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Thursday, July 28, 2005 9:42:38 PM
From Briefing.com: 4:49PM Mattson Tech adopts poison pill (MTSN) 8.62 +0.02:Co says plan is designed so that all MTSN holders get the full value of their investment in the event of an unsolicited takeover. MTSN says pill adoption was not in response to, or in contemplation of, any proposal to acquire the company and is not intended to deter fair offers.
4:44PM Powerwave beats by $0.04 (PWAV) 11.40 :Reports Q2 (Jun) earnings of $0.14 per share, ex-items, $0.04 better than the Reuters Estimates consensus of $0.10; revenues rose 60.7% year/year to $186.3 mln vs the $176.2 mln consensus.
4:42PM Ingram Micro beats by $0.03, ex items; guides in-line (IM) :Reports Q2 (Jun) earnings of $0.30 per share, excluding non-recurring items, $0.03 better than the Reuters Estimates consensus of $0.27; revenues rose 19.7% year/year to $6.84 bln vs the $6.78 bln consensus. Co issues in-line guidance for Q3, sees EPS of $0.29-0.32, ex items vs. $0.29 consensus; sees Q3 revs of $6.8-7.0 bln vs. 6.97 bln consensus.
4:38PM Intl Rectifier beat by a penny, gives Q3 outlook (IRF) 55.03 :Reports Q4 (Jun) earnings of $0.54 per share, excluding non-recurring items, $0.01 better than the Reuters Estimates consensus of $0.53; revenues fell 5.6% year/year to $281.8 mln vs the $282 mln consensus. For Q3, co sees revenues "flat to up 4 percent".
4:36PM Microsemi beats by $0.01; guides Q4 revs in-line (MSCC) 23.03 :Reports Q3 (Jun) earnings of $0.18 per share, excluding non-recurring items, $0.01 better than the Reuters Estimates consensus of $0.17; revenues rose 17.3% year/year to $75.2 mln vs the $75.6 mln consensus. Co issues in-line guidance for Q4, sees EPS of $0.18-0.20 vs. $0.19 consensus;
4:34PM KLA-Tencor beats by 4 cents, revs light (KLAC) :Reports Q4 (Jun) earnings of $0.52 per share, $0.04 better than the Reuters Estimates consensus of $0.48; revenues rose 9.2% year/year to $491.9 mln vs the $497.4 mln consensus.
4:33PM Advanced Energy beats by a penny, ex items; guides (AEIS) :Reports Q2 (Jun) earnings of $0.07 per share, excluding non-recurring items, $0.01 better than the Reuters Estimates consensus of $0.06; revenues fell 19.7% year/year to $87.4 mln vs the $88.4 mln consensus. Co issues guidance for Q3, sees EPS of $0.05-0.09 vs. $0.08 consensus; sees Q3 revs of $81-86 mln vs. $89.53 mln consensus.
4:29PM Coherent beats by $0.02 (COHR) 37.55 :Reports Q3 (Jun) earnings of $0.30 per share, $0.02 better than the Reuters Estimates consensus of $0.28; revenues fell 4.5% year/year to $125.3 mln vs the $133.4 mln consensus.
Close Dow +68.46 at 10705.55, S&P +6.93 at 1243.72, Nasdaq +12.22 at 2198.44: The market closed near session highs, basically mirroring yesterday's performance, as another batch of better than expected earnings lent further proof that Wall Street may see a ninth consecutive quarter of double-digit EPS growth... With more than two-thirds of the S&P having now reported results, and more than 70% of them beating expectations, investors jumped into the market for a second consecutive session to buy stocks across the board, as nine out of ten economic sectors closed higher...
Of the 20 (out of 33) S&P companies beating estimates this morning, the headliner was Dow component ExxonMobil (XOM 60.00 +0.40), which beat analysts' forecasts by a penny on record Q2 net income of $7.6 bln and revenues of $88.6 bln, keeping the Energy sector in focus... But higher expectations for the oil giant kept gains in check as even a 1.4% surge in oil prices ($59.94//bbl +$0.83) could not help Energy keep pace with almost every other sector... Turning in the day's best performance was Materials, as investors looked past Dow Chemical's (DOW 48.43 +0.82) Q2 earnings miss and instead focused on favorable price and volume trends, which should benefit Q3 results...
Strong quarters from Phelps Dodge (PD 108.21 +0.21) and a new 52-week high on Praxair (PX 49.98 +1.83), following yesterday's solid results, provided additional support... Telecom Services also surged more than 1.0% on the day, getting a lift from new legislation that could help telecom carriers like SBC (+1.7%) and VZ (+1.1%) coupled with strong Q2 earnings and upside FY05 guidance from CenturyTel (CTL 34.50 +0.90)...
Health Care, however, was the most influential leader to the upside, benefiting from a rebound in HMOs, amid an encouraging Q2 report from Aetna (AET 78.40 +3.78), and strength from Bristol-Myers (BMY 25.17 +0.07), which beat Q2 estimates by $0.11 and raised its FY05 outlook... While not included in the S&P, Europe-based AZN (+4.8%) and GSK (+1.5%) were two other drug companies that had strong quarters... Industrials got a huge boost from Caterpillar (CAT 54.45 +1.66), which hit an all-time high, and Honeywell (HON 38.99 +0.97), which surged 2.6% as ongoing margin expansion prompted Merrill Lynch to upgrade the stock to Buy from Neutral...
The Consumer Discretionary sector was also an influential leader to the upside, taking advantage of strong earnings reports from SBUX, PHM, AN, NWL and SNA (which averaged gains of 5.1% today), as well as a Merrill Lynch upgrade on LTD (+2.4%)... Also providing some support for stocks, especially interest-rate sensitive areas like Financial and Utilities, was a decline in benchmark yields... The 10-year note closed at its best levels of the day, up 16 ticks to yield 4.18%, getting a boost upon further analysis of yesterday's Beige Book (tame inflation) and month-end buying from money managers trying to match their portfolios to benchmark indices...
