From Briefing.com: Following Monday's session, we indicated that trading activity was likely to remain subdued short of either a noticeably weaker Consumer Confidence report and/or news that Saddam Hussein had been killed or captured. As it so happens, the confidence report was noticeably weaker than expected and there were rumors Hussein had been captured. Both, in their own way, helped quicken the pace of trading activity, but when it was all said and done, neither succeeded in prompting a meaningful move in the major indices.
The Nasdaq, which shed a mere 3 points, or 0.2%, outperformed the Dow and S&P, which were both down approximately 0.7%. As far as the tech sector was concerned, it was a mixed bag with little news of note to force the market's hand. Semiconductor shares, which led the modest advance on Monday, led the modest decline on Tuesday; the SOX Index dropped 1.9%. The choppy action in that key leadership group speaks to the relatively anxious tone of the market at the moment as it awaits further confirmation of strengthening economic activity.
To that end, the confidence report, which fell to 76.6 in July (consensus 85.0) from 83.5 in June, didn't offer a reassuring indication, and consequently, a knee-jerk sell-off ensued. Consistent with the underlying bullish bias that has prevailed since March, the market soon recovered its losses as the report was written off, for the most part, as an anomaly. That is understandable when one recognizes that (1) the correlation between confidence and spending is weak and (2) more telling economic indicators in the form of the July employment report and ISM Index are due out on Friday.
With rumors of Hussein's capture floating around, the confidence data were also easy to dismiss. In due time, those rumors - like most rumors do - fell by the wayside. Tech stocks, and the broader market, then fell prone to renewed selling interest, and ended the day on a feeble note with talk of the continued backup in interest rates, and reports al-Qaeda is planning more plane hijackings, weighing on the action.
Since it's safe to assume that al-Qaeda is always planning something that would be harmful, we're inclined to put more emphasis on the rise in interest rates as the more significant deterrent for market participants. Interest rates will remain a focal point on Wednesday, but again, it would be little surprise if we witnessed another trendless session. Overall, we continue to believe the path of least resistance for the tech sector over the near-term is still to the downside.-- Patrick J. O'Hare, Briefing.com
6:00PM Tuesday After Hours price levels vs 4 pm ET levels: A downbeat session in the after hours session as a number of earnings warnings has pushed the market lower. Presently, the S&P futures, at 987, are 1 point below fair value, while the Nasdaq 100 futures, at 1274, are 3 points below fair value.
To begin, Genesis Microchip (GNSS 12.15 -1.60) has taken a beating after warning for 2Q04 (Sept). The developer of display technologies for consumer and PC-display products said revenues should be $44-48 mln, below the Reuters Research consensus estimate of $55.7 mln. In other news, Genesis topped the consensus EPS estimate of $0.12 by a penny in its Q1 (June) report. This fact, however, has been by dismissed by traders in light of the weak Q2 outlook. Related companies of GNSS include the likes of PXLW and STM.
Cree Inc (CREE 14.56 -2.05), similarly, has lost ground in the extended session after missing the Q4 (June) consensus EPS expectation by a penny. The manufacturer of compound semiconductor materials reported EPS of $0.15 (consensus of $0.16) on revenues that rose 70% to $64.1 mln.
Strikingly, Centillium Communications (00C0 9.80 -0.55) has slumped 5% despite turning in a Q2 (June) earnings report that topped consensus estimates. The innovator of broadband communications technology reported a GAAP net loss of $0.01 per share, which was $0.03 better than the Reuters Research estimate of ($0.04). The stock has more than doubled since April, and traders have most likely booked profits. Competitors of CTLM include the likes of ADI, BRCM, CNXT, IFX, STM, and TXN.
Turning to the retail space, Pier One (PIR 19.94 -0.01) has traded lower after cutting its Q2 (Aug) EPS forecast to $0.20-0.23 from previous guidance of $0.21-0.25. Management said that sales started soft in July, and the expected pick-up has not materialized and then announced its Q2 same store sales forecast is negative 3% to negative 5%. As a side note, Lehman Brothers downgraded PIR today to Equal-Weight from Overweight, citing a lack of near-term catalysts and tougher comparisons.
Finally, Reebok (RBK 33.36 +0.04) has followed in the steps of other companies that have issued a cash dividend as a result of the new tax laws, and said it will issue a semi-annual cash dividend in the amount of $0.15 per share, for a dividend yield of approximately 1%.
For more detail on these, and other after hours developments, be sure to visit Briefing.com's In Play, Earnings Calendar and Guidance pages---- Heather Smith, Briefing.com
5:38PM TTM Tech correction: (TTMI) 6.85 +0.38: -- Update -- Earlier we reported that TTMI reported a loss of $0.01, ex items, missing Reuters consensus of breakeven. In fact, TTMI reported a profit of $0.01, beating breakeven consensus by $0.01.
4:51PM TTM Tech misses by $0.01, ex items; guides for Q3 (TTMI) 6.85 +0.38: Reports Q2 (Jun) loss of $0.01 per share, excluding a $824,00 extraordinary gain that accounted for $0.02 per share, $0.01 worse than the Reuters Research consensus of $0.00; revenues rose 76.3% year/year to $41.0 mln vs the $40.6 mln consensus. Co. sees Q3 EPS of $0.01-0.03, R.R. consensus is $0.02 and revenues of $42-44 mln, estimate is $43 mln.
