From Briefing.com: 5:08PM Altera Receives Nasdaq Notice Regarding Delayed Filing of Form 10-Q (ALTR) 19.43 -0.36 : Co announced that it has received a Nasdaq Staff Determination notice stating that the company is not in compliance with Nasdaq because it has not timely filed its Quarterly Report on Form 10-Q for the period ended March 31, 2006. Accordingly, Altera will request a hearing to review the Nasdaq Staff Determination.
4:20 pm : Stocks got rocked Wednesday after a stronger-than-expected rise in the core CPI exacerbated fears that building inflationary pressures will force the Fed to keep raising rates.
Before the market opened, the Labor Dept. showed that consumer prices rose 0.6%, as energy prices rose 3.9% -- the highest since January. Adding insult to injury, the more closely watched core rate, which excludes energy, also rose more than expected. The 0.3% rise in the core CPI matched the large March gain to leave a 2.3% year/year growth. With the Fed saying one week ago today that "some further policy firming may yet be needed to address inflation risks" and reiterating its focus on "incoming" data to dictate whether further rate hikes will be needed, today's data silenced last week's optimism about a potential pause.
Yesterday, futures traders priced in only 36% likelihood that the central bank will raise rates to 5.25% at its June 29 meeting, but now they're pricing in about a 54% chance the Fed will go further than expected with its tightening efforts. Such concerns support our Neutral market view and our belief that higher interest rates will lead to a slowdown in earnings growth during the second half of the year.
Making matters worse, above average volume provided even more conviction behind Wednesday's widespread sell-off, as more than 2.0 bln shares traded hands on both the NYSE and the Nasdaq. Further underscoring the nervousness behind the day's drubbing was a 15% surge on the VIX (CBOE Volatility Index) to a new 2006 high. Known as the "investor fear gauge," the spike higher suggests investors are cautiously buying options to hedge against further declines in equities. Among the major averages, the Dow turned in the worst performance, losing more than 200 points as sellers were in control from start to finish, shaving 1.9% off of its year-to-date leading 6.6% gain. It was the worst one-day decline since January. The Nasdaq also sold off, extending its losing streak to 7 days and turning negative for the year. The S&P 500 fell to a three-month low as all ten economic sectors posted losses, led by declines of more than 2.0% in Financials, Industrials, Energy, Materials and Telecom.
Thinning hopes that the Fed will pause at its next meeting in late June also weighed on Treasuries, lifting the yield on the 10-yr note to as much as 5.18% before finishing at 5.14%. The spike in bond yields was what weighed most heavily on Financials, as the rise in borrowing costs diminished the desire to own rate-sensitive banks and brokerages. Since higher rates spark valuation concerns among growth stocks and also greatly impact the borrowing power of smaller companies, today's broad-based downturn especially hit the Russell 2000, knocking it further from an all-time high reached on May 5th.
One bright spot rearing its head between the dark clouds and not succumbing to the adage "sell in May and go away" was Hewlett-Packard (HPQ 32.16 +1.05). The stock surged 3.4% after a 51% year/year rise in Q2 profits prompted the PC maker to raise its Q3 EPS outlook, which played into our Overweight rating on Technology. HPQ was the only Dow component to finish in the green. BTK -1.5% DJ30 -214.28 DJTA -2.7% DJUA -1.9% DOT -1.9% NASDAQ -33.33 NQ100 -1.5% R2K -1.6% SOX -1.2% SP400 -1.8% SP500 -21.76 XOI -2.5% NASDAQ Dec/Adv/Vol 2230/849/2.39 bln NYSE Dec/Adv/Vol 2652/647/2.08 bln
4:15PM Brooks Automation announces notice from bondholders of failure to comply with subordinated convertible debt obligation (BRKS) 12.72 -0.27 : Co announces that on May 15, 2006, holders of more than 25% of the aggregate outstanding principal amount of its 4.75% Convertible Subordinated Notes due 2008 notified it that its previously announced failure to file its Quarterly Report on Form 10-Q for the period ended March 31, 2006 on a timely basis represented a breach of its obligations under the indenture governing the notes. An Event of Default will occur under the indenture if coails to cure this default within 60 days. If such an Event of Default were to occur, the trustee under the indenture or the holders of at least 25% in aggregate outstanding principal amount of notes may accelerate the maturity of the notes.