Technology - the month's best performing economic sector (+6.5%) so far and the main driver behind the Nasdaq (+6.4%) outperforming the Dow (+4.0%) and S&P (+4.2%) in July - however, closed slightly lower... Components losing the most ground included HPQ, AAPL, YHOO and GLW, all of which have recently traded at or near 52-week highs...
Separately, initial claims rose 5K to 310K (consensus 320K), leaving a 4-week average of 318K - the lowest since early March; but the report was largely ignored in favor of the quarter's largest day of earnings reports and ahead of more influential economic data (i.e. GDP, Q2 Employment Cost Index, Chicago PMI and Michigan Sentiment) out tomorrow morning...DJTA +1.5, DJUA +0.8, DOT +0.7, Nasdaq 100 +0.4, Russell 2000 +1.2, SOX +0.1, S&P Midcap 400 +0.9, XOI +0.7, NYSE Adv/Dec 2442/875, Nasdaq Adv/Dec 1945/1109
3:57PM Grant Prideco (GRP) 32.25 +1.68: High energy prices continue to flow through the supply chain, benefiting a multitude of industries along the way. It starts with the exploration and production companies, which are compelled by market economics to boost production to meet demand and to reap the benefit of record oil and natural gas prices. This in turn flows through to the drillers, the oil services, and the equipment companies. These latter cycle industries are enjoying positive momentum from the top to the bottom line, as the strong market conditions continue. Today, Grant Prideco, the world's largest manufacturer and supplier of oilfield drillpipe and other drill stem products, reported its seventh consecutive quarter of earnings that topped expectations.
The company clearly continues to gain momentum as earnings have accelerated quarter after quarter. Management commented today, "We are seeing the best industry conditions in the last several decades." The company earned $0.41 per share, excluding non-recurring items, up from $0.10 last year and $0.11 better than the consensus estimate. Revenues rose 41.1% year/year and 8.5% quarter/quarter to $316.9 mln. The upside was driven by strong demand across its businesses and products, amplified by its operational performance and financial discipline.
Drilling Products and Services reported record revenues and profits. Revenues skyrocketed 60% y/y and 12% q/q with operating income more than doubling to $43.1 mln, on increased sales, higher prices, and a favorable product mix. Backlog grew to a record $330.9 mln. Drill Bits sales also hit a record of $93.1 mln, up 22% y/y and 3% q/q, as the worldwide rig count grew 13%. Tubular Technology and Services generated revenue growth of 40% to $79.5 mln, up 9% sequentially. Operating margins widened from 4% last year to 24%. As is the case with the rest of the energy patch, these good times are allowing companies to shore up balance sheets to allow for better flexibility throughout the cycle. GRP expects these market conditions will continue, and raised guidance for Q3 and the full year. It sees Q3 earnings in the range of $0.45-0.47, ex items, vs. the $0.34 consensus and looks for FY05 EPS of $1.60-1.65, ex items, vs. the $1.30 consensus estimate. We added GRP as a suggested holding in our Active Portfolio back in March. Since then the stock has returned 36%. We remain committed to GRP, as we feel, given these bullish market conditions, the risk ahead lies to the upside. The prior spin-off of Weatherford International (WFT) is forecasted to grow earnings 132% this year and 25% next year. Although the P/E of 24.7x forward earnings may appear a bit rich at first glance for an energy-related name, we would argue the earnings portion of that multiple will continue to accelerate. ---- Kimberly DuBord, Briefing.com
2:44PM Bristol-Myers (BMY) 25.37 +0.27: Bristol-Myers Squibb delivered strong results for the fiscal second quarter, led by increased sales of pharmaceutical products. The New York-based company reported net sales of $4.9 billion, compared to $4.8 billion in the same quarter last year, with worldwide pharmaceutical sales up 1% to $3.9 billion. Continued strength in the company's best-selling drug, Plavix, which increased 26% to $968 million, helped offset declining sales in cancer drugs Taxol and Paraplatin, which have been impacted by generic competition. Bristol's schizophrenia drug Abilify and HIV treatment Reyataz also contributed to the top-line, with sales in both drugs more than doubling to $240 million and $183 million, respectively.
Concurrently, the company posted earnings from continuing operations of $933 million, or $0.47 per share, compared to $905 million, or $0.45 per share, last year. The results topped the consensus earnings estimate of $0.36 per share on revenue of $4.8 billion and compelled the company to reaffirm its earnings forecast for the full year of $1.35-1.45 per share. This effectively represents an earnings decline of about 14% from the year ago period.
Although the Plavix patent challenge remains a potential impediment, Bristol's strong product portfolio (Plavix, Abilify, Reyataz, and Erbitux) and late stage pipeline should provide the necessary catalyst to help turn the company around. The drugs Pargluva for diabetes and Orencia for Rheumatoid arthritis have both shown promising efficacy in late-stage clinical trials. Although they still face regulatory and market challenges, both drugs are promising growth drivers for the future.
The prospects for growth are encouraging, however substantial risks remain and do not appear adequately discounted at current price levels. Most significant is the potential loss of the Plavix patent to generic drug manufacturers. Furthermore, significant regulatory risks exist around the approval and launch of key new drugs. With shares currently trading at 19.4x the FY07 EPS estimate of $1.31, investors should maintain a cautious stance on the stock, as the premium valuation relative to its peers isn't warranted given the impending risks. --Richard Jahnke, Briefing.com
1:58PM Phelps Dodge (PD) 108.00 unch: Stalwart copper fundamentals remained intact during the second quarter as economic growth and industrial demand, particularly out of China, coupled with critically low inventory levels, resulted in record copper prices. This bull environment is generating soaring profits for copper producers around the globe. Phelps Dodge, the world's second largest copper producer and a recommended holding in Briefing.com's Active Portfolio, saw its profits triple to a third straight record.