4:35PM Asyst misses by $0.01, ex items, guides Q2 revs in line with consensus (ASYT) 10.98 -0.40: Reports Q1 (Jun) pro forma loss from continuing operations of $0.46 per share, excluding gain on sale of co's WRC product lines of $28.4 mln and net loss from discontinued operations of $(9.3 mln), $0.01 worse than the Reuters Research consensus of ($0.45); revenues fell 12.7% year/year to $45.3 mln vs the $44.9 mln consensus. Co also guides Q2, sees consolidated net sales of approx $49.8 mln (based on 10% sequential increase from $45.3 mln) vs estimate of $47.8 mln.
4:25PM Genesis Microchip beats by $0.01, guides below consensus (GNSS) 12.66 -0.96: Reports Q1 (Jun) earnings of $0.13 per share, ex items, $0.01 better than the Reuters Research consensus of $0.12; revenues rose 29.6% year/year to $53.9 mln vs the $54.1 mln consensus. Company sees Q2 revenues of $44-48 mln, consensus $55.7 mln.
4:23PM Axcelis Tech reports in lin with consensus. (ACLS) 8.89 -0.21: Reports Q2 (Jun) loss of $0.10 per share, in line with the Reuters Research consensus of ($0.10); revenues fell 4.8% year/year to $84.7 mln vs the $81.5 mln consensus. Company sees Q3 EPS loss of $0.16-0.18 vs consensus loss of $0.05, revs $60-70 mln, est $83.1 mln.
4:11PM Centillium beats by 3 cents (CTLM) 10.35 -0.02: Reports Q2 (Jun) GAAP loss of $0.01 per share, $0.03 better than the Reuters Research consensus of ($0.04); revenues fell 1.5% year/year to $33.9 mln vs the $32.7 mln consensus.
4:09PM JNI Corp misses by $0.05, ex items (JNIC) 6.44 -0.06: Reports Q2 (Jun) loss of $0.21 per share, excluding items, $0.05 worse than the Reuters Research consensus of ($0.16); revenues fell 46.8% year/year to $5.8 mln vs the $8.3 mln consensus.
4:08PM Pericom Semi beats by $0.01, guides SepQ revs lower (PSEM) 9.97 -0.03: Reports Q4 (Jun) loss of $0.01 per share, ex-items, $0.01 better than the Reuters Research consensus of ($0.02); revenues fell 11.3% year/year to $11.5 mln vs the $11.8 mln consensus. Co sees Q1 (Sep) revs of $10-$11 mln vs R.R. consensus of $12.5 mln.
4:03PM Cree misses by a penny (CREE) 16.66 +0.57: Reports Q4 (Jun) earnings of $0.15 per share, $0.01 worse than the Reuters Research consensus of $0.16; revenues rose 69.5% year/year to $64.1 mln vs the $63.6 mln consensus.
Close Dow -62.05 at 9204.46, S&P -7.24 at 989.28, Nasdaq -3.96 at 1731.40: An unexpected plunge in the July Consumer Confidence report held the stock market down for most of the day, and led to moderate losses for the indices... Rumors of Saddam Hussein's capture sparked a short-covering rally around mid-day; however, as soon as it became apparent that such talk was false, sellers resumed their previous efforts and sent the market towards its worst levels of the day... The sell-off, as mentioned, was spurred by the weaker than expected Consumer Confidence index... The report slumped to its lowest reading in four months - to 76.6 versus the consensus estimate calling for an increase to 85.0 - on account of sharp declines in the key current conditions and expectations components of the index... The increase in the June employment rate to its highest level in nine years was the culprit behind the fall as it renewed concerns about economic growth in 2H03... Expectations of stronger economic activity have underpinned the market's recent run, and with data pointing to just the opposite, traders booked profits across the board...
Briefing.com would add, though, that the Conference Board reading reflects consumer sentiment on the prior month's environment, and is thus not the best indicator of future economic conditions... Nonetheless, the Dow, Nasdaq, and S&P 500 all sank 99, 22, and 12 points, respectively, on the headline number, with influential sectors such as biotech, retail, internet, and drug leading the way lower... One of the few industry groups, however, to buck the bearish trend was the restaurant sector... Fast food giant McDonald's (MCD 22.12 +0.86) met the consensus forecast in its Q2 (June) report, and contributed to the group's solid advance...
Elsewhere, the treasury market got clobbered across the yield curve, with the 10-year note tumbling 38 ticks, bringing its yield to 4.43%... The belief that Thursday and Friday's barrage of economic data will show notable improvement has weighed heavily on treasuries...NYSE Adv/Dec 1259/2010, Nasdaq Adv/Dec 1562/1569
3:40PM Centillium Communications Earnings Preview (CTLM) 10.20 -0.16: Centillum Communications reports its Q2 after the close with Reuters Research consensus earnings of ($0.04) per share and revs of $32.7 mln. Needham recently raised its estimates and price target to $12 ahead of earnings on the basis of the continued Japanese upgrading cycle to higher speed ADSL. The analyst also believes the co is breaking into the Chinese ADSL markets with a central office win at Huawei, capturing the second spot behind Texas Instruments.
3:24PM Genesis Microchip Earnings Preview (GNSS) 13.80 +0.17: Genesis Microchip reports its Q1 after the close, with Reuters Research consensus earnings estimates of $0.12 per share and revs of $54.1 mln. Pacific Growth Equities recently lowered its earnings outlook ahead of today's earnings, saying the pricing environment continues to constrain volume. Despite the analyst's actions, he believes the stock continues to be undervalaued in light of his modest revision to estimates. Firm also believes concerns over the Genesis/Pixelworks merger are overblown, as both companies appear to remain committed to the deal.
