From Briefing.com: 6:33PM Swing Trader: Sucker Punched?!?! : -Technical- Failure to sustain a follow-through above Wednesday's rally high within the first hour of trade opened the door for sellers to to take control. The gap up in Semis (SMH ) and the fast run in Retail (RTH) looked as if the follow-through was in place, but the SPY failed early near Wednesday's high (119.80) along with the QQQQ challenging its 50-day simple ma (38.82) and the DIA at its 50-day ema (104.32). (continued)
4:47PM ON Semiconductor reports in-line; provides revenue expectations (ONNN) 4.84 :Reports Q3 (Sep) earnings of $0.06 per share, in line with the Reuters Estimates consensus of $0.06; revenues rose 3.6% year/year to $313.6 mln vs the $313.7 mln consensus. Co also stated that they anticipate total revenues to be up approximately 2 to 3 percent sequentially in the fourth quarter 2005.
4:40PM Microchip beats by a penny; guides Q3 EPS a penny above consensus (MCHP) :Reports Q2 (Sep) earnings of $0.31 per share, $0.01 better than the Reuters Estimates consensus of $0.30; revenues rose 3.0% year/year to $227.3 mln vs the $227.6 mln consensus. Co issues upside guidance for Q3, sees EPS of $0.32 vs. $0.31 consensus; sees Q3 revs of $234 mln vs. $234.21 mln consensus.
4:37PM Genesis Microchip beats by $0.10, beats on revs; affirms DecQ revs (GNSS) 21.85 -0.40:Reports Q2 (Sep) earnings of $0.31 per share, excluding non-recurring items, $0.10 better than the Reuters Estimates consensus of $0.21; revenues rose 49.5% year/year to $74.9 mln vs the $70.1 mln consensus. Co issues in-line guidance for Q3, sees Q3 revs of $72-77 mln vs. $75.10 mln consensus.
4:32PM Foundry Ntwks beats by $0.03 (FDRY) 12.13 +0.36:Reports Q3 (Sep) earnings of $0.11 per share, $0.03 better than the Reuters Estimates consensus of $0.08; revenues rose 4.5% year/year to $107.1 mln vs the $99.5 mln consensus. Included in the co's results for the third quarter of 2005 was a $2.6 mln expense related to a patent cross-license agreement with IBM.
4:29PM MIPS Techs beats by $0.04 (MIPS) :Reports Q1 (Sep) earnings of $0.03 per share, excluding non-recurring items, $0.04 better than the Reuters Estimates consensus of ($0.01); revenues fell 18.5% year/year to $11.9 mln vs the $11.9 mln consensus.
4:19PM SanDisk beats by 19 cents (SNDK) :Reports Q3 (Sep) earnings of $0.55 per share, $0.19 better than the Reuters Estimates consensus of $0.36; revenues rose 44.5% year/year to $589.6 mln vs the $524.7 mln consensus.
4:17PM Freescale Semi acquires CommASIC (FSL) 21.81 -0.59: -Update- Co has acquired CommASIC, a fabless semiconductor company based in San Diego. CommASIC provides modem processing multimode technologies, including orthogonal frequency division multiplexing based solutions. Financial terms of the deal were not disclosed.
4:14PM Cree beats by $0.02, guides in line (CREE) :Reports Q1 (Sep) earnings of $0.25 per share, excluding non-recurring items, $0.02 better than the Reuters Estimates consensus of $0.23; revenues rose 8.3% year/year to $103.9 mln vs the $102.8 mln consensus. Co issues in-line guidance for Q2, sees EPS of $0.24-0.27 vs. $0.24 consensus; sees Q2 revs of $106-109 mln vs. $108.09 mln consensus.
4:12PM Cohu beats by $0.12 (COHU) :Reports Q3 (Sep) GAAP earnings of $0.42 per share, $0.12 better than the GAAP Reuters Estimates consensus of $0.30; revenues rose 25.1% year/year to $68.6 mln vs the $59.6 mln consensus.
4:11PM Google beats by $0.16, beats on revs (GOOG) :Reports Q3 (Sep) earnings of $1.51 per share, excluding non-recurring items, $0.16 better than the Reuters Estimates consensus of $1.35; revenues including Traffic Acquisition Costs rose 95.8% year/year to $1.58 bln vs the $1.46 bln consensus. GOOG reports adjusted EBITDA $672 vs $604.3 Reuters consensus.
