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Wednesday, October 19, 2005 10:47:04 PM
From Briefing.com: 7:53PM Swing Trader: A Key Reversal Day? Need Confirmation : -Technical- The market gapped lower Wednesday morning, but reversed by mid-day to stage a broad market rally. Only Gold/Silver (XAU -1.81%) finished in the day in the red. (continued)
4:43PM Cirrus Logic beats by a penny; issues in line Q3 rev guidance (CRUS) 6.88 +0.35:Reports Q2 (Sep) earnings of $0.08 per share, excluding non-recurring items, $0.01 better than the Reuters Estimates consensus of $0.07; revenues fell 4.4% year/year to $50.5 mln vs the $46.3 mln consensus. Co issues in-line guidance for Q3, sees revs of $45-49 mln vs. $47.32 mln consensus.
4:31PM Advanced Energy Q3 revs miss consensus, co issues downside Q4 guidance (AEIS) 10.59 -0.10:Reports Q3 (Sep) loss of $0.10 per share, may not be comparable to the Reuters Estimates consensus of $0.08; revenues fell 12.4% year/year to $82.0 mln vs the $84.7 mln consensus. Co issues downside guidance for Q4, sees EPS of 0.05-0.07 vs. $0.11 consensus; sees Q4 revs of $75-80 vs. $86.15 mln consensus. Also, AEIS accelerates vesting of certain stock options. Acceleration applies to options priced $15 or higher.
4:27PM Intersil beats by $0.04, ex-items (ISIL) 21.10 :Reports Q3 (Sep) earnings of $0.21 per share, excluding non-recurring items, $0.04 better than the Reuters Estimates consensus of $0.17; revenues rose 23.8% year/year to $157.2 mln vs the $147.7 mln consensus. Co issues upside guidance for Q4, sees EPS of $0.23-0.24 vs. $0.19 consensus.
4:13PM FormFactor misses by a penny, ex items (FORM) :Reports Q3 (Sep) earnings of $0.15 per share, excluding non-recurring items, $0.01 worse than the Reuters Estimates consensus of $0.16; revenues rose 21.4% year/year to $62.4 mln vs the $57.3 mln consensus.
Close Dow +128.87 at 10414.13, S&P +17.62 at 1195.76, Nasdaq +35.24 at 2091.24: Beginning the day bearishly, the market reversed its tone during the final hour and a half of trading, pushing the indices to their best levels of the session - and of the quarter. While initially disregarding another round of solid third quarter earnings reports, traders perhaps looked back late in the day after declining energy prices and an uneventful Beige Book from the Fed provided relief. Thus far, about two-thirds of reporting companies have exceeded analysts' estimates, a trend that may turn traders' attention towards earnings growth and attractive fundamentals. While Intel (INTC 23.70 -0.02) is on that list, its relatively disappointing Q4 sales outlook issued last night captured the market's focus and teamed with prolonged inflation and interest rate concerns to overshadow the solid earnings delivered across the market's spectrum. The morning was crippled by a lack of leadership, but broad-based buying interest drove each sector to a gain by the session's close. The Financials sector spearheaded the advance, surging 2.0% on account of soaring brokers and banks. Today continued the trend of strong reports from the banking industry - with JP Morgan (JPM 34.76 +0.99), Bank of America (BAC 42.64+1.07), and Northern Trust (NTRS 52.34 +1.53) each beating consensus estimates. The reports were somewhat overlooked in the early going, but, after the Beige Book dropped no inflation bombshells that would stir even further rate-hike anxiety, traders looked upon the sector with delayed optimism. Matching Financials' gain was the Energy sector, fully erasing its decline that left it as the laggard throughout the session. The EIA's latest energy inventory report - which showed a better than expected build in crude alongside a surprise rise in gasoline and a less than expected draw in distillates - induced a sharp pullback in the price of oil, and a subsequent decline in the Energy sector. While the commodity closed 1.6% lower, traders sent all but one the S&P's energy issues higher after the late-day bullish tone took over. At the same time, the crude action helped drive the gas-price sensitive Consumer Discretionary sector to a 2.0% gain; anticipation of eBay's (EBAY 42.01 +1.59) Q3 report, slated for post-bell delivery, also contributed to the advance. Sept. reads on housing starts - which rose 2.4% to 2108K (consensus 1975K) - were announced this morning, and perhaps helped homebuilders lend the sector a 3.1% gain. Upside reports from Yahoo (YHOO 25.91 +2.21) and Motorola (MOT 21.02 +0.85) yesterday evening, as well as from Teradyne (TER 14.29 +0.36) and EMC Corp. (EMC 13.76 +0.52) today, helped support the Tech sector, and Intel's near-full erasure of its intraday decline fostered semiconductors' recovery and the sector's 1.4% rise. Although Honeywell (HON 34.05 -1.88) exceeded EPS expectations by $0.02, its downside FY05 revenue guidance sparked selling pressure; despite its plunge, the Industrial's sector muscled a 1.4% rise. Consumer Staples gained 1.0%, bolstered by earning-induced strength in Altria (MO 73.85 +1.37). Even the Utilities (+0.4%) sector, which again suffered profit-taking attempts today, recovered.NYSE Adv/Dec 2118/1157, Nasdaq Adv/Dec 1969/1060
9:57AM Western Digital (WDC) Piper Jaffray upgrades Market Perform to OUTPERFORM. Target $16. Firm is saying that they do not subscribe to the recent pessimism surrounding the hard disk drive industry on issues such as flash memory encroachment, deterioration in industry fundamentals, and fears of major estimate reductions in 2006. Following the recent sell-off in the stock, they advise investors to build positions in shares of the co before the co reports earnings on Oct 27.
9:56AM Covenant Transport (CVTI) BB&T Capital Mkts downgrades Hold to UNDERWEIGHT . Firm says that over the last several weeks, they have grown increasingly concerned about CVTI's ability to engineer a turnaround in today's environment of persistently higher operating costs, which first and foremost includes skyrocketing diesel fuel prices. They cite pricing power concerns, and cut their 2006 and 2007 EPS ests.
9:56AM Plexus (PLXS) Needham & Co resumes BUY. Target $20. Firm bexpects PLXS' earnings to rise as the co leverages its existing investment in engineering to continue to benefit from new program wins in core markets (i.e. medical, networking) as well as penetrate further into relatively untapped opportunities such as the military segment.
9:56AM Greenbrier Comp (GBX) Bear Stearns downgrades Outperform to PEER PERFORM. Firm cites difficult environment for deep cyclicals currently, noting that they haven't uncovered any large recent orders for the co, although its end mkt is highly fragmented beyond the top few customers. They could warm up to the co again at the right valuation and into favorable channel checks.