Net income grew to $682.3 mln, or $6.75 per share, up from $226.6 mln, or $2.30 per share last year. Stripping out numerous one-time items, earnings were $4.52 per share, nearly a quarter ahead of expectations, although assisted by a lower tax rate. On the top line, revenues rose 30.3% year/year to $2.15 bln driven virtually all by price. Prices averaged $1.532 per pound on the COMEX in Q2 compared to $1.234 in 2004 and $1.468 in Q1. Molybdenum prices averaged $35.27 per pound compared to $14.57 last year and $31.31 in Q1. With the year expected to end in a deficit of roughly 150,000 metric tons, according to the company, copper prices are likely to remain at these historically high levels.
On the demand side, China continued to drive the market during the quarter as GDP and industrial production grew 9.5% and 16%, respectively. China's output of copper -intensive products grew more than 10%, piloted by double-digit gains in a vast array of products from automobiles to electronic instruments.
The caveat for quarter was on the production side. Copper production from PD's mines was 612 mln pounds, below guidance of 630-650 mln. PD suffered from weather-related issues that carried over from Q1, maintenance difficulties, and supplier issues. Costs were also higher due to external factors (energy, freight, supplies, repairs) and internal issues (higher swing production costs, increased mining rate). It's difficult to look at a mining company on a quarterly basis, as there are so many factors that can cause major swings on the demand and supply side from weather to energy prices to geological difficulties.
Taking a step back, the bull environment has allowed PD to dramatically improve its financial position, which will flow through to its core operations and improve its cost structure in preparation for the bear-cycle times. Speaking of financial position, cash flows from operations raised cash on hand to $2.8 bln, or $27 per share - up a billion dollars y/y. PD continues to return value back to its shareholders by raising the dividend payment program it restarted last year.
Looking out to Q3, PD stated critically low inventory levels will keep prices at $1.55 per pound, or better. It noted the shifts in the price may come from the steel industry and supply production disruptions in China. For the full year, PD anticipates demand will increase 2.5-3%, below its previous guidance of 3.5-4%, due to continued weakness in Europe. On the supply side, it anticipates a production shortfall will result in a deficit of 150,000 metric tons.
With PD up more than 30% since we added the name to our Active Portfolio, we would suggest investors trim positions. This stock trends to be quite volatile. As such, it is better to buy on weakness, then add in times of strength. We remain positive on the company as copper fundamentals will remain strong into 2006, providing a backdrop for Phelps Dodge to continue to improve its financial position and to drive earnings and cash flows. Copper prices are likely to remain at elevated levels based on critically low inventory levels, continued demand trends (read China), constraints from scheduled mine depletions, tougher environmental standards, and restrained mine production. Phelps Dodge is also planning for the longer-term, securing several new production projects, which will drive growth into 2007-2008 and beyond. The shares trade at 7.1x current earnings, which is at the low end of their historical range. ---- Kimberly DuBord, Briefing.com
11:43AM Computer Associates (CA)
27.28 -1.89: Following in the wake of a multibillion dollar accounting scandal and ongoing efforts to resuscitate its business, Computer Associates, one of the world's largest software makers, announced its intention after the close on Wednesday to scale down its workforce by approximately 5%, or 800 positions, worldwide. The plan resembles a similar effort implemented last September that yielded savings of $70 million annually and resulted in a $28 million charge. As a result of the restructuring move, which is expected to take effect by the end of the year, the company should benefit from additional savings of $75 million annually. In addition, a pretax charge of between $50 million to $75 million related to severance and associated costs is expected to be incurred in the second quarter.
Aside from the announced restructuring plan, the Islandia, NY-based company reported fiscal first quarter results inline with analysts' expectations and improved its guidance for the full year. Net income for the period rose to $94 million, or $0.22 per share, up 16% from $40 million, or $0.19 per share, a year ago. At the same time, revenue climbed 8% to $920 million, compared to $850 million last year, as demand for enterprise security products continued to show strength. Analysts had projected earnings of $0.22 per share on revenue of $919.7 million.
Looking to the second quarter, the company expects revenue between $930-960 million and operating earnings in the range of $0.23-0.24 per share. The forecast is roughly level with the consensus estimates for revenue of $945.4 million and earnings of $0.23 per share. For the full year, the company raised it earnings guidance range to $0.93-0.98, from $0.90-0.95, on revenue between $3.8-3.9 billion.
Overall, the results for the second quarter were relatively reassuring, as Computer Associates continues to show progress during its current state of transition. The company must now demonstrate its ability to implement its restructuring plan and capture new growth opportunities, both organically and through acquisition.
With the enterprise software market well into the consolidation phase, Computer Associates has aggressively targeted potential opportunities at the application level to help offset slowing demand in the mainframe market. The recent acquisition of Niku, an IT governance vendor, signals the company's direction for future growth and expansion into "distributed computing." As the company continues to respond to industry trends, investors should expect more acquisitions from Computer Associates as it looks to fill voids in its product line. While the acquisition strategy should help to drive near-term growth prospects, it will also inevitably increase integration risks, placing additional pressure on the company's earnings.
Although the company has remained focused on improving operations through restructuring and targeted acquisitions, its checkered past remains an overhang. The current period of transition and clouded view regarding the company's growth rate creates an unbalanced risk-reward profile. As such, investors should wait for a more favorable entry point, as Computer Associates demonstrates its progress in resurrecting its business and presents a clearer catalyst for growth. --Richard Jahnke, Briefing.com
10:29AM Exxon Mobil (XOM) 59.50: If you ask Exxon Mobil where it thinks oil prices are going, it would say, "we have no idea." What does this tell us? No one knows where oil prices are heading. Considering the tightness in the market and political uncertainties in Iraq, Iran, Venezuela, and Nigeria, most believe prices are likely to remain at elevated levels. The current contention in the futures market is that the downside risk for the near-term is the mid-50's level. One only needs to look at the economics of the oil markets to understand why prices have remained at these levels. By year end, demand is expected to be roughly 86 mln barrels per day, while supply is expected to be 83 mln barrels per day, barring any unforeseen event on either side of the equation.