Close Dow -133.03 at 10281.10, S&P -17.96 at 1177.80, Nasdaq -23.13 at 2068.11: Fully erasing yesterday's gains, and plus some, the indices extended their fourth quarter declines. A plummeting pair of shares - Pfizer (PFE 21.93 -2.04) and eBay (EBAY 39.68 -2.33) - set the market's early tone and shoved buyers back to the sidelines. While the drug giant delivered Q3 earnings that exceeded expectations by $0.03 per share, its downside FY05 guidance and withdrawal of full-year 2006 and 2007 forecasts sent shares tumbling nearly 9%. eBay, meanwhile, had reported EPS in-line with estimates lat night, but its Q4 and FY05 outlooks sent the stock reeling. Fixated upon the duo of disappointing guidance, traders again overlooked a solid slate of third quarter reports and failed to find momentum in another round of sharp energy price pullbacks. While leadership was lackluster over the course of the session - dominated by the market's least-influential Telecommunications sector (-0.6%) - selling pressure intensified late in the session and left each of the ten sectors with losses. On account of SBC's (SBC 22.54 +0.13) upside earnings report, the Telecom sector managed to fare best today. The Dow component's rise, paired with a gain in Analog Devices (ADI 35.25 +2.07), which raised its Q4 guidance, helped limit the Tech sector's (-0.8%) slide. Ultimately, though, it could not counter across-the-board declines. Joining SBC in helping to support the blue chip average was Coca-Cola (KO 24.08 +0.28), which stood strong all day after beating Q3 estimates. Despite its contribution, the Consumer Staples sector fell 0.8%, as every issue sans Coca-Cola finished in the red. UPS (UPS 72.44 +1.61) enjoyed a respectable upside earnings-related gain that helped the Industrials sector, but more broad-based pressure left the sector 1.1% lower. A particular weak spot was Southwest Airlines (LUV 15.07 -0.51), which dropped 3.0% after the company reported 91% earnings growth and beat Q3 estimates by $0.03. Declining energy prices and an upgrade-induced rise in Home Depot (HD 39.57 +0.31) could not offset eBay's effect on the Consumer Discretionary sector (-1.2%). Disappointing earnings growth at McDonald's (MCD 32.40 -1.29) only made matters worse. Allstate's (ALL 53.02 -1.38) Q3 disappointment sent insurance issues lower, and helped push the Financials sector to a -1.0% close. Better than expected earnings from Rohm & Haas (ROH 42.10 +1.21) helped support Materials (-0.8%), but widespread weakness left the sector submerged. Further profit taking left the Utilities sector 2.6% lower today. The Pfizer effect catalyzed Healthcare's (-2.2%) session-long laggard status and Amgen's (AMGN 74.10 -3.99) guidance-related slide helped to sink the sector. Reacting to the slide in energy prices, the Energy sector plummeted 4.1% and weighed heaviest on the market. Following a better than expected inventory report from the EIA yesterday, today's report that natural gas supply rose 75 bcf to 3062 bcf, well ahead of the expected 55 bcf rise, exacerbated selling within the sector. With respect the session's economic data, last week's decline in initial claims - to 355K (consensus 365K) versus the prior week's 390K - was largely overlooked, as was Sept. leading indicator data (-0.7% vs. -0.5% consensus) and the Oct. Philadelphia Fed index (17.3 vs. 10.0 consensus). At the same time, the bond market fared better today, but prolonged attention to the flattening yield curve and stirring inflation fears continued to weigh on investors' minds and helped prevent spirited buying activity in the equity market.NYSE Adv/Dec 823/2455, Nasdaq Adv/Dec 947/2039
11:33AM Corning and Picvue settle lawsuit regarding misappropriation of proprietary information (GLW) 18.69 +0.31:Co announces they have resolved the lawsuit between the parties relating to alleged trade secret misappropriation and copyright infringement. The employees of Picvue responsible for such action are no longer with the company. Picvue has agreed to respect Corning's proprietary rights in fusion draw technology for manufacturing flat panel display glass and fairly compensate Corning for any past wrongdoing. The terms of the settlement are confidential.
8:44AM FormFactor earnings color (FORM) 21.95 : -Update- Yesterday, company reported Q3 EPS of $0.23, which "was benefited by $0.08 per share in one time tax adjustments". We reported that the company's pro forma EPS came in at $0.15, below Reuters consensus of $0.16. Now Reuters is telling us that FORM's EPS was also impacted by $1.5 mln in stock based compensation charges. Reuters Estimates is indicating that analysts were excluding these charges from their estimates and pro forma EPS of $0.18 is comparable to their $0.16 consensus.
8:29AM Cypress Semi misses by $0.02, ex items (CY) 12.86 :Reports Q3 (Sep) earnings of $0.03 per share, excluding non-recurring items, $0.02 worse than the Reuters Estimates consensus of $0.05; revenues rose 3.4% year/year to $227.1 mln vs the $232.3 mln consensus.
8:18AM Ultratech Stepper beats by $0.07 (UTEK) 15.05 :Reports Q3 (Sep) earnings of $0.01 per share, $0.07 better than the Reuters Estimates consensus of ($0.06); revenues fell 6.5% year/year to $30.3 mln vs the $28 mln consensus.
White Electronic Designs (WEDC) has been awarded an additional $1.6 mln follow-on contract by a leading military subcontractor...
