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From Briefing.com: 6:32PM Swing Trader: USG, DE, DNR : -Technical- A gap up reversal Wednesday morning for the markets, followed by a choppy downward biased session. Ironically, market breadth was positive as Advancers outpaced Decliners 1.2 to 1 on 1.13 Up to Down Volume while New Highs also beat New Lows 4.7 to 1. Gold was the leading sector with the XAU +3.78% (see chart below). Internets were today's laggard as GOOG plunged 9 points. Energy (XLE 44.74 -0.04; OIH 102.10 +0.20) initially dipped lower on its weekly inventory data but managed to recoup most of its losses. Semis (SOX -0.89%) crumpled right off opening and chopped around for most of the day...(continued)

Close Dow 10374.48 at -31.15, S&P 1199.85 at -1.72, Nasdaq 2068.89 at -1.00: Stocks closed modestly lower as nervousness ahead of tomorrow's Fed policy statement overshadowed encouraging GDP data, falling oil prices and a strong report from Oracle... Initially, decent follow-through buying interest, fueled in part by bullish revisions to Q1 GDP data, opened equities to the upside... However, buyers eventually preferred to sit on the sidelines, waiting to see if another widely expected 25-basis point rate hike (to 3.25%) would be accompanied by a policy directive suggesting further Fed tightening...
The fact that the major averages 24 hours earlier recorded their largest advance since May 18 also sparked some widespread consolidation, as seven out of ten economic sectors closed lower... Before the bell, the Commerce Dept. provided a final read on Q1 real GDP that showed the U.S. economy grew at faster than expected 3.8% annual rate in Q1, exceeding 3.0% for the eighth consecutive quarter - the longest such stretch in nearly two decades...

The report, which confirmed that rising oil prices did little to hinder growth, also showed that inflation was not as bad as originally reported, as the chain deflator - a key gauge of inflation - was revised downward to 2.9% (from 3.2%) and the price index for personal consumption rose just 1.9% versus a prior estimate of 2.1%... But since the data can be easily predicted and are representative of old (Q1) figures, the report's ability to identify underlying growth trends heading into the end of Q2 was still no match for uncertainty related to upcoming comments from the Fed... Meanwhile, Consumer Discretionary paced the way lower as investors locked in profits after strong performances yesterday from the likes of HD, TGT, LOW and SBUX, as well as many other retailers and several homebuilders...

The Industrials sector, after posting a strong 1.7% gain yesterday also succumbed to consolidation, while defensive sectors like Consumer Staples and Utilities, which typically provide protection in a falling market, were also lower... Worse than expected Q4 earnings and downside FY06 guidance from General Mills (GIS 47.21 -3.40) weighed most heavily on the staples while utilities, which continue to trade at four-year highs, succumbed to modest profit-taking...

Energy showed relative weakness, extending yesterday's losses as crude oil prices ($57.26/bbl -$0.94) continued to slide following an unexpected build in oil inventories... Crude oil inventories rose 1.1 mln barrels (consensus -1.4 mln), gasoline inventories rose 301K barrels (consensus -190K) and distillates rose 1.64 mln (consensus +1.5 mln)... The Materials sector also closed lower, as strength in gold and diversified metals failed to offset weakness in chemicals after Monsanto (MON 63.00 -4.84) reported an 81% decline in Q3 profits and issued disappointing FY05 guidance...