9:55AM U.S. Xpress (XPRSA) BB&T Capital Mkts downgrades Hold to UNDERWEIGHT . Firm notes that over the last several weeks, they have grown increasingly concerned about the co's ability to weather an environment of persistently higher operating costs. They think the co's recent struggles are not short term in nature, and question whether it will be able to engineer an operational turnaround in today's environment of rising operating costs.
9:53AM Knight Transportation (KNX) BB&T Capital Mkts upgrades Hold to BUY. Target $34. Upgrade is based on increased confidence in their Street-high EPS forecasts and their improving outlook for higher-quality truckload stocks. Firm says within the truckload space, they foresee a "flight to quality" throughout the remainder of 2005 and into 2006, and view KNX as the undisputed heavyweight champion of truckload carriers in terms of quality and operational efficiency.
9:53AM NN Inc (NNBR) KeyBanc Capital Mkts / McDonald downgrades Buy to HOLD. Downgrade is due to the recent reduction in guidance on the back of reduced European revenue momentum, as well as the lack of discernable near-term earning's catalysts.
9:51AM IberiaBank (IBKC) Stanford Research upgrades Hold to BUY. Target $56. Firm is saying while a relatively small portion of the co's franchise was impacted by Hurricane Katrina (roughly 17%) and near-term results could be negatively impacted, they think this should be somewhat offset by virtue of the co's position in other areas of the state that have seen a large number of evacuee inflows. They believe that current levels represent an excellent entry point.
9:51AM Polycom (PLCM) Miller Johnson initiates BUY. Target $19. Firm believes VoIP, wireless and partnerships with large vendors, such as MSFT and AV, are likely to be key growth drivers. Firm's checks indicate that the September quarter is likely to come in better than consensus estimates with relatively healthy backlog.
9:50AM Redback Networks (RBAK) Miller Johnson initiates BUY. Target $12. Firm's checks indicate that the September quarter is likely to be at least in line with published street estimates, with a relatively healthy backlog going into the December quarter. Firm also anticipates that RBAK is likely to announce a marquee customer within the next three months, most likely France Telecom.
2:02PM JP Morgan Chase (JPM)
34.51 +0.74: JP Morgan Chase said that Jamie Dimon, its current President and COO, will succeed William Harrison as CEO at year end. Following JPM's merger with Bank One last year, it was widely foreseen that Dimon - the head of Chicago's Bank One - would replace Harrison, who will continue as Chairman, and take the helm of the nation's third largest banking company. In recognition of the "good progress made on successfully integrating the JP Morgan Chase and Bank One merger," the company accelerated the planned transition by about six months.
The news announced early Wednesday paralleled JPM's third quarter financial results, which were highlighted by record trading revenue and a 78% increase in profits. New York-based JP Morgan Chase said it earned $2.5 billion, or $0.71 per share, in the latest quarter, up from $1.4 billion , or $0.39 per share, a year earlier. However, excluding merger-related charges, the company reported operating earnings of $2.7 billion, or $0.75 per share, beating the consensus estimate of $0.72 per share. On a comparable basis, the company earned $2.2 billion, or $0.60 per share, in the year-ago period.
Revenue in the quarter increased 13.5% to $14.5 billion - achieving a new quarterly record - benefiting from improved trading revenue and continued strength in investment banking. The investment banking division, which reported earnings of $1.1 billion on revenue of $4.5 billion, an increase of 70% and 65%, respectively, provided the largest boost as trading results were strong across all asset classes. With the exception of the company's retail business, which was negatively impacted by Hurricane Katrina and narrower spreads on real estate loans, results were strong across all its divisions. Credit card revenue grew 6% from the prior year, while commercial banking and asset management revenue climbed 9% and 21%, respectively. Retail revenue, however, fell 6% year/year, pushing segment profits 20% lower.
The provision for credit loss was $2.1 billion, up $348 million from the prior year. The increase was due to a $400 million special provision related to Hurricane Katrina. Excluding the impact of the special provision, wholesale provision for credit losses was a benefit of $149 million for the quarter, compared with a benefit of $137 last year, reflecting continued strength in credit quality, the company said.
Although weak market conditions and challenges extending from a flattening yield curve have affected the financial sector, JPM's ongoing efforts to integrate Bank One into its operations, as well as improving trading results, helped contribute to its better-than-expected performance. Consequently, shares have trended higher in intraday trading, despite concerns about rising interest rates.
--Richard Jahnke, Briefing.com
11:25AM Honeywell (HON)
34.96 -0.97: On continued strength in aerospace demand, Honeywell Intl. topped analyst expectations by two cents with earnings of $470 million, or $0.55 per share, versus $372 million, or $0.43 per share, in the same period last year. For the latest quarter, the Dow component reported organic growth of 5% and expanded profitability in three of its four business segments. Total revenue grew 8% to $6.9 billion, as the top-line was heavily weighted to the Aerospace and Automation & Control businesses, which represented 73% of total sales.
The industrial conglomerate, based in Morris Township, New Jersey, said Aerospace revenue rose 6% from a year ago to $2.62 billion, with 9% growth in the commercial unit and 3% in defense and space. Segment margins swelled 140 basis points to 16.8% on strong volume growth. During the quarter, the division received certification from the European Aviation Safety Agency for its runway awareness and advisory system on a number of business aircraft. Additionally, the defense and space unit delivered its next-generation weather radar systems to the U.S. Air Force for installation in the C-17 Globemaster III.
Revenue in the Automation & Control segment rose 23% to $2.45 billion, largely due to the impact of acquisitions, while margins expanded to 12.3% from 11.8% a year ago. In Transportation, sales were flat compared to last year. However, due to higher raw material costs, an unfavorable mix, and its divested Friction Materials business, which offset productivity gains, segment margin fell 160 basis points to 11.4%.
Overall, segment margins expanded 100 basis points to 12.7%, driven by pricing gains and increased productivity. As a result of the continued progress in positioning the business for growth, the company raised its profit forecast for the full year. Honeywell now expects earnings of $2.11 to $2.13 per share, compared to the previous range of $2.05 to $2.15 per share, ex-items, and the consensus estimate of $2.08 per share. Sales, though, were projected at $27.6 billion, slightly below its prior guidance of $27.8 to $28 billion.
The company also said it expects double-digit growth for fiscal 2006, which is seemingly positive news, but analysts had been projecting growth of about 18% for next year. As a result, shares of HON have drifted lower during the regular trading session.
--Richard Jahnke, Briefing.com
10:51AM Bank of America (BAC)
42.14 +0.57: The nation's second largest bank generated double-digit revenue growth and 10% profit growth for the third quarter. Nevertheless, investors continue to shy away from the financial stocks as rates rise. BAC's net income rose to $4.13 bln, or $1.02 per share, in the three months ended on September 30th, compared to $0.91 earned last year. On a comparable basis earnings, excluding merger and restructuring charges, were $1.04 per share - two cents above consensus.
