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Thursday, August 10, 2006 10:17:58 PM
From Briefing.com: 5:33PM Market Internals (MKTIN) : The Dow increased 0.44% closing at 11124, the Nasdaq was up 0.56% to finish at 2072, and the S&P was up 0.46% to finish at 1272. Leading sectors included: real estate management +6.2%, general merchandise stores +4.7%, computers and electronics +2.9%, specialty stores +2.8%, construction and engineering +2.6%. Lagging sectors included: agricultural products -3.0%, oil and gas refiners --3.0%, coal and consumable fuels -1.8%, gold -1.0%, paper products --1.0%. Today's movement came from lower volume (NYSE 1592, vs. closing avg of 1681; Nasdaq 1795, vs. 1959), with advancers outpacing decliners (NYSE 1963/1297; Nasdaq 1726/1270, and with new lows outpacing new highs (NYSE 59/130, Nasdaq 42/228).
5:17PM MEMC Elec files 2005 financial statements (WFR) 31.67 +0.67 : Co announced that it has filed its 2005 Form 10-K, its Form 10-Q for the third quarter of 2005 and restated Form 10-Qs for the first and second quarters of 2005. Income Statement No changes have been made to the income statement for the full year 2005 compared to the preliminary financials provided in the July 26, 2006 update. A $1 mln movement of income tax expense occurred between the third and fourth quarters of 2005 with no net impact to the 2005 results. Balance Sheet No changes occurred to total assets, total liabilities or stockholder's equity for 2005 compared to the preliminary financials furnished in the July 26, 2006 update, although reclassifications were made within sub-categories. These changes include reclassifications between cash and short-term investments and the reclassification of certain pension and post-employment liabilities into current liabilities from long-term liabilities.
4:20 pm : Despite digesting the biggest terrorist threat since 9/11, stocks demonstrated their resiliency Thursday to such concerns as a sell-off in oil alleviated some of the uncertainty about the impact an economy slowdown is having on corporate profit growth.
With underlying sentiment already cautious about just how much the economy is slowing, reports overnight that 21 extremists were arrested for plotting to blow-up planes traveling between London and the U.S. dominated the headlines Thursday and initially exacerbated economic concerns. As a result, the U.K. and U.S. raised their terrorist alerts to the highest level while the airline industry threat level was raised to its highest ever.
Be that as it may, recognition that the terrorist plot was in fact foiled, coupled with deterioration in oil prices throughout the session, especially after the Fed recently cited the lagged effects of increases in energy prices as inflation risks that could lead to additional monetary tightening, helped investors refocus their attention on the fundamentals -- earnings.
Kicking off another batch of better than expected results was American International Group (AIG 59.03 +0.54), which reported a 29% decline in Q2 profits last night. However, since earnings beat analysts' expectations for the first since the second quarter of 2005, handily no less, weary shareholders applauded the insurance giant's upside surprise, sending the blue chip up 3% to pace the way higher among the 20 Dow components that posted gains.
In addition to leadership from Financials, Consumer Discretionary (+1.4%) paced the way higher and provided notable leadership. Aside from benefiting at the expense of a crude oil prices losing 3.1%, Retailers got a huge boost from Target (TGT 47.51 +2.23) and J.C. Penney (JCP 65.72 +1.72), which by growing Q2 profits 13% and 37%, respectively, lent further credence behind a 12th straight quarter of double-digit earnings growth for the S&P 500. Movies & Entertainment was another group lending sector support, as Viacom (VIA 37.12 +3.37) surged 10% after topping estimates, while Restaurants got a lift after Brinker International (EAT 34.88 +2.88) beat expectations and pleasantly surprised Wall Street by affirming its 15% FY07 EPS growth projection.
Bargain hunting interest was also seen in underperforming areas like Industrials (+0.8%) and Technology (+0.6%); but even more notable perhaps was that, even though oil plunged 3.1%, the Energy sector was quite resilient. Albeit still limiting today's market gains, the sector not closing by nearly as much as such a drubbing in crude might typically warrant was also reassuring for investors, especially since Energy profits continue to account for the majority of earnings growth on the S&P 500.
While concerns that the thwarted terrorist attack may result in lower demand for jet fuel (e.g. canceled flights/delays), OPEC saying supplies would stay strong and more talks of a possible cease-fire in Lebanon also prevented the commodity from ever regaining any momentum. Further, oil's decline diminished the appeal of gold as a hedge against inflation, as the precious metal closing down 2.4% ruled out any flight-to-quality scenarios occasionally characteristic in the wake of terror threats, further underscoring the market's buoyancy to such fears. DJ30 +48.19 NASDAQ +11.46 SP500 +5.86 NASDAQ Dec/Adv/Vol 1254/1734/1.77 bln NYSE Dec/Adv/Vol 1320/1950/1.60 bln
4:36PM NVIDIA reports Q2 revs above consensus, announces voluntary review of the co's stock option practices (NVDA) 24.16 -0.17 : Reports Q2 revenues rose 19.6% year/year to $687.5 mln vs the $677.1 mln consensus. NVIDIA also announced today that the Audit Committee of the Board of Directors is conducting a voluntary review of the co's stock option practices covering the time from the co's initial public offering in 1999 through the current fiscal year. The Audit Committee is conducting this review with the assistance of outside legal counsel. The co has voluntarily contacted the Securities and Exchange Commission staff to inform them about the ongoing review. Although the review is ongoing, the Audit Committee has reached a preliminary conclusion that incorrect measurement dates were used for financial accounting purposes for stock option grants in certain prior periods. As a result, NVIDIA may record additional non-cash stock-based compensation expense related to stock option grants. Any additional non-cash stock-based compensation expense recorded will not affect the co's cash position or reported revenue for the recently completed quarter or any previous periods. At this time, the Company does not expect to be in a position to file its Form 10-Q for the second fiscal quarter by the September 8, 2006 filing deadline or the permitted extension to September 13, 2006.
4:21PM NVIDIA announces voluntary review of the it's stock option practices (NVDA) 24.16 -0.17 : Co announces that the Audit Committee of the Board of Directors is conducting a voluntary review of the co's stock option practices covering the time from the co's initial public offering in 1999 through the current fiscal year. The Audit Committee is conducting this review with the assistance of outside legal counsel. The co has voluntarily contacted the SEC staff to inform them about the ongoing review.
3:19PM Bond Watch: Treasury Market Takes Terror in Stride (BONDX) : The market took a shot at reaching for unchanged at the end of the session, but no such luck on the long stuff. The day saw on & off brushes with volume but action petered out fairly quickly. The early terror related safe-haven boost lost its footing quickly as well, as the market turns it's back on the seemingly escalating terror threats. The not-so-hot 30-yr auction whacked the market off further as it disappointed even amidst lowered expectations. The curve saw some churning action initially making a go at wider, spending a brief stint near the steepest levels since early June before consolidating & then aiming flatter with the 2-10-yr yield spread now running near 0.8. The day ahead is econ-cal lite, with retail sales offering the best bet fro trading opportunities, while the market will keep a floor under prices to some extent if new terror news comes to light. The fact that many in the US & virtually all of Europe is on vacation is not going to help matters much as the thin trade will just exacerbate any decent directional shifts. The buck is way better on the session with the euro down at 1.2791 & the yen weaker at 115.3000. The dollar index is up at 85.12. Spot gold was knocked down to 636.79 (-13.78) while the crude dropped to 74.25 (-2.10). Tomorrow brings retail sales, import/export prices & biz inventories to end the week. For more bond market commentary click here.