2:32PM Noble Corp (NE)
60.62 -0.92: With crude futures down $1.41 or 2.3%, it mattered little that Noble more than doubled its profits in the third quarter. NE, a oil and natural gas driller, reported net income of $765 mln, or $0.55 per share compared to last year's earnings of $30.6, or $0.23. A tight market environment, driven by record natural gas and crude prices, has resulted in higher day rates sending revenues up by 38% to $367.2 mln.
An active hurricane season, to say the least, caused ripples in Noble's earnings. The destructive force of Katrina in August and Rita in September disrupted drilling operations in the Gulf of Mexico. Both hurricanes stripped 13-15 cents in earnings for Noble, which was in-line with the company's previous guidance. NE recorded a $20 mln charge for insurance recoveries and related storm damage, in addition to a $9.5 gain for expected insurance payouts for service disruptions. The quarter was a bit messy and a bit confusing with all these items, net net earnings were basically in-line. Investors should be aware that consensus estimates will likely not be comparable to results for many of the energy companies due to Hurricane-related items.
Back to the quarter, Noble's fleet of 60 mobile offshore drilling rigs earned an average of $55,271 per day, up 10% form a year earlier. Utilization rates, basically the time rigs are active, rose to 98% from 82%. Day rates and utilization levels have continued to rise worldwide. In the second quarter, worldwide utilization rates tightened to 97% from 82% with GOM day rates gaining 50% for jackups and 19% for floaters. These are clear indicators that demand remains strong and capacity tight across the entire industry. Operating costs increased to $156 mln, excluding the hurricanes, pressuring margins in the quarter.
The selling pressure across the entire energy sector will continue, as stocks move in tandem with fluctuations in the spot market. We continue to feel, however, the sharp rise in energy prices has resulted in a wave of cash for producers, which will be deployed through capital spending plans, boosting demand for drilling and oil services over the next few years. ---Kimberly DuBord, Briefing.com
1:59PM Pfizer (PFE)
2.23 -1.74: Pfizer, the world's largest drug maker, on Thursday reported a 52% drop in third quarter profits as it continued to struggle with generic competition and faltering sales of it pain reliever Celebrex. More importantly, the company tempered its earnings guidance for the full-year and withdrew its financial outlook for 2006 and 2007, as a result of slower prescription growth and increased competition in key therapeutic markets, such as the U.S. lipid-lowering market in which its best-selling Lipitor drug competes.
Pfizer, which earlier this year announced a plan to reduce costs by $4 billion and return to double-digit earnings growth by next year, said it expects earnings for the year to be between $1.92 and $1.94 per share, compared with its prior guidance and consensus estimate of $1.98 per share. Consequently, shares of PFE have dropped more than 8% during the regular trading session - scraping a new eight-year low - as investors responded to the disappointing results and anticipated business conditions.
For the latest quarter, Pfizer said its profit fell to $1.59 billion, or $0.22 per share, from $3.34 billion, or $0.44 per share, in the year-ago period. However, excluding acquisition-related charges and costs associated with its new Adapting to Scale productivity initiative, the company earned $0.51 per share - three cents better than analyst expectations.
Revenue fell 5% to $12.19 billion, as sales for Human Health, Pfizer's largest division, declined by 7% year/year to $10.55 billion. Meanwhile, sales for the company's Consumer Healthcare business were $921 million, up approximately 8%. In the U.S., Human Health revenue fell 15% from a year ago, due to patent expirations and loss of exclusivity on key products, such as Neurontin. Additionally, the regulatory actions relating to Celebrex and the suspension of Bextra contributed to the declines. Year-to-date, revenues related to COX-2 inhibitors (i.e. Celebrex and Bextra) have decreased about $2.0 billion, or 62%, compared to the same period last year.
However, excluding the COX-2 inhibitors and products that have lost exclusivity, a number of positive factors also affected quarterly performance. Specifically, Pfizer's cholesterol drug Lipitor grew 16%, while many of the company's other top products also exhibited strong growth, including Norvasac, Zithromax, Zyrtec, and Detrol. Furthermore, Lipitor, which generates nearly $2.9 billion in worldwide sales on an annual basis, claimed victory last week in the ongoing U.K. patent litigation. As the world's best-selling drug, the triumph helps preserve Pfizer's position in the lipid-lowering market, despite signs of slowing growth in the U.S. where sales grew only 1% year/year.
Despite touting a strong pipeline of new products and streamlining initiatives, Pfizer continues to face a slowing earnings outlook as patent expirations begin to accelerate and generic competition threatens market share. Furthermore, the company's less-than-encouraging forecast for the full-year and reluctance to provide guidance for 2006 and 2007, draws questions about near-term growth prospects.