9:53AM ATI Tech (ATYT) 12.51 +0.51: Goldman Sachs upgrades In-Line to OUTPERFORM. Believes co will remain well positioned over next 2-3 quarters following news that ATYT increased its leading share in notebook graphics market.
Blue chips ended barely changed, while technology stocks lagged behind. The S&P 500 fell 1 point (-0.2%) to 987. The DJIA lost 4 points (-0.1%) to 9,200. Both indexes declined for the third consecutive day. The Nasdaq Composite , which gets 41 percent of its value from computer-related companies, fell 9 points (-0.5%) to 1,721. Comments from Intel Corp. Chief Executive Craig Barrett, who said spending on technology will be little changed this year, suggested that computer-related companies' earnings may fall short of forecasts. Investors are also focusing on economic reports this week to gauge the pace of growth. Today, the Federal Reserve said in its monthly regional survey, known as the Beige Book, that the economy ``increased a notch'' in June and early July. The central bank said there were ``nascent'' signs of a recovery in manufacturing in 10 of its 12 districts, and consumer spending was ``lackluster.'' Wall Street will work its way through a number of economic reports this week, with data on second-quarter U.S. gross domestic product coming on Thursday, plus closely watched reports on the labor market and the manufacturing sector on Friday.
Strong Sectors: drugstore, restaurants, forest products, homebuilding, department stores, oil & gas drillers
Top Stories . . . The U.S. government will sell a record $60 billion in Treasury notes next week as it attempts to cover unprecedented budget deficits, the Treasury Department said.
U.S. 10-year Treasuries rose for the first day in five as some investors who are skeptical the economy will accelerate in coming months took advantage of the highest yields in almost a year.
The dollar rose against the euro and yen in New York trading on speculation faster U.S. growth will boost demand for dollar-denominated assets with 10-year Treasury yields near the highest in almost a year.
Cingular Wireless the second- largest U.S. mobile-telephone operator, agreed to buy wireless- spectrum licenses from bankrupt NextWave Telecom for about $1.4 billion.
ConocoPhillips, the third-largest U.S. oil company, posted second-quarter profit of $1.14 billion as energy prices and production increased.
Cigna, the third-biggest U.S. health insurer, hired Goldman Sachs Group Inc. to arrange the sale of its pension business for as much as $2 billion, people familiar with the situation said.
Of Note . . . Earnings season has been supportive to the bull’s plight, with 2/3rds of the S&P 500 companies having beaten Street expectations thus far.
Fund Flows. . .In June, investors added new cash to U.S. stock mutual funds for the third consecutive month in a sign of increased optimism about the market, new industry data showed on Wednesday. The $18.7 billion of June net inflows to stock funds were larger than the $11.9 billion that the stock funds took in during May.
Quotes of Note . . . ``This has been a fundamentally driven market where earnings have been getting better. We could probably see a 5 to 10 percent improvement (in the market) between now and the end of the year.'' said Larry Weissman, who helps oversee $480 billion at Citigroup Asset Management.
``We are in the early stages of an economic recovery, but it's too early to get euphoric,'' said Boris Boehm, who helps manage about $570 million of U.S. assets at Nordinvest.
Gurus . . . Bob Dickey of RBC Dain Rauscher believes the market's overall trend is positive but expects day-to-day moves to continue to be choppy, which he said is typical in the early stages of a recovery amid ongoing uncertainty among investors. "There are not too many groups that have trends that are overly bullish or bearish. Our favored strategy is to buy those groups and stocks that have recently dipped in what are otherwise recovering trends," Dickey said. He believes pullbacks in the energy and pharmaceutical sectors have rendered many stocks in those groups attractive but advises a more defensive stance in the financial, retail and small-cap groups.
Rate Reaction . . . The recent back-up in interest rates has been a hindrance to the homebuilders, and the group may remain under pressure today. The MBA Mortgage Applications Purchase Index fell 3.5% in the latest week, while the Refi-Index plunged 32.9%. Refinancing levels are 50 percent below where they were just four weeks ago.
The Mortgage Bankers Association of America said the average contract interest rate for 30-year fixed-rate mortgages increased to 5.87 percent from 5.72 percent one week earlier.
Debt bubble? . . . A majority of companies used a recent surge in bond issuance to lock in low interest rates and pay off more expensive debt. They're not expanding their business or acquiring other companies, Moody's Investors Service said in a report. Moody's found that about 71 percent of proceeds from July bond sales went to repayment of outstanding debt, compared with 67 percent for that purpose during the entire second quarter. Bond sales specifically for M&A activity made up just 11 percent of total issuance and sales for capital spending just 6 percent. Both "remain woefully weak as issuance drivers," Moody's said. Economists have said the strength of the U.S. recovery now depends largely on business capital investment, which has been hurt by security costs, excess capacity and demand uncertainty.
Bond Yields . . . On Tuesday, Treasury bond yields rose to their highest level since August 2002. The yield on the 10-year Treasury rose to 4.4% from the 3.1% low on June 13. We are now six weeks into the Treasury market correction. Rather than putting a drag on the economy, we think the increase in Treasury yields is an integral part of a constructive multi-year reflation. It has erased the May-June deflation buzz and should increase the chances of businesses investing and buying inventory. At some point soon, the weight of evidence from the value of the dollar and other market-based indicators will allow closure of the 1997-2002 strong-dollar deflation episode, restarting investment outside the U.S. as U.S. growth accelerates. Interest rate increases, like bond yield increases, are an integral part of the reflation process. The sooner the Fed can move overnight rates back toward normal levels in the context of a stable dollar, the better for the long-term growth outlook. In the meantime, the uncertainty over the timing and size of Fed rate increases weighs on the outlook. And the 1% interest rate causes an increasing bias in the economy toward interest-rate dependent investments in lieu of long-term profitability.