3:41 pm Expedia Inc. (EXPE)
14.81 +0.99: With reports this morning that UK officials foiled a terrorist plot to blow up flights traveling between London and the U.S. in mid-air, it wasn't exactly a propitious time for an online travel service provider to report its earnings results. That was the fate, however, that befell Expedia, and fortunately, the world's leading online travel company had good news to share. Had that not been the case, we suspect the market would have doled out some serious punishment to its stock. Instead EXPE is making waves as one of the biggest percentage gainers on the Nasdaq.
The latter is something that hasn't been said for some time, as EXPE has fallen sharply since being spun off by IAC/InterActive Corp. (IACI) last August. Prior to today's report, EXPE was down 42.0% for the year as a pair of disappointing earnings reports for its fourth quarter last year and first quarter this year prompted an exodus from the stock. The company, though, took an encouraging step in reversing the tide of negative sentiment by topping analysts' second quarter earnings expectations, registering a 10% increase in gross bookings, and announcing a new 20 million share buyback plan.
While Expedia reported an adjusted profit of $0.32 per share, Reuters Estimates has informed us that earnings of $0.30 per share, which includes stock-based compensation expense but excludes a number of other items, are comparable to the consensus estimate of $0.24. Any way you slice it, Expedia topped the market's relatively low expectations by a comfortable margin. The catalysts for doing so included a 17% increase in worldwide merchant hotel revenue, solid growth in its international business, and a 25% jump in gross bookings for its Hotels.com business.
Expedia continued to struggle with obtaining air inventory in both its agency and merchant businesses, as airlines have been making the most of record load factors and reduced capacity in the industry. Consequently, Expedia's worldwide air revenues fell 13% due to a 10% drop in revenue per air ticket as airlines continued to reduce the compensation they pay to agencies. That trend isn't expected to reverse in the near-term.
To its credit, Expedia is still generating a healthy amount of cash flow ($689 mln in free cash flow, or nearly $2.00 per share, for the six months ended June 30) and remains a firsthand name in the search for online travel deals. At its current price, EXPE trades at nearly a 15% discount to book value, which underscores the stock's value-based appeal that we highlighted in a recent Bargain Hunting article.
In conjunction with today's earnings report, Expedia also announced it has signed a 5-year agreement with U.S. Airways (LCC) that will make that airline's products and services available through Expedia.com and affiliate sites. Additionally, Expdia plans to privately offer up to $800 million of senior unsecured notes to qualified institutional buyers. Proceeds from the sale of the notes will be used for general corporate purposes that may include share repurchases.
--Patrick J. O'Hare, Briefing.com
12:44 pm Brinker Intl. (EAT)
34.89 +2.89: Brinker International posted its fiscal fourth quarter results today and the market is eating them up, as the results and the company's guidance were better than the market had feared.
The restaurant company, which operates and franchises concepts that include Chili's, Macaroni Grill, On the Border and Maggiano's, reported earnings from continuing operations, before special items, of $0.75 per share. Including stock-based compensation, earnings of $0.70 per share stand up well against the comparable Reuters Estimates consensus estimate of $0.65. Importantly, Brinker also reaffirmed its FY07 forecast that calls for 15% EPS growth and revenue growth of 10-12%.
When taking into account its stock-based compensation expense for FY06, Brinker's FY07 earnings growth forecast translates to approximately $2.59 per share versus the current consensus estimate of $2.48, which includes stock-based compensation.
Lately, the market's treatment of Brinker's stock has been anything but kind as prevailing fears about a slowdown in discretionary spending have weighed heavily on EAT, which dropped 27% between its March high and its August low. The affirmation of guidance, then, can be considered a pleasant surprise that is most likely prompting some short-covering activity that has exacerbated today's gain. A positive response to Brinker's news is not unwarranted, though, as the results show a company that is executing well in a challenging environment. To that end, gross margins for the year jumped 16 basis points to 72.03% and operating margins expanded 63 basis points to 7.91%.
At its current price, Brinker trades at 13.4x estimated FY07 earnings. Although the company's earnings guidance can't be considered static due to the changing nature of the macro-economic environment, Brinker's 15% EPS growth projection has incited some defensible, value-based buying interest for this leading casual dining restaurant operator.
--Patrick J. O'Hare, Briefing.com
12:09 pm Lions Gate Entertainment (LGF)
9.17 +0.01: Lions Gate Entertainment Corp., the world's leading producer and distributor of independent films, posted a smaller loss for its fiscal first quarter, helped by strong growth in its home video and international film divisions. Specifically, the Santa Monica-based company reported a loss of $3.6 million, or ($0.03) per share, compared to a wider loss of $21.8 million, or ($0.21) per share, in the year ago period. That beat Wall Street's expectations for a loss of ($0.09) per share, according to Reuters Estimates.
Revenues fell 11.2% year/year to $172.5 million, below the consensus estimate of $199.5 million. Lions Gate said home video revenue grew 18% to $114.8 million, driven by strong sales of Madea's Family Reunion and two other DVDs from the Tyler Perry catalogue, as well as Crash, Barbie Diaries, and additional revenue from fourth quarter video releases such as Lord of War, Waiting, and Saw II. International revenue of $15.5 million increased 55% from $10.0 million last year.
However, theatrical revenue fell 17% to $18.5 million, with only two wide releases, Akeelah and the Bee and See No Evil, in the period, and television production revenue declined 84% to $7.3 million, due to later delivery of Lions Gate's television programming.
Earlier in July, we reiterated our positive opinion on Lions Gate, due in part to its industry leading video catalogue. Indeed, sales from the company's film and television library rose approximately 67% to $52 million in the first quarter. Backed by a strong slate of upcoming films and expansion of its television business, Lions Gate reaffirmed its forecast for full-year revenue of more than $900 million, free cash flow of $85 million, and pretax income of approximately $32 million. The company ended the quarter with a backlog of $240.5 million in unrecorded revenue from filmed entertainment contracts, which should help drive growth in coming quarters.
--Richard Jahnke, Briefing.com
10:53 am Urban Outfitters (URBN)
14.54 +0.52: Urban Outfitters posted a 16% decline in quarterly earnings on Thursday, weighed by higher fixed store occupancy costs caused by lower comparable store sales and additional markdowns. However, the results fell in line with Wall Street's estimate, sending shares nearly 5% higher in early trading.
Amid a "seismic shift" in fashion trends and subsequent inventory glut, the Philadelphia-based apparel and accessories retailer has seen its stock fall more than 40% since the start of the year. As it continues to adjust to shifting fashion trends, we believe the near-term outlook remains uncertain and would not be committing new money at this time, but would recommend long-term oriented investors be vigilant in holding the stock if they already own it.