--Richard Jahnke, Briefing.com
11:36AM United Parcel Service (UPS)
71.89 +1.05: An expanding global economy led the world's largest package delivery service company to post a 7% rise in profits. UPS earned $953 mln, or $0.86 per share, up from $890 mln, or $0.89 per share last year, matching consensus on revenue growth of 18% to $10.5 bln. Buyers are returning to the stock, which had been cast aside over the past few months on concerns of slowing domestic growth, as it now appears UPS is back on track improving domestic volumes and profits.
Top-line growth was broad-based, including a 7% rise in US domestic package, 15% International, and 130% in Supply Chain and Freight assisted by acquisitions. UPS's domestic operations, which account for two-thirds of total sales, generated a 4% gain in daily volumes, ahead of economic activity. This included a 6.1% increase in Next Day Air. Average daily ground package volumes grew 3.6%. Operating profits in the US rose 18% to $1.11, as pricing remained firm. UPS achieved a 150 basis point improvement in operating margins to 15.7% due to product mix and cost controls. This was its highest Q3 margin in four years.
A key growth driver for UPS has been its international operations, particularly Europe and Asia. While growth rates have remained solid, the pace has certainly slowed due to increasingly difficult comparisons. Outside the US, total average daily package volume rose 11.2% to 1.5 mln. The global tally in the average daily package volume was increased 5.0%, or an additional 644, 000 packages a day, to 14.3 mln. International operating profits widened by almost 20% to $318 mln, but that is still down considerably from the 41% jump in the second quarter. On the plus side, operating margins improved 70 basis points to 16.5%. Export volumes were solid, up 12.5%, but were still down 18% on a sequential basis. Export volume growth in Asia included a rise of 34% to China.
With UPS trading at a 20% discount to its historical average, the downside appears limited as UPS was able to gain some momentum in its domestic business. At first glance, the quarter was solid, demonstrating the underlying strength in the US economy. The market was pleased UPS released growth estimates for FY06 of 11-16%, equating to $3.80-$4.40 per share. For this year, UPS maintained its schedule of 18-20% earnings growth, implying earnings in the range of $3.42-$3.48 per share. The current consensus estimates for FY05 and FY06 are $3.47 and $3.87, respectively. Rising fuel costs are a concern, but UPS should be able to mitigate the impact through air and ground surcharges.
--Kimberly DuBord, Briefing.com
11:24AM Amgen (AMGN)
74.33 -3.76: Shares of Amgen, which reported financial results late Wednesday, slipped in early trading after the nation's largest biotechnology firm beat third-quarter earnings estimates, but came up short on the top-line. Amgen, based in Thousand Oaks, California, reported net income of $1.1 billion, or $0.85 per share - excluding an acquisition related charge of $554 million - compared with $839 million, or $0.64 per share, last year. Total product sales for the latest quarter increased 19% to $3.0 billion from $2.6 billion a year ago. U.S. sales totaled $2.5 billion and international sales were $543 million, which included a foreign exchange benefit of about $9 million. Overall revenue, concurrently, grew 16% to $3.15 billion. On average, analysts were looking for a profit of $0.82 per share and revenue of $3.25 billion, according to Reuters Estimates.
During the third quarter worldwide sales of anemia drug Aranesp were up 38% year/year to $840 million, while sales of Epogen decreased 12% to $599 million as a result of declines in wholesaler inventory levels and lower demand. Combined sales of the company's hematology drugs Neulasta and Neupogen were $882 million, an increase of 17% from the same period last year. In addition, sales for Enbrel, the rheumatoid arthritis drug co-marketed with Wyeth (WYE), rose 35% to $680 million, driven by strong demand.
Due to higher sales volumes, cost of sales increased to $505 million in the quarter. Research and development expenses increased to $559 million, up from $495 million last year, due to staff-related costs and key clinical trials, including the Phase 3 trial for Amgen's bone loss therapy Denosumab. Meanwhile, SG&A expenses totaled $656 million, compared with $635 million, driven by higher Wyeth profit shares related to Enbrel sales growth. Operating margin, however, expanded to 45.5% from 41.9% a year ago.
Amgen reaffirmed its guidance for the full-year with earnings expected to be between $3.10 and $3.20 per share and revenue growth of mid-to-high teens. This compares with analysts' expectation for EPS of $3.19 on revenue of $12.65 billion. Given Amgen's relatively strong third-quarter performance, despite the modest revenue shortfall, the company has gained new momentum heading into the current quarter and fiscal 2006.
--Richard Jahnke, Briefing.com
11:09AM Southwest Airlines (LUV)
15.51 -0.07: On pace to enjoy an unprecedented 33rd consecutive year of profitability, low-cost, no-frills Southwest Airlines (LUV) continues to make money even as record-high jet-fuel prices afflict air carriers across the board.