Getting back to those Exxon folks, the largest company by market cap reported its second quarter results before the bell. Expectations were high going into the report with analysts continually raising expectations. Exxon's earnings rose 32% to $7.64 bln, or $1.23 per share excluding items, a penny ahead of the Reuters consensus. Profits reached a quarterly record for the 123-year old company, which sells 1 out of every 10 barrels of oil consumed in the world. Revenues grew 8% sequentially and 25.3% yearly to $88.57 bln - roughly the GDP of the Ukraine.
Its upstream earnings, basically profits from oil and natural gas, surged 28% to $4.9 bln on strong demand and record prices. Production fell 4% to 3.9 mln boe per day, roughly equivalent with Q1. There were some seasonal effects here from gas sales in the North Sea. Downstream made up for any weakness in E&P as earnings jumped 47% to $2.2 bln, as expected, with refining margins widening to their highest level ever. The primary source of Exxon's upside over the last few quarters has been on the refining side. This quarter, refining profits, or what Exxon makes from converting crude to refined fuels, rocketed 34%. Baseline cracks reaccelerated to a record $11.17 per barrel during the quarter due to demand for gasoline and diesel demand. Chemical earnings grew $207 mln to $814 mln.
With all of the world's largest oil fields in decline, the greatest challenge for the exploration and production companies is to drive production and reserves. Reinvestment is key in this business and where Exxon has been spending most of its hordes of cash is in Africa and the Middle East. It has been effectively barred from the Russian market, as have other multinationals, after the government there took over Yukos, putting a stop to any foreign investment. Management has stated it will add organic projects worth 1.2 mln boe per day over the next three years - 5% growth. In Q2, capex rose 25% y/y to $4.5 bln, with most spending on the upstream operations. On today's call, the market will be looking for Exxon to reinforce production growth expectations.
Exxon continues to build cash reserves with over $30 bln on its books. Exxon has and will continue to return value back to its shareholders through buybacks and dividends. It bought back $3.7 bln in shares in Q2, which it plans to raise to $5 bln in Q3. The question is, what else does Exxon plan to do with all this cash? Management has stated it's building reserves for when prices come down and other companies are getting cash strapped. In their minds, management feels this would be the opportune time to make an acquisition. With soaring prices, the economics of a large scale deal, which is likely, would be certainly more appealing as prices ease. Yet, for the near-term, all this cash does dilute returns and increases Exxon's returns on capital.
Exxon's shares have done little over the last two months as other sub-sectors have taken the lead from the drillers to the oil services names. Exxon is executing on all fronts. With its clear earnings momentum and growth expectations, particularly downstream, coupled with compelling shareholder value, Exxon continues to be a strong long-term investment. The key for the near-term is cost management and reinvestment to drive production growth for the longer-term. The stock is trading at 12.4x, near the low end of its historical range, and below the market multiple of 19.7x. ---- Kimberly DuBord, Briefing.com
9:58AM Prestige Brands (PBH) Sun Trust Rbsn Humphrey downgrades Buy to NEUTRAL. SunTrust downgrades PBH following disappointing Q1 results. Firm notes that the co's product lines (Comet, Cutex, Compound W) are relatively mature and do not typically experience volatile sales trends. The only explanation they can think of is that mgmt was so focused on acquisitions and forgot to run the core business. Clearly, they think it will take several qutrs before mgmt can regain any credibility.
9:55AM Pixelworks (PXLW) Jefferies & Co downgrades Hold to UNDERPERFORM . Jefferies downgrades PXLW following Q2 results. Firm believes significant execution will be required to turn around the co's TV business and regain lost mkt share, as well as successfully integrate its Equator acquisition, and return to profitability in 2H06. They recommend investors sell shares of the co as they see significant downside from current levels until it is able to demonstrate either: 1) a return to profitability; 2) sustained rev growth in its Projector business; and 3) TV design wins to recapture lost mkt share.
9:54AM Arden Realty (ARI) Wells Fargo Sec downgrades Buy to HOLD. Wells Fargo downgrades ARI as they believe prices have run ahead of the market recovery, and that at current valuations, an ideal recovery scenario and/or takeout scenario is already priced into the securities, and therefore the combination of valuations and higher interest rates limits further price appreciation.
9:52AM Maguire Properties (MPG) Wells Fargo Sec downgrades Buy to HOLD. Wells Fargo downgrades MPG as they believe at current valuations, an ideal recovery scenario and/or takeout scenario is already priced into the securities, and therefore the combination of valuations and higher interest rates limits further price appreciation.
9:44AM Hooker Furniture (HOFT) BB&T Capital Mkts downgrades Hold to UNDERWEIGHT . BB&T downgrades HOFT saying they believe the plant closure points to continued weakness in the domestic wood segment. As a result, they are reducing segment forecast to 25% from 15% yr/yr, and total sales forecast to 7% from 4%. Also, firm expects the typical disruption of plant closures to depress operating margins for two to four quarters (though at a diminishing rate) before the consolidation into the remaining U.S. plants, transition to imports, and headcount adjustment allows a recovery.
9:41AM Pixelworks (PXLW) CIBC Wrld Mkts downgrades Sector Perform to SECTOR UNDERPERFORM . CIBC downgrades PXLW following disappointing Q2 results and outlook. Firm believes that the digital TV ramp overall is proceeding on track, even exceeding expectations. They think in this environment, the co's sub-par results, bloated op-ex, and deteriorating competitive positioning are all causes for concern.
9:36AM Andrew (ANDW) Oppenheimer downgrades Buy to NEUTRAL. Oppenheimer downgrades ANDW following disappointing results for the June quarter and below expectations guidance for the September qtr. They note that among the factors expected to contribute to lower earnings in the September qtr are higher raw material costs, lower sales of high-margin geolocation products, less favorable product mix, the revaluation of the Chinese currency, and a higher than expected tax rate of 41.5%.