Growth was broad-based on the top line, which rose 16% to $14.6 bln. Noninterest income growth of 39% to $6.83 bln was driven by the bank's swelling credit card business, service fees, rebounding mortgage banking income, equity gains, and improved trading profits. Loan growth was 3.6% quarter-over-quarter, while deposits shrank. Net interest income rose a mere 2% to $7.97 bln, as the margin between the bank's cost of funds and what it earns on deposits and loans narrowed. As the yield curve flattens, banks' net interest margins are being squeezed, as the short-term rates it pays on deposits increases while the long-term rates it charges on loans and mortgages remain relatively unchanged. BAC is attempting to reduce its yield exposure by increasing the percentage of fee-based profits.
BAC is in the process of digesting its $35 bln acquisition of credit-card issuer MBNA, which also reported its quarter. Profits slid 1.4% to $714.4 mln, or $0.56 per share, as the company booked $18 mln in restructuring charges. Still the figure was three cents ahead of expectations.
Overall, this was an impressive quarter considering the challenges BAC faced. The quality of earnings was higher than the previous quarter, as securities gains were a bit more modest. BAC continued to focus on deleveraging its balance sheet while buying back stock during the quarter. The market's focus will turn to the integration of KRB and the prospects of additional buybacks. Additionally, the bank is still "delving into" its exposure in the Refco debacle, as a joint book runner of the futures broker's IPO, debt, and syndicates loan issues. BAC trades at 9.7x forward earnings, compared to JP Morgan Chase (JPM) at 11.6x and Citigroup (C) at 11.0x, and offers an attractive dividend yield of 3.97%.
--Kimberly DuBord, Briefing.com
9:29AM Ryland Group (RYL)
64.38: Despite persisting concerns of a slowdown in the nation's housing market - fueled by rising interest rates and waning consumer confidence - Ryland Group on Tuesday reported the highest third-quarter consolidated earnings, revenue, new orders, and backlog in its history. Additionally, the Calabasas, California-based homebuilder raised its forecast for the year and offered initial guidance for fiscal 2006.
For the latest quarter, Ryland posted earnings of $118 million, or $2.49 per share, excluding non-recurring items. That is up from $83 million, or $1.66 per share, in the year-ago period and $0.18 better than the consensus EPS estimate of $2.31. Total revenue, meanwhile, rose 21.3% to $1.3 billion, including $1.2 billion from homebuilding, driven by an 11.7% increase in closings and an 8.2% increase in the average selling price, which rose to $278,000. New orders in the quarter jumped nearly 11% to 4,361 homes.
Ryland projected continued strength in demand for the remainder of the year, with earnings expected to exceed $8.75 per share. On average, analysts had projected full-year EPS of $8.61, according to Reuters Estimates. The company also said it is comfortable with the street consensus of $10.02 per share for fiscal 2006.
The company said it bought back approximately 665,000 shares of its common stock during the latest quarter and has authorization from its board to repurchase an additional one-million shares. Ryland expects to increase the target value of its stock repurchases this year from $150 million to $175 million. Separately, the company approved a 100% increase in its quarterly dividend to $0.12 per share, effective in the first quarter of 2006.
As one of the larger homebuilders in the industry with operations in expanding markets, Ryland continues to display great resilience amid a rising interest rate environment and slowing demand. However, while the fundamentals and long-term outlook for the company remain strong, the near-term prospects remain less certain considering expectations that the Fed will continue to raise interest rates, energy prices will remain at high levels, and costs for labor and construction materials remain on the rise. With mixed signs in the housing market due to macro-related factors, Ryland's third quarter results will undoubtedly provide a basis for other homebuilders as they report third quarter earnings in the coming weeks.
--Richard Jahnke, Briefing.com
9:24AM Motorola (MOT)
20.17: "If you build it, they will come." Forget "Hello Moto," this famous movie line should become Motorola's new slogan as it encompasses what the company has been able achieve over the past few years. Motorola's success is based solely on its ability to produce compelling, iconic, "must have" handsets that dominate the market to the tune of 38.7 mln shipped in the third quarter. We think the outlook for the Schaumburg, Illinois-based company is compelling due to its line-up of new products driving sales, market share, and profits.
Motorola dialed in another great quarter, not only selling a record number of handsets, but improving margins simultaneously. Third quarter financial results exceeded consensus on all levels. Third quarter profit almost tripled as net income rose to $1.75 bln, or $0.69 per share, from $479 mln, or $0.20 per share. On a comparable basis, excluding some one-time items, earnings were $0.30 per share, besting consensus by two cents. Consolidated revenues jumped 26% to $9.4 bln, while operating income soared 71% to $1.1 bln.
Its core handset segment produced stellar results as momentum from its hot new handsets continues. Revenue soared 41% producing a 52% rise in segment earnings. Device margins hit 11.0% as average selling prices remained flat sequentially. MOT shipped 38.7 mln units, up 66% y/y and 3% q/q. Motorola snapped up another point in market share just since last quarter, ending Q3 with a 19% share from 14% last year. RAZR is now the single best selling clamshell in the world. GSM deliveries grew 1.8 mln from 1.2 mln in Q2. Margin acceleration has been a key priority for the company. Operating margins net of restructuring charges were 11.7%, up from 8.6% in last year's period. New products continue to build momentum, which is helping to stabilize ASPs, providing further upside opportunity in margins.
The quarter showed Motorola's financial flexibility. It ended the quarter with $8.8 bln in net cash, up a billion dollars from last quarter. Motorola completed a tender offer for a like number in term debt while repurchasing 353 mln shares during the quarter. Looking ahead, Motorola expects profits to range between $0.32-$0.34 per share on sales of $10.3 to $10.5 bln. If the "Motor-momentum" continues, these estimates, which are right in-line with consensus, may prove to be conservative. With a compelling product line-up that includes the SLVR L6, PEBL U6, EV-DO RAZR, and 3G VX3, MOT is well positioned ahead of the holiday season. We think the stock remains one of the preferred names within the Technology sector, as the company is executing well on the top and bottom lines. The stock trades at 18.4x forward earnings, well below the sector average of 24.3x.
--Kimberly DuBord, Briefing.com
9:17AM CBOT Holdings (BOT)
The Chicago Board of Trade, officially known as CBOT Holdings, will go public today. In a favorable sign, its IPO priced at $54, above the expected range of $45-49.
CBOT is one of the world's largest and most liquid derivatives exchanges with a 15% market share of all global listed futures and options contracts. Its flagship US Treasury futures and options traded 472 mln contracts in 2004. CBOT offers trading through both its electronic trading and open-auction platforms. The company's trading volume in 2004 was 600 mln contracts, up 32% year-over-year. The company is profitable and posted revenues of $380.2 mln last year, which was roughly flat with 2003 levels. However, CBOT posted an impressive operating margin of nearly 20%.