3:56PM Sun Microsystems announced it is teaming up with SAP to deliver an integrated software solution (SUNW) 4.58 +0.05 : SUNW announced it is teaming up with SAP to deliver an integrated software solution that will help businesses maintain automated "continuous compliance" with both external government regulations such as Sarbanes-Oxley and internal corporate security policies.
3:37PM Qualcomm clears up misunderstandings regarding the ITC staff attorney briefing (QCOM) 47.04 -1.15 : Co announces that the staff attorney for the International Trade Commission assigned to the Broadcom-QUALCOMM matter recently posted a brief on the ITC's Web site which some industry analysts and investors have misunderstood. The brief is not a decision or an initial determination by the Commission or by the Administrative Law Judge responsible for hearing the matter. No initial decision has been made. Instead, the brief sets forth the views of the staff attorney, who has no decision-making authority, following the first phase of the hearing. The staff attorney assigned to an investigation takes and argues positions on the issues in essentially the same way as the parties. The arguments of the staff attorney, who is not a member of the ALJ's staff, can be accepted or rejected by the Administrative Law Judge and the Commission, just as the arguments of Broadcom or QUALCOMM can be accepted or rejected. QUALCOMM continues to believe that the patents are not infringed and that they are invalid.
2:06PM Tower Semicon reports Q1 EPS of -$0.63 vs -$0.84 in 1Q06; revs rose 55% YoY to $35.9 mln (TSEM) 1.69 +0.02 : Co reports Q1 EPS of -$0.63 vs -$0.84 in 1Q06; revs rose 55% YoY to $35.9 mln. Co expects further growth in revenues for the second quarter of 2006 over the first quarter of 17-25%, and guides revenues of $42-45 mln. The co also announced that the its board of directors approved the co's plan to accelerate the ramp up of Fab 2 by approximately 50%. Furthermore, the co and its lender banks, Bank Leumi and Bank Hapoalim, signed an M.O.U. for the refinancing of the co's $527 mln long-term debt and The Israel Corporation committed to invest $100 mln in the co.
12:15PM Semi Index -SOX- extending rebound off Dec low at 475 -- session low 474.79 480.72 -3.54 :
11:39AM Nasdaq Composite holds on initial test of support (COMPX) 2199.32 -29.81 : Highlighted support in the 2194/2189 area (Nov gap, Jan low, Fib extension target) in the 11:17 update and while the index has held on the initial flirtation (session low 2194) will need to see sustained progress back above intraday levels at 2203 and 2210 to begin to improve. Next support is in the 2180/2176 congestion area followed by 2167 (Oct high/Nov breakout point).
10:23 am Research In Motion: RBC Capital Mkts reiterates Sector Perform. Target $85 to $80. Firm ups target following analyst day. The firm says RIMM's tone on subscriber recovery was muted. In their view RIMM is trying to cool subscriber growth expectations next 1-2 quarters, which may suggest Q1/07 (end May) subscriber results could come in line with guidance for 675k subs (up 8% Q/Q) vs. theirs at 690k, and Q2 guidance may be in line with Q2 seasonality (7-8% Q/Q). The firm says assertions of a general post-NTP subscriber recovery was directionally provided, but without timing or details. They estimate North American growth remains sluggish at 8-10% Q/Q, explainable due to NTP impacts but below historical 20%+. The firm says European growth appears to be solid, estimated at 12-15% Q/Q.
10:21 am LTX Corp: Merriman Curhan Ford upgrades Neutral to Buy. Firm upgrades citing the company's strong 3Q06 results, higher than- expected guidance for 4Q06, and expected continued product growth throughout 2006.