Despite a reversal in bond yields, the Financial sector provided the bulk of the day's leadership to the upside, taking a bullish cue from American International Group's (AIG 58.48 +3.31) better than expected Q1 earnings... Bonds, which caught on early bid amid tame inflation data - as benchmark yields fell to 3.93% -- eventually succumbed to some profit-taking, as the 10-year note closed down 3 ticks to yield 3.98% ahead of the Fed's policy announcement... Technology was also strong, getting a large boost from Oracle (ORCL 13.57 +0.74), which beat analysts' Q4 earnings expectations and raised Q1 sales guidance... An analyst upgrade on Motorola (MOT 18.53 +0.18) also helped offset profit-taking in chip stocks and computer hardware... DJTA +1.0, DJUA -0.2, DOT -0.4, Nasdaq 100 -0.3, Russell 2000 +0.2, SOX -0.9, S&P Midcap 400 +0.3, XOI -0.5, NYSE Adv/Dec 1848/1378, Nasdaq Adv/Dec 1558/1459

3:57PM Intel addresses AMD lawsuit (INTC) 26.23 -0.10: -Technical- "Intel has always respected the laws of the countries in which we operate. We compete aggressively and fairly to deliver the best value to consumers. This will not change. Over the years, Intel has been involved in other antitrust suits and faced similar issues. Every one of those matters has been resolved to our satisfaction. We unequivocally disagree with AMD's claims and firmly believe this latest suit will be resolved favorably, like the others."

Cypress Semiconductor (CY)announces that Gyration is utilizing Cypress's Wireless USB radio-system-on-a-chip in its latest wireless mouses and keyboard...

Volterra Semi (VLTR) says three magnetic component manufacturers to manufacture multi-phase coupled inductors under a license from VLTR...

Axcelis (ACLS) says its cleaning platform is chosen by 'major' Japanese chipmaker...

8:32AM KLA-Tencor comments on AUGT/RTEC announcement (KLAC) 45.27 :After AUGT announced that it had agreed to be acquired by RTEC in a cash and stock transaction valued at $10.50/share, KLAC announces that: KLAC's offer of $11.50 has been in force since Feb and the co remains interested in pursuing a transaction at this superior price; KLAC believes that its acquisition of AUGT will not reduce competition and has been in active dialogue with the Dept of Justice, which is reviewing both proposals; and KLAC plans to review the RTEC agreement, discuss the matter with its Board of Directors, and decide how to proceed. Pending this review KLAC does not expect to comment further.

4:04PM Monsanto (MON) 63.13 -4.72: Monsanto has been wheeling and dealing over the past year making several acquisitions expanding its biotech characteristics, or traits, business for crops. It also finally reached an agreement with Solutia - a dark cloud that has hung over the company that was cleared on June 7th. It's certainly not evident when looking at its stock price today that Monsanto actually beat expectations with its Q3 results. The negative reaction following its release was more a function of a complicated report that was intertwined with effects of these acquisitions, along with conservative guidance. Further, there is sure to be profit taking going on as shares have returned almost 14% year-to-date.

The world's largest developer of genetically modified crops reported earnings of $1.06 per share topping estimates by a penny. This number excludes numerous non-recurring items relating to its acquisitions. Specifically, a $248 mln in-progress R&D write-off for the Seminis' vegetable and fruit seed business and Emergen Genetic's cotton business. Revenues rose 21.8% year/year to $2.04 bln, 10% of which was achieved organically.

Monsanto is a leading provider of agricultural products and solutions. Its business is divided into two segments including Seeds & Genomics and Agricultural Productivity. The S&G segment is where MON made the Seminis and Emergent acquisitions resulting in a sales gain of 52%. While it didn't break out sales, Monsanto continues to generate strong revenue growth from its traits business. Corn and soybean trait sales enjoyed robust growth, which it hopes will accelerate as the company aims at capturing more business in Brazil and Argentina before the planting season. US and India cotton trait revenues were also strong for the quarter. Earlier than expected sales timing in the US led to 5% gain in Roundup revenues. This help offset declines in its other agricultural productivity products unit.

Regarding Solutia, this company was actually a prior spin-off of Monsanto and after years of litigation will once again come under its control. MON will receive 50% ownership in Solutia, which is known for its integrated nylon unit that makes fibers used in products from the space shuttle's tires to dental floss. MON will make a $250 mln equity infusion into the company to pay for employee benefits.