The IPO priced strong despite the fraud issues at commodities brokerage Refco (RFX). CBOT is a different entity, though, in that Refco is a securities dealer while CBOT is the exchange itself. Other exchanges have done very well, namely the Chicago Mercantile Exchange (CME). Also helping is the small deal size of 3.19 mln shares. The IPO is being led by CSFB and JP Morgan Chase.
--Robert Reid, Briefing.com
9:02AM Page One - Tone Remains Poor
The earnings numbers are good. The market reaction is not. It is still a time to keep your powder dry and be patient. The fundamentals are much better than recognized.
Intel reported operating earnings a penny ahead of expectations for the third quarter. Revenue was ahead of expectations. But its revenue guidance for the current quarter was $10.2 billion to $10.8 billion. That compares with a current market consensus of $10.65 billion. This was considered disappointing, as the mid-point of the guidance is only $10.5 billion. However, as anyone that follows Intel knows, it is common for them to be cautious at the start of the quarter and to tighten guidance towards the upper range as the quarter proceeds. It is our belief that Intel will still hit $10.65 billion or higher this quarter.
That doesn't matter in the current market tone. The market was looking for an excuse to sell and the Intel guidance was enough. The reaction to the news is more important than the news itself.
This morning is one of the heaviest day for earnings reports and other earnings reports are also good. As usual, about two-thirds of companies are beating estimates.
Altria beat by 5 cents on much stronger than expected revenue. JP Morgan Chase beat by 3 cents and Bank of America by 2 cents. This continues a trend of excellent reports from the banking industry. Bank stocks are being held back by concerns about rate increases, but the value is building.
Honeywell beat by 2 cents, Office Depot by a penny, General Dynamics by 6 cents, EMC Corp. by a penny, and Illinois Tool by 7 cents. Yesterday after the close, Yahoo! and Motorola both reported 2 cents ahead of expectations. Overall, the earnings reports today are impressive, even if there is little broad market reaction.
September housing starts rose 2.4%. This is surprisingly strong. A decline had been expected. It is another piece of data that shows the direct impact from hurricane Katrina on the national economy was far less than feared. The housing sector remains strong despite rising interest rates.
Oil prices are up a bit after dropping back near $63 a barrel yesterday. The inventory data at 10:30 ET today could, as usual, generate some volatility.
The underlying market tone remains poor. The data remain good. These are times when it is not wise to fight the trend in the market, but it is also wise to make a rational assessment of the fundamentals. Earnings and economic growth are very good, but are being taken for granted while inflation and interest rate concerns dominate. Valuation metrics are becoming excellent. But valuation is a long-term consideration, not a short-term one. -- Dick Green, Briefing.com
8:53AM Yahoo! (YHOO)
Record quarters just aren't what they used to be - at least not when you're Yahoo! (YHOO). To be sure, the market has come to expect more of Yahoo given its earnings history. Lately, however, concerns about Yahoo's growth rates have surfaced in the face of increased competition from none other than Google, which has delivered a series of blowout earnings reports since going public last year.
Yahoo's reports no longer carry the "blowout" descriptor, but overall, the company's results can still be considered strong. A case in point was provided after Tuesday's close when Yahoo reported a 57% increase in operating income and a 47% increase in revenues for its third quarter. Excluding traffic acquisition costs, revenues were up 42% to $932 million, which compared favorably to the Reuters Estimates consensus number of $917.6 million. Separately, cash flow from operating activities jumped 65% to $440 million while free cash flow surged 71% to $345 million. Free cash flow is defined as cash flow from operating activities, including the tax benefit from stock option, minus capital expenditures and dividends received.
Yahoo is trading up in pre-market action, but not as strongly as one might expect. Presently, it is up $0.77, or 2.28%, to $34.47. The measured response is owed to the market's impression of the company's guidance being conservative. On that score, Yahoo said it expects revenues, excluding traffic acquisition costs, to range from $1.032-1.082 billion in the seasonally strong fourth quarter. That is up 32-38% from the year-ago period, but to the chagrin of some investors, the guidance simply brackets the current consensus estimate of $1.06 billion. Ahead of the report, there was speculation Yahoo would offer stronger guidance.
At 61.3x trailing twelve month earnings and 59.1x estimated earnings, Yahoo will continue to battle valuation concerns. The latter point notwithstanding, the latest earnings package delivered by Yahoo - from actual results to guidance - is solid and is consistent with the characteristics of a growth company. (Disclosure: Briefing.com has a business relationship with Yahoo!)
--Patrick J. O'Hare, Briefing.com
8:26AM Intel (INTC)
23.72: All eyes were looking to Intel Tuesday night to spark momentum across the Technology sector for the fourth quarter. Instead, the largest semiconductor maker spooked investors with its guarded sales outlook, sending shares lower in European trading. Intel estimates revenue this quarter will be $10.2 to $10.8 bln, with the mid-point falling below the current consensus of $10.7 bln. The disappointing figure overshadowed results for Q3, during which it earned $2 bln, or $0.32 per share. The EPS figure included a four cent per share charge related to the repatriation of earnings and a two cent legal charge. The comparable figure of $0.34 topped the consensus estimate by a penny.
Third quarter revenues increased 8% sequentially to $9.96 bln, led by robust growth within the notebook and mobile device segment. Growth within this unit, accounting for a third of total sales, far outpaced PC sales, soaring 38% this quarter. Notebook demand remains robust as consumers become increasingly mobile. Intel estimates notebooks now make up a third of total PC shipments worldwide. While Intel is experiencing chipset shortages for the PC segment, notebooks remain in balance - a key point to consider as laptops offer stronger growth rates and are much more profitable.
Intel's focus on laptop chipsets has left the company short capacity in other areas. The Santa Clara, California-based company suffered capacity constraints for chipsets, circuitry that transfers data to and from the microprocessor, which sent customers to rival AMD. Intel estimates production will remain tight in the near-term, which could leave Intel short in revenues in Q4. To remedy the situation, it's seeking agreements with other manufacturers to fill in for the near-term, but anticipates the situation will improve over time. Sales of chips used in desktops and servers grew 9%. There is increasing evidence that demand within the PC segment is strong. According to market researcher IDC, PC shipments rose more than 17% in Q3 on the back of replacement demand and lower prices.
Gross margins came in at 59.7%, but backing out the legal charge, they were 61.1% - ahead of Intel's mid-quarter guidance of 60.0-60.5%. Looking ahead, management forecasts margins will reach 63% in Q4, "plus or minus a few points," which will likely be achieved through a better mix. Inventories rose 28% sequentially to $2.82 bln, but management is not concerned over a build. The market was hoping Intel's guidance would mark a decisive upturn heading into Q4, which did not come to fruition. Guidance equates to 5.4% q/q growth on to top line, well below its historical average of 11%. Shares are likely to be constrained by capacity constraints, concerns over market share gains by AMD, inventory issues, and peaking margins. The stock trades at 17.8x trailing twelve month earnings, well below its 10-year average of 29.8x.