9:27AM Nautilus Grp (NLS) BB&T Capital Mkts upgrades Hold to BUY. Target $35. BB&T upgrades NLS following Q2 results, saying earnings results were overshadowed by the positive announcement that Nautilus won additional business with Sears.
4:44PM Powerwave beats by $0.04 (PWAV) 11.40 :Reports Q2 (Jun) earnings of $0.14 per share, ex-items, $0.04 better than the Reuters Estimates consensus of $0.10; revenues rose 60.7% year/year to $186.3 mln vs the $176.2 mln consensus.
4:42PM Ingram Micro beats by $0.03, ex items; guides in-line (IM) :Reports Q2 (Jun) earnings of $0.30 per share, excluding non-recurring items, $0.03 better than the Reuters Estimates consensus of $0.27; revenues rose 19.7% year/year to $6.84 bln vs the $6.78 bln consensus. Co issues in-line guidance for Q3, sees EPS of $0.29-0.32, ex items vs. $0.29 consensus; sees Q3 revs of $6.8-7.0 bln vs. 6.97 bln consensus.
4:38PM Intl Rectifier beat by a penny, gives Q3 outlook (IRF) 55.03 :Reports Q4 (Jun) earnings of $0.54 per share, excluding non-recurring items, $0.01 better than the Reuters Estimates consensus of $0.53; revenues fell 5.6% year/year to $281.8 mln vs the $282 mln consensus. For Q3, co sees revenues "flat to up 4 percent".
4:36PM Microsemi beats by $0.01; guides Q4 revs in-line (MSCC) 23.03 :Reports Q3 (Jun) earnings of $0.18 per share, excluding non-recurring items, $0.01 better than the Reuters Estimates consensus of $0.17; revenues rose 17.3% year/year to $75.2 mln vs the $75.6 mln consensus. Co issues in-line guidance for Q4, sees EPS of $0.18-0.20 vs. $0.19 consensus;
4:34PM KLA-Tencor beats by 4 cents, revs light (KLAC) :Reports Q4 (Jun) earnings of $0.52 per share, $0.04 better than the Reuters Estimates consensus of $0.48; revenues rose 9.2% year/year to $491.9 mln vs the $497.4 mln consensus.
4:33PM Advanced Energy beats by a penny, ex items; guides (AEIS) :Reports Q2 (Jun) earnings of $0.07 per share, excluding non-recurring items, $0.01 better than the Reuters Estimates consensus of $0.06; revenues fell 19.7% year/year to $87.4 mln vs the $88.4 mln consensus. Co issues guidance for Q3, sees EPS of $0.05-0.09 vs. $0.08 consensus; sees Q3 revs of $81-86 mln vs. $89.53 mln consensus.
4:29PM Coherent beats by $0.02 (COHR) 37.55 :Reports Q3 (Jun) earnings of $0.30 per share, $0.02 better than the Reuters Estimates consensus of $0.28; revenues fell 4.5% year/year to $125.3 mln vs the $133.4 mln consensus.
Close Dow +68.46 at 10705.55, S&P +6.93 at 1243.72, Nasdaq +12.22 at 2198.44: The market closed near session highs, basically mirroring yesterday's performance, as another batch of better than expected earnings lent further proof that Wall Street may see a ninth consecutive quarter of double-digit EPS growth... With more than two-thirds of the S&P having now reported results, and more than 70% of them beating expectations, investors jumped into the market for a second consecutive session to buy stocks across the board, as nine out of ten economic sectors closed higher...
Of the 20 (out of 33) S&P companies beating estimates this morning, the headliner was Dow component ExxonMobil (XOM 60.00 +0.40), which beat analysts' forecasts by a penny on record Q2 net income of $7.6 bln and revenues of $88.6 bln, keeping the Energy sector in focus... But higher expectations for the oil giant kept gains in check as even a 1.4% surge in oil prices ($59.94//bbl +$0.83) could not help Energy keep pace with almost every other sector... Turning in the day's best performance was Materials, as investors looked past Dow Chemical's (DOW 48.43 +0.82) Q2 earnings miss and instead focused on favorable price and volume trends, which should benefit Q3 results...
Strong quarters from Phelps Dodge (PD 108.21 +0.21) and a new 52-week high on Praxair (PX 49.98 +1.83), following yesterday's solid results, provided additional support... Telecom Services also surged more than 1.0% on the day, getting a lift from new legislation that could help telecom carriers like SBC (+1.7%) and VZ (+1.1%) coupled with strong Q2 earnings and upside FY05 guidance from CenturyTel (CTL 34.50 +0.90)...
Health Care, however, was the most influential leader to the upside, benefiting from a rebound in HMOs, amid an encouraging Q2 report from Aetna (AET 78.40 +3.78), and strength from Bristol-Myers (BMY 25.17 +0.07), which beat Q2 estimates by $0.11 and raised its FY05 outlook... While not included in the S&P, Europe-based AZN (+4.8%) and GSK (+1.5%) were two other drug companies that had strong quarters... Industrials got a huge boost from Caterpillar (CAT 54.45 +1.66), which hit an all-time high, and Honeywell (HON 38.99 +0.97), which surged 2.6% as ongoing margin expansion prompted Merrill Lynch to upgrade the stock to Buy from Neutral...
The Consumer Discretionary sector was also an influential leader to the upside, taking advantage of strong earnings reports from SBUX, PHM, AN, NWL and SNA (which averaged gains of 5.1% today), as well as a Merrill Lynch upgrade on LTD (+2.4%)... Also providing some support for stocks, especially interest-rate sensitive areas like Financial and Utilities, was a decline in benchmark yields... The 10-year note closed at its best levels of the day, up 16 ticks to yield 4.18%, getting a boost upon further analysis of yesterday's Beige Book (tame inflation) and month-end buying from money managers trying to match their portfolios to benchmark indices...
Technology - the month's best performing economic sector (+6.5%) so far and the main driver behind the Nasdaq (+6.4%) outperforming the Dow (+4.0%) and S&P (+4.2%) in July - however, closed slightly lower... Components losing the most ground included HPQ, AAPL, YHOO and GLW, all of which have recently traded at or near 52-week highs...