The yield curve, one indication of monetary policy stimulus, has steepened to a record. The 10 year bond yield is 2.75% higher than the 2-year bond yield (was 2.6% in 1992, the previous record) and 2.5 times greater (was 1.6 times in 1992, the previous record.) We think the steepness of the yield curve reflects the unusual nature of reflation and the preceding deflation.
U.S. equities have held their levels over the last month in the face of the higher Treasury bond yields and interest rate expectations.
Gold and commodity prices have risen further, signaling reflation and growth.
On a trade-weighted basis, foreign currencies have weakened against the dollar in recent days, evidence of the continued attractiveness of the U.S. investment climate despite recent losses in Treasury bonds. As U.S. growth accelerates, expect some continuation in this currency trend (heading toward $1.05 per euro and 122 yen per dollar by year-end).
Spreads on corporate bonds and emerging markets bonds have narrowed further as Treasury yields rose, a indication of confidence in the growth outlook.
The two negative right now are simple to see.
Consumer confidence fell in June. This reflects the rise to 6.4% unemployment in June. The consumer confidence index is not typically used as a leading indicator of the economy or consumption. However, business confidence, business investment and inventory rebuilding are key variables in the strength of the reflation, and the decline in this indicator of consumer confidence won’t be helpful.
Mortgage rates will increase substantially. Continue to expect price weakness in some local housing markets and some cooling of residential investment. However, don’t expect a nationwide house price problem or a slowdown in consumption growth as mortgage refinancing slows. The decline in interest rates and bond yields in recent years has provided a windfall for homeowners, as did the 1997 capital gains tax cut. With the economy accelerating, the weakness in housing should be limited.
Jobless Recovery . . . A University of Michigan economist said the weak U.S. economic recovery since the end of the recession in November 2001 has been longer than the recovery period of the early 1990s. "The current jobless recovery has lasted nearly twice as long and has resulted in three times as many job losses compared to the economic recovery in 1991-92," said Donald Grimes, an economist at the University of Michigan's Institute of Labor and Industrial Relations. Grimes noted that 37 states lost jobs overall since employment peaked in February 2001 compared with 21 states that did so in the recession and recovery period of the early 1990s. At 4.4 percent, Massachusetts had the highest rate of job loss during the past 28 months. "While most people would attribute the continued weakness to job losses in information technology industries, states that have suffered the greatest during the post-recession period are not technology-based states, but are industrial states in the Midwest," Grimes pointed out. He notes that California, the state most closely identified with information technology, suffered a much greater job loss in the early 1990s than it has during the current recession and recovery period.
Financials . . . Provident Financial plans to buy back up to 2.4 million, or roughly 3.9 percent, of its common stock to fund its 2003 stock award plan.
NetBank reported earnings of $0.29 per share, $0.05 better than the consensus of $0.24. The company also declared a dividend of $0.02.
Infinity Property & Casualty reported earnings of $12.3 million, or 60 cents per share, compared with $2.1 million or 10 cents per share on a pro forma basis, in the year-ago period. Operating earnings were $12.1 million, or 59 cents per share compared with $9.5 million, or 47 cents per share on a pro forma basis. The insurance firm beat the forecast of 56 cents per share. Infinity increased its 2003 operating earnings guidance to the range of $2.30 to $2.45 per share vs. $2.34 expected by Wall Street.
NetBank reported net income of $14.2 million, or 29 cents a share, versus a loss of 64 cents a share in the same period a year ago, and above the average analyst forecast of 24 cents a share. Total interest income increased 39 percent to $50.3 million while non-interest income rose 95 percent to $80.6 million. The provider of online banking services added that mortgage production and sales were at all-time highs, driven by the low interest rate environment.
Southwest Bancorp set a 2-for-1 stock split.
AMBAC Fincl added to Merrill Lynch's Focus 1 List. The firm is saying the mkt is overly cautious about near-term issues and is not sufficiently valuing favorable new-business demand and ABK's enviable operating history; firm believes investors should view the co as a secular growth play on the ongoing creativity within structured finance and the continuing development of capital mkts outside the US, not as a cyclical play on the domestic municipal mkt. Target is $84.
Providian reported managed EPS of $0.13 per share, better than our forecasted estimate of $0.12 and the consensus of $0.10. The quarter included a $0.03 after tax charge to mark to market certain "standard" or higher risk receivables that were reclassified as available for sale. The company reduced reserves by $105 million, apparently reflecting the improvement in delinquency and chargeoff indicators. Excluding the reclassification of the assets available for sale, the managed chargeoff rate decreased to 16.84% from 17.61% in 1st quarter and the managed 30+ delinquency rate decreased to 9.72% from 10.31% in 1st quarter. Management expects dollar chargeoffs in 2003 to be around $2.85 billion, which is more specific than previous guidance that chargeoffs would be under $3 billion. However managed also provided guidance that net income for the full year would be between $170 to $180 million, lower than the $205 million, previously estimated, even though chargeoffs may come in lower than expected. Managed receivables declined by almost 4% sequentially due to chargeoffs and attrition. This may continue as a significant number of prime accounts come off teaser rates in 3rd quarter. The margin on receivables declined to 15.09% from 15.41% in 1st quarter, while the non-interest income margin declined to 8.74% from 9.09%. Both metrics seem to reflect the increasingly higher FICO portfolio mix. The declines in the net interest margin and non-interest income and loan growth concern us more than credit quality. Analysts are lowering 2003 estimate to $0.62 from $0.70 in line with management's guidance but maintaining our 2004 estimate.