---Kimberly DuBord, Briefing.com
4:43PM Cirrus Logic beats by a penny; issues in line Q3 rev guidance (CRUS) 6.88 +0.35:Reports Q2 (Sep) earnings of $0.08 per share, excluding non-recurring items, $0.01 better than the Reuters Estimates consensus of $0.07; revenues fell 4.4% year/year to $50.5 mln vs the $46.3 mln consensus. Co issues in-line guidance for Q3, sees revs of $45-49 mln vs. $47.32 mln consensus.
4:31PM Advanced Energy Q3 revs miss consensus, co issues downside Q4 guidance (AEIS) 10.59 -0.10:Reports Q3 (Sep) loss of $0.10 per share, may not be comparable to the Reuters Estimates consensus of $0.08; revenues fell 12.4% year/year to $82.0 mln vs the $84.7 mln consensus. Co issues downside guidance for Q4, sees EPS of 0.05-0.07 vs. $0.11 consensus; sees Q4 revs of $75-80 vs. $86.15 mln consensus. Also, AEIS accelerates vesting of certain stock options. Acceleration applies to options priced $15 or higher.
4:27PM Intersil beats by $0.04, ex-items (ISIL) 21.10 :Reports Q3 (Sep) earnings of $0.21 per share, excluding non-recurring items, $0.04 better than the Reuters Estimates consensus of $0.17; revenues rose 23.8% year/year to $157.2 mln vs the $147.7 mln consensus. Co issues upside guidance for Q4, sees EPS of $0.23-0.24 vs. $0.19 consensus.
4:13PM FormFactor misses by a penny, ex items (FORM) :Reports Q3 (Sep) earnings of $0.15 per share, excluding non-recurring items, $0.01 worse than the Reuters Estimates consensus of $0.16; revenues rose 21.4% year/year to $62.4 mln vs the $57.3 mln consensus.
Close Dow +128.87 at 10414.13, S&P +17.62 at 1195.76, Nasdaq +35.24 at 2091.24: Beginning the day bearishly, the market reversed its tone during the final hour and a half of trading, pushing the indices to their best levels of the session - and of the quarter. While initially disregarding another round of solid third quarter earnings reports, traders perhaps looked back late in the day after declining energy prices and an uneventful Beige Book from the Fed provided relief. Thus far, about two-thirds of reporting companies have exceeded analysts' estimates, a trend that may turn traders' attention towards earnings growth and attractive fundamentals. While Intel (INTC 23.70 -0.02) is on that list, its relatively disappointing Q4 sales outlook issued last night captured the market's focus and teamed with prolonged inflation and interest rate concerns to overshadow the solid earnings delivered across the market's spectrum. The morning was crippled by a lack of leadership, but broad-based buying interest drove each sector to a gain by the session's close. The Financials sector spearheaded the advance, surging 2.0% on account of soaring brokers and banks. Today continued the trend of strong reports from the banking industry - with JP Morgan (JPM 34.76 +0.99), Bank of America (BAC 42.64+1.07), and Northern Trust (NTRS 52.34 +1.53) each beating consensus estimates. The reports were somewhat overlooked in the early going, but, after the Beige Book dropped no inflation bombshells that would stir even further rate-hike anxiety, traders looked upon the sector with delayed optimism. Matching Financials' gain was the Energy sector, fully erasing its decline that left it as the laggard throughout the session. The EIA's latest energy inventory report - which showed a better than expected build in crude alongside a surprise rise in gasoline and a less than expected draw in distillates - induced a sharp pullback in the price of oil, and a subsequent decline in the Energy sector. While the commodity closed 1.6% lower, traders sent all but one the S&P's energy issues higher after the late-day bullish tone took over. At the same time, the crude action helped drive the gas-price sensitive Consumer Discretionary sector to a 2.0% gain; anticipation of eBay's (EBAY 42.01 +1.59) Q3 report, slated for post-bell delivery, also contributed to the advance. Sept. reads on housing starts - which rose 2.4% to 2108K (consensus 1975K) - were announced this morning, and perhaps helped homebuilders lend the sector a 3.1% gain. Upside reports from Yahoo (YHOO 25.91 +2.21) and Motorola (MOT 21.02 +0.85) yesterday evening, as well as from Teradyne (TER 14.29 +0.36) and EMC Corp. (EMC 13.76 +0.52) today, helped support the Tech sector, and Intel's near-full erasure of its intraday decline fostered semiconductors' recovery and the sector's 1.4% rise. Although Honeywell (HON 34.05 -1.88) exceeded EPS expectations by $0.02, its downside FY05 revenue guidance sparked selling pressure; despite its plunge, the Industrial's sector muscled a 1.4% rise. Consumer Staples gained 1.0%, bolstered by earning-induced strength in Altria (MO 73.85 +1.37). Even the Utilities (+0.4%) sector, which again suffered profit-taking attempts today, recovered.NYSE Adv/Dec 2118/1157, Nasdaq Adv/Dec 1969/1060
9:57AM Western Digital (WDC) Piper Jaffray upgrades Market Perform to OUTPERFORM. Target $16. Firm is saying that they do not subscribe to the recent pessimism surrounding the hard disk drive industry on issues such as flash memory encroachment, deterioration in industry fundamentals, and fears of major estimate reductions in 2006. Following the recent sell-off in the stock, they advise investors to build positions in shares of the co before the co reports earnings on Oct 27.
9:56AM Covenant Transport (CVTI) BB&T Capital Mkts downgrades Hold to UNDERWEIGHT . Firm says that over the last several weeks, they have grown increasingly concerned about CVTI's ability to engineer a turnaround in today's environment of persistently higher operating costs, which first and foremost includes skyrocketing diesel fuel prices. They cite pricing power concerns, and cut their 2006 and 2007 EPS ests.
9:56AM Plexus (PLXS) Needham & Co resumes BUY. Target $20. Firm bexpects PLXS' earnings to rise as the co leverages its existing investment in engineering to continue to benefit from new program wins in core markets (i.e. medical, networking) as well as penetrate further into relatively untapped opportunities such as the military segment.
9:56AM Greenbrier Comp (GBX) Bear Stearns downgrades Outperform to PEER PERFORM. Firm cites difficult environment for deep cyclicals currently, noting that they haven't uncovered any large recent orders for the co, although its end mkt is highly fragmented beyond the top few customers. They could warm up to the co again at the right valuation and into favorable channel checks.
9:55AM U.S. Xpress (XPRSA) BB&T Capital Mkts downgrades Hold to UNDERWEIGHT . Firm notes that over the last several weeks, they have grown increasingly concerned about the co's ability to weather an environment of persistently higher operating costs. They think the co's recent struggles are not short term in nature, and question whether it will be able to engineer an operational turnaround in today's environment of rising operating costs.
