From Briefing.com: 5:38PM Swing Trader: BRL, JWN : -Technical- Yet another choppy trading session for the markets this Thursday before month end. Market Breadth was Negative as Decliners outpaced Advancers about 2.5 to 1 and New Lows exceed New Highs. So the market continues its trend of one day up, next day down as earnings season remains upon us. Not much to say about the market's action otherwise. The bigger picture remains in a downtrend, the major indices are under their 200-day simple moving averages, and Market Breadth has been negative for weeks now...(continued)
5:31PM Newport reports $0.02 below consensus, ex-items; issues in-line Q2 guidance (NEWP) 14.38 :Reports Q1 (Mar) earnings of $0.10 per share, excluding non-recurring items, $0.02 worse than the Reuters Estimates consensus of $0.12; "these results occurred because a loss of $3.6 mln, or $0.08 per share, from the discontinued robotic systems operations, and an extraordinary gain of $2.9 mln, or $0.06;" revenues rose 170.1% year/year to $97 mln vs the $96.5 mln consensus. Co issues in-line guidance for Q2, sees EPS of $0.10-0.14 vs. $0.13 consensus; sees Q2 revs of $97-101 vs. $100.83 mln consensus.
5:19PM MSTR falls 7 pts in after hours :
5:14PM Pixelworks reports in line; guides Q2 EPS below consensus, revs in line (PXLW) :Reports Q1 (Mar) earnings of $0.02 per share, excluding non-recurring items, in line with the Reuters Estimates consensus of $0.02; revenues fell 11.0% year/year to $40.3 mln vs the $38.6 mln consensus. Co issues downside guidance for Q2, sees EPS of $0.01-0.03, ex items vs. $0.04 consensus; sees Q2 revs of $40-43 vs. $41.94 mln consensus.
5:00PM MEMC Elec misses by a penny, ex items (WFR) :Reports Q1 (Mar) earnings of $0.23 per share, excluding non-recurring items, $0.01 worse than the Reuters Estimates consensus of $0.24; revenues fell 3.9% year/year to $257.9 mln vs the $269.3 mln consensus.
4:44PM Cirrus Logic receives $25 mln in litigation settelment (CRUS) 4.17 -0.08:-Update- Co announces a settlement and release of all claims against Amkor Technology and Sumitomo Bakelite, over the alleged failure of certain semiconductor integrated circuits sold by Cirrus Logic to Fujitsu. Cirrus Logic will receive a payment of $25 million from Fujitsu.
4:41PM Microsemi beats by a penny; guides in line (MSCC) :Reports Q2 (Mar) earnings of $0.16 per share, excluding non-recurring items, $0.01 better than the Reuters Estimates consensus of $0.15; revenues rose 26.9% year/year to $73.3 mln vs the $72.1 mln consensus. Co issues in line guidance for Q3, sees EPS of $0.16-0.18 vs. $0.16 consensus.
Close Dow -128.43 at 10070.37, S&P -13.16 at 1143.22, Nasdaq -26.26 at 1904.18: Broad-based selling spurred by a discouraging combination of slowing economic growth and rising inflation weighed on sentiment throughout the session as all the major averages lost more than 1.0%... Casting a shadow that loomed over the market all day was a report from the Commerce Dept. that showed the economy grew at a weaker than expected 3.1% - its slowest pace in two years... Economists were looking for growth of 3.5%, versus Q4 growth of 3.8%, but many consensus estimates most likely were not revised lower to factor in yesterday's weak durable orders data...
Adding insult to injury was the chain deflator - a key inflation component of the GDP report - which climbed to 3.2%, much higher that the 2.3% rise in Q4 and well above recent trends... Meanwhile, today marked the biggest day for quarterly earnings reports... But even though the majority (24 of 39) of S&P companies out with Q1 earnings this morning (i.e. PG, AET, DOW, GP, NCR, K, RTN, CSX, R and CMCSA) again beat analysts' forecasts, lower than expected Q1 earnings from ExxonMobil (XOM 56.00 -2.38) overshadowed the fact that aggregate S&P earnings growth continue to run about 5% above expectations...
While such strong Q1 earnings gains should push the P/E on S&P operating earnings down to about 16.4, the greater risk premium now being placed on stocks due to the mixture of rising price pressures in a weak economy added a stronger sense of uncertainty that helped all 10 economic sectors close in negative territory... And a spike in crude oil futures ($51.77/bbl +$0.16) that retraced a 3.5% decline to the upside and lifted the commodity into positive territory late in the day, only weakened an already bearish sentiment...