MON reaffirmed guidance, but it remains quite conservative. For the fourth quarter, it forecasts a loss of $0.52-0.57, excluding items vs. loss of $0.35 consensus. For the full year, it sees EPS in the $2.00-2.05 range ex-items, again lower than the $2.20 consensus. This is a cyclical business therefore there are some timing issues impacting sales quarter to quarter. For investors looking out over the longer-term, the growth driver will be its traits business, which carries almost 100% profit margins. The company noted today that its stacked traits business will be the backbone of its financial performance. Roughly 90% of the global acres farmed using generic modified crops use its traits. What makes Monsanto a solid growth stock is its market leading position, technological innovation, first mover advantage, brand strength, and R&D success. ---Kimberly DuBord, Briefing.com
3:38PM Electro Scientific Industries (ESIO) 19.45 +1.90: Electro Scientific Industries, a provider of manufacturing equipment for the electronics market, announced mixed results for the fiscal fourth quarter. Following five consecutive quarters of operating profits, the company posted Q4 EPS, ex-items, of $0.09 on $45.7 million in revenues versus the consensus estimate of $0.08 on $46.5 million. Sales for the quarter declined 44.1% year/year from $81.9 million, as orders remained soft across most business groups. Additionally, gross margins fell to 45% from 53% in the year ago period.

For the fiscal year, sales increased 13%, with net income increasing to $19.8 million, or $0.69/share, from $11.9 million, or $0.42/share. Net orders for the same period decreased 27% to $273.5 million.

As uncertain business conditions continue to impact operations, the visibility of the company remains clouded. While the company is encouraged by the relative strength in the semiconductor business, which drove a 31% sequential increase in orders, it remains hesitant to predict an upturn in momentum. As such, the company expects fiscal first quarter revenues to be in the range of $40-50 million and margins to be around 40%. The continued decline in margins are indicative of the temporary shift from higher margin to lower margin products, as well as initiatives to reduce inventory levels. Furthermore, as the company ramps-up investments in research and development to drive future revenue growth, operating expenses are expected to increase to $19-20 million.

Electro Scientific has focused on improving operations, developing new technologies, and expanding market focus to help generate future growth. While curtailing conditions are not anticipated to recede in the near term, the company has been committed to long-term success. As the integration of ongoing strategic initiatives unfold, the company should improve its ability to control costs and increase operational efficiency. However, it should not be forgotten that the nature of the electronics industry imposes inherent risks, largely related to changing demand forecasts and shifting cost structures, and will impose negative implications for the company's outlook.

Although the company has remained focused in the face of increased competition and a challenging pricing environment, shares have declined more than 26% for the year, reflecting deteriorating revenue and margin expectations. The company is currently trading at 21.9x trailing earnings, relative to the average PE level of 31.3x over the past five years. However, the value proposition in the company still remains unclear, as the current stock price is undermined by tepid business conditions and weakened fundamentals. ---Richard Jahnke, Briefing.com

2:06PM General Mills Inc. (00C) 47.68 -2.94: Undeniably this was not a great close to its fiscal year for the nation's second largest cereal producer. Fourth quarter earnings and lackluster guidance heightened concerns over the growth prospects for its mainstay cereal brands. GIS earned net income of $460 mln, or $1.14 per share including gains from the sale of two ventures and restructuring items. Excluding one-time items, earnings were $0.64 per share - a penny shy of expectations. Revenues fell 2.5% y/y to $2.72 bln. Earnings and sales are difficult to compare as last year included an extra week. Stripping out the extra week, GIS indicated net sales rose 3% outpacing volume growth of 2%. Earnings slowed y/y to 12% growth.

