From Briefing.com: 4:22PM Komag raises Q4 rev guidance (KOMG) 39.20 +0.34 : Co raises their Q4 rev guidance; sees Q4 revs of $190.8 -192.6 mln vs. $186.3 mln consensus. Co says the expected increase in the revenue was due to strong demand throughout the quarter and the Company's ability to install, qualify and produce product on new equipment ahead of the prior schedule. The co expects net margin for the fourth quarter to approx 17% to 18%, consistent with prior guidance. Co says with all of the equipment for the first capacity expansion now installed, the co expects available media production capacity for the first quarter of 2006 to approx 31 mln disks. Co says current customer demand for Komag disks appears strong, which together with the increased capacity could lead to increased rev in the first quarter of 2006, over the fourth quarter of 2005.
4:12PM Cascade Microtech sees Q4 EPS of $0.11 vs $0.19 consensus; sees revs $17.7 mln vs $19.7 mln consensus (CSCD) 12.40 -1.07 : Co sees Q4 EPS of $0.11 vs $0.19 consensus; sees revs $17.7 mln vs $19.7 mln consensus. This is below guidance provided on October 26, 2005, for revenue of $18.8-$20.0 mln and diluted EPS of $0.15-$0.20. The revenue shortfall was caused by delays in orders and shipments in the Company's Engineering Products Division, primarily in Japan. The earnings shortfall was primarily due to the lower revenue.
4:20 pm : The major indices closed relatively unchanged, again demonstrating their resilience in 2006 considering broad-based consolidation efforts weighed on sentiment throughout most of the session. Stocks opened sharply lower, as Alcoa (AA 29.60 -0.97) kicked off the earnings season last night with a disappointing quarterly report, sparking worries that profit growth is slowing and leaving investors little incentive to hold onto recent market gains. As of yesterday's close, the Dow, S&P and Nasdaq were already up 2.7%, 3.4% and 5.1%, respectively, for the year -- surpassing all of last year's gains, leading many to believe that stocks may have moved too far too fast. Nonetheless, as the day wore on it became apparent that Alcoa's 16% year/year decline in Q4 earnings should not be considered a harbinger of a poor quarter overall. We at Briefing.com still expect aggregate Q4 operating earnings for the S&P 500 to rise about 13% over the previous year.
With regard to sector strength and weakness, Materials turned in the day's worst performance following Alcoa's earnings miss and a Q4 profit warning from Phelps Dodge (PD 146.58 -7.97). Health Care was the most influential leader to the downside, as weakness in drug and HMOs offset a late-day rebound in biotech, while Consumer Staples and Industrials also showed relative weakness. Despite a sell-off in Treasuries and subsequent rise in borrowing costs, the rate-sensitive Financial and Utilities sectors closed flat. The 10-yr note closed down 14 ticks to yield 4.42% as the first of about $100 bln of U.S. debt to be auctioned off over the next month (e.g. $13 bln of 5-yr notes tomorrow) raised supply concerns.
Energy, though, extended its year-to-date leading 6.1% gain as concerns over Iran's nuclear plans initially prompted a rebound in oil prices. Consumer Discretionary also traded higher as retail got a boost following Home Depot's (HD 41.80 +0.98) proposed $3.2 bln bid for Hughes Supply (HUG 45.61 +7.06), which plays into our belief that 2006 will be a big year for M&A activity. A 1.2% surge in homebuilding provided additional sector support after D.R. Horton (DHI 40.33 +0.38) said Q1 net sales orders rose 19% to a record $3.2 bln. Eking out a small gain was Technology, which turned positive going into the close. The sector (and Nasdaq) benefited primarily from upbeat comments out of Apple Computer (AAPL 80.86 +4.81), highlighted by news that Q1 revenues are now expected to reach $5.7 bln (consensus $5.04 bln). Chip stocks, as an analyst upgrade helped Advanced Micro Devices (AMD 34.93 +1.68) hit a new 52-week high, also provided a lift. BTK +0.6% DJ30 -0.32 DJTA -0.5% DJUA +0.1% DOT -0.3% NASDAQ +1.63 NQ100 +0.1% R2K +0.7% SOX +0.7% SP400 +0.3% SP500 -0.46 XOI +1.0% NASDAQ Dec/Adv/Vol 1298/1739/1.97 bln NYSE Dec/Adv/Vol 1520/1837/1.73 bln
3:02 pm General Motors (GM)
2.13 -0.28: GM is making news again with its plan to cut prices on approximately 80% of its cars and trucks. Additionally, Jerry York, an advisor to Kirk Kerkorian's Tracinda Corp., is calling upon the company to do more to return to prosperity.