Oil prices were weak most of the day amid President Bush's push for alternate energy sources and yesterday's large inventory build, but renewed buying interest amid reports of a tanker accident in Texas and possible short-covering only exacerbated inflation concerns... Treasurys, however, added to early gains initially prompted by the disappointing GDP data in the wake of the widespread sell-off in stocks, as the 10-year note finished up 14 ticks to yield 4.16%... But even bond yields falling to levels not seen since mid-February could not help interest-rate sensitive sectors like Financial (-1.1%) and Utility (-0.7%)...
For the second consecutive session, Energy (-2.6%) paced the way lower, exceeding yesterday's 2.2% sell-off... Materials (-1.0%) and Industrials (-1.3%) - whose earnings are closely linked to economic growth - were also under pressure... Technology (-1.2%) was also an influential leader to the downside, amid weakness in Software (-1.6%) ahead of Microsoft's (MSFT 24.45 -0.54) earnings after the bell... Health Care (-0.7%) was also weak, but losses were arguably minimized by modest strength in Drugs following a 15% surge in GlaxoSmithKline's (GSK 49.76 +2.35) Q1 profits...
While Consumer Staples (-0.5%) failed to hold onto gains into the close, strong Q1 earnings of $0.63 and upside FY05 EPS guidance from Procter & Gamble (PG 53.99 +0.46), as well as an earnings surprise and dividend increase from Kellogg (K 43.56 +0.76), surely minimized some of the weakness... Separately, weekly jobless claims rose 21K to 320K, matching forecasts, but with a more complete representation of employment due out one week from tomorrow, the report garnered little fanfare in the face of the weaker than expected GDP data... DJTA -0.9, DJUA -0.4, DOT -0.8, Nasdaq 100 -1.0, Russell 2000 -2.1, SOX -0.9, S&P Midcap 400 -1.3, XOI -1.0, NYSE Adv/Dec 1055/2191, Nasdaq Adv/Dec 838/2222
9:14AM Gapping Down :Gapping down on disappointing earnings/guidance: MATK -44%, MRVC -31%, SERO -16%, INPC -14%, PRX -12%, ESST -11%, ORCH -7%, JDSU -6.7% (down in sympathy: SONS -7%), USPI -6.6%, SANM -5.6%, BOBJ -5.2%, CHIR -4.4%, STM -3%, DRIV -2.6%, Other News: BRCD -11% (cut to sell by Merrill), ASML -4.9%, TOPT -4.7% (announces private offering), BHP -2.8%.
2:15PM Exxon Mobil Corp (XOM) 56.62 -1.70: The notion of "It's All Relative" certainly applies to Exxon's earnings this quarter, as the oil giant produced a record quarter with earnings up 44% to $7.86 bln - five times what its peer Dow component Procter & Gamble reported today. Bloomberg estimated that this was the fifth largest quarterly profit in US history! Yet, earnings of $1.15 per share, excluding a gain from the sale of its stake in Sinopec, were a nickel below consensus estimates. The miss came from both the up and downstream businesses with lower production volumes, and weak refinery margins. Total revenues rose 21.3% from last year to $82.05 bln. With crude futures trading lower for the fourth straight day, the disappointing report further exaggerated selling.
Its upstream business generated $5.05 bln in earnings up 26% from last year due to higher realized crude and natural gas prices, but volumes declined 5%. The bulk of its E&P operations are outside the US generating over a third of this unit's net income. Results in this area were slightly below expectations due to lower European natural gas production and price realizations. Worldwide oil-equivalent production was 4.3 mln boe/day down from 4.5 mln last year. Total crude production was 2.54 mln bbl/day down 3% y/y, while natural gas production came in at 10.7 mln cfd down 6% y/y.
Within the downstream business, US operations earnings rose 64% to $645 mln due to higher refinery margins and throughput, offset by weaker marketing conditions. The weakness showed up in its foreign operations where, excluding Sinopec, were $498 mln - down $114 mln due to weak refinery and marketing margins. Within its Chemical business, earnings excluding Sinopec hit a record $1.28 bln up 78% from last year as strong market conditions drove sales. High crude prices weigh on refinery margins, so with prices heading lower this should relieve some the pressure in its downstream ops. XOM's commented on the refinery industry, which has become a hot topic as of late. It feels technology is the key to staying ahead of declining margin curve as it will become cheaper and cheaper to convert raw materials into end products.