Fourth quarter and full year results were a disappointment within its largest unit, Big G. Shipments for its cereal unit declined 5% for the year with unit volumes down 3%. GIS attributed the downturn to pricing and promotional shifts impacting volumes in the second half of the year. During the year, General Mills, in an attempt to counterbalance raw material and benefits costs, raised the prices of its cold-cereal brands. But while most of its competitors followed suit, food retailers opted to keep their private label brands unchanged. This was a gamble for GIS, which ended up losing market share. The cereal business carries the highest profit margins for the company, therefore it's critical to get its sales and price mix right. GIS does have some positive momentum in this space with the successful launch of whole grain cereals, along with the new chocolate Lucky Charms and reduced sugar cereals.

General Mills is experiencing solid growth rates outside its cereal unit, particularly from its yogurt and snacks segment. In Q4, unit volumes also gained a point within the Bakeries & FoodService and 5% within the International units. These groups will continue to provide support while it fixes the Big G unit. Onto margins, GIS like most of its competitors in the food product space, continues to get hit hard by high raw materials, energy, and freight costs. Gross margins have trended lower over the last two years with FY05 closing at 39.2% from a high of 47.8% reached back in 2001. The Minneapolis-based company hopes productivity savings should atone for some of the input costs.

Looking ahead, the company certainly is keeping the bar low, which we feel is attributed to challenges in its cereal segment and cost headwinds. It forecasted low single-digit growth in net sales and mid single-digit growth in operating profits. From an adjusted base it forecasts EPS of $2.67 equating to earnings in a range of $2.86- $2.88. This indicates a drop in earnings y/y from the $2.92 for FY05. The guidance is well below consensus of $3.12, but there are several inclusions in this range which makes these numbers not comparable. Industry analysts speculate items could range from five to ten cents. But at this point, it's fruitless to speculate as the market will have already reacted to the numbers. GIS will hopefully provide further details as its fiscal year progresses.

Investors certainly did not take too well to results and guidance, sending shares down over two dollars. While we can expect GIS will refocus efforts to regain lost momentum in Big G, it will most certainly come at a price. Whether share gains are achieved through price reductions, promotional pricing, and/or increased marketing spending, all will impact margins. General Mills estimates that for every point of negative price/mix it results in a $0.04 EPS risk. But don't count General Mills out quite yet. This premier consumer food products company has over 80 brands sold around the world and its marketing might is considerable. We would suggest waiting for the dust to settle to revisit the name as it continues to offer longer-term growth and shareholder value. Shares are trading at 15.5x forward earnings compared to Kellogg (K) at 18.8x. ---Kimberly DuBord, Briefing.com

12:29PM Oracle (ORCL) 13.46 +0.63: As consolidation in the enterprise software market continues to dictate momentum, Oracle has remained focused on effectively integrating PeopleSoft into its corporate framework. In the first quarter following the $10.6 billion acquisition of the applications software developer, the company announced fiscal fourth quarter results ahead of analysts' expectations. Reflecting a 35% increase over the year ago period, Q4 EPS, ex-items, was reported at $0.26 on $4.06 billion in revenue versus the consensus estimate of $0.23 on $3.88 billion. While Oracle did not differentiate the sales or profits generated by PeopleSoft, total revenues climbed 32% year/year, led by stronger than expected applications software and database sales. Specifically, application new license revenues increased 52% to $350 million and database and middle new license revenues increased 16% to $1.26 billion.

Looking ahead, the company expects fiscal 2006 EPS to be between $0.78-0.81, versus the consensus estimate of $0.78, with revenue ranging from $14.2-14.4 billion. For the fiscal first quarter, EPS is expected to be in-line with analysts' expectations at $0.14 on revenues of $2.92-2.98 billion.

In aggregate, the results for the fiscal fourth quarter represent the successful integration of PeopleSoft and increased organic growth initiatives. Focusing on license revenues, application license sales and database license sales, the company has shown marked improvements. The strength in database sales, the mainstay of the company, have helped increase market share in the segment, all while industry leader IBM has experienced declining momentum. Additionally, the recent acquisition of PeopleSoft has increased the customer base and broadened the array of products for application software, fueling the upside performance.