The company, which operates under the Anthropologie, Free People, and Urban Outfitters brands, said net income in the latest quarter declined $25.7 million, or $0.15 per share, from $30.6 million, or $0.18 per share, a year earlier. Revenues increased 12.7% year/year to $285.6 million, in line with the company's pre-announcement. According to Reuters Estimates, analysts were expecting earnings of $0.15 per share on sales of $295.52 million.
The company said sales for the quarter were driven by a 29% increase in the number of stores in operation, as well as a 64% jump in Free People wholesale sales and an 11% gain in direct-to-consumer sales. That was offset in part by a 7% decrease in same store sales, which fell by 2% at Anthropologie, 11% at Urban Outfitters, and increased 8% at Free People.
Meanwhile, gross margin decreased by 468 basis points from a year ago, due to higher fixed store occupancy costs related to lower same store sales and additional markdowns to clear seasonal inventory. Total inventories grew by 12%, due primarily to the acquisition of inventory to stock new retail stores, the company said. Importantly, total comparable store inventories fell by 5.9%.
--Richard Jahnke, Briefing.com
10:34 am Viacom Inc. (VIA)
35.41 +1.62: For those just tuning in, it has been a successful run for the Media and Broadcasting group in terms of second quarter results. Following in the footsteps of News Corp (NWS/A) and Disney (DIS), Viacom posted a nice upside quarter after Wednesday's close, spurred by its cable television and movie businesses. The result raised investor confidence after a challenging Q1. The owner of MTV, VH1, Comedy Central, and Paramount can sit back and enjoy the show, watching shares finally escape the bears' grasp after a painful fall.
Profits rose 24% to $437.3 mln, or 61 cents per share, from $353.9 mln or 47 cents in the prior year. Sales matched profit growth, rising to $2.86 bln, reflecting the DreamWorks SKG purchase. Excluding items, per share profits were $0.48 - four cents above expectations. EBITDA rose nicely to $746 mln - up 15% year over year. The Cable Networks division generated an 8% increase in revenues to $1.75 bln driven by an 8% hike in advertising revenues and an 11% rise in affiliate fees. Operating income rose 12% despite a weak international performance in the German and UK markets.
The Entertainment division posted a 56% rise in revenues to $1.12 bln with over 80% of the upside reflecting the DreamWorks SKG acquisition. Home entertainment sales rose 2% to $41.7 mln, while theatrical revenues plowed over estimates with a $168.7 mln increase on the back of its successful animation picture Over the Hedge in addition to international releases of MI III and Failure to Launch. Despite the upside, which was driven by the top and bottom line, Viacom retained its full year guidance.
Overall, it was a solid performance by Viacom, whose CEO Sumner Redstone had to dismiss questions on the possibility of going private given the stock's lackluster performance. He is clearly enjoying a respite today, as shares rise over two bucks in early trading. Viacom's content generation and ownership should enable it to drive digital initiatives as traditional media trends recede over the longer-term. And while we continue to think VIA represents an attractive investment on a risk/reward basis, we prefer DIS and NWS, both suggested holdings in our Active Portfolio, in the space given their earnings potential, market reach, scope, and growth endeavors.
--Kimberly DuBord, Briefing.com
10:32 am Target (TGT)
46.20 +0.92: Retailer Target reported its second quarter results before the start of trading, and in doing so, it took more of a quantitative approach than a qualitative approach, as the company's press release moved dryly from one operating metric to another without offering much color behind the factors that led to Target's reported numbers. Presumably, the added detail will be provided on the conference call, which is scheduled to begin at 10:30 ET.
As of now, it was simply indicated by management that it continues to believe Target will "deliver strong sales and profit performance in 2006 and generate another year of profitable market share growth even in light of the challenges posed by the current economic environment." That outlook came against the backdrop of Target reporting a second quarter profit of $0.70 per share on an 11.3% increase in revenues and a 4.6% jump in comparable store sales. The EPS result was a penny ahead of the Reuters Estimates consensus estimate and compared favorably to the $0.61 per share profit logged in the year-ago period.
Target's gross margin rate of 34.9% was little changed from last year, and to its credit, it was able to achieve a modest increase in its operating margin rate to 8.50% despite an unfavorable expense environment compared to the second quarter of 2005. Additionally, it was noted that the company repurchased 11.3 million shares during the period at an average price of $48.63 per share.
The market's response to the report has been one of guarded enthusiasm, which is understandable given that Target didn't give investors a lot to chew on with its press release. The numbers in a sense speak for themselves, but with the market being a forward-looking entity, it needs more context before it casts a meaningful judgment on the prospects for Target's stock. At its current level, Target trades at 16.1x trailing twelve month earnings, which is down from 17.9x at the time of its first quarter report when we recommended investors take a wait-and-see approach with the stock.
With Target expected to grow earnings at a rate of 15% per year for the next five years, our sense is that Target offers good long-term value at its current price. At this juncture, though, we'd suggest taking only a minor position.
--Patrick J. O'Hare, Briefing.com
09:52 am Advance Auto Parts (AAP)
28.95: Advance Auto Parts said its second quarter profit fell nearly 5% from a year ago, as rising gasoline prices and higher interest rates have weighed on consumers' discretionary income. Specifically, the specialty retailer of automotive aftermarket parts, accessories, batteries, and maintenance items, reported net income of $62.9 million, or $0.59 per share, down from $66 million, or $0.60 per share, last year.
In the second quarter, revenue increased 8.3% to $1.1 billion from $1.02 billion last year. Same store sales edged up 1.2% year/year amid challenging retail conditions, as a 1% decline in do-it-yourself sales offset a 9.1% gain in do-it-for-me. The 1.2% increase compares to a 9% increase in the same quarter last year.
Analysts on average were looking for quarterly earnings of $0.58 per share on revenue of $1.1 billion, according to Reuters Estimates. Earlier in June, however, Advance Auto Parts cut its same store sales guidance to a range of 1% to 2%, from its previous estimate of 3% to 5%, and lowered its earnings per share outlook to $0.57 to $0.59 per share from $0.65 to $0.68 per share, citing the impact of unfavorable macroeconomic conditions on discretionary income for its lower- and middle-income customers.
Based on current sales trends, Advance Auto Parts expects same store sales to range from flat to up 2% in the third quarter, and slightly higher in the fourth quarter. The company also projected earnings to be in a range of $0.50 and $0.55 per share in the current quarter, and between $2.10 to $2.20 per share, including stock option expense, for the full year. Analysts are expecting the company to post a higher profit of $0.56 per share in the third quarter, and $2.20 per share in 2006, according to Reuters Estimates.
--Richard Jahnke, Briefing.com
09:04 am EchoStar Communications (DISH)
31.48: EchoStar Communications, the No. 2 satellite television provider behind DirecTV Group (DTV), on Thursday reported a lower second quarter profit that missed analysts' estimates, while revenues rose 17% on increased subscriptions. Investors, in turn, pushed shares of the Englewood, Colorado-based company higher in pre-market activity.