Exxon continues to return profits back to its shareholders. During the quarter, it bought back 64 million shares worth $3.6 bln along with increasing its quarterly dividend by 7% to $0.29. XOM also announced plans to continue the program increasing its authorization plan by $1.0 bln for a total cost of $3.5 bln. Capex was held roughly flat compared to last year at $3,417 mln on exploration projects.
Share performance for Exxon, as well as any stock within the Energy patch, will be subject to changes in the tide. That is...the sentiment tide...as shares will continue to move with the ebb and flow of the markets' outlook on crude prices, global demand, supply constraints, refinery utilization rates, inventory levels, and economic growth, particularly in the US and China. Exxon's upstream business will continue to drive the company's outlook, which may not flow through the drill bit, but via acquisitions. We continue to feel that the energy sector offers considerable growth potential over the longer term as the demand/supply balance keeps prices at elevated levels. Over the spring and summer months, if seasonal trends hold true, crude is likely to pull back, at which time we would suggest taking advantage of weakness in stocks looking ahead to the fall/winter heating season. ----Kimberly DuBord, Briefing.com
11:50AM Business Objects (BOBJ) $26.38 - 0.96 (-3.5%) Business Objects beat both earnings and revenue estimates in their report this morning, but the stock is off this morning because new license sales failed to grow strongly, even though the new license sales beat analyst estimates. Total revenue of $248.8 million was above estimates of $239.4 million and EPS of $0.24 (excluding one-time charges) was above the Reuters consensus estimate (from 32 analysts) of $0.22. New license sales average estimates from those same analysts was $114.7 million. BOBJ reported new license sales of $115.15 million, which is above the analyst estimate, but is only 1% higher than the year ago period.
In addition, BOBJ raised guidance for Q2, with an EPS range of $0.26 to $0.28 (consensus is $0.26) and revenue of $250 to $255 million (consensus of $249.26). For the full 2005 year, guidance was relatively in-line with current consensus, with both the current consensus estimates falling right in the middle of the ranges given. (EPS range of $1.07 to $1.17 versus the $1.11 consensus, and revenue range of $1.01 to $1.035 billion versus the $1.02 billion consensus.)
So why is this report viewed as a "disappointment" when you beat estimates for earnings, revenue, and even new license sales estimates? On top of that, you raise next quarter's guidance and are in-line for the full line? Aren't those all supposed to be a good things?
There is a very simple and clear explanation for why the stock is down. The market is looking directly at the metric of "new licenses as a percentage of total revenue" number. This critical metric, as we have often detailed, is the primary way to judge how far a software company has penetrated its potential market. With the traditional up-front license fee and ongoing maintenance fee business model, a growing software company has an ever increasing percentage of revenue coming from new license sales. When the new license sales mix number starts to decline, and maintenance becomes an ever-increasing percentage of sales, it is a bad leading indicator. Maintenance revenue has a much lower gross margin associated with it and the maintenance only customer base tends to erode over time.
Business Object's new license mix in this quarter was 46.3%. If BOBJ had met overall revenue estimates of $239 million and $114.7 license sales, the percentage mix would have been 48%. The year ago period was 52.7%. The mix number last quarter was 51.0%, a sequential increase over 04Q3's 48.2%. BOBJ has not had a license sale mix number this low since 2003 Q3, six quarters ago.
What this means is that the market perception of BOBJ products as "hot sellers" in the crucial business intelligence space is cooling, to a perception that Business Object new customers might be looking elsewhere and that current BOBJ customers aren't buying the cross-sell products as expected. The actual numbers aren't that bad, really, but when the license mix trend is an important one for setting perceptions, and BOBJ's hot image fell a little bit today.
Ironically, we don't think this shift in perception affects BOBJ's chances as an acquisition, and in fact, it may increase their potential. Some acquisitions are made precisely to shift the acquired customer base to the acquirer's products (which may happen with the Peoplesoft/Oracle deal). For more details on our views of BOBJ as an acquisition target, see the Ahead of the Curve column of 08-Feb-05 "Ent. App. SW Acq. Candidates VII: BOBJ.") - Robert V. Green
10:16AM Procter & Gamble Co. (PG) 53.96 +0.33: The largest household-goods maker reported its eighth consecutive quarter of better than expected results, producing broad-based growth as volume and pricing gains helped counterbalance commodity pressures. Earnings for its third quarter rose 14% from last year to $1.72 bln, or $0.63 per share - surpassing consensus by two cents. P&G's brands reach every aspect of consumers' lives including Pantene hair products, Pringles, Charmin, Crest, Olay, and Downy detergent. Sales rose almost 10% to $14.29 bln with forex gains adding 3% and pricing tacking on a point. Organic growth came in the high single digits.