9:53AM Knight Transportation (KNX) BB&T Capital Mkts upgrades Hold to BUY. Target $34. Upgrade is based on increased confidence in their Street-high EPS forecasts and their improving outlook for higher-quality truckload stocks. Firm says within the truckload space, they foresee a "flight to quality" throughout the remainder of 2005 and into 2006, and view KNX as the undisputed heavyweight champion of truckload carriers in terms of quality and operational efficiency.
9:53AM NN Inc (NNBR) KeyBanc Capital Mkts / McDonald downgrades Buy to HOLD. Downgrade is due to the recent reduction in guidance on the back of reduced European revenue momentum, as well as the lack of discernable near-term earning's catalysts.
9:51AM IberiaBank (IBKC) Stanford Research upgrades Hold to BUY. Target $56. Firm is saying while a relatively small portion of the co's franchise was impacted by Hurricane Katrina (roughly 17%) and near-term results could be negatively impacted, they think this should be somewhat offset by virtue of the co's position in other areas of the state that have seen a large number of evacuee inflows. They believe that current levels represent an excellent entry point.
9:51AM Polycom (PLCM) Miller Johnson initiates BUY. Target $19. Firm believes VoIP, wireless and partnerships with large vendors, such as MSFT and AV, are likely to be key growth drivers. Firm's checks indicate that the September quarter is likely to come in better than consensus estimates with relatively healthy backlog.
9:50AM Redback Networks (RBAK) Miller Johnson initiates BUY. Target $12. Firm's checks indicate that the September quarter is likely to be at least in line with published street estimates, with a relatively healthy backlog going into the December quarter. Firm also anticipates that RBAK is likely to announce a marquee customer within the next three months, most likely France Telecom.
2:02PM JP Morgan Chase (JPM)
34.51 +0.74: JP Morgan Chase said that Jamie Dimon, its current President and COO, will succeed William Harrison as CEO at year end. Following JPM's merger with Bank One last year, it was widely foreseen that Dimon - the head of Chicago's Bank One - would replace Harrison, who will continue as Chairman, and take the helm of the nation's third largest banking company. In recognition of the "good progress made on successfully integrating the JP Morgan Chase and Bank One merger," the company accelerated the planned transition by about six months.
The news announced early Wednesday paralleled JPM's third quarter financial results, which were highlighted by record trading revenue and a 78% increase in profits. New York-based JP Morgan Chase said it earned $2.5 billion, or $0.71 per share, in the latest quarter, up from $1.4 billion , or $0.39 per share, a year earlier. However, excluding merger-related charges, the company reported operating earnings of $2.7 billion, or $0.75 per share, beating the consensus estimate of $0.72 per share. On a comparable basis, the company earned $2.2 billion, or $0.60 per share, in the year-ago period.
Revenue in the quarter increased 13.5% to $14.5 billion - achieving a new quarterly record - benefiting from improved trading revenue and continued strength in investment banking. The investment banking division, which reported earnings of $1.1 billion on revenue of $4.5 billion, an increase of 70% and 65%, respectively, provided the largest boost as trading results were strong across all asset classes. With the exception of the company's retail business, which was negatively impacted by Hurricane Katrina and narrower spreads on real estate loans, results were strong across all its divisions. Credit card revenue grew 6% from the prior year, while commercial banking and asset management revenue climbed 9% and 21%, respectively. Retail revenue, however, fell 6% year/year, pushing segment profits 20% lower.
The provision for credit loss was $2.1 billion, up $348 million from the prior year. The increase was due to a $400 million special provision related to Hurricane Katrina. Excluding the impact of the special provision, wholesale provision for credit losses was a benefit of $149 million for the quarter, compared with a benefit of $137 last year, reflecting continued strength in credit quality, the company said.
Although weak market conditions and challenges extending from a flattening yield curve have affected the financial sector, JPM's ongoing efforts to integrate Bank One into its operations, as well as improving trading results, helped contribute to its better-than-expected performance. Consequently, shares have trended higher in intraday trading, despite concerns about rising interest rates.
--Richard Jahnke, Briefing.com
11:25AM Honeywell (HON)
34.96 -0.97: On continued strength in aerospace demand, Honeywell Intl. topped analyst expectations by two cents with earnings of $470 million, or $0.55 per share, versus $372 million, or $0.43 per share, in the same period last year. For the latest quarter, the Dow component reported organic growth of 5% and expanded profitability in three of its four business segments. Total revenue grew 8% to $6.9 billion, as the top-line was heavily weighted to the Aerospace and Automation & Control businesses, which represented 73% of total sales.
The industrial conglomerate, based in Morris Township, New Jersey, said Aerospace revenue rose 6% from a year ago to $2.62 billion, with 9% growth in the commercial unit and 3% in defense and space. Segment margins swelled 140 basis points to 16.8% on strong volume growth. During the quarter, the division received certification from the European Aviation Safety Agency for its runway awareness and advisory system on a number of business aircraft. Additionally, the defense and space unit delivered its next-generation weather radar systems to the U.S. Air Force for installation in the C-17 Globemaster III.
Revenue in the Automation & Control segment rose 23% to $2.45 billion, largely due to the impact of acquisitions, while margins expanded to 12.3% from 11.8% a year ago. In Transportation, sales were flat compared to last year. However, due to higher raw material costs, an unfavorable mix, and its divested Friction Materials business, which offset productivity gains, segment margin fell 160 basis points to 11.4%.
Overall, segment margins expanded 100 basis points to 12.7%, driven by pricing gains and increased productivity. As a result of the continued progress in positioning the business for growth, the company raised its profit forecast for the full year. Honeywell now expects earnings of $2.11 to $2.13 per share, compared to the previous range of $2.05 to $2.15 per share, ex-items, and the consensus estimate of $2.08 per share. Sales, though, were projected at $27.6 billion, slightly below its prior guidance of $27.8 to $28 billion.
The company also said it expects double-digit growth for fiscal 2006, which is seemingly positive news, but analysts had been projecting growth of about 18% for next year. As a result, shares of HON have drifted lower during the regular trading session.
--Richard Jahnke, Briefing.com
10:51AM Bank of America (BAC)
42.14 +0.57: The nation's second largest bank generated double-digit revenue growth and 10% profit growth for the third quarter. Nevertheless, investors continue to shy away from the financial stocks as rates rise. BAC's net income rose to $4.13 bln, or $1.02 per share, in the three months ended on September 30th, compared to $0.91 earned last year. On a comparable basis earnings, excluding merger and restructuring charges, were $1.04 per share - two cents above consensus.