Separately, initial claims rose 5K to 310K (consensus 320K), leaving a 4-week average of 318K - the lowest since early March; but the report was largely ignored in favor of the quarter's largest day of earnings reports and ahead of more influential economic data (i.e. GDP, Q2 Employment Cost Index, Chicago PMI and Michigan Sentiment) out tomorrow morning...DJTA +1.5, DJUA +0.8, DOT +0.7, Nasdaq 100 +0.4, Russell 2000 +1.2, SOX +0.1, S&P Midcap 400 +0.9, XOI +0.7, NYSE Adv/Dec 2442/875, Nasdaq Adv/Dec 1945/1109
3:57PM Grant Prideco (GRP) 32.25 +1.68: High energy prices continue to flow through the supply chain, benefiting a multitude of industries along the way. It starts with the exploration and production companies, which are compelled by market economics to boost production to meet demand and to reap the benefit of record oil and natural gas prices. This in turn flows through to the drillers, the oil services, and the equipment companies. These latter cycle industries are enjoying positive momentum from the top to the bottom line, as the strong market conditions continue. Today, Grant Prideco, the world's largest manufacturer and supplier of oilfield drillpipe and other drill stem products, reported its seventh consecutive quarter of earnings that topped expectations.
The company clearly continues to gain momentum as earnings have accelerated quarter after quarter. Management commented today, "We are seeing the best industry conditions in the last several decades." The company earned $0.41 per share, excluding non-recurring items, up from $0.10 last year and $0.11 better than the consensus estimate. Revenues rose 41.1% year/year and 8.5% quarter/quarter to $316.9 mln. The upside was driven by strong demand across its businesses and products, amplified by its operational performance and financial discipline.
Drilling Products and Services reported record revenues and profits. Revenues skyrocketed 60% y/y and 12% q/q with operating income more than doubling to $43.1 mln, on increased sales, higher prices, and a favorable product mix. Backlog grew to a record $330.9 mln. Drill Bits sales also hit a record of $93.1 mln, up 22% y/y and 3% q/q, as the worldwide rig count grew 13%. Tubular Technology and Services generated revenue growth of 40% to $79.5 mln, up 9% sequentially. Operating margins widened from 4% last year to 24%. As is the case with the rest of the energy patch, these good times are allowing companies to shore up balance sheets to allow for better flexibility throughout the cycle. GRP expects these market conditions will continue, and raised guidance for Q3 and the full year. It sees Q3 earnings in the range of $0.45-0.47, ex items, vs. the $0.34 consensus and looks for FY05 EPS of $1.60-1.65, ex items, vs. the $1.30 consensus estimate. We added GRP as a suggested holding in our Active Portfolio back in March. Since then the stock has returned 36%. We remain committed to GRP, as we feel, given these bullish market conditions, the risk ahead lies to the upside. The prior spin-off of Weatherford International (WFT) is forecasted to grow earnings 132% this year and 25% next year. Although the P/E of 24.7x forward earnings may appear a bit rich at first glance for an energy-related name, we would argue the earnings portion of that multiple will continue to accelerate. ---- Kimberly DuBord, Briefing.com
2:44PM Bristol-Myers (BMY) 25.37 +0.27: Bristol-Myers Squibb delivered strong results for the fiscal second quarter, led by increased sales of pharmaceutical products. The New York-based company reported net sales of $4.9 billion, compared to $4.8 billion in the same quarter last year, with worldwide pharmaceutical sales up 1% to $3.9 billion. Continued strength in the company's best-selling drug, Plavix, which increased 26% to $968 million, helped offset declining sales in cancer drugs Taxol and Paraplatin, which have been impacted by generic competition. Bristol's schizophrenia drug Abilify and HIV treatment Reyataz also contributed to the top-line, with sales in both drugs more than doubling to $240 million and $183 million, respectively.
Concurrently, the company posted earnings from continuing operations of $933 million, or $0.47 per share, compared to $905 million, or $0.45 per share, last year. The results topped the consensus earnings estimate of $0.36 per share on revenue of $4.8 billion and compelled the company to reaffirm its earnings forecast for the full year of $1.35-1.45 per share. This effectively represents an earnings decline of about 14% from the year ago period.
Although the Plavix patent challenge remains a potential impediment, Bristol's strong product portfolio (Plavix, Abilify, Reyataz, and Erbitux) and late stage pipeline should provide the necessary catalyst to help turn the company around. The drugs Pargluva for diabetes and Orencia for Rheumatoid arthritis have both shown promising efficacy in late-stage clinical trials. Although they still face regulatory and market challenges, both drugs are promising growth drivers for the future.
The prospects for growth are encouraging, however substantial risks remain and do not appear adequately discounted at current price levels. Most significant is the potential loss of the Plavix patent to generic drug manufacturers. Furthermore, significant regulatory risks exist around the approval and launch of key new drugs. With shares currently trading at 19.4x the FY07 EPS estimate of $1.31, investors should maintain a cautious stance on the stock, as the premium valuation relative to its peers isn't warranted given the impending risks. --Richard Jahnke, Briefing.com
1:58PM Phelps Dodge (PD) 108.00 unch: Stalwart copper fundamentals remained intact during the second quarter as economic growth and industrial demand, particularly out of China, coupled with critically low inventory levels, resulted in record copper prices. This bull environment is generating soaring profits for copper producers around the globe. Phelps Dodge, the world's second largest copper producer and a recommended holding in Briefing.com's Active Portfolio, saw its profits triple to a third straight record.