For the most recent quarter, EchoStar said it earned $169 million, or $0.38 per share, compared with a profit of $856 million, or $1.89 per share, last year, when results were boosted by a non-cash tax benefit of $593 million. Excluding a TiVo litigation expense of $14 million, the company would have earned $0.40 per share - four cents shy of the Reuters Estimates consensus of $0.44 per share.
Revenues at EchoStar totaled $2.46 billion, up from $2.37 billion last year, as monthly average revenue per subscriber improved to $62.71 from $58.53. During the quarter, the company said that it added roughly 195,000 net new subscribers, bringing its total subscriber base to 12.46 million. That is up from approximately 11.45 million total subscribers at the close of the same quarter last year.
Earlier this week, rival DirecTV reported second quarter earnings that matched analysts' estimates on higher revenues, but said subscriber growth slowed as it continued to target higher quality subscribers. Its shares traded sharply lower on the news. Currently, DISH shares are trading at roughly 20x forward earnings, compared to 16x for DTV.
--Richard Jahnke, Briefing.com
08:54 am J.C. Penney (JCP)
64.00: Department store operator J.C. Penney did its namesake proud by delivering second quarter earnings of $0.75 per share from continuing operations that were four cents ahead of the Reuters Estimates consensus estimate. That was a 63.0% increase versus the year-ago period. Although share repurchases and tax credits helped drive the strong bottom-line gain, it wasn't a smoke and mirrors report from J.C. Penney, which showed clear signs of operating success.
All in all, the second quarter was a good one for J.C. Penney and its performance validated one's ownership position in the stock. At roughly 15.0x trailing twelve month earnings, JCP stands out as an investment option for value-oriented investors, as it is priced at a substantive discount to its 10-year historical average of 21.7x.
In the quarter, gross margins expanded 30 basis points to 38.4% while operating margins increased 100 basis points to 6.4% as the company gained SG&A expense leverage with a 6.5% increase in net sales to $4.24 billion (consensus $4.20 bln). Comparable department store sales, meanwhile, were up 6.6% on top of a 4.2% gain in the year-ago period. J.C. Penney noted that it achieved sales increases in all merchandise divisions and regions of the country, with sales of fine jewelry and children's and women's accessories powering the results.
Mindful of the changing macro-economic environment, the company said it felt it was prudent to plan conservatively for the remainder of the year. Be that as it may, its earnings guidance can still be characterized as encouraging relative to current consensus estimates. For the third and fourth quarters, earnings are anticipated to be approximately $1.07 and $1.84 per share, respectively, versus consensus estimates of $1.06 and $1.82. For the full-year, earnings are expected to be approximately $4.55 per share (consensus $4.49), which would represent a 22% jump versus last year. The company is forecasting low single digit comparable store sales increases for the third and fourth quarters.
--Patrick J. O'Hare, Briefing.com
08:45 am American International Group (AIG)
58.49: A year after Martin Sullivan replaced Hank Greenberg as chief executive officer, AIG is still attempting to restore investor confidence after the world's largest insurer joined a notorious list of companies involved in corporate scandals. If recent share performance is any indication, sentiment has soured with shares dropping 2% on Wednesday ahead of its quarterly results, now down almost 15% for the year. But today's upside result may alter the tide for this Dow Industrial that trades at 10.6x forward earnings.
While second quarter profits fell 29% after record underwriting was offset by a decline in the value of derivative instruments held during the period, adjusted earnings exceeded estimates. EPS of $1.58 per share, excluding non-recurring items, came in 19 cents better than the Reuters Estimate. The profit decline occurred as a result of the declining value of derivative hedging against foreign exchange and other risks.
Profits from underwriting soared 93% to $1.37 bln due to lower claim costs and higher premiums. The General Insurance segment reported operating income rose 44.2% to $2.56 bln, excluding adjustments, reflecting favorable pricing, policy terms, and conditions. Premiums rose 9.3% to $11.63 bln. Life Insurance & Retirement Services operating income before realized capital gains, but including pricing net investment gains rose 9.7% to $2.61 bln despite declines in its domestic life business as its foreign business continues to generate solid growth.
There were, however, some areas of weakness in Japan and Taiwan due to unfavorable market conditions, namely an enduring lower interest rate environment, increased competition, tax law changes and a weaker yen. Overall, pretax profit from sales of international life insurance and retirement savings rose 17% to $1.72 bln, while earnings rose 4.2% to $1.6 bln excluding investments and accounting adjustments. AIG is taking action in the region to atone for these challenges, shifting product mix to emphasize higher-margin, investment-linked and health products over traditional savings-oriented life insurance.
--Kimberly DuBord, Briefing.com
09:34 am Countrywide: Banc of America Sec reiterates Sell . Target $35 to $30. Firm cuts price tgt after yesterday morning's reported July monthly YoY 19% decline in production volume. They say that more ominous for 2H06's outlook was the 19.2% YoY pipeline decline and the fall in credit report and appraisal activity; which are strong predictors of future originations.
09:33 am ArvinMeritor: UBS reiterates Reduce . Target $14 to $13. Firm cuts price tgt saying with stainless steel prices up 50% YoY, ARM faces significant earnings headwinds into 2007. They note ARM purchases about 160K tons of steel annually, and these contracts generally reset every 12 months and will be renegotiated in calendar Q4. That said, they think ARM is already bearing some of this impact as it currently funds a portion of steel costs via nickel surcharges.
09:32 am Alltel: Deutsche Securities initiates Buy. Target $60. Firm initiates based on their position as the second largest pure-play wireless co in the US and the only one with double-digit EBITDA growth forecasted and believe the co has significantly differentiated itself from the closest comparable co, Sprint-Nextel
09:31 am Global Crossing: Deutsche Securities initiates Hold. Target $16. Firm initiates as they believe investors will await to witness continued consistent reductions in the co's cost structure before aggressively investing now that they have again begun to produce reasonable top line revenue growth in their key division...
09:25 am Imax: Merriman Curhan Ford downgrades Buy to Sell . Firm downgrades noting no buyers emerge; and the shift in business model to negatively impact short-term results
09:24 am Creative Tech: Credit Suisse upgrades Neutral to Outperform. Firm upgrades saying they expect sales to pick up in 2H06, new launches and XFi announcements should generate positive interest, lower flash costs should help margins, and good progress in reducing opex and inventories.
09:23 am Komag: Maxim Group upgrades Hold to Buy. Target $46. Firm upgrades saying despite disappointing C2Q06 results from STX, lackluster guidance, and the prospects of slowing endmarket growth through the remainder of 2H06, they believe that at its current valuation, of 7x 2007P/E, Komag offers investor compelling upside return.
09:21 am American Science & Engineering: Roth Capital upgrades Hold to Buy. Target $78 to $46. Firm upgrades and cuts price tgt noting yesterday morning AS&E reported June quarter results below Street expectations. However they believe runaway expectations have been tempered and that the recent sell-off presents an opportunity to get shares of a market leader at a discount. The firm says with a focus on an expanding customer base, improved gross margins, positive cash flows, and new product introductions they are upgrading the shares.
