concerns. While the acquisition of BRIO fills a hole in HYSL's product suite and could eventually move HYSL in the right strategic direction, firm anticipates some bumps in the road as HYSL replaces its Crystal OEM deal with BRIO, customers await a product road map, and the sales forces clash over customer assignments.
Computer Assoc upgraded at CSFB to Outperform from Neutral following 1st quarter results, based on accelerating bookings, cash flow, and earnings. The firm raises target to $29 from $23.
Borland downgraded at Piper Jaffray to Market Perform from Outperform. The firm feels their estimates could be at risk due to recent upper level mgmt departures, maturing Java market, and their expectation of a slower adoption of the new C# product cycle. Target is $11.
Microsoft will hire between 4,000 and 5,000 new employees during its new fiscal year. The company made the hiring announcement as it began its analyst day meeting in Redmond, Wash. Chairman Bill Gates led off the software giant's analyst meeting Thursday by saying the company would increase its research and development spending up to 8 percent in its current fiscal year. The increase would boost Microsoft's R&D spending to almost $7 billion.
Electronic Arts reported $0.13 in EPS for 1st quarter 204, beating consensus by $0.11. Upside in the Quarter was attributable to game sales outperformance and $0.03 in EPS from the elimination of carriage fee expenses. On the top-line, absent a $21 million foreign exchange benefit, revenue would have been flat year-over-year. Management slightly raised its outlook for the remainder of the year with no changes in top-line guidance and largely flowed through the EPS upside in the quarter. Additionally, the Company provided initial 2nd quarter 2004 guidance range which is within our current estimates. Analysts are increasing our EPS estimates for 2004 to account for the quarter’s $0.12 upside and by an incremental $0.03 for the elimination of costs related to the AOL carriage agreement. This takes 2004 EPS estimate to $3.32 from previous estimate of $3.18. Looking to the September quarter, Management provided solid early indications of sell-through on NCAA Football (400,000 in its first week) and pre-order demand for Madden Football 2004 (100,000 thus far). Additionally, the September quarter looks promising with a solid line-up of 26 SKU’s driven by EA Sports releases. Maintain a positive fundamental outlook on EA and its “best of breed” status, but believe that valuation is too rich in front of a challenging holiday season. With the shares trading at 22.1 times our calendar 2004 estimate, recommend new investors remain on the sidelines at this time.
Management reiterated its belief that the sector’s fundamentals remain strong, maintaining its 2003 projections for North America. Specifically, Management expects growth of 25%-30% for the PS2 software market, 20% -25% growth for the Xbox software market, 15-20% growth for the GameCube software market, and 0% to 5% for the PC software market. For 2003, the Company believes that, in North America, the PS2 installed base will grow 9 to 10 million units, the Xbox will grow another 2.5 to 3 million, and the GameCube will 2 to 2.5 million units. In Europe, the company projects that the PS2 installed base will grow 8 to 9 million units, the Xbox will grow another 2 to 2.5 million units, and the GameCube will 1.5 to 2 million units. Management communicated a high- level of confidence that AAA titles will continue to hold their premium price point at $49.99, even at this point of the cycle.
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