Net income grew to $682.3 mln, or $6.75 per share, up from $226.6 mln, or $2.30 per share last year. Stripping out numerous one-time items, earnings were $4.52 per share, nearly a quarter ahead of expectations, although assisted by a lower tax rate. On the top line, revenues rose 30.3% year/year to $2.15 bln driven virtually all by price. Prices averaged $1.532 per pound on the COMEX in Q2 compared to $1.234 in 2004 and $1.468 in Q1. Molybdenum prices averaged $35.27 per pound compared to $14.57 last year and $31.31 in Q1. With the year expected to end in a deficit of roughly 150,000 metric tons, according to the company, copper prices are likely to remain at these historically high levels.
On the demand side, China continued to drive the market during the quarter as GDP and industrial production grew 9.5% and 16%, respectively. China's output of copper -intensive products grew more than 10%, piloted by double-digit gains in a vast array of products from automobiles to electronic instruments.
The caveat for quarter was on the production side. Copper production from PD's mines was 612 mln pounds, below guidance of 630-650 mln. PD suffered from weather-related issues that carried over from Q1, maintenance difficulties, and supplier issues. Costs were also higher due to external factors (energy, freight, supplies, repairs) and internal issues (higher swing production costs, increased mining rate). It's difficult to look at a mining company on a quarterly basis, as there are so many factors that can cause major swings on the demand and supply side from weather to energy prices to geological difficulties.
Taking a step back, the bull environment has allowed PD to dramatically improve its financial position, which will flow through to its core operations and improve its cost structure in preparation for the bear-cycle times. Speaking of financial position, cash flows from operations raised cash on hand to $2.8 bln, or $27 per share - up a billion dollars y/y. PD continues to return value back to its shareholders by raising the dividend payment program it restarted last year.
Looking out to Q3, PD stated critically low inventory levels will keep prices at $1.55 per pound, or better. It noted the shifts in the price may come from the steel industry and supply production disruptions in China. For the full year, PD anticipates demand will increase 2.5-3%, below its previous guidance of 3.5-4%, due to continued weakness in Europe. On the supply side, it anticipates a production shortfall will result in a deficit of 150,000 metric tons.
With PD up more than 30% since we added the name to our Active Portfolio, we would suggest investors trim positions. This stock trends to be quite volatile. As such, it is better to buy on weakness, then add in times of strength. We remain positive on the company as copper fundamentals will remain strong into 2006, providing a backdrop for Phelps Dodge to continue to improve its financial position and to drive earnings and cash flows. Copper prices are likely to remain at elevated levels based on critically low inventory levels, continued demand trends (read China), constraints from scheduled mine depletions, tougher environmental standards, and restrained mine production. Phelps Dodge is also planning for the longer-term, securing several new production projects, which will drive growth into 2007-2008 and beyond. The shares trade at 7.1x current earnings, which is at the low end of their historical range. ---- Kimberly DuBord, Briefing.com
11:43AM Computer Associates (CA)
27.28 -1.89: Following in the wake of a multibillion dollar accounting scandal and ongoing efforts to resuscitate its business, Computer Associates, one of the world's largest software makers, announced its intention after the close on Wednesday to scale down its workforce by approximately 5%, or 800 positions, worldwide. The plan resembles a similar effort implemented last September that yielded savings of $70 million annually and resulted in a $28 million charge. As a result of the restructuring move, which is expected to take effect by the end of the year, the company should benefit from additional savings of $75 million annually. In addition, a pretax charge of between $50 million to $75 million related to severance and associated costs is expected to be incurred in the second quarter.
Aside from the announced restructuring plan, the Islandia, NY-based company reported fiscal first quarter results inline with analysts' expectations and improved its guidance for the full year. Net income for the period rose to $94 million, or $0.22 per share, up 16% from $40 million, or $0.19 per share, a year ago. At the same time, revenue climbed 8% to $920 million, compared to $850 million last year, as demand for enterprise security products continued to show strength. Analysts had projected earnings of $0.22 per share on revenue of $919.7 million.
Looking to the second quarter, the company expects revenue between $930-960 million and operating earnings in the range of $0.23-0.24 per share. The forecast is roughly level with the consensus estimates for revenue of $945.4 million and earnings of $0.23 per share. For the full year, the company raised it earnings guidance range to $0.93-0.98, from $0.90-0.95, on revenue between $3.8-3.9 billion.
Overall, the results for the second quarter were relatively reassuring, as Computer Associates continues to show progress during its current state of transition. The company must now demonstrate its ability to implement its restructuring plan and capture new growth opportunities, both organically and through acquisition.
With the enterprise software market well into the consolidation phase, Computer Associates has aggressively targeted potential opportunities at the application level to help offset slowing demand in the mainframe market. The recent acquisition of Niku, an IT governance vendor, signals the company's direction for future growth and expansion into "distributed computing." As the company continues to respond to industry trends, investors should expect more acquisitions from Computer Associates as it looks to fill voids in its product line. While the acquisition strategy should help to drive near-term growth prospects, it will also inevitably increase integration risks, placing additional pressure on the company's earnings.
Although the company has remained focused on improving operations through restructuring and targeted acquisitions, its checkered past remains an overhang. The current period of transition and clouded view regarding the company's growth rate creates an unbalanced risk-reward profile. As such, investors should wait for a more favorable entry point, as Computer Associates demonstrates its progress in resurrecting its business and presents a clearer catalyst for growth. --Richard Jahnke, Briefing.com
10:29AM Exxon Mobil (XOM) 59.50: If you ask Exxon Mobil where it thinks oil prices are going, it would say, "we have no idea." What does this tell us? No one knows where oil prices are heading. Considering the tightness in the market and political uncertainties in Iraq, Iran, Venezuela, and Nigeria, most believe prices are likely to remain at elevated levels. The current contention in the futures market is that the downside risk for the near-term is the mid-50's level. One only needs to look at the economics of the oil markets to understand why prices have remained at these levels. By year end, demand is expected to be roughly 86 mln barrels per day, while supply is expected to be 83 mln barrels per day, barring any unforeseen event on either side of the equation.