Despite recording positive results for the fiscal fourth quarter, a historically strong period for the company, shares of Oracle continue to be depressed by near term concerns. In particular, increased pricing pressure from Microsoft (MSFT), IBM (IBM), and SAP (SAP), aggressive acquisition strategies, and integration challenges may potentially hinder growth prospects. While there are no significant acquisitions pending, the company has frequently stated its intention to continue expanding its product offering by acquiring smaller software vendors at the application level. Accordingly, the ongoing integration of PeopleSoft, as well as other targets, could cause disruption in the company's business model.

Shares of the company are trading at 19.8x trailing earnings, relative to the average PE level of 39.9x over the past five years. The inherent discount in the earnings multiple presents a favorable long-term investment opportunity, as Oracle is well positioned to respond to changing business conditions and meet the challenges ahead. However, the opportunity is not without risk. Increased competition and pricing pressures have weighed on the industry and will continue to be an influencing factor. ---Richard Jahnke, Briefing.com

8:52AM Page One - Leaning Bullish as the Good News Continues : If this keeps up, we may have to move from a neutral stance to slightly bullish. The news this morning is once again positive. Oil is down, earnings are good, and the economic data is bullish.

A sharp decline in oil prices sparked the stock market rally yesterday. Oil is down another $0.60 this morning and just below $58 a barrel. Forecasting oil prices is a difficult proposition and it would be very risky to take positions based on expected trends. However, the risk/reward ratio is becoming intriguing.

The stock market has been very resilient to the upward trend in oil prices and rallied on downward moves. There is a definite possibility that there is a speculative component to the current level of oil prices. If that reverses, oil could drop enough to prompt a significant stock market rally. That isn't a forecast! But it warrants consideration. The weekly oil inventory data will be released at 10:30 ET today. Watch for selling in reaction, regardless of the report.

Oracle brings goods news on the earnings front. The company reported profits of $0.26 a share, 3 cents ahead of expectations and up 37% on a per share basis from last year. Revenue was up 32%. These are the best year-over-year profit and revenue gains for Oracle since 2000. The stock is indicated $0.50 higher.

This may be a harbinger of good things to come. Earnings warnings have not been quite as bad as we had feared approaching second quarter reports. There is a distinct possibility that the reports will produce a positive market reaction in July. The earnings reports start in earnest on July 12.

The economic data is also upbeat. First quarter real GDP was revised to show a growth rate of 3.8%. It was originally reported at 3.1%, prompting talk of a first quarter slowdown. Last month, it was revised to 3.5%. Now, it is apparent that first quarter growth was in fact robust and well above the long-term trend of 3.1%. Further good news came from the downward revision to the deflator to 2.9% from a previous 3.2%. Inflation apparently was not as bad as originally reported either.

Recent inflation reports have been bullish. The economy is pushing ahead. Earnings trends are decent. The Fed may be nearing the end of their tightening cycle. None of that is overwhelmingly bullish. It isn't bad, however, considering that the stock market is little changed over the past six months. Even modestly bullish news eventually pushes stock prices higher. Conditions may soon be ripe for a more positive outlook for the stock market. Dick Green, Briefing.com

9:49AM United Dominion (UDR) UBS initiates BUY. Target $26. Firm notes that since a mgmt restructuring in '01, the co has recycled almost 70% of its portfolio to more growth oriented mkts. Also, they say mgmt has significantly improved the balance sheet by terming out expensive capital and pragmatically using nonrecurring cash flow to increase financial flexibility. Firm believes the co continues to find new ways to unlock shareholder value and drive rev, saying they welcome mgmt's straightforward and entrepreneurial approach to apartment mgmt.
9:48AM Leap Wireless (LEAP) Bear Stearns initiates OUTPERFORM. Target $34. Bear Stearns initiates LEAP saying at 7.3x their 2005E EBITDA, the co is the cheapest high-growth wireless investment around, and existing operations generate substantial free cash on a low debt base. They think the co will be using its cash flow over the next 2 years to build out new mkts, which they see as accretive to long term growth. They look for a top-line CAGR of 9% in the co's core mkts for the next three years, and value the core business at $34 per share.