Bad news for consumers, good news for Procter, higher prices helped propel earnings this quarter. Price hikes ameliorated higher commodity and energy costs. It raised prices for the second time in three months on its Folgers brand coffee by 12% in March, as raw coffee beans reached a six year high. Mid-price level detergents like Gain and Era also received a boost. During the quarter, PG's Pampers diapers took market share away from Kimberly-Clark's (KMB) Huggies. KMB recently said it was following PG's lead raising its prices by 4.6% in mid-July.
In Q3, unit volumes rose 6% with organic volumes, which exclude acquisitions and divestitures, gained 7%. All of its business units delivered high mid-digit volume growth or better. Yet, higher prices and volumes could not fully offset commodity costs narrowing gross margins by ten basis points to 50.7%. On the operating line, since SG&A declined as a percentage of sales, margins expanded by 120 basis points to 18.8%. Capex rose 3.3% y/y. P&G made $1.95 bln worth of share buybacks during the quarter.
Within its three business units, Beauty Care sales gained 9% with forex tacking on 3%. Strong volume growth, particularly in the developing markets, resulted in double-digit earnings growth. Both its Health Care and Baby & Family Care units generated double-digit growth rates. Oral care was in the high single digits despite what P&G noted as a challenging environment due to competitive pressures and a declining market for tooth whitening. Vicks sales were robust resulting from a later cold/flu season in North America. The weakest segment was the Fabric & Home Care within Household Care due to higher commodity costs and charges to optimize its supply chain. While its Snacks & Coffee unit delivered double-digit earnings growth with volumes up 6%.
Looking ahead, PG is keeping its estimates conservative despite sales momentum due to the numerous headwinds the company is facing on the cost side. For the Q4, it sees EPS of $0.54 - 0.55 in-line with consensus. But, considering its strong performance in the first two quarters, PG issued slight upside guidance for the full year now forecasting earnings to come in between $2.64-2.65 per share.
Shares have had a volatile run this year down 2.8%, after experiencing a significant one day drop back in Jan after it announced plans to acquire Gillette (G). In today's press release, P&G did not provide much in terms of details regarding the takeover, saying only that the planning process continues. All-around a solid quarter as P&G was able to deliver 8% organic growth and fend off commodity prices. Over the longer-term, organic growth and market share improvements will remain challenging as other multinationals raise the bar through increased marketing support. Progress made integrating Wella, along with Gillette, will be closely watched by the market. The positives remain organic growth, earnings momentum, weaker dollar, global presence specifically within higher growth emerging markets, defensive characteristics, and shareholder value. The stock is trading at a P/E multiple of 20.4x below its 5-year average of 22.9x. ----Kimberly DuBord, Briefing.com
9:53AM Page One - GDP Pulls Back to Long-Term Trend : First quarter real GDP rose at an 3.1% annual rate. This was generally consistent with recently lowered market expectations, but the data nevertheless reflect a slowdown from the boom of 2004. The implications for the stock market are mixed at best.
The 3.1% GDP growth for the first quarter is down from 3.8% in the fourth quarter and 4.4% for all of 2004 (compared to 2003). This simply reflects a return to long-term trends, however. Since 1970, the compound annual growth rate of GDP has been 3.1%. This is only a weak number compared to the numbers from the past year and one-half.
The breakdown of the data suggests that this is not an aberrant soft patch. Personal spending slowed to a 3.5% annual rate, and may very well slow further in the second quarter. Domestic investment rose at a 12.5% rate, but recent orders data suggests that may slow as well. And inventories, which added 1.2% to the first quarter increase, will not add to GDP on a regular basis.
Market expectations for the second and third quarter drop to near 3% growth. That is good enough to produce only modest earnings growth.
It is a huge day for earnings, as almost 10% of the S&P 500 will report. This morning, Procter & Gamble had a very strong report. So did Exxon Mobil. Aetna, Bunge, Dow Chemical, Goodrich, Raytheon, and Black & Decker all had good reports. Bristol-Myers reported in line. Newell-Rubbermaid missed, and Microsoft is the big report due after the close. First quarter data remains excellent.