At this juncture, neither of the aforementioned news items is doing much to help GM's stock. Sure, the York plan lays out a number of constructive steps - reduce payments to GM directors, cut senior management salaries substantially, and reduce salaries or wages for rank and file workers proportionally - but it also diminishes what is arguably the only attractive investment attribute for GM right now. Specifically, the plan also calls for cutting GM's $2.00 annual dividend by 50%. Such a move would save GM roughly $570 million a year, but in the process, it would also erode the interest in GM by income-oriented investors.
The five principles for success outlined by York include the following:
Be realistic about market share and revenue expectations, and gear the cost and expense structure accordingly
Offer fewer, better products that will sell at higher net wholesale prices
Take a "clean sheet of paper" approach to the business
If something isn't part of the core business or can't make money, sell or close it
Articulate a sense of purpose by setting financial goals and milestones for the next three years
Granted GM was up 8.0% on Monday following a Goldman Sachs upgrade, but if the York plan was really the elixir that it seems to be for investors, we'd expect there to be a stronger response, particularly since it was also indicated that Kerkorian is interested in reacquiring the 12 million shares he sold for tax purposes at the appropriate time, and possibly, 12 million additional shares. Instead, the market is reacting as if York's plan isn't anything it didn't already know.
As for GM's price cut announcement, the timing is certainly ironic as it underscores GM's struggles to defend its market share with regularly-priced vehicles. At the same time, it highlights another key concern for this company - and that is the concern that GM's promotional activity is conditioning consumers to expect lower prices. In other words, with inflation trends firming, GM seems to be creating a dangerous environment of deflation for itself and its U.S. counterparts.
We intimated Monday that near-term sentiment may be changing for GM, which has surged 21% since Dec. 29 when it hit a low of $18.33. Be that as it may, with the likely possibility that GM's dividend will be cut, the investment outlook continues to be a dour one for investment-minded individuals.
--Patrick J. O'Hare, Briefing.com
1:09 pm Apple Computer (AAPL)
81.30 +5.25: At the Macworld Expo, Apple Computer's Chief Executive Steve Jobs announced that the company's retail stores generated $1.0 billion in quarterly revenue for the first time ever during the fiscal first quarter (Dec.). Additionally, it was noted that Apple sold a whopping 14 million iPods, as well as 1.25 million Macintosh computers. The company is scheduled to conduct a conference call on January 18, following the release of its earnings report, at which point further details regarding the quarter's performance will be disclosed.
As the preliminary Q1 results reflect, iPod sales continue to grow and remain a driving force behind AAPL shares. In its most recent annual report, for the 2005 fiscal year ended September 30, iPod sales soared 248% on a year-over-year basis. That unit's sales accounted for one-third of the company's overall net sales, and catalyzed a 68% rise in overall revenue. Between FY02, the year during which the first iPod rendition launched, and the most current year-end, Apple's net income has soared nearly 2,000%. During that time, earnings per share grew 1,600%.
On the day of iPods introduction, AAPL shares closed at a price of $18.14 per share. The stock now trades at $81 and is up 11.0% this year alone.
--Lisa Beilfuss, Briefing.com
12:30 pm Supervalu (SVU)
34.07 +1.25: Shares of Supervalu rose more than 5% early Tuesday after the Minneapolis-based grocery retailer and food wholesaler posted third quarter results ahead of analysts' expectations. For the period, the company earned $75.2 million, or $0.53 per share, compared with $64.9 million, or $0.46 per share, in the same quarter last year. However, excluding charges of approximately $6.4 million, or $0.04 per share, related to growth initiatives and costs to terminate recent talks to acquire Albertson's Inc. (ABS), profits were flat with last year's results and seven cents better than the Reuters Estimates consensus.
Supervalu reported net sales of $4.7 billion, up from $4.6 billion a year earlier. That was slightly better than the consensus estimate of $4.63 billion, as both retail and supply chain sales showed improvements during the quarter. Third quarter retail sales increased 1.9% from the prior year period to $2.5 billion, due in large part to new store openings, offset by higher store closings at Save-A-Lot. However, comparable store sales were negative 0.9%, with positive comparable store sales at company operated Save-A-Lot stores.
Retail operating earnings were a record $104.5 million, or 4.2% of revenue. Sales for supply chain services were up 4.4% at $2.2 billion, as the acquisition of a third-party logistics services business in February of 2005 and new growth offset customer attrition. Segment operating earnings for the period fell to $53.9 million, or 2.4% of revenue, from $59.5 million, or 2.8% of revenue, primarily reflecting the costs associated with technology investments and new produce initiatives.