ADP reported $0.36 per share which was $0.02 below street consensus. The $0.36 represented a 22% decline year to year. Anlaysts are lowering 2004 EPS estimate to $1.55 from $1.65. The $1.55 represents an 8% decline year to year. Most leading indicators remain negative and ADP is stepping up investing activity in order to improve its competitive positioning. Low interest rates, less new business formation, more bankruptcies, relatively high unemployment, sluggish equity trading volumes, lower retail participation and less corporate activity are all working against ADP. Most of the factors holding back earnings are external in nature. However, ADP’s management exacerbated the external challenges by being overly risk averse during the good times (late 1990s). The company became a prisoner to its earnings track record. ADP is a high quality company, generating strong cash and boasting a pristine balance sheet. However, it is tough to get excited over the stock given the lack of growth and the hefty multiple.
Oil & Gas . . . ConocoPhillips reported net income of $1.14 billion, or $1.66 per share, compared with $351 million, or 91 cents per share, for the year-ago period, which was prior to the ConocoPhillips merger. Total revenue was $25.6 billion, versus $10.5 billion a year ago. Income from continuing operations for the second quarter was $1.08 billion, or $1.58 per share, compared with $312 million, or 81 cents per share, for the same period a year ago. The oil giant beat the forecast of $1.43 per share.
Parker-Hannifin cut to Hold from Buy at Legg Mason.
Kerr-McGee reported income from continuing operations of $69.8 million, or 68 cents a share, versus a loss of $1.77 a share in the year-earlier period. Adjusted earnings, which excludes results from discontinued operations, the effect of accounting changes and non-recurring items, for the quarter ending June was $1.07 a share, up from last year's 89 cents, as higher oil and gas prices offset lower volumes and higher expenses. Sales rose 15 percent to $1.07 billion. Analysts had been forecasting earnings of 81 cents a share and sales of $915.6 million, on average.
Transocean was downgraded at Smith Barney to In-Line from Outperform following in-line 2nd quarter results. Mid-water semis and the commodity jackup mkt are particularly weak, and the anticipated pick-up in West Africa has receded to late 2004. Also, RIG also faces increased uncertainty on costs with numerous rig moves and shipyard work complicating the forecast; cuts target to $24 from $28.
Energy . . . AES Corp. reported a net loss of $129 million, or 22 cents per share, up from a loss of $115 million, or 22 cents per share last year. Income from continuing operations was $65 million, or 11 cents per share, up from a loss of $101 million, or 19 cents per share last year. The power company beat the forecast of 10 cents per share. Revenue rose to $2.2 billion from $2 billion.
NiSource reported earnings of $0.15 per share, ex items, $0.08 better than the consensus of $0.07. Revenues rose 19.8% year/year to $1.14 billion versus the $1.11 billion consensus.
Plug Power to recieve $12 million in funding from under several recently awarded programs.
Duke Energy posted a decline in second quarter net income to $424 million, or 46 cents per share against $474 million, or 57 cents per share in second quarter 2002. The results included $237 million of pre-tax gains on sales of equity investments and assets, or 16 cents per share. Analysts expected, on average, earnings of 31 cents a share. Looking ahead, Duke said: "2003 is proving to be another challenging year with a weak merchant energy sector and a sluggish economy. Despite these challenges, we still believe we will achieve full year 2003 results in the range of $1.35 -- $1.60 earnings per share before a charge for the cumulative effect of a previously announced change in accounting principles."
Transports . . . Mesa Air Group reported net income of $5.8 million, or 18 cents per share, compared with $2.7 million, or 8 cents a share, in the year-ago period. On a pro forma basis, net income for the third quarter totaled $8.2 million, or 26 cents a share, vs. $6.5 million, or 19 cents per share, in the year-ago quarter. First Call projected earnings of 20 cents a share in the quarter. Quarterly revenue totaled $154.1 million, up 15% from $133.8 million for the same period last year.
SkyWest reported net income of $14.9 million, or 26 cents a share, versus earnings of $21.9 million, or 38 cents a share in the same period a year ago. Operating revenue rose 12 percent to $212.7 million, as a 32 percent increase in capacity offset an 18 percent drop in yield per revenue passenger mile. Analysts had been forecasting earnings of 24 cents a share and revenue of $218.8 million, on average. The air carrier had $509 million in cash at the end of the quarter, down from $536.8 million at the end of 2002, due to net investments for aircraft acquisitions.
Atlantic Coast Airlines, which said this week it wants to start a low-fare airline as it shifts way from United Airlines business, earned $45.7 million, or $1.01 a share, in the second quarter with sales of $227.1 million. Excluding gains and charges, the carrier earned $17.2 million, or 38 cents a share. Last year, the company earned $17.4 million, or 38 cents a share, with sales of $188.2 million.
Retail . . . Bebe Stores reported that fiscal fourth-quarter net earnings declined 17.5 percent to $3.3 million, or 13 cents a share, compared with $4.0 million, or 15 cents a share, in the year-ago period. First Call had projected earnings of 12 cents a share. Net sales for the quarter totaled $80.1 million, up 9 percent from last year's $73.5 million, while same-store sales rose 2.9 percent in the quarter. The retailer said it expects comparable-store sales to be in the "low single digits" in its fiscal first quarter and projects earnings-per-share to be in the range of 18 to 21 cents a share. Analysts projects earnings of 21 cents a share in the first quarter.