Getting back to those Exxon folks, the largest company by market cap reported its second quarter results before the bell. Expectations were high going into the report with analysts continually raising expectations. Exxon's earnings rose 32% to $7.64 bln, or $1.23 per share excluding items, a penny ahead of the Reuters consensus. Profits reached a quarterly record for the 123-year old company, which sells 1 out of every 10 barrels of oil consumed in the world. Revenues grew 8% sequentially and 25.3% yearly to $88.57 bln - roughly the GDP of the Ukraine.
Its upstream earnings, basically profits from oil and natural gas, surged 28% to $4.9 bln on strong demand and record prices. Production fell 4% to 3.9 mln boe per day, roughly equivalent with Q1. There were some seasonal effects here from gas sales in the North Sea. Downstream made up for any weakness in E&P as earnings jumped 47% to $2.2 bln, as expected, with refining margins widening to their highest level ever. The primary source of Exxon's upside over the last few quarters has been on the refining side. This quarter, refining profits, or what Exxon makes from converting crude to refined fuels, rocketed 34%. Baseline cracks reaccelerated to a record $11.17 per barrel during the quarter due to demand for gasoline and diesel demand. Chemical earnings grew $207 mln to $814 mln.
With all of the world's largest oil fields in decline, the greatest challenge for the exploration and production companies is to drive production and reserves. Reinvestment is key in this business and where Exxon has been spending most of its hordes of cash is in Africa and the Middle East. It has been effectively barred from the Russian market, as have other multinationals, after the government there took over Yukos, putting a stop to any foreign investment. Management has stated it will add organic projects worth 1.2 mln boe per day over the next three years - 5% growth. In Q2, capex rose 25% y/y to $4.5 bln, with most spending on the upstream operations. On today's call, the market will be looking for Exxon to reinforce production growth expectations.
Exxon continues to build cash reserves with over $30 bln on its books. Exxon has and will continue to return value back to its shareholders through buybacks and dividends. It bought back $3.7 bln in shares in Q2, which it plans to raise to $5 bln in Q3. The question is, what else does Exxon plan to do with all this cash? Management has stated it's building reserves for when prices come down and other companies are getting cash strapped. In their minds, management feels this would be the opportune time to make an acquisition. With soaring prices, the economics of a large scale deal, which is likely, would be certainly more appealing as prices ease. Yet, for the near-term, all this cash does dilute returns and increases Exxon's returns on capital.
Exxon's shares have done little over the last two months as other sub-sectors have taken the lead from the drillers to the oil services names. Exxon is executing on all fronts. With its clear earnings momentum and growth expectations, particularly downstream, coupled with compelling shareholder value, Exxon continues to be a strong long-term investment. The key for the near-term is cost management and reinvestment to drive production growth for the longer-term. The stock is trading at 12.4x, near the low end of its historical range, and below the market multiple of 19.7x. ---- Kimberly DuBord, Briefing.com
9:58AM Prestige Brands (PBH) Sun Trust Rbsn Humphrey downgrades Buy to NEUTRAL. SunTrust downgrades PBH following disappointing Q1 results. Firm notes that the co's product lines (Comet, Cutex, Compound W) are relatively mature and do not typically experience volatile sales trends. The only explanation they can think of is that mgmt was so focused on acquisitions and forgot to run the core business. Clearly, they think it will take several qutrs before mgmt can regain any credibility.
9:55AM Pixelworks (PXLW) Jefferies & Co downgrades Hold to UNDERPERFORM . Jefferies downgrades PXLW following Q2 results. Firm believes significant execution will be required to turn around the co's TV business and regain lost mkt share, as well as successfully integrate its Equator acquisition, and return to profitability in 2H06. They recommend investors sell shares of the co as they see significant downside from current levels until it is able to demonstrate either: 1) a return to profitability; 2) sustained rev growth in its Projector business; and 3) TV design wins to recapture lost mkt share.
9:54AM Arden Realty (ARI) Wells Fargo Sec downgrades Buy to HOLD. Wells Fargo downgrades ARI as they believe prices have run ahead of the market recovery, and that at current valuations, an ideal recovery scenario and/or takeout scenario is already priced into the securities, and therefore the combination of valuations and higher interest rates limits further price appreciation.
9:52AM Maguire Properties (MPG) Wells Fargo Sec downgrades Buy to HOLD. Wells Fargo downgrades MPG as they believe at current valuations, an ideal recovery scenario and/or takeout scenario is already priced into the securities, and therefore the combination of valuations and higher interest rates limits further price appreciation.
9:44AM Hooker Furniture (HOFT) BB&T Capital Mkts downgrades Hold to UNDERWEIGHT . BB&T downgrades HOFT saying they believe the plant closure points to continued weakness in the domestic wood segment. As a result, they are reducing segment forecast to 25% from 15% yr/yr, and total sales forecast to 7% from 4%. Also, firm expects the typical disruption of plant closures to depress operating margins for two to four quarters (though at a diminishing rate) before the consolidation into the remaining U.S. plants, transition to imports, and headcount adjustment allows a recovery.
9:41AM Pixelworks (PXLW) CIBC Wrld Mkts downgrades Sector Perform to SECTOR UNDERPERFORM . CIBC downgrades PXLW following disappointing Q2 results and outlook. Firm believes that the digital TV ramp overall is proceeding on track, even exceeding expectations. They think in this environment, the co's sub-par results, bloated op-ex, and deteriorating competitive positioning are all causes for concern.
9:36AM Andrew (ANDW) Oppenheimer downgrades Buy to NEUTRAL. Oppenheimer downgrades ANDW following disappointing results for the June quarter and below expectations guidance for the September qtr. They note that among the factors expected to contribute to lower earnings in the September qtr are higher raw material costs, lower sales of high-margin geolocation products, less favorable product mix, the revaluation of the Chinese currency, and a higher than expected tax rate of 41.5%.
9:27AM Nautilus Grp (NLS) BB&T Capital Mkts upgrades Hold to BUY. Target $35. BB&T upgrades NLS following Q2 results, saying earnings results were overshadowed by the positive announcement that Nautilus won additional business with Sears.
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