09:16 am Supervalu: HSBC Securities upgrades Neutral to Overweight. Target $36 to $34. Firm upgrades and cuts price tgt saying on fundamental basis both the story and its visibility are improving. The firm says integration risks are smaller than they seem on first sight and issues at the core legacy retail business are minor.
5:17PM MEMC Elec files 2005 financial statements (WFR) 31.67 +0.67 : Co announced that it has filed its 2005 Form 10-K, its Form 10-Q for the third quarter of 2005 and restated Form 10-Qs for the first and second quarters of 2005. Income Statement No changes have been made to the income statement for the full year 2005 compared to the preliminary financials provided in the July 26, 2006 update. A $1 mln movement of income tax expense occurred between the third and fourth quarters of 2005 with no net impact to the 2005 results. Balance Sheet No changes occurred to total assets, total liabilities or stockholder's equity for 2005 compared to the preliminary financials furnished in the July 26, 2006 update, although reclassifications were made within sub-categories. These changes include reclassifications between cash and short-term investments and the reclassification of certain pension and post-employment liabilities into current liabilities from long-term liabilities.
4:20 pm : Despite digesting the biggest terrorist threat since 9/11, stocks demonstrated their resiliency Thursday to such concerns as a sell-off in oil alleviated some of the uncertainty about the impact an economy slowdown is having on corporate profit growth.
With underlying sentiment already cautious about just how much the economy is slowing, reports overnight that 21 extremists were arrested for plotting to blow-up planes traveling between London and the U.S. dominated the headlines Thursday and initially exacerbated economic concerns. As a result, the U.K. and U.S. raised their terrorist alerts to the highest level while the airline industry threat level was raised to its highest ever.
Be that as it may, recognition that the terrorist plot was in fact foiled, coupled with deterioration in oil prices throughout the session, especially after the Fed recently cited the lagged effects of increases in energy prices as inflation risks that could lead to additional monetary tightening, helped investors refocus their attention on the fundamentals -- earnings.
Kicking off another batch of better than expected results was American International Group (AIG 59.03 +0.54), which reported a 29% decline in Q2 profits last night. However, since earnings beat analysts' expectations for the first since the second quarter of 2005, handily no less, weary shareholders applauded the insurance giant's upside surprise, sending the blue chip up 3% to pace the way higher among the 20 Dow components that posted gains.
In addition to leadership from Financials, Consumer Discretionary (+1.4%) paced the way higher and provided notable leadership. Aside from benefiting at the expense of a crude oil prices losing 3.1%, Retailers got a huge boost from Target (TGT 47.51 +2.23) and J.C. Penney (JCP 65.72 +1.72), which by growing Q2 profits 13% and 37%, respectively, lent further credence behind a 12th straight quarter of double-digit earnings growth for the S&P 500. Movies & Entertainment was another group lending sector support, as Viacom (VIA 37.12 +3.37) surged 10% after topping estimates, while Restaurants got a lift after Brinker International (EAT 34.88 +2.88) beat expectations and pleasantly surprised Wall Street by affirming its 15% FY07 EPS growth projection.
Bargain hunting interest was also seen in underperforming areas like Industrials (+0.8%) and Technology (+0.6%); but even more notable perhaps was that, even though oil plunged 3.1%, the Energy sector was quite resilient. Albeit still limiting today's market gains, the sector not closing by nearly as much as such a drubbing in crude might typically warrant was also reassuring for investors, especially since Energy profits continue to account for the majority of earnings growth on the S&P 500.
While concerns that the thwarted terrorist attack may result in lower demand for jet fuel (e.g. canceled flights/delays), OPEC saying supplies would stay strong and more talks of a possible cease-fire in Lebanon also prevented the commodity from ever regaining any momentum. Further, oil's decline diminished the appeal of gold as a hedge against inflation, as the precious metal closing down 2.4% ruled out any flight-to-quality scenarios occasionally characteristic in the wake of terror threats, further underscoring the market's buoyancy to such fears. DJ30 +48.19 NASDAQ +11.46 SP500 +5.86 NASDAQ Dec/Adv/Vol 1254/1734/1.77 bln NYSE Dec/Adv/Vol 1320/1950/1.60 bln
4:36PM NVIDIA reports Q2 revs above consensus, announces voluntary review of the co's stock option practices (NVDA) 24.16 -0.17 : Reports Q2 revenues rose 19.6% year/year to $687.5 mln vs the $677.1 mln consensus. NVIDIA also announced today that the Audit Committee of the Board of Directors is conducting a voluntary review of the co's stock option practices covering the time from the co's initial public offering in 1999 through the current fiscal year. The Audit Committee is conducting this review with the assistance of outside legal counsel. The co has voluntarily contacted the Securities and Exchange Commission staff to inform them about the ongoing review. Although the review is ongoing, the Audit Committee has reached a preliminary conclusion that incorrect measurement dates were used for financial accounting purposes for stock option grants in certain prior periods. As a result, NVIDIA may record additional non-cash stock-based compensation expense related to stock option grants. Any additional non-cash stock-based compensation expense recorded will not affect the co's cash position or reported revenue for the recently completed quarter or any previous periods. At this time, the Company does not expect to be in a position to file its Form 10-Q for the second fiscal quarter by the September 8, 2006 filing deadline or the permitted extension to September 13, 2006.
4:21PM NVIDIA announces voluntary review of the it's stock option practices (NVDA) 24.16 -0.17 : Co announces that the Audit Committee of the Board of Directors is conducting a voluntary review of the co's stock option practices covering the time from the co's initial public offering in 1999 through the current fiscal year. The Audit Committee is conducting this review with the assistance of outside legal counsel. The co has voluntarily contacted the SEC staff to inform them about the ongoing review.
3:19PM Bond Watch: Treasury Market Takes Terror in Stride (BONDX) : The market took a shot at reaching for unchanged at the end of the session, but no such luck on the long stuff. The day saw on & off brushes with volume but action petered out fairly quickly. The early terror related safe-haven boost lost its footing quickly as well, as the market turns it's back on the seemingly escalating terror threats. The not-so-hot 30-yr auction whacked the market off further as it disappointed even amidst lowered expectations. The curve saw some churning action initially making a go at wider, spending a brief stint near the steepest levels since early June before consolidating & then aiming flatter with the 2-10-yr yield spread now running near 0.8. The day ahead is econ-cal lite, with retail sales offering the best bet fro trading opportunities, while the market will keep a floor under prices to some extent if new terror news comes to light. The fact that many in the US & virtually all of Europe is on vacation is not going to help matters much as the thin trade will just exacerbate any decent directional shifts. The buck is way better on the session with the euro down at 1.2791 & the yen weaker at 115.3000. The dollar index is up at 85.12. Spot gold was knocked down to 636.79 (-13.78) while the crude dropped to 74.25 (-2.10). Tomorrow brings retail sales, import/export prices & biz inventories to end the week. For more bond market commentary click here.