Oil prices are down again today after a big decline yesterday. The price is approaching $51 a barrel and just might drop through $50 now that economic projections might be lowered.
The slowdown in economic growth isn't exactly a surprise at this point. GDP growth on its long-term trend suggests the Fed has in that respect already reached a neutral interest rate structure. But the 3.2% GDP deflator in the first quarter data shows that it is only half of the job. By raising rates, the Fed first slows demand. It takes a while for inflationary trends to follow. The Fed will probably need to keep raising rates to keep inflation in check. The stock market will remain caught between the conflicting forces of good earnings, a slowing economy, and an uncertain outlook on interest rates. It is still too early to look for opportunities.--Dick Green, Briefing.com
9:51AM Kerr-McGee (KMG) Hibernia Southcoast Capital downgrades Buy to HOLD. Target $95. Firm says the co continues to have an attractive valuation, but believes the stock is likely being supported by the current tender offer to buy-in shares for $85-$92. In addition, after the tender offer is completed, they think the co's risk profile will be increased, as the co is becoming more debt levered.
9:49AM Avocent (AVCT) RBC Capital Mkts initiates OUTPERFORM. Target $33. Firm believes the co can generate operating EPS growth of 15% with gross margins in the mid-to-high 50%'s and operating margins in the mid 20%'s. They say growth catalysts include international expansion, multiple product upgrade cycles, embedded K.V.M. applications, wireless K.V.M. applications, and the emerging telecom spending recovery.
9:48AM Cott Corp (COT) Legg Mason downgrades Buy to HOLD. Legg Mason downgrades COT following yesterday's announcement that the co's CFO is leaving the co on Friday. They believe yesterday's news only amplifies the benefit of approaching the shares with expectations of little or no 12-month upside relative to $22-$23 per share, and think a margin recovery will take longer than previously expected.
9:47AM Shuffle Master (SHFL) Wells Fargo Sec upgrades Hold to BUY. Target $34. Firm believes that earnings over the next several qtrs, driven by the shuffler business, and additional table sales and lease-placements, could exceed expectations and should drive the shares north of $30 once again. They project near-term earnings are likely to continue to exceed expectations.
9:43AM FEI Company (FEIC) CIBC Wrld Mkts downgrades Sector Perform to SECTOR UNDERPERFORM . CIBC downgrades FEIC following lackluster 1Q results and 2Q guidance, saying these expose both weaker than peer group leverage and higher than peer group valuation, suggesting poor risk/reward in its shares. With better value and leverage elsewhere in their coverage universe, they believe the co's shares could drift 20% lower through the summer, until they think it's worth revisiting.
9:42AM Vion Pharma (VION) Wells Fargo Sec initiates BUY. Target $4. Firm says the co has two plans for an accelerated approval of Cloretazine for use in either elderly acute myeloid leukemia or A.M.L. remission patients. They look to early May for Zarnestra approval, which would suggest early Cloretazine approval, and for product pipeline results at the American Society of Clinical Oncology's annual meeting in May. They forecast Cloretazine to gain approval in elderly A.M.L. patients by 2H07, with expanded labeling to include A.M.L. remission in 2H08. They also forecast Triapine to gain approval in pancreatic cancer by 2Q09.
9:42AM PortalPlayer (PLAY) Kaufman Bros reiterates SELL . Target $20 to $17. Kaufman Brothers lowers its price target on PLAY, but firm believes there is potential upside to the stock beyond May 19 when 15 mln shares held by insiders and venture capital investors will be unlocked. Beyond that, firm believes investors will focus on the potential upside from what it expects to be a Portal Player based flash MP3 player from Apple (AAPL), due out sometime in 2H05. Firm maintains its SELL rating pending the earnings conference call after the close today. Despite the potential for a significant downward revision in its ests for Q2, firm believes that investors have begun to focus on the co's potential win at Apple for a flash based product. In that regard, downside to the stock may be limited in the near-term.
9:38AM Garmin (GRMN) Needham & Co downgrades Buy to HOLD. Firm believes the recent weakening in Consumer margins combined with significant increases in inventory, could be a precursor to further Consumer gross margin pressure, and have called their previous assumptions into question. Additionally, they believe increasing competition, particularly from TomTom, which is aggressively pursuing the auto navigation market with competitive products, could also be a source of future margin pressure.
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