CVS earned $199.8 million or 49 cents per share, up from $176.4 million or 43 cents per share, in the second quarter. Revenue increased 7.6 percent to a record $6.44 billion, up from $5.99 billion. Same-store sales rose 5.5 percent. The drug retailer beat by a penny the forecast of 48 cents per share.
Pier 1 Imports warned that it expects comparable-store sales for July to decline 4 to 5 percent and for August to slip 3 to 6 percent, as an expected pick up following a soft start in July never materialized. "Even with a new promotional insert breaking this weekend, sales were unexpectedly disappointing, and we do not see any positive momentum in the sales trend through August," said Chairman Marvin Girouard. The company now expects to earn 20 to 23 cents a share in the quarter ending August, versus prior expectations of 21 to 25 cents.
Apparel . . . K-Swiss target raised to $43 from $38 at Wells Fargo Sec.
Coach reported EPS of $0.32 versus $0.18 last year, $0.03 ahead of $0.29 estimate. Total 4th quarter 2003 sales rose 35.1% to $231.5 million versus $171.4 million in the year-earlier period, comfortably ahead of our $219.7 million forecast. Total same-store sales growth of 21.6% was achieved on top of a 9.5% gain in 4th quarter 2002, and was better than our expectation for an 11.8% increase. COH's direct to consumer sales rose 31.4% to $139.9 million in 4th quarter 2003, with COH's retail store comps increasing 37.1% (vs. 14.8% last year) and factory store comps up 3.6% (vs. 4.4% last year).
During 4th quarter 2003, wholesale sales rose 41.1% to $91.6 million versus $64.9 million a year ago. Wholesale results were primarily driven by continued strength at Coach Japan Inc. (CJI). The 4th quarter 2003 gross margin came in at 73.2% vs. 66.6% last year – a 660 basis point gain – and was 120 basis points higher than our forecast of 72.0%. The impressive year-over-year improvement in the gross margin was driven by product mix, channel mix, and sourcing cost initiatives. The 4th quarter 2003 SG&A ratio came in at 51.3% of sales vs. 52.6% of sales in the year-earlier period, and was better than our forecast of 51.9%. The 130 basis point improvement in the SG&A margin mostly reflects the benefit of leveraging higher sales, especially at COH's full price U.S. retail stores. COH's 4th quarter 2003 operating income rose 112.6% to $50.8 million from $23.9 million in the year-earlier period, and came in ahead of our $44.2 million estimate. In 4th quarter 2003, the operating margin expanded 800 basis points to 21.9% from 13.9% in the year-earlier period, and was stronger than our expectation of a 620 basis point improvement to 20.1%. Inventory levels were up 5.4%, much lower than total year-over-year sales growth of 35.1%, and despite the addition of 20 net new U.S. stores and 10 net new Japanese locations. At the end of 4th quarter 2003, COH’s total domestic store base was composed of 156 retail stores and 76 factory stores.
On yesterday’s call, COH disclosed that its Japanese revenues reached $176 million in fiscal 2003 (18.5% of total fiscal 2003 sales), which is higher than the $165 million guidance the company provided on its fiscal 3rd quarter 2003 conference call. The Japanese sales results are also higher than our original forecast for fiscal 2003 Japanese sales of $150 million-$155 million, and are 83% higher than the $96 million in revenues achieved in fiscal 2002. COH’s impressive Japanese results reflect double-digit growth in comparable location sales as well as the robust performance of new stores, including the first full year of sales at the Ginza flagship store (which opened in May 2002). With estimated revenues of over $16 million, COH’s Ginza flagship accounted for about 9% of total Japanese sales during fiscal 2003. Including a second flagship store opened in the trendy Shibuya neighborhood (in April 2003), CJI added ten new Japanese locations during fiscal 2003.
For fiscal 2004, COH has guided to Japanese revenues of $205 million-$210 million, which reflects about 16%-19% growth from fiscal 2003’s result. Considering the momentum that the brand has in Japan - which we attribute to exciting new product and a young store base - there is an opportunity for the company to exceed its current forecast (keep in mind that COH’s reported fiscal 2003 Japanese revenues were 17% higher than the company’s initial guidance for the year). Coach has an estimated 3%-4% market share of Japan’s imported handbag market, and estimate that the company can reasonably double its share over the next five years, mostly the result of broadening its target customer base (to include younger consumers); opening new locations; and by stealing share from European brands (such as Gucci and Prada). CJI intends to open ten additional Japanese locations during fiscal 2004, a forecastthat likely includes the opening of additional flagship locations.
Healthcare . . . Caremark Rx reported net income of $68.5 million, or 26 cents a share, down from 27 cents a share in the same period a year ago, but a penny a share above the average analyst estimate amid strength in retail and mail claims and higher generic dispensing rates. Revenue rose 36 percent to $2.2 billion, topping analyst expectations of $2.1 billion. The pharmaceutical services company raised its full-year earnings forecast to $1.06 to $1.08 a share from $1.02 to $1.04 a share.
Caremark Rx target raised to $35 at Leerink. Following stronger than expected results and guidance; thefirm remains bullish on the co's prospects due to strong core trends, superb cash flow, and higher guidance, which could still prove conservative.
Renal Care was cut to Underweight at Morgan Stanley based on: 1) slower than expected managed care pricing growth, 2) valuation, and 3) the company has stated that it expects a $0.10-$0.15 hit to 2004 EPS due to cuts in Medicaid reimbursement for dialysis providers in some states.