3:41 pm Expedia Inc. (EXPE)
14.81 +0.99: With reports this morning that UK officials foiled a terrorist plot to blow up flights traveling between London and the U.S. in mid-air, it wasn't exactly a propitious time for an online travel service provider to report its earnings results. That was the fate, however, that befell Expedia, and fortunately, the world's leading online travel company had good news to share. Had that not been the case, we suspect the market would have doled out some serious punishment to its stock. Instead EXPE is making waves as one of the biggest percentage gainers on the Nasdaq.
The latter is something that hasn't been said for some time, as EXPE has fallen sharply since being spun off by IAC/InterActive Corp. (IACI) last August. Prior to today's report, EXPE was down 42.0% for the year as a pair of disappointing earnings reports for its fourth quarter last year and first quarter this year prompted an exodus from the stock. The company, though, took an encouraging step in reversing the tide of negative sentiment by topping analysts' second quarter earnings expectations, registering a 10% increase in gross bookings, and announcing a new 20 million share buyback plan.
While Expedia reported an adjusted profit of $0.32 per share, Reuters Estimates has informed us that earnings of $0.30 per share, which includes stock-based compensation expense but excludes a number of other items, are comparable to the consensus estimate of $0.24. Any way you slice it, Expedia topped the market's relatively low expectations by a comfortable margin. The catalysts for doing so included a 17% increase in worldwide merchant hotel revenue, solid growth in its international business, and a 25% jump in gross bookings for its Hotels.com business.
Expedia continued to struggle with obtaining air inventory in both its agency and merchant businesses, as airlines have been making the most of record load factors and reduced capacity in the industry. Consequently, Expedia's worldwide air revenues fell 13% due to a 10% drop in revenue per air ticket as airlines continued to reduce the compensation they pay to agencies. That trend isn't expected to reverse in the near-term.
To its credit, Expedia is still generating a healthy amount of cash flow ($689 mln in free cash flow, or nearly $2.00 per share, for the six months ended June 30) and remains a firsthand name in the search for online travel deals. At its current price, EXPE trades at nearly a 15% discount to book value, which underscores the stock's value-based appeal that we highlighted in a recent Bargain Hunting article.
In conjunction with today's earnings report, Expedia also announced it has signed a 5-year agreement with U.S. Airways (LCC) that will make that airline's products and services available through Expedia.com and affiliate sites. Additionally, Expdia plans to privately offer up to $800 million of senior unsecured notes to qualified institutional buyers. Proceeds from the sale of the notes will be used for general corporate purposes that may include share repurchases.
--Patrick J. O'Hare, Briefing.com
12:44 pm Brinker Intl. (EAT)
34.89 +2.89: Brinker International posted its fiscal fourth quarter results today and the market is eating them up, as the results and the company's guidance were better than the market had feared.
The restaurant company, which operates and franchises concepts that include Chili's, Macaroni Grill, On the Border and Maggiano's, reported earnings from continuing operations, before special items, of $0.75 per share. Including stock-based compensation, earnings of $0.70 per share stand up well against the comparable Reuters Estimates consensus estimate of $0.65. Importantly, Brinker also reaffirmed its FY07 forecast that calls for 15% EPS growth and revenue growth of 10-12%.
When taking into account its stock-based compensation expense for FY06, Brinker's FY07 earnings growth forecast translates to approximately $2.59 per share versus the current consensus estimate of $2.48, which includes stock-based compensation.
Lately, the market's treatment of Brinker's stock has been anything but kind as prevailing fears about a slowdown in discretionary spending have weighed heavily on EAT, which dropped 27% between its March high and its August low. The affirmation of guidance, then, can be considered a pleasant surprise that is most likely prompting some short-covering activity that has exacerbated today's gain. A positive response to Brinker's news is not unwarranted, though, as the results show a company that is executing well in a challenging environment. To that end, gross margins for the year jumped 16 basis points to 72.03% and operating margins expanded 63 basis points to 7.91%.
At its current price, Brinker trades at 13.4x estimated FY07 earnings. Although the company's earnings guidance can't be considered static due to the changing nature of the macro-economic environment, Brinker's 15% EPS growth projection has incited some defensible, value-based buying interest for this leading casual dining restaurant operator.
--Patrick J. O'Hare, Briefing.com
12:09 pm Lions Gate Entertainment (LGF)
9.17 +0.01: Lions Gate Entertainment Corp., the world's leading producer and distributor of independent films, posted a smaller loss for its fiscal first quarter, helped by strong growth in its home video and international film divisions. Specifically, the Santa Monica-based company reported a loss of $3.6 million, or ($0.03) per share, compared to a wider loss of $21.8 million, or ($0.21) per share, in the year ago period. That beat Wall Street's expectations for a loss of ($0.09) per share, according to Reuters Estimates.
Revenues fell 11.2% year/year to $172.5 million, below the consensus estimate of $199.5 million. Lions Gate said home video revenue grew 18% to $114.8 million, driven by strong sales of Madea's Family Reunion and two other DVDs from the Tyler Perry catalogue, as well as Crash, Barbie Diaries, and additional revenue from fourth quarter video releases such as Lord of War, Waiting, and Saw II. International revenue of $15.5 million increased 55% from $10.0 million last year.
However, theatrical revenue fell 17% to $18.5 million, with only two wide releases, Akeelah and the Bee and See No Evil, in the period, and television production revenue declined 84% to $7.3 million, due to later delivery of Lions Gate's television programming.
Earlier in July, we reiterated our positive opinion on Lions Gate, due in part to its industry leading video catalogue. Indeed, sales from the company's film and television library rose approximately 67% to $52 million in the first quarter. Backed by a strong slate of upcoming films and expansion of its television business, Lions Gate reaffirmed its forecast for full-year revenue of more than $900 million, free cash flow of $85 million, and pretax income of approximately $32 million. The company ended the quarter with a backlog of $240.5 million in unrecorded revenue from filmed entertainment contracts, which should help drive growth in coming quarters.
--Richard Jahnke, Briefing.com
10:53 am Urban Outfitters (URBN)
14.54 +0.52: Urban Outfitters posted a 16% decline in quarterly earnings on Thursday, weighed by higher fixed store occupancy costs caused by lower comparable store sales and additional markdowns. However, the results fell in line with Wall Street's estimate, sending shares nearly 5% higher in early trading.
Amid a "seismic shift" in fashion trends and subsequent inventory glut, the Philadelphia-based apparel and accessories retailer has seen its stock fall more than 40% since the start of the year. As it continues to adjust to shifting fashion trends, we believe the near-term outlook remains uncertain and would not be committing new money at this time, but would recommend long-term oriented investors be vigilant in holding the stock if they already own it.
The company, which operates under the Anthropologie, Free People, and Urban Outfitters brands, said net income in the latest quarter declined $25.7 million, or $0.15 per share, from $30.6 million, or $0.18 per share, a year earlier. Revenues increased 12.7% year/year to $285.6 million, in line with the company's pre-announcement. According to Reuters Estimates, analysts were expecting earnings of $0.15 per share on sales of $295.52 million.