9:47AM Motorola (MOT) Morgan Stanley upgrades Equal-weight to OVERWEIGHT. Morgan Stanley upgrades MOT as they expect the co to gain around three pts of mkt share in China in 2005 and two points in Western Europe. Firm believes the co is gaining share In China from Chinese domestic handset vendors and should benefit from an improving distribution strategy and product line-up.

9:46AM Digital River (DRIV) Stanford Research upgrades Hold to BUY. Target $26 to $43. Firm had been concerned about the level of customer concentration with SYMC, but their doubts have been largely put to rest on this front, with the two co's recently signing an extension of their agreement through June 2008. Firm believes that customer signings will continue at a steady pace, the co will maintain its leadership position, and that Q2 results will meet or exceed guidance and consensus. Firm also believes that Q3 consensus ests are likely conservative, presenting the co an opportunity to guide higher.

9:46AM The Scotts Miracle-Gro Co (SMG) KeyBanc Capital Mkts / McDonald initiates BUY. Target $87. Firm says SMG's ability to deliver consistent top-line performance that is especially attractive, in our opinion, now that growth at cyclical companies appears to be slowing. They expect that the solid cash flow generated by the business will be used to further pay down debt, pursue additional acquisition opportunities, increase the newly instituted dividend and potentially buy back stock.

9:45AM Silgan Holdings (SLGN) KeyBanc Capital Mkts / McDonald initiates BUY. Target $68. Keybanc initiates SLGN as they believe the co is a fundamentally solid and well managed co with a consistent track record of delivering solid returns and cash flow, and is substantially undervalued compared to its peers. They look for multiple expansion to levels more consistent with the peer group as the co de-levers over the next 18 months.

9:45AM Deswell Industries (DSWL) Kaufman Bros initiates BUY. Target $20. Firm believes DSWL is one of the few plastic injection molders/EMS providers trading in the U.S. markets with 100% of its manufacturing capacity in China, which they say represents a unique long-term opportunity for investors. They expect growth drivers for the co over the next few years to include the secular shift of production to China; continued success in the audio equipment market niche; and new program ramps in the telephone/telecom system market, combined with new opportunities in the automotive market.

9:44AM ITLA Capital (ITLA) Friedman Billings downgrades Outperform to MKT PERFORM. Target $58. ITLA is trading within 3% of their target and is up 14% from its 60-day moving average. Firm also remains concerned that loan and C.D. deposit pricing competition could combine to pressure EPS ests, and industry channel checks indicate stiff lending competition across ITLA's core products.

9:42AM First State Financial (FSTF) Advest initiates STRONG BUY. Target $16. Advest initiates FSTF as they think the stock is undervalued relative to its peers, particularly given its favorable prospects for above-average growth and profitability.

9:39AM Ceradyne (CRDN) Needham & Co upgrades Buy to STRONG BUY. Target $34 to $36. Needham upgrades CRDN following co's announcement of a $75.5 mln order for Ceramic Personal Armor to be delivered from Sept 2005 through Jan 2006. They say further order announcements are expected towards the end of 2005 and the beginning of 2006. Going forward, they believe the govt will only be purchasing E-SAPI armor rather than SAPI, and say that CRDN is very well positioned as one of two qualified suppliers and the only one shipping in high volume.

9:37AM Power-One (PWER) Lehman Brothers initiates OVERWEIGHT. Target $7.5. Firm thinks that digital power conversion products are likely to be the "next big thing" for the power management industry, and PWER seized an early lead in digital power technologies. Firm also believes that PWER's financial performance is about to improve dramatically as the co completes the final leg of a multi-year restructuring effort.

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