10:21 am Micros Systems: Ferris Baker Watts upgrades Neutral to Buy. Target $50. Firm ups rating on stock based on valuation, noting the stock is trading at 18.5x FY07 EPS. Firm believes that MCRS has excellent fundamentals, with high returns on capital and free cash flow, and they also believe that the co has significant competitive advantages to sustain those fundamentals.
10:20 am eDiets.com: Merriman Curhan Ford downgrades Buy to Neutral. Firm downgrades following Q1 results, citing deteriorating trends in the core subscription business, which will take a higher toll on the upcoming quarters. They note subscriber count declined to 205,000 from 247,000 a year ago and below their 220,000 estimate due to lower subscriber acquisitions. They note subscriber acquisition costs (SAC) increased Y/Y to $84 from $72.
10:19 am Reliance Steel: UBS initiates Buy. Target $115. Firm is saying the co is well- positioned to benefit from rising metals prices and strong industrioal demand. The frim says its track record for passing through rising prices via spot market transactions suggest attractive upside in Q2 and Q3.
10:18 am Cache: Nollenberger Capital reiterates Buy. Target $23 to $25. Firm is noting Cache announced plans to exit its underperforming Lillie Rubin business and introduce a new concept, Cache Luxe. The firm says Lillie Rubin's results have negatively impacted the co's earnings for the past two years and cost the company $0.16 in 2005 (EPS would have been $0.99). The firm says they believe the Luxe concept will allow the co to better capitalize on Cache's growing brand recognition and broaden its customer base.
10:17 am Starwood Hotels: Banc of America Sec reiterates Buy. Target $67 to $75. Firm raises their price targets on selct Lodging stocks, also raises their HLT tgt to $40 from $33 and raises their MAR tgt to $90 from $80 based on their initial 2008 forecasts, and forward multiple expectations as hotel stocks move through the cycle. Firm's work on room rates and supply keep them constructive on the hotel stock cycle -- still a 1-1/2 year call (through 2H07) -- and give them confidence to base their targets on '08 earnings. They think HOT's Analyst Day next Wednesday could be an incremental catalyst.
10:16 am Cognos: Needham & Co upgrades Buy to Strong Buy. Target $44. Firm is saying they believe investor worries of accounting issues are largely overblown. The firm says though an S.E.C review is ongoing, the reality is that all public companies are subject to similar periodic reviews, and many software peers will face similar questions on rev rec and VSOE from the S.E.C. They believe a material restatement is unlikely given the co's reputation for conservative financial practices.
10:15 am Netease.com: Citigroup downgrades Buy to Hold. Firm downgrades stock following Q1 results, citing decelerating gaming and deteriorating risk/reward. Firm thinks the story is about as good as it's going to get for the next few quarters, and any slippage with Da Tang and/or cannibalization of Westward Journey could hit the shares hard.
10:14 am Taleo: Wedbush Morgan initiates Buy. Target $18. Firm is saying Taleo competes in the Human Capital Management software sector which is becoming increasingly important as shifts in workforce demographics, globalization, and outsourcing (including third-party employment firms) have increased competition for top talent, creating a need to better attract, retain, and leverage a firm's human assets. The firm says following Q4, Taleo mgmt stated that they had 80%+ visibility into the co's 2006 application revs, which is a key tenet to their positive rating.
1:36 pm Talbots (TLB)
22.88 -1.08: When reviewing the first quarter results from Talbots, the word disappointing comes to mind. The headline on the apparel retailer's press release indicates that the results were in line with the company's expectations, yet that indication belies what was another quarter of anemic sales growth and another quarter where profits were down from the prior year period. It also masks the revelation from Talbots that it expects to earn a lot less in the second quarter than Wall Street was expecting.