Third-quarter net income at the largest U.S. airline by market value, and the only air carrier still aloft as an S&P 500 constituent, rose 91% to $227 mln. The increase was driven by record passenger revenues, and load factors, as well as strong performances in freight, charters, and business partner commissions. Excluding unrealized gains of $87 mln related to Southwest's successful hedging program, Q3 (Sep) earnings of $0.21 per share checked in $0.03 better than the Reuters Estimates consensus.
Operating revenues increased 18.8% versus a year ago, or 5.9% per available seat mile (ASM), to $1.99 bln. That was slightly better than the $1.96 bln consensus estimate, as passengers paid higher fares while Southwest's fleet of 429 Boeing 737 jets flew with more seats occupied than they ever have in the quarter.
The Dallas-based carrier remains hopeful that year/year unit revenue trends will continue to improve as they did throughout Q3. Notwithstanding the lingering impact of hurricanes Katrina and Rita on flight schedules, Southwest noted that it is enjoying favorable load factor trends in October and that customer bookings for the remainder of the quarter are good. High crude prices will continue to be a thorn in the company's side, but not as sharp a thorn as some of its peers are feeling. LUV is 85% hedged in Q4 at an average of $26/bbl. Jet fuel costs, however, are expected to be well above the Q3 cost of $0.95/gallon.
--Brian Duhn, Briefing.com
10:44AM McDonald's (MCD)
32.95 -0.74: In terms of its third quarter earnings result, McDonald's (MCD) let the cat out of the bag on Oct. 12 when it informed the market that it expected to post a profit of $0.58 per diluted share, including a $0.02 per share benefit related to the completion of the transfer of the company's ownership interest in an international market to a developmental licensee. Its official report Thursday morning, then, proved somewhat anti-climactic as the Dow component made good on its word and reported earnings per share of $0.58.
The EPS figure was in line with the consensus estimate. McDonald's net income, however, slipped 6.0% to $735.4 million as a $0.07 per share tax benefit in the year-ago period made for a challenging comparison. On a more positive note, revenues jumped 8.0% to $5.33 billion (consensus $5.25 billion), global comparable sales rose 4.1%, and operating income increased 6.0% to $1.16 billion.
When the company issued its earnings guidance on Oct. 12, it also released its sales results for the third quarter. Reflecting the popularity of new menu items and the company's marketing initiatives, comparable sales for the third quarter were up 3.7% in the U.S., 5.1% in Europe, and 3.5% in Asia/Pacific, Middle East and Africa. Added proof of the company's success is found in McDonald's ability to bolster shareholder returns through stock buybacks and increased dividends. In 2005 the company boosted its annual dividend 22% to $0.67 per share and it was indicated in today's press release that McDonald's anticipates returning an additional $5.0-6.0 billion to shareholders in 2006 and 2007 combined.
Shares of MCD have pulled back in the wake of the Q3 report, but at the same time, they had risen 7.4% in the past week. Accordingly, we consider the move to be a sell-the-news response. Like other consumer discretionary stocks, MCD will continue to be impeded by the market's concerns about high energy prices prompting a slowdown in consumer spending. That, however, is a near-term consideration. Looking at the bigger picture, McDonald's continues to deliver the results that underscore its appeal as a long-term investment.
--Patrick J. O'Hare, Briefing.com
10:00AM Ford Motor Co. (F)
8.43 -0.04: Ford Motor Company (F) reported a third quarter net loss of $0.10 per share, excluding non-recurring items. The loss was the company's first in nearly two years and was a penny wider than the Reuters Estimates consensus. Falling sales of profitable sport-utility vehicles contributed to the weakness in its North American automotive business, and like its peers, Ford continued to see profit margins squeezed by rising healthcare costs, intense competition overseas (i.e. Asia), high gas prices, and aggressive discounting initiatives.
On a positive note, Ford's worldwide automotive sales for the third quarter rose 5.7% to $34.7 bln, above forecasts of $31.8 bln and the $32.8 bln generated in the same period last year. Ford Motor Credit, the nation's #1 auto finance company, reported net income of $577 mln, down $157 mln from a year earlier, while Fords Hertz subsidiary reported a Q3 pre-tax profit of $262 mln, an improvement of $13 mln from the same period in 2004.
Hertz profits, however, will no longer be part of Ford's bottom line next year. Ford has agreed to sell the world's #1 car-rental business to an investor consortium for roughly $15 bln (including debt) a move that will strengthen Fords balance sheet and reinforce managements commitment to investing in its core automotive business. Until Ford actually inks a UAW deal similar to the one reached recently by GM, which will slash GM's costs by $3 bln a year, health care costs of $1,309 per vehicle will continue to add pressure to Ford's ability to drive profits.
With the latter in mind, Ford indicated that it expects FY05 earnings to be at the low end of previously issued guidance of $1.00-1.25, excluding special items. The Reuters Estimates consensus number is pegged at $1.06, which goes to show analysts were already taking a conservative view of Ford's earnings prospects.