The company said sales for the quarter were driven by a 29% increase in the number of stores in operation, as well as a 64% jump in Free People wholesale sales and an 11% gain in direct-to-consumer sales. That was offset in part by a 7% decrease in same store sales, which fell by 2% at Anthropologie, 11% at Urban Outfitters, and increased 8% at Free People.
Meanwhile, gross margin decreased by 468 basis points from a year ago, due to higher fixed store occupancy costs related to lower same store sales and additional markdowns to clear seasonal inventory. Total inventories grew by 12%, due primarily to the acquisition of inventory to stock new retail stores, the company said. Importantly, total comparable store inventories fell by 5.9%.
--Richard Jahnke, Briefing.com
10:34 am Viacom Inc. (VIA)
35.41 +1.62: For those just tuning in, it has been a successful run for the Media and Broadcasting group in terms of second quarter results. Following in the footsteps of News Corp (NWS/A) and Disney (DIS), Viacom posted a nice upside quarter after Wednesday's close, spurred by its cable television and movie businesses. The result raised investor confidence after a challenging Q1. The owner of MTV, VH1, Comedy Central, and Paramount can sit back and enjoy the show, watching shares finally escape the bears' grasp after a painful fall.
Profits rose 24% to $437.3 mln, or 61 cents per share, from $353.9 mln or 47 cents in the prior year. Sales matched profit growth, rising to $2.86 bln, reflecting the DreamWorks SKG purchase. Excluding items, per share profits were $0.48 - four cents above expectations. EBITDA rose nicely to $746 mln - up 15% year over year. The Cable Networks division generated an 8% increase in revenues to $1.75 bln driven by an 8% hike in advertising revenues and an 11% rise in affiliate fees. Operating income rose 12% despite a weak international performance in the German and UK markets.
The Entertainment division posted a 56% rise in revenues to $1.12 bln with over 80% of the upside reflecting the DreamWorks SKG acquisition. Home entertainment sales rose 2% to $41.7 mln, while theatrical revenues plowed over estimates with a $168.7 mln increase on the back of its successful animation picture Over the Hedge in addition to international releases of MI III and Failure to Launch. Despite the upside, which was driven by the top and bottom line, Viacom retained its full year guidance.
Overall, it was a solid performance by Viacom, whose CEO Sumner Redstone had to dismiss questions on the possibility of going private given the stock's lackluster performance. He is clearly enjoying a respite today, as shares rise over two bucks in early trading. Viacom's content generation and ownership should enable it to drive digital initiatives as traditional media trends recede over the longer-term. And while we continue to think VIA represents an attractive investment on a risk/reward basis, we prefer DIS and NWS, both suggested holdings in our Active Portfolio, in the space given their earnings potential, market reach, scope, and growth endeavors.
--Kimberly DuBord, Briefing.com
10:32 am Target (TGT)
46.20 +0.92: Retailer Target reported its second quarter results before the start of trading, and in doing so, it took more of a quantitative approach than a qualitative approach, as the company's press release moved dryly from one operating metric to another without offering much color behind the factors that led to Target's reported numbers. Presumably, the added detail will be provided on the conference call, which is scheduled to begin at 10:30 ET.
As of now, it was simply indicated by management that it continues to believe Target will "deliver strong sales and profit performance in 2006 and generate another year of profitable market share growth even in light of the challenges posed by the current economic environment." That outlook came against the backdrop of Target reporting a second quarter profit of $0.70 per share on an 11.3% increase in revenues and a 4.6% jump in comparable store sales. The EPS result was a penny ahead of the Reuters Estimates consensus estimate and compared favorably to the $0.61 per share profit logged in the year-ago period.
Target's gross margin rate of 34.9% was little changed from last year, and to its credit, it was able to achieve a modest increase in its operating margin rate to 8.50% despite an unfavorable expense environment compared to the second quarter of 2005. Additionally, it was noted that the company repurchased 11.3 million shares during the period at an average price of $48.63 per share.
The market's response to the report has been one of guarded enthusiasm, which is understandable given that Target didn't give investors a lot to chew on with its press release. The numbers in a sense speak for themselves, but with the market being a forward-looking entity, it needs more context before it casts a meaningful judgment on the prospects for Target's stock. At its current level, Target trades at 16.1x trailing twelve month earnings, which is down from 17.9x at the time of its first quarter report when we recommended investors take a wait-and-see approach with the stock.
With Target expected to grow earnings at a rate of 15% per year for the next five years, our sense is that Target offers good long-term value at its current price. At this juncture, though, we'd suggest taking only a minor position.
--Patrick J. O'Hare, Briefing.com
09:52 am Advance Auto Parts (AAP)
28.95: Advance Auto Parts said its second quarter profit fell nearly 5% from a year ago, as rising gasoline prices and higher interest rates have weighed on consumers' discretionary income. Specifically, the specialty retailer of automotive aftermarket parts, accessories, batteries, and maintenance items, reported net income of $62.9 million, or $0.59 per share, down from $66 million, or $0.60 per share, last year.
In the second quarter, revenue increased 8.3% to $1.1 billion from $1.02 billion last year. Same store sales edged up 1.2% year/year amid challenging retail conditions, as a 1% decline in do-it-yourself sales offset a 9.1% gain in do-it-for-me. The 1.2% increase compares to a 9% increase in the same quarter last year.
Analysts on average were looking for quarterly earnings of $0.58 per share on revenue of $1.1 billion, according to Reuters Estimates. Earlier in June, however, Advance Auto Parts cut its same store sales guidance to a range of 1% to 2%, from its previous estimate of 3% to 5%, and lowered its earnings per share outlook to $0.57 to $0.59 per share from $0.65 to $0.68 per share, citing the impact of unfavorable macroeconomic conditions on discretionary income for its lower- and middle-income customers.
Based on current sales trends, Advance Auto Parts expects same store sales to range from flat to up 2% in the third quarter, and slightly higher in the fourth quarter. The company also projected earnings to be in a range of $0.50 and $0.55 per share in the current quarter, and between $2.10 to $2.20 per share, including stock option expense, for the full year. Analysts are expecting the company to post a higher profit of $0.56 per share in the third quarter, and $2.20 per share in 2006, according to Reuters Estimates.
--Richard Jahnke, Briefing.com
09:04 am EchoStar Communications (DISH)
31.48: EchoStar Communications, the No. 2 satellite television provider behind DirecTV Group (DTV), on Thursday reported a lower second quarter profit that missed analysts' estimates, while revenues rose 17% on increased subscriptions. Investors, in turn, pushed shares of the Englewood, Colorado-based company higher in pre-market activity.
For the most recent quarter, EchoStar said it earned $169 million, or $0.38 per share, compared with a profit of $856 million, or $1.89 per share, last year, when results were boosted by a non-cash tax benefit of $593 million. Excluding a TiVo litigation expense of $14 million, the company would have earned $0.40 per share - four cents shy of the Reuters Estimates consensus of $0.44 per share.