The company also issued upside guidance for fiscal 2006 with diluted earnings estimated to be in the range of $1.89 to $1.94 per share, which includes approximately $0.43 related to the plan to sell 20 Pittsburgh stores, start-up costs related to growth initiatives, and losses resulting from Hurricane Katrina. Excluding those charges, earnings are expected to be between $2.32 and $2.37 per share, compared with the consensus EPS estimate of $2.14.
--Richard Jahnke, Briefing.com
12:23 pm Tiffany & Co. (TIF)
41.00 +1.05: Combined with an increased full-year profit forecast, Tiffany & Co. this morning announced a 6% increase in net sales during the November 1 through December 31, 2005 holiday period. On a constant-currency basis, net sales rose 9%.
Fueled by strong sales across its Asian markets, and also due to continued strength in in U.S. retail sales, worldwide comparable store sales grew 6% on a constant currency basis. As we noted at the time of Tiffany's most recent earnings report, the company has been successfully turning around its Japanese operations, driving comparable store sales, and delivering margin improvement despite cost headwinds.
The turnaround in Japan, which accounts for a quarter of overall sales, continues to be a focal point. Over the holiday period, comparable store sales there rose 7%; last year, sales in Japan fell 7% on a same-store basis. On its conference call, Tiffany noted that online shopping became available to Japanese consumers during the period. In other Asia-Pacific markets, same-store sales rose 11% on top of last year's 5% gain. Separately, a decline in London sales was behind a lower than expected 3% increase in European comps.
In the U.S., an increase in the average amount per transaction helped drive a 6% increase in comparable store sales. According to the company, holiday sales growth was spread among many jewelry categories but continued the year's trend of being skewed toward higher price points. In addition, Tiffany noted a increase in men's jewelry sales. Chief Executive Michael Kowalski asserted that diamond jewelry sales continue to be especially strong, largely due to increased wholesale diamond sales.
The luxury retailer said it now anticipates full-year 2005 earnings of $1.60-1.62 per share, up from a prior forecast of $1.55-1.65. The figure excludes any additional tax benefits related to repatriation provisions. Per the Reuters Estimates consensus, analysts are expecting Tiffany to deliver $1.64 in FY05 EPS. For FY06 Tiffany is projecting 10% net sales growth, at least 12% growth in earnings before income taxes, and diluted EPS of $1.77 to $1.82.
Although Briefing.com has held an Underweight rating on the Consumer Discretionary sector since April of 2004, we continue to view Tiffany as a bright spot that is poised to demonstrate relative strength amid a slowdown in discretionary spending. Currently, TIF shares trade at 25.0x expected FY05 earnings, which is roughly in-line with its five-year average.
--Lisa Beilfuss, Briefing.com
09:29 am Phelps Dodge (PD)
154.55: Phelps Dodge, one of the world's leading copper producers, slashed its earnings guidance for the fourth quarter due to a slew of special items, production shortfalls of copper and molybdenum, and losses on metal price hedging. PD took its earnings guidance range of $4.15-4.40, issuedin October, down to $1.00-$1.30 per share. Special charges in the quarter now total $2.05 per share, up considerably from its previous forecast of 23 cents. The comparative range is $3.05-$3.35 - well below the current consensus estimate of $4.72 per share.
Phelps stated fourth quarter copper production was 613 mln pounds, 7 mln pounds below the low end of its previous guidance. Copper prices during the fourth quarter averaged $1.95 per pound on the London Metal Exchange and $2.03 per pound on the New York Commodity Exchange, while fourth quarter guidance was based on a projection of $1.80 per pound. Production of Molybdenum, a metal used to strengthen steel making it less susceptible to corrosion and rust, was 14.5 mln pounds, 1 mln pounds below the low end of its target range.
The updated guidance takes into account several special items, including taxes on cash repatriation in its South American operations, charges associated with the sale of its specialty chemicals units and its North American magnet wire assets. Phelps anticipates ending the year with a cash balance of $1.9 bln, which is $400 mln below October guidance, with the difference going to postretirement medical and life insurance benefit obligation, environment obligations, and additional taxes. Its price protection program installed last year to secure sales on 50% of projected 2007 copper output suffered higher operating costs after copper prices rose higher than the company expected in Q4.
Phelps, a suggested holding in our Active Portfolio, is expected to release earnings January 27th. The combined negative effects of its price protection programs and several one-time items will surely take the wind out of its shares, which have been rising in lock-step with copper prices. Our positive view on the stock is based on the continued strength in copper prices, PD's financial position, and the stock's discounted valuation. Today's revision took the market by surprise, sending shares down 10% in pre-market activity. We will be reviewing our position on the stock following today's news.