Ford shares are currently off about 14% for the quarter and down more than 40% year-to-date.
--Brian Duhn, Briefing.com
9:39AM Coca-Cola (KO)
42.72 +0.92: Coke has been on a major restructuring path, making structural and managerial changes in response to an increasingly competitive marketplace. The results are starting to flow through to the bottom line as Coke's profits soared 37% in the third quarter - its biggest profit gain in more than a yar - on rebounding sales in the US, along with strong growth in Asia and Europe. Specifically, Coke earned $1.28 bln, or $0.54 per share, on revenues of $6.04 bln, which were up 8% year-over-year. There were many moving parts to the EPS line, including several one-time charges and gains. The comparable EPS figure for Coke was $0.57, four cents ahead of consensus and assisted by a lower tax rate, higher case sales, and lower SG&A expenses.
The top line expanded with a 5% rise in gallon sales, favorable pricing and mix, and a positive currency benefit. Coke achieved a 6% increase in its International segment, driven by double-digit gains in emerging markets like Russia, China, South Africa, and the Middle East. Coke's success has been due in part to the launch of several new products, including Coca-Cola Zero. CEO Nevill Isdell is ramping up marketing spending for the new diet version, upping the ante against market leader, Diet Pepsi. Carbonated unit case volumes grew 2%, led by 3% growth internationally. the company's non-carbonated segment continues to grow faster than its traditional products due to the success of Dasani water and Powerade, which grew 28% and 21%, respectively in the quarter. Non-carbonated unit case volumes jumped 13%, excluding water. Coke increased its market share in sports drinks and juice segments.
In North America, unit case volumes rose 3%, with net revenues gaining 8% on the back of improved pricing, mix, and a small currency benefit. A double-digit rise in marketing spending impacted segment operating profits, which were up 10%. There appears to be some timing issues with respect to SG&A expenses in the quarter with regard to innovation spending and stock options expensing. The key takeaway was the better global volume figure, but Coke is facing considerable headwinds that include escalating cost environment for its bottlers, the strengthening of the US dollar, and concerns over the level of spending necessary for Coke to reach it growth targets. Coke remains a turnaround story but it certainly delivered the goods this quarter. Shares are trading at 19x current earnings, well below its historical average of 26.8x.
--Kimberly DuBord, Briefing.com
9:30AM Netflix (NFLX)
28.35: Netflix on Wednesday said its third quarter earnings fell sharply from a year ago, as higher marketing costs and other charges crimped margins, but beat Wall Street expectations. For the latest quarter, the online DVD rental company reported profits of $10.2 million, or $0.16 per share, compared with $18.9 million, or $0.29 per share, last year. If not for the previously announced lawsuit settlement, the company would have earned $13.4 million, or $0.20 per share - five cents better than the consensus EPS estimate of $0.15.
Revenue climbed 23% year/year to $141 million as the company acquired 921,000 gross subscribers during the period, up 56% from a year earlier. Netflix closed the quarter with approximately 3.5 million subscribers, compared with $2.2 million last year. Separately, the Los Gatos, California-based company said fewer subscribers are canceling their monthly subscription service, even as rival Blockbuster (BBI) vies for market share in the rapidly growing online DVD rental industry. Netflix's turnover rate, as measured by so-called churn, fell 130 basis points from a year ago to 4.3%.
Netflix raised its fourth-quarter net income estimate to $4.0 to $7.5 million, up from a range of $1.0 to $6.0 million. The company also lifted its revenue estimate to a range of $191 to $196 million from an earlier range of $187 to $193 million - slightly below the consensus estimate of $195.18 million. Furthermore, Netflix expects ending subscribers to be between 4.0 and 4.2 million, compared with its prior guidance of 3.85 to 4.85 million. For fiscal 2006, the company anticipates ending subscribers of at least 5.65 million, generating revenue of approximately $940 million and income between $50 and $60 million.
Clearly, Netflix is making progress in the online DVD rental industry, reflecting its broadening consumer appeal and strengthening competitive position. The company has aggressively focused on developing new services and price promotions to attract customers, despite the near-term impact on profitability. Meanwhile, Blockbuster warned earlier this month that it will not achieve its goal of having 2 million subscribers by April 2006, an indication that Netflix's efforts are proving successful.
--Richard Jahnke, Briefing.com
8:51AM Page One - Buyers Step Up
The market burst through the pervasive pessimism yesterday. Sentiment will not be a one-way street.
There was little news to account for the rally Wednesday. It can be ascribed to the Beige Book or other factors, but it was in fact a technical move. The selling pressures abated and the latent buyers stepped up. We were surprised by the size and timing of the move, but not by the fact that there are those looking to buy at these levels.
As earnings season progresses more such action is possible.
The earnings reports this morning lean slightly positive. Three Dow 30 components are on the calendar. Coca-Cola beat by a solid 4 cents. SBC beat by 6 cents. McDonalds is due to report but has not yet done so. Not bad overall.