Medical Devices . . . Banc of America says that the shipment of Johnson & Johnson's Cypher drug-coated stent continues to be inconsistent; while the absolute number of stents shipped to a lab has now become more consistent, the stent sizes continue to vary with every shipment, which is a point of frustration for physicians as they try to schedule cases. Also, Guidant is launching the Vision cobalt chromium stent in the U.S. at a premium price to bare metal stents, but firm says checks suggest that it is unlikely that interventional cardiologists will adopt the Vision aggressively given its premium price.
Drugs . . . Ivax reported net income of $41.3 million, or 21 cents a share, up from $31.7 million, 16 cents a share in the same period a year ago. Revenue rose 22 percent to $343 million, amid 26 percent growth in its North America and European business and a 4 percent increase in Latin America. The results exceeded the average analyst forecast of earnings of 17 cents a share and revenue of $338 million.
Teva Pharma was reiterated an Underperform at Raymond James. 2nd quarter results depict slowing sales of the company's most important drug, Copaxone for multiple sclerosis; notes that the deceleration comes despite the possibility that wholesalers stocked up on Copaxone in the quarter in advance of a price increase which could hurt 3rd quarter sales.
Impath's Audit Committee has initiated an investigation into possible accounting irregularities involving its accounts receivable which the Company believes have been overstated. IMPH expects that financial impact to be material. Co also announced the resignations of its Vice President of Finance and its Corporate Controller effective immediately. IMPH does not intend to report results for the second quarter or provide revised guidance for the full year until the investigation of the accounting irregularities and discrepancies is complete.
Ivax reported earnings from continuing operations of $0.10 per share. This excludes $0.11 from discontinued operations that were the result of "payments from B. Braun Melsungen AG, under a number of agreements, forcertain patent and product rights and for settlement of litigation." Reuters Research consensus of $0.17, in touch with them to confirm analysts' consensus excluded the discontinued ops. Revenues rose 22.3% year/year to $343.0 million vs the $338.0 million consensus.
Biotech . . . ViroPharma announced that from its lead chemical series, recently shown to have potent antiviral activity against a range of orthopoxviruses including monkeypox virus, were also shown to be active against the deadly smallpox virus. "These are very significant results for us in our efforts to develop an orally active antiviral drug for smallpox." ViroPharma plans to begin an 'aggressive' pre-clinical development program to further evaluate the properties of the compounds.
Immucor started with an Outperform at RW Baird and $29 target. The firm thinks that the blood testing market has only a handful of players and large barriers to entry, and believes BLUD can compete and win due to its strong instrument and testing technology and experienced mgmt team.
Media . . . Cox Communications reported net income of $117.7 million, or 19 cents a share, versus a loss of 86 cents a share in the same period a year ago. According to Reuters Research, earnings excluding non-recurring items were 3 cents a share, while analysts had been expecting a breakeven quarter, on average. Revenue rose 14 percent to $1.42 billion, due primarily to increased customers for advanced services, higher basic cable and high-speed Internet access rates, and an increase in commercial broadband customers. Basic video customers increased 0.5 percent to approximately 6.3 million, and are expected to grow by "just under 1 percent" for the year.
Hearst-Argyle, which owns 24 television stations around the U.S., said its second quarter net fell compared to a year ago, reflecting a cyclical drop in political advertising. The company's net income fell to $27.3 million or 29 cents per share, compared to $30.8 million, or 33 cents per share a year ago. The average analyst estimate for the Hearst-Argyle's second quarter earnings was 28 cents per share.
The Wall Street Journal reported that AOL has received a request from the SEC for documents relating to its bulk-subscription program. The Journal reported on Friday that America Online's bulk- subscription program generated at least 830,000 subscribers during 2001 and 2002, or nearly 17% of co's total sub growth during that period.
Marvel Enterprises preannounced that it will exceed the high end of its guidance in revenue, EBITDA, EPS and free cash flow for its 2nd quarter. The upside is primarily attributed to very strong Hulk licensed toy, video game and merchandise sales. The company did not give new specific earnings guidance other than that it had a $144 million cash balance at the end of the 2nd quarter versus previous estimate of $108 million. Make the assumption (conservatively) that roughly $6.6 million of the upside comes from higher EBITDA and the balance from non-P&L-related cash flow items. Analysts are revising 2nd quarter and full-year 2003 EPS numbers to $0.35 and $1.13 from $0.27 and $1.06, respectively. Revised EBITDA numbers for 2Q and full-year 2003 are $36.6 million and $123.8 million, up from $30.0 million and $117.2 million, respectively. The greater than expected strength of Hulk licensed properties is very encouraging and suggests that the trends have legs beyond the movie release dates. MVL will report 2Q results on Aug. 12 and is expected to provide preliminary guidance for 2004, which we view as the next major data point for the stock. Marvel shares are trading at 19.1x and 10.0x 2004 EPS and EBITDA estimates, respectively.
Hotel & Leisure . . . Argosy Gaming reported earnings of $0.50 per share, excluding ($0.26) in charges related to new legislation and writedown of barge platforms, $0.07 better than the consensus of $0.43. Revenues rose 6.4% year/year to $248.4 mln vs the $242.0 million consensus.
IT Services . . . RW Baird says that Keane traded up yesterday largely on a rumor that the company is an acquisition target for Affiliated Computer. The firm does not believe the rumor is true, and suggests that investors use the opportunity to take profits. In addition, firm thinks the stock has run too far and too fast ahead of the co's fundamentals, and is expensive at 22.8x their 2004 EPS est given its lack of revenue growth.