--Kimberly DuBord, Briefing.com
09:14 am Applebee's (APPB)
22.49: After Monday's close, Applebee's International reported same-restaurant sales for the month, quarter, and year-end periods. Additionally, the restaurant chain issued profit guidance for the current quarter as well as for its 2005 and 2006 fiscal years.
In December, system-wide same-restaurant sales rose 1.7% - more than three times the Briefing.com consensus estimate. Comparable sales for franchise restaurants increased a better than expected 2.3%, while same-store sales at company restaurants unexpectedly fell 0.2%. Applebee's attributed the decline in company restaurant sales to a 5.0-5.5% decrease in guest traffic. The company noted the same factor upon reporting disappointing same-store sales for November. A higher average check helped serve as an offsetting factor, and, versus November, same-restaurant sales were up across the board.
Marking the 30th consecutive quarter of same-store sales growth, Applebee's posted a 1.0% increase in Q4 system-wide sales. Comparable sales at franchise stores rose 1.6%, but company stores saw a 0.9% decrease. For the 2005 fiscal year, same-restaurant sales grew 1.8% on a system-wide basis, rose 2.7% for franchise stores, and fell 0.9% in company stores. Applebee's noted that, for the 13the straight year, more than 100 new restaurants were opened.
Applebee's said fourth quarter (Dec.) diluted earnings per share should now check in at $0.27, which is in line with the Reuters Estimates consensus. The company anticipates approximately $1.30 in EPS for the full-year, which is a penny ahead of Wall Street's forecast and excludes a Q3 impairment charge that is expected to be dilutive by three cents per share. For FY06, the company foresees EPS between $1.43-1.47, which translates to year-over-year growth of about 12% (the consensus estimate is pegged at the high end of that range). With respect to same-restaurant sales, Applebee's expects to report 2-3% growth in FY06 system-wide sales, with the first half of the year reflecting lower sales than the latter half. Applebee's is slated to announce its Q4 and FY05 earnings results following the bell on February 8.
Briefing.com has maintained an Underweight rating on the Consumer Discretionary sector since April of 2004, as the effects of rising interest rates and higher energy costs are expected to impact discretionary spending.
--Lisa Beilfuss, Briefing.com
08:59 am Wyeth (WYE)
47.52: After the close Monday, Wyeth offered initial guidance for the 2006 fiscal year. The Madison, New Jersey-based pharmaceutical company estimated profits in the range of $2.97 to $3.07, ex-items. The estimate excludes potential restructuring charges, but includes the expensing of stock options, which represents about $0.12 to $0.15. If these expenses were excluded, 2006 earnings would be in the range of $3.09 to $3.22 per share, versus the current Reuters Estimates consensus of $3.14.
Meanwhile, net revenue for the upcoming year is expected to grow in the mid to upper single-digit range and gross margin is expected to be in the range of 71% to 73%.
"This 2006 earnings projection represents an increase targeted at 10% over 2005," said Wyeth's Chairman, President, and CEO Robert Essner. "Our expectations for 2006 reflect solid ongoing operating performance driven both by revenue growth and cost control."
Wyeth previously announced that earnings for 2005 would be in the range of $2.63 to $2.73 per share, including options expensing. Excluding these costs, 2005 earnings were estimated to be between $2.80 and $2.90, below the consensus estimate of $2.94. However, on Monday, the company said it expects actual results to slightly exceed the upper end of the range. Based on the news, shares of Wyeth are trading slightly higher in pre-market action.
--Richard Jahnke, Briefing.com
08:55 am Alcoa (AA)
30.57: Alcoa's fourth quarter profits were negatively impacted by higher costs and plant disruptions that eroded the benefits of higher aluminum prices. Alcoa stated average aluminum prices rose 12% in the quarter to $2,177 a ton. Aluminum is expected to average roughly $2,094 per ton this year - up 10% from 2005 levels. Alcoa's shares have moved materially since bottoming in September, but a 16% plunge in fourth quarter profits sent shares tumbling in European trading.
Officially kicking off the fourth quarter earnings season, Alcoa reported net income declined to $224 mln, or $0.26 cents per share, from $268 mln, or $0.30 per share a year prior, despite a 12% rise in sales to $6.67 bln. A raw aluminum price gain of 22% was lost to inflated costs, totaling $93 mln, that resulted from plant shutdowns caused by the hurricanes, unplanned repairs at a plant in Australia, and a worker strike in Spain. Excluding non-recurring items, profit from continuing operations was $0.35 per share - two cents below expectations.