A number of other major companies reported. Pfizer beat by 3 cents but warned of lower than expected profits for the fourth quarter. Ford missed by a penny. UPS reported in line. Eli Lilly beat by 2 cents. Ingersoll-Rand beat by 3 cents. McGraw-Hill beat by 3 cents. Baxter beat by a penny. Nokia beat slightly but said average selling prices were under pressure. Yesterday after the close eBay reported in line but gave conservative guidance for this quarter. Not so great.
Oil prices are down another $0.60 this morning to under $62 a barrel. We still believe oil could drop below $60 soon.
New claims for unemployment for the week ended November 15 dropped to 355,000 from 390,000 the week before. The impact from the hurricanes was 40,000, so the underlying trend is still just above 300,000. This reflects a strong job market.
It is a bit early for a sustained earnings season rally, but yesterday clearly helped the market tone. It washed away the sense of a downward drift and raised the stakes for those shorting stocks. The earnings reports are coming in just fine, and just about the worst of the economic and inflation outlook has been digested by the market. Next week will bring an even heavier slate of earnings reports that should help stabilize the market.
--Dick Green, Briefing.com
8:39AM eBay (EBAY)
42.01: The market put eBay up for auction in January, with shares tumbling over the next few months, before finally reaching a bargain price of $30 in April on concerns of slowing growth. The online auctioneer is back in business, though, reporting a strong third quarter result that included profit growth of 40%. Yet, its conservative full year guidance could dampen the market's response. The San Jose, California-based company earned $255 mln, or $0.18 per share, compared to $182.3 mln, or $0.13 per share, last year. Stripping out one-time items, the comparable EPS figure was $0.20, matching the consensus estimate.
The performance was particularly impressive considering it came during a historically slow season. Revenues increased 2% sequentially and 37% yearly to $1.1 bln on high take rates and listings growth. The revenue figure came in above consensus and was at the high-end of the company's own forecast. A positive sign was the reacceleration in eBay's core markets - the US and Germany - and the impressive growth out of Asia. International sales rose 43% to $408.9 mln, while the US grew 29% to $449.5 mln. Gross margins were 82%, in line with last quarter on the continued strength in eBay's total take rate, which improved to 10% from 9%. Operating margins widened to 35.1% from 33.8% during last year's quarter.
Since eBay's revenues are derived in part from a percentage of the final auction price, watching Gross Merchandise Volume (GMV), or the total value of all successfully closed listings, is meaningful. This figure rose 3% y/y to $10.8 bln, down slightly from $10.9 bln last quarter. eBay has been able to drive growth by raising the average price of goods sold through various means, including adding security for funds transfer by way of PayPal. GMV per listing rose sequentially to $24.77 from $23.55. 450 million total auctions took place in the quarter.
The holiday season is off to a strong start, as eBay enjoys momentum in its core markets. Historically, the fourth quarter is its strongest period. With consumers facing higher costs to heat their homes and to fill their gas tanks, they may turn to eBay for bargain shopping. The caveat was eBay's full year guidance. Even though it raised estimates, its profit guidance to as high as $0.83 per share was conservative considering the strong Q3. The new figure is in-line with consensus, but considerably higher than its July forecast of $0.77-0.78 per share. The continual shift from offline to online will drive growth for eBay as it expands its trading platform and efficiency worldwide. The key risks to watch include core US and international transaction revenue trends, competition, progress in China, fixed price vs. auction mix, technical outages, and seasonality of earnings. The stock trades at a 50.3x forward earnings, compared to its Internet peers Yahoo! (YHOO) at 63x and Google (GOOG) at 54.6x.
--Kimberly DuBord, Briefing.com
8:09AM Labor Ready (LRW)
22.71: The employment report on the first Friday of each month has made it clear that the labor market is improving. In case you needed further proof, though, just turn your attention to the record third quarter earnings result from Labor Ready (LRW). After Wednesday's close, the nation's leading provider of temporary manual labor, and suggested holding in Briefing.com's Active Portfolio, said its net income increased 40% to $21.8 million, or $0.40 per diluted share, on a 21.7% increase in revenues to $360.4 million. According to Reuters Estimates, Labor Ready had been expected to report a profit of $0.39 per share on revenues of $352.2 million.
The company attributed its performance to higher revenue, lower overall workers' compensation expense, and greater gross margins, which expanded to 31.3% from 30.9% in the year-ago period. CLP Resources, a skilled construction trades staffing firm that was acquired in May, provided 12.8% of the company's 21.7% year-over-year revenue growth. However, organic strength was evident in the 8.7% revenue growth at Labor Ready branches that have been open 12 months or longer.