Growth was broad-based on the top line, which rose 16% to $14.6 bln. Noninterest income growth of 39% to $6.83 bln was driven by the bank's swelling credit card business, service fees, rebounding mortgage banking income, equity gains, and improved trading profits. Loan growth was 3.6% quarter-over-quarter, while deposits shrank. Net interest income rose a mere 2% to $7.97 bln, as the margin between the bank's cost of funds and what it earns on deposits and loans narrowed. As the yield curve flattens, banks' net interest margins are being squeezed, as the short-term rates it pays on deposits increases while the long-term rates it charges on loans and mortgages remain relatively unchanged. BAC is attempting to reduce its yield exposure by increasing the percentage of fee-based profits.
BAC is in the process of digesting its $35 bln acquisition of credit-card issuer MBNA, which also reported its quarter. Profits slid 1.4% to $714.4 mln, or $0.56 per share, as the company booked $18 mln in restructuring charges. Still the figure was three cents ahead of expectations.
Overall, this was an impressive quarter considering the challenges BAC faced. The quality of earnings was higher than the previous quarter, as securities gains were a bit more modest. BAC continued to focus on deleveraging its balance sheet while buying back stock during the quarter. The market's focus will turn to the integration of KRB and the prospects of additional buybacks. Additionally, the bank is still "delving into" its exposure in the Refco debacle, as a joint book runner of the futures broker's IPO, debt, and syndicates loan issues. BAC trades at 9.7x forward earnings, compared to JP Morgan Chase (JPM) at 11.6x and Citigroup (C) at 11.0x, and offers an attractive dividend yield of 3.97%.
--Kimberly DuBord, Briefing.com
9:29AM Ryland Group (RYL)
64.38: Despite persisting concerns of a slowdown in the nation's housing market - fueled by rising interest rates and waning consumer confidence - Ryland Group on Tuesday reported the highest third-quarter consolidated earnings, revenue, new orders, and backlog in its history. Additionally, the Calabasas, California-based homebuilder raised its forecast for the year and offered initial guidance for fiscal 2006.
For the latest quarter, Ryland posted earnings of $118 million, or $2.49 per share, excluding non-recurring items. That is up from $83 million, or $1.66 per share, in the year-ago period and $0.18 better than the consensus EPS estimate of $2.31. Total revenue, meanwhile, rose 21.3% to $1.3 billion, including $1.2 billion from homebuilding, driven by an 11.7% increase in closings and an 8.2% increase in the average selling price, which rose to $278,000. New orders in the quarter jumped nearly 11% to 4,361 homes.
Ryland projected continued strength in demand for the remainder of the year, with earnings expected to exceed $8.75 per share. On average, analysts had projected full-year EPS of $8.61, according to Reuters Estimates. The company also said it is comfortable with the street consensus of $10.02 per share for fiscal 2006.
The company said it bought back approximately 665,000 shares of its common stock during the latest quarter and has authorization from its board to repurchase an additional one-million shares. Ryland expects to increase the target value of its stock repurchases this year from $150 million to $175 million. Separately, the company approved a 100% increase in its quarterly dividend to $0.12 per share, effective in the first quarter of 2006.
As one of the larger homebuilders in the industry with operations in expanding markets, Ryland continues to display great resilience amid a rising interest rate environment and slowing demand. However, while the fundamentals and long-term outlook for the company remain strong, the near-term prospects remain less certain considering expectations that the Fed will continue to raise interest rates, energy prices will remain at high levels, and costs for labor and construction materials remain on the rise. With mixed signs in the housing market due to macro-related factors, Ryland's third quarter results will undoubtedly provide a basis for other homebuilders as they report third quarter earnings in the coming weeks.
--Richard Jahnke, Briefing.com
9:24AM Motorola (MOT)
20.17: "If you build it, they will come." Forget "Hello Moto," this famous movie line should become Motorola's new slogan as it encompasses what the company has been able achieve over the past few years. Motorola's success is based solely on its ability to produce compelling, iconic, "must have" handsets that dominate the market to the tune of 38.7 mln shipped in the third quarter. We think the outlook for the Schaumburg, Illinois-based company is compelling due to its line-up of new products driving sales, market share, and profits.
Motorola dialed in another great quarter, not only selling a record number of handsets, but improving margins simultaneously. Third quarter financial results exceeded consensus on all levels. Third quarter profit almost tripled as net income rose to $1.75 bln, or $0.69 per share, from $479 mln, or $0.20 per share. On a comparable basis, excluding some one-time items, earnings were $0.30 per share, besting consensus by two cents. Consolidated revenues jumped 26% to $9.4 bln, while operating income soared 71% to $1.1 bln.
Its core handset segment produced stellar results as momentum from its hot new handsets continues. Revenue soared 41% producing a 52% rise in segment earnings. Device margins hit 11.0% as average selling prices remained flat sequentially. MOT shipped 38.7 mln units, up 66% y/y and 3% q/q. Motorola snapped up another point in market share just since last quarter, ending Q3 with a 19% share from 14% last year. RAZR is now the single best selling clamshell in the world. GSM deliveries grew 1.8 mln from 1.2 mln in Q2. Margin acceleration has been a key priority for the company. Operating margins net of restructuring charges were 11.7%, up from 8.6% in last year's period. New products continue to build momentum, which is helping to stabilize ASPs, providing further upside opportunity in margins.
The quarter showed Motorola's financial flexibility. It ended the quarter with $8.8 bln in net cash, up a billion dollars from last quarter. Motorola completed a tender offer for a like number in term debt while repurchasing 353 mln shares during the quarter. Looking ahead, Motorola expects profits to range between $0.32-$0.34 per share on sales of $10.3 to $10.5 bln. If the "Motor-momentum" continues, these estimates, which are right in-line with consensus, may prove to be conservative. With a compelling product line-up that includes the SLVR L6, PEBL U6, EV-DO RAZR, and 3G VX3, MOT is well positioned ahead of the holiday season. We think the stock remains one of the preferred names within the Technology sector, as the company is executing well on the top and bottom lines. The stock trades at 18.4x forward earnings, well below the sector average of 24.3x.
--Kimberly DuBord, Briefing.com
9:17AM CBOT Holdings (BOT)
The Chicago Board of Trade, officially known as CBOT Holdings, will go public today. In a favorable sign, its IPO priced at $54, above the expected range of $45-49.
CBOT is one of the world's largest and most liquid derivatives exchanges with a 15% market share of all global listed futures and options contracts. Its flagship US Treasury futures and options traded 472 mln contracts in 2004. CBOT offers trading through both its electronic trading and open-auction platforms. The company's trading volume in 2004 was 600 mln contracts, up 32% year-over-year. The company is profitable and posted revenues of $380.2 mln last year, which was roughly flat with 2003 levels. However, CBOT posted an impressive operating margin of nearly 20%.
The IPO priced strong despite the fraud issues at commodities brokerage Refco (RFX). CBOT is a different entity, though, in that Refco is a securities dealer while CBOT is the exchange itself. Other exchanges have done very well, namely the Chicago Mercantile Exchange (CME). Also helping is the small deal size of 3.19 mln shares. The IPO is being led by CSFB and JP Morgan Chase.