Revenues at EchoStar totaled $2.46 billion, up from $2.37 billion last year, as monthly average revenue per subscriber improved to $62.71 from $58.53. During the quarter, the company said that it added roughly 195,000 net new subscribers, bringing its total subscriber base to 12.46 million. That is up from approximately 11.45 million total subscribers at the close of the same quarter last year.
Earlier this week, rival DirecTV reported second quarter earnings that matched analysts' estimates on higher revenues, but said subscriber growth slowed as it continued to target higher quality subscribers. Its shares traded sharply lower on the news. Currently, DISH shares are trading at roughly 20x forward earnings, compared to 16x for DTV.
--Richard Jahnke, Briefing.com
08:54 am J.C. Penney (JCP)
64.00: Department store operator J.C. Penney did its namesake proud by delivering second quarter earnings of $0.75 per share from continuing operations that were four cents ahead of the Reuters Estimates consensus estimate. That was a 63.0% increase versus the year-ago period. Although share repurchases and tax credits helped drive the strong bottom-line gain, it wasn't a smoke and mirrors report from J.C. Penney, which showed clear signs of operating success.
All in all, the second quarter was a good one for J.C. Penney and its performance validated one's ownership position in the stock. At roughly 15.0x trailing twelve month earnings, JCP stands out as an investment option for value-oriented investors, as it is priced at a substantive discount to its 10-year historical average of 21.7x.
In the quarter, gross margins expanded 30 basis points to 38.4% while operating margins increased 100 basis points to 6.4% as the company gained SG&A expense leverage with a 6.5% increase in net sales to $4.24 billion (consensus $4.20 bln). Comparable department store sales, meanwhile, were up 6.6% on top of a 4.2% gain in the year-ago period. J.C. Penney noted that it achieved sales increases in all merchandise divisions and regions of the country, with sales of fine jewelry and children's and women's accessories powering the results.
Mindful of the changing macro-economic environment, the company said it felt it was prudent to plan conservatively for the remainder of the year. Be that as it may, its earnings guidance can still be characterized as encouraging relative to current consensus estimates. For the third and fourth quarters, earnings are anticipated to be approximately $1.07 and $1.84 per share, respectively, versus consensus estimates of $1.06 and $1.82. For the full-year, earnings are expected to be approximately $4.55 per share (consensus $4.49), which would represent a 22% jump versus last year. The company is forecasting low single digit comparable store sales increases for the third and fourth quarters.
--Patrick J. O'Hare, Briefing.com
08:45 am American International Group (AIG)
58.49: A year after Martin Sullivan replaced Hank Greenberg as chief executive officer, AIG is still attempting to restore investor confidence after the world's largest insurer joined a notorious list of companies involved in corporate scandals. If recent share performance is any indication, sentiment has soured with shares dropping 2% on Wednesday ahead of its quarterly results, now down almost 15% for the year. But today's upside result may alter the tide for this Dow Industrial that trades at 10.6x forward earnings.
While second quarter profits fell 29% after record underwriting was offset by a decline in the value of derivative instruments held during the period, adjusted earnings exceeded estimates. EPS of $1.58 per share, excluding non-recurring items, came in 19 cents better than the Reuters Estimate. The profit decline occurred as a result of the declining value of derivative hedging against foreign exchange and other risks.
Profits from underwriting soared 93% to $1.37 bln due to lower claim costs and higher premiums. The General Insurance segment reported operating income rose 44.2% to $2.56 bln, excluding adjustments, reflecting favorable pricing, policy terms, and conditions. Premiums rose 9.3% to $11.63 bln. Life Insurance & Retirement Services operating income before realized capital gains, but including pricing net investment gains rose 9.7% to $2.61 bln despite declines in its domestic life business as its foreign business continues to generate solid growth.
There were, however, some areas of weakness in Japan and Taiwan due to unfavorable market conditions, namely an enduring lower interest rate environment, increased competition, tax law changes and a weaker yen. Overall, pretax profit from sales of international life insurance and retirement savings rose 17% to $1.72 bln, while earnings rose 4.2% to $1.6 bln excluding investments and accounting adjustments. AIG is taking action in the region to atone for these challenges, shifting product mix to emphasize higher-margin, investment-linked and health products over traditional savings-oriented life insurance.
--Kimberly DuBord, Briefing.com
09:34 am Countrywide: Banc of America Sec reiterates Sell . Target $35 to $30. Firm cuts price tgt after yesterday morning's reported July monthly YoY 19% decline in production volume. They say that more ominous for 2H06's outlook was the 19.2% YoY pipeline decline and the fall in credit report and appraisal activity; which are strong predictors of future originations.
09:33 am ArvinMeritor: UBS reiterates Reduce . Target $14 to $13. Firm cuts price tgt saying with stainless steel prices up 50% YoY, ARM faces significant earnings headwinds into 2007. They note ARM purchases about 160K tons of steel annually, and these contracts generally reset every 12 months and will be renegotiated in calendar Q4. That said, they think ARM is already bearing some of this impact as it currently funds a portion of steel costs via nickel surcharges.
09:32 am Alltel: Deutsche Securities initiates Buy. Target $60. Firm initiates based on their position as the second largest pure-play wireless co in the US and the only one with double-digit EBITDA growth forecasted and believe the co has significantly differentiated itself from the closest comparable co, Sprint-Nextel
09:31 am Global Crossing: Deutsche Securities initiates Hold. Target $16. Firm initiates as they believe investors will await to witness continued consistent reductions in the co's cost structure before aggressively investing now that they have again begun to produce reasonable top line revenue growth in their key division...
09:25 am Imax: Merriman Curhan Ford downgrades Buy to Sell . Firm downgrades noting no buyers emerge; and the shift in business model to negatively impact short-term results
09:24 am Creative Tech: Credit Suisse upgrades Neutral to Outperform. Firm upgrades saying they expect sales to pick up in 2H06, new launches and XFi announcements should generate positive interest, lower flash costs should help margins, and good progress in reducing opex and inventories.
09:23 am Komag: Maxim Group upgrades Hold to Buy. Target $46. Firm upgrades saying despite disappointing C2Q06 results from STX, lackluster guidance, and the prospects of slowing endmarket growth through the remainder of 2H06, they believe that at its current valuation, of 7x 2007P/E, Komag offers investor compelling upside return.
09:21 am American Science & Engineering: Roth Capital upgrades Hold to Buy. Target $78 to $46. Firm upgrades and cuts price tgt noting yesterday morning AS&E reported June quarter results below Street expectations. However they believe runaway expectations have been tempered and that the recent sell-off presents an opportunity to get shares of a market leader at a discount. The firm says with a focus on an expanding customer base, improved gross margins, positive cash flows, and new product introductions they are upgrading the shares.
09:16 am Supervalu: HSBC Securities upgrades Neutral to Overweight. Target $36 to $34. Firm upgrades and cuts price tgt saying on fundamental basis both the story and its visibility are improving. The firm says integration risks are smaller than they seem on first sight and issues at the core legacy retail business are minor.
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