For the fourth quarter, the company expects revenue in the range of $325-330 million and net income per share to be $0.24-0.26. Consensus estimates had been set at $0.26 and $320.7 million ahead of the report. For FY05 revenues are expected to be in the range of $1.225-1.230 billion, with net income per share between $1.13 and $1.15. The latter brackets the consensus estimate of $1.14 while the former is above the $1.196 billion consensus expectation. The consensus EPS estimate for FY06 is pegged at $1.34, which translates to 18.0% year-over-year growth versus FY05.
This was a very reassuring report from Labor Ready, which is poised to benefit further from the massive rebuilding effort that will take place along the Gulf Coast. The stock, which trades at 20.6x trailing twelve months earnings, continues to trade at a substantive discount to its 5-yr historical average of 25.7x. In light of its encouraging performance, strong growth prospects, and rising EPS estimates, we continue to believe Labor Ready is a stock that affords investors growth at a reasonable price.
--Patrick J. O'Hare, Briefing.com
9:56AM Huaneng Power Int'l, Inc. (HNP) Goldman Sachs downgrades In-Line to UNDERPERFORM . Goldman Sachs downgrades HNP saying the rev impact of competitive bidding for power in the Northeast China Network is proving greater than anticipated. Firm also notes that even though the shares have underperformed and most investors appear underweight the stock, they see limited positive news potential to improve share price.
9:55AM Respironics (RESP) Wachovia downgrades Outperform to MKT PERFORM. Wachovia downgrades RESP due to concerns that RMD may be poised to gain share from the co, citing the following: 1) the co's new M Series flow generators will not be launched until January 2006 while RMD's S8 has been on the mkt for months; 2) the S8 will offer Expiratory Pressure Relief to counter the co's C-Flex feature; and 3) sleep centers rated RMD's S8 more highly than RMD's successful Mirage Swift mask. They note that while the co's new M Series looks promising, they think the interim could be rough and they recommend that investors stay on the sidelines given the risk of share losses and slower sleep growth.
9:55AM ECC Capital (ECR) JMP Securities downgrades Mkt Outperform to MKT PERFORM. JMP Securities downgrades ECR as industry pressures persist, pressuring margins to new lows and in light of a revelation that credit spreads are likely to begin widening thus forcing lenders such as the co to either raise mortgage rates (which, to date, in the face of hyper-competition for mkt share, has proven a difficult task) or take losses on the sale of current production.
9:54AM Aztar (AZR) Deutsche Securities downgrades Buy to HOLD. Deutsche Bank downgrades AZR following Q3 results, as they believe the recent pullback in the sector has created more favorable risk/reward opportunities in other gaming stocks. Specifically, they recommend investors rotate out of AZR shares and into shares of BYD, as they believe BYD offers a stronger and more visible growth pipeline at a similar valuation. They think it is difficult to identify a catalyst to move the co's shares higher at this juncture, while the AC Trop faces tougher comps and competition in 2006/2007.
9:53AM Home Depot (HD) Bear Stearns upgrades Peer Perform to OUTPERFORM. Bear Stearns upgrades HD based on: 1) IT investments drive margin expansion opportunities and EPS upside, 2) HD Supply provides the next leg of top line growth, and 3) the stock is trading at 0.87x relative to the S&P 500 and at 0.87x its average P/E since 2003.
9:52AM Nautilus Grp (NLS) RBC Capital Mkts downgrades Outperform to SECTOR PERFORM. RBC Capital downgrades NLS as they believe a weakening consumer/retail environment presents modest downside risk to 4Q05 guidance and FY06 ests. They note that while they remain comfortable with Q3, they see modest downside risk to Q4 guidance, given: 1) the direct channel may contract against a very tough growth comparison; 2) while the retail expansion continues to progress very well, retailers may be cautious with reorders; and 3) supply chain inefficiencies could preclude margin leverage in the near-term.
9:51AM North Fork Banc (NFB) Harris Nesbitt downgrades Outperform to NEUTRAL. Harris Nesbitt downgrades NFB following disappointing Q3 results, reflecting intense pricing competition in NYC and a flat yield curve. Firm cuts their ests for 2005 and 2006.
9:47AM Apollo Group (APOL) Stanford Research downgrades Buy to HOLD. Stanford downgrades APOL due to the recent turn of events related to a class action lawsuit being leveled at the co. Given the uncertainty that is likely to follow for some time regarding this case, firm thinks that investors may be better served by waiting on the sidelines with respect to shares of the co.
9:43AM Jetblue Airways (JBLU) Calyon Securities downgrades Neutral to REDUCE. Calyon downgrades JBLU following Q3 results and the announcement from JBLU mgmt that as a result of recent brutal oil price increases, it expects to have a negative operating margin of between 5% and 7% in 4Q05 and a loss for the year. Firm thinks that if oil prices remain at current levels, JBLU will be forced to try to raise prices, which will bring down their high load factors and will probably force them to slow down its aggressive growth rates, which would lead the market to put a lower P/E valuation on the co going forward.
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