--Robert Reid, Briefing.com
9:02AM Page One - Tone Remains Poor
The earnings numbers are good. The market reaction is not. It is still a time to keep your powder dry and be patient. The fundamentals are much better than recognized.
Intel reported operating earnings a penny ahead of expectations for the third quarter. Revenue was ahead of expectations. But its revenue guidance for the current quarter was $10.2 billion to $10.8 billion. That compares with a current market consensus of $10.65 billion. This was considered disappointing, as the mid-point of the guidance is only $10.5 billion. However, as anyone that follows Intel knows, it is common for them to be cautious at the start of the quarter and to tighten guidance towards the upper range as the quarter proceeds. It is our belief that Intel will still hit $10.65 billion or higher this quarter.
That doesn't matter in the current market tone. The market was looking for an excuse to sell and the Intel guidance was enough. The reaction to the news is more important than the news itself.
This morning is one of the heaviest day for earnings reports and other earnings reports are also good. As usual, about two-thirds of companies are beating estimates.
Altria beat by 5 cents on much stronger than expected revenue. JP Morgan Chase beat by 3 cents and Bank of America by 2 cents. This continues a trend of excellent reports from the banking industry. Bank stocks are being held back by concerns about rate increases, but the value is building.
Honeywell beat by 2 cents, Office Depot by a penny, General Dynamics by 6 cents, EMC Corp. by a penny, and Illinois Tool by 7 cents. Yesterday after the close, Yahoo! and Motorola both reported 2 cents ahead of expectations. Overall, the earnings reports today are impressive, even if there is little broad market reaction.
September housing starts rose 2.4%. This is surprisingly strong. A decline had been expected. It is another piece of data that shows the direct impact from hurricane Katrina on the national economy was far less than feared. The housing sector remains strong despite rising interest rates.
Oil prices are up a bit after dropping back near $63 a barrel yesterday. The inventory data at 10:30 ET today could, as usual, generate some volatility.
The underlying market tone remains poor. The data remain good. These are times when it is not wise to fight the trend in the market, but it is also wise to make a rational assessment of the fundamentals. Earnings and economic growth are very good, but are being taken for granted while inflation and interest rate concerns dominate. Valuation metrics are becoming excellent. But valuation is a long-term consideration, not a short-term one. -- Dick Green, Briefing.com
8:53AM Yahoo! (YHOO)
Record quarters just aren't what they used to be - at least not when you're Yahoo! (YHOO). To be sure, the market has come to expect more of Yahoo given its earnings history. Lately, however, concerns about Yahoo's growth rates have surfaced in the face of increased competition from none other than Google, which has delivered a series of blowout earnings reports since going public last year.
Yahoo's reports no longer carry the "blowout" descriptor, but overall, the company's results can still be considered strong. A case in point was provided after Tuesday's close when Yahoo reported a 57% increase in operating income and a 47% increase in revenues for its third quarter. Excluding traffic acquisition costs, revenues were up 42% to $932 million, which compared favorably to the Reuters Estimates consensus number of $917.6 million. Separately, cash flow from operating activities jumped 65% to $440 million while free cash flow surged 71% to $345 million. Free cash flow is defined as cash flow from operating activities, including the tax benefit from stock option, minus capital expenditures and dividends received.
Yahoo is trading up in pre-market action, but not as strongly as one might expect. Presently, it is up $0.77, or 2.28%, to $34.47. The measured response is owed to the market's impression of the company's guidance being conservative. On that score, Yahoo said it expects revenues, excluding traffic acquisition costs, to range from $1.032-1.082 billion in the seasonally strong fourth quarter. That is up 32-38% from the year-ago period, but to the chagrin of some investors, the guidance simply brackets the current consensus estimate of $1.06 billion. Ahead of the report, there was speculation Yahoo would offer stronger guidance.
At 61.3x trailing twelve month earnings and 59.1x estimated earnings, Yahoo will continue to battle valuation concerns. The latter point notwithstanding, the latest earnings package delivered by Yahoo - from actual results to guidance - is solid and is consistent with the characteristics of a growth company. (Disclosure: Briefing.com has a business relationship with Yahoo!)
--Patrick J. O'Hare, Briefing.com
8:26AM Intel (INTC)
23.72: All eyes were looking to Intel Tuesday night to spark momentum across the Technology sector for the fourth quarter. Instead, the largest semiconductor maker spooked investors with its guarded sales outlook, sending shares lower in European trading. Intel estimates revenue this quarter will be $10.2 to $10.8 bln, with the mid-point falling below the current consensus of $10.7 bln. The disappointing figure overshadowed results for Q3, during which it earned $2 bln, or $0.32 per share. The EPS figure included a four cent per share charge related to the repatriation of earnings and a two cent legal charge. The comparable figure of $0.34 topped the consensus estimate by a penny.
Third quarter revenues increased 8% sequentially to $9.96 bln, led by robust growth within the notebook and mobile device segment. Growth within this unit, accounting for a third of total sales, far outpaced PC sales, soaring 38% this quarter. Notebook demand remains robust as consumers become increasingly mobile. Intel estimates notebooks now make up a third of total PC shipments worldwide. While Intel is experiencing chipset shortages for the PC segment, notebooks remain in balance - a key point to consider as laptops offer stronger growth rates and are much more profitable.
Intel's focus on laptop chipsets has left the company short capacity in other areas. The Santa Clara, California-based company suffered capacity constraints for chipsets, circuitry that transfers data to and from the microprocessor, which sent customers to rival AMD. Intel estimates production will remain tight in the near-term, which could leave Intel short in revenues in Q4. To remedy the situation, it's seeking agreements with other manufacturers to fill in for the near-term, but anticipates the situation will improve over time. Sales of chips used in desktops and servers grew 9%. There is increasing evidence that demand within the PC segment is strong. According to market researcher IDC, PC shipments rose more than 17% in Q3 on the back of replacement demand and lower prices.
Gross margins came in at 59.7%, but backing out the legal charge, they were 61.1% - ahead of Intel's mid-quarter guidance of 60.0-60.5%. Looking ahead, management forecasts margins will reach 63% in Q4, "plus or minus a few points," which will likely be achieved through a better mix. Inventories rose 28% sequentially to $2.82 bln, but management is not concerned over a build. The market was hoping Intel's guidance would mark a decisive upturn heading into Q4, which did not come to fruition. Guidance equates to 5.4% q/q growth on to top line, well below its historical average of 11%. Shares are likely to be constrained by capacity constraints, concerns over market share gains by AMD, inventory issues, and peaking margins. The stock trades at 17.8x trailing twelve month earnings, well below its 10-year average of 29.8x.
---Kimberly DuBord, Briefing.com
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