Telecom . . . AT&T launched a new residential digital subscriber line high-speed Internet service for consumers in New York. The service can be bundled with local and long distance services from AT&T. The company plans to eventually roll out the service, which uses Covad Communications' data network, nationwide.
Verizon reported revenue below estimate ($16.8 billion versus $17.0 billion) due primarily to weaker International revenue. Operating income of $3.62 billion was below $3,78 billion estimate, due primarily to weaker Other operating income. Weakness in operating income was more than offset by higher income from unconsolidated businesses and lower interest expense, resulting in EPS $0.01 above our $0.68 estimate. Cash operating expenses increased 5.6% (cost of services and sales +3.5%, SG&A +8.0%) versus estimate of an increase of 4.0%, driven primarily by lower pension income. Verizon realized a net expense credit of $72 million this year versus $374 million in 2nd quarter 2002. Total access lines declined 3.7% year-over-year (versus 3.8% in 1st quarter2003): business -4.6% (versus -5.0% in 1st quarter 2003), residential -3.1% (versus -3.0% in 1st quarter 2003). This is the ninth consecutive decline in access lines and the ninth consecutive acceleration in the rate of decline for residential access lines, but for the third consecutive quarter, the rate of business access line losses moderated. DSL subscribers reached 1.93M. Verizon added 101,000 DSL subscribers during the quarter (versus 160,000 in
1st quarter 2003), below expectations, and disappointing given aggressive price promotions and the company's partnership with MSN launched during the quarter. Verizon added 1.4M long distance customers (versus 710,000 in 1st quarter 2003) and now has 14.6M total subscriber lines. Verizon Wireless reported a very strong quarter with 1.295M net adds (versus 833,000 in 1Q03). Total subscriber churn was 1.7% versus 2.3% (retail post-paid churn was 1.4%). ARPU increased 1.2% to more than $49.
Storage . . . The Wall Street Journal reported that EMC will be unveiling several products which include its largest capacity data storage array in an attempt to attract high-end customers who have turned to rivals IBM and the data storage unit of Japan's Hitachi.
Legato reported earnings of $0.02 per share, excluding restructuring cost, $0.01 better than the consensus of $0.01. Revenues rose 3.5% year/year to $76.6 million versus the $77.2 million consensus.
Network Equipment . . . Andrew Corp upgraded at RBC to Outperform from Sector Perform. The firm cited stronger than expected guidance regarding its ongoing restructuring program and merger integration plan; raises target to $14 from $8.
Newport was upgraded to Market Perform at Adams Harkness. The firm is saying the co's diversification efforts are paying off and the co has likely seen the bottom, even if semi and fiber-optic remain challenging.
Wavecom wireless technology selected by China's CECT. Wavecom will supply its wireless technology for use in a multimedia camera phone, due to be launched in China this fall.
Merrill Lynch initiates coverage of Fair Isaac with a Buy rating and $70 target. The firm sees FIC as an attractive investment opportunity based on its mkt leadership in consumer credit scoring, fraud detection, wireless roaming record management, business rule technology, and other areas, and cites 80%-plus recurring revenues and diverse rev distribution with no operating segment contributing more than 20% of sales.
Corvis invited to participate in DoD optical testing 'Bake Off,' for the Optical Transport System portion of the U.S. Government's Defense Information Systems Agency's (DISA) $877 million Global Information Grid Bandwidth Expansion (GIG-BE) project. The GIG-BE project is a Department of Defense initiative, which involves the deployment of an all-optical network linking DoD sites around the world using secure and dedicated links.
Semicondcutor Equipment . . . Brooks Automation was cut to Sell at AG Edwards. The downgrade is based their belief that mgmt has not done enough to make the business model sustainable, that customers are looking for lower cost robotics, and that valuation appears to reflect open-ended growth.
United Micro reports earnings of $0.03 per ADS, $0.01 better than the consensus of $0.02. Revenues rose 17.6% year/year to $631.4 million versus the $616.9 mln consensus.
Semiconductors . . . Intel’s CEO said corporate IT spending remains flat-to-down this year, but did note a pick-up in Asia and Eastern Europe.
Vishay reported earnings of $2.8 million, or 2 cents per share, down from its year-ago profit of $15.6 million, or 10 cents per share. The latest results include restructuring expenses of $12.3 million, or a nickel per share, after taxes. Analysts were looking for a profit of 7 cents per share in the period, on average. Sales jumped 17.5 percent in the latest three months to $538.1 million from $457.9 million in the same period a year earlier. Backlog stood at $420 million as of June 30. The company said the outbreak of SARS in Asia held back sales in its chip business during the quarter, but it believes this slowdown is temporary and that improved business levels will resume in future quarters.
Cypress and Xilinx announced collaborative co-development for next generation communications and memory products. The first product to be developed from this relationship is a reference design for a complete "fiber-to-fiber" data over SONET/SDH solution.
M-Systems chosen by Iomega for its SmartDiskOnKey platform to serve as the basis for its Mini USB 2.0 product line. This expands upon its preexisting relationship with with the co in their Mini USB 1.1 product line.
Software . . . SAP has announced plans to cut jobs in unprofitable regions.
First Albany believes Verisign still has untapped potential in the trusted services and telecom markets, and very limited competition. While considers company is still in a transition, the firm sees more upside potential to the co than downside risk, and sees this as a time to build a position in the stock in anticipation of the eventual change in momentum.
MicroStrategy was cut to Hold at Janney based on valuation. Despite a "spectacular" quarter; target is $44 and firm would look to add to positions if the stock traded below $37.
Siebel Systems ebusiness application selected for HP business customer relationship management (CRM) consolidation initiative.
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