Rising energy and chemical costs, including caustic soda used to extract aluminum from bauxite, eroded the benefit of higher aluminum prices. Alcoa does not anticipate a sharp spike for input prices in the year ahead; therefore, it hopes ongoing restructuring and productivity efforts will improve the bottom line. Inflationary pressures weren't limited to just rising energy and raw material costs, as total costs and expenses rose at 2x the rate of sales.
We continue to recommend investors steer clear of Alcoa, which continues to suffer from classic manufacturing costs pressures. Profits will likely remain restrained despite a positive outlook for aluminum prices due to high input and energy costs, rising interest rates, the dollar strengthening, and excess production. As we have stated previously, the metal markets in the first half of 2006 will mirror 2005 given the tight market conditions between supply and demand. Given the uncertainties and margin pressure, we prefer the likes of Phelps Dodge (PD) and Inco (N) given their attractive valuations.
--Kimberly DuBord, Briefing.com
09:44 am OmniVision: Robert W. Baird reiterates Neutral. Target $20 to $20. The firm says their checks indicate momentum is coming back for OVTI: a design win for the upcoming Xbox 360 camera attachment, limited quantity shipments to Nokia, while new C.O.B 1.3mp sensor could provide an opportunity to regain some traction in the 1.3mp mobile phone mkt.
09:43 am Mediacom Comm: Goldman Sachs downgrades In-Line to Underperform . Firm is saying they believe regional and particularly highly levered smaller M.S.Os will be marginalized with increased competition. The firm sees limited share price appreciation unless EBITDA growth returns to low double digits.
09:42 am DepoMed: Oppenheimer initiates Buy. Target $11. Firm is saying the current treatments for many large diseases are far from perfect, creating opportunities to modify delivery platforms to drive increased market acceptance of existing drugs. DEPO appears well positioned to fill this void. Firm says DEPO may be at an inflection point with two products launched to the market. This transition validates the co's technology while bringing in cash from low-risk royalty arrangements.Firm believes there is approx $5-6/share value in the combination of Glumetza ($1), Proquin XR ($2), and cash/technology ($3) to support the long-term share price.Firm says the upside to DEPO comes potentially from a developmental 2x/day version of Neurontin (gabapentin). Current regimens of 3x/day generated prior sales approaching $2 billion. Firm says they believe that, if successful, this drug has $250 mln-$500 mln sales potential. They believe that program is worth $6/share.
09:40 am Golden West: Moors & Cabot upgrades Hold to Buy. The firm says their optimism for the stock is highlighted by 2 factors which include: portfolio growth and likely N.I.M expansion in 06.
09:39 am Dril-Quip: Lehman Brothers initiates Overweight. Target $61. Firm believes the co is well positioned to benefit from the unfolding expansion in offshore markets and in particular the secular growth in the subsea business that they expect to continue through the end of the decade.
09:38 am Tollgrade: Ferris Baker Watts downgrades Buy to Neutral. Target $11.5. Firm is saying they expect the co to report 4Q05 results within mgmt guidance for earnings in a range of negative $0.04 to positive $0.09 per share on revenue of $13-$17 mln.
09:36 am Alkermes: Oppenheimer initiates Neutral. Firm is saying they see fair value in the $20-$25/share range, and the Vivitrol uncertainty leaves them looking for better entry points. Firm cites improving drug delivery but caution on Vivitrol. They believe that the risk profile does not make the current price a compelling entry point for investors.
09:34 am TGC Industries: Sanders Morris Harris reiterates Hold. Target $9 to $9. Firm is noting that TGE announced that it is fielding a sixth crew. The crew is headed for the Rockies and will be using the fourth ARAMSAIRES instrument set that TGE recently acquired. Firm says TGE is now running four crews on turnkey and two on contract. Turnkey could offer attractive upside beyond their forecast. Firm says the backlog remains strong.
09:32 am Willbros Group: Hibernia Southcoast Capital upgrades Hold to Buy. Target $23. Upgrade is due to the strong end market demand for the company's services, combined with the fact that the note issuance proceeds should allow WG to continue to grow its backlog.
09:31 am MGM Mirage: Nollenberger Capital initiates Buy. Target $50. The firm says the primary reasons for investment in MGM shares include 1) synergies to be realized through the merger of MGM and Mandalay Resort Group; 2) margin concerns in 3Q05 are likely to be short lived, particularly if; 3) Las Vegas visitor and spending trends remain robust into 2006; and 4) long-term growth prospects provide a timeline of visible growth. |