For the first quarter Talbots reported net income of $27.4 million versus $34.5 million last year. The bottom-line result translated to diluted EPS of $0.51, which includes $0.03 per share in stock option expense. When the latter is excluded, the profit of $0.54 per share was $0.03 ahead of the Reuters Estimates consensus estimate and down 14% from record first quarter EPS of $0.63 in 2005. Net sales were up a meager 1.0% to $453.0 million and the company's gross margin rate contracted to 39.9% from 40.8%.
The results noted above do not include the acquisition of J. Jill Group, which was completed on May 3. That's probably a good thing given the company's forecast for the second quarter.
Citing weak sales at J. Jill, which is a continuation of first quarter trends, Talbots is expecting to report a GAAP loss of ($0.15) to ($0.05) per share. When estimates for the costs and adjustments associated with the J. Jill integration are excluded, along with $0.03 per share in stock option expense, Talbots anticipates delivering a profit of $0.08-0.18 per share. The dark lining in that forecast is that it falls well short of the $0.35 per share profit reported last year for the same period and the consensus EPS estimate, which also happens to be $0.35.
As to be expected, the market is marking down shares of TLB as it is troubled by the understanding that the consensus EPS estimate for FY06 will be coming down and that J. Jill continues to struggle. Although Talbots has indicated before that it doesn't expect J. Jill to be accretive to earnings until FY07, the market hasn't found a lot of reasons to be inspired by that forecast at this point.
Time will tell if Talbots' J. Jill acquisition was the right strategic move. Accordingly, despite the disappointing guidance, we'll refrain from rushing to judgment on the matter. At the same time, we can understand why investors aren't rushing to buy stock in Talbots, which is down more than 50% from its all-time high. Looking at things from a contrarian point of view, though, it remains our contention that TLB sports a favorable risk-reward profile for patient-minded investors given the impending arrival of easier comparisons, the sharp decline in its stock, and the prospect of greatly improved earnings potential beyond this year.
--Patrick J. O'Hare, Briefing.com
11:50 am Circuit City (CC)
30.53 +1.60: Circuit City Stores on Wednesday reaffirmed its outlook for fiscal 2007, and said it expects to break even on a per share basis in the first quarter, as it continues to benefit from a strong electronics product cycle. Shares of the electronics retailer, in turn, rose more than 3.5% during the regular trading session as investors applauded the latest sign that the company has begun to return to form after years of declining market share amid increased competitive pressures from rival Best Buy Co. (BBY).
For fiscal 2007, Circuit City projected net sales growth of 7% to 11%, including same store sales growth between 5% and 7%. Earnings from continuing operations before income taxes, as a percentage of sales, are expected to be in the range of 2.0% to 2.4%. Circuit City also predicted breakeven results for the first quarter, compared with analysts' forecast for a penny per share, according to Reuters Estimates.
The company said its outlook is based in part on continued sales growth in key product areas, including flat panel televisions, notebook computers, digital imaging, and portable digital music players.
Longer term, Circuit City said it plans to attain annual EBT as a percentage of sales of 5% or more in the next three to five fiscal years. In addition, it plans to increase the number of domestic superstore openings to 75 to 100 per year by fiscal 2009. The company currently has 630 superstores in the United States and approximately 950 locations in Canada.
--Richard Jahnke, Briefing.com
10:51 am DuPont (DD)
44.29 -0.39: If you haven't noticed that raw material prices have been rising, let us be the first to welcome you back to earth. When you get settled, you'll want to turn your attention to an announcement today from Dow component DuPont (DD) that strikes at the heart of what the rest of us on earth have been worried about for some time and which the Federal Reserve can't help but notice.
In a brief, but telling press release, DuPont said it will be raising prices across most businesses in response to escalating raw material costs. The move is being made in an effort to limit the impact of higher raw material costs on its bottom-line. Naturally, the price increases are being billed as necessary so that DuPont can continue to "meet the needs of [its] customers now and in the future." No matter which way DuPont spins its decision, it's not the type of news that bodes well for the inflation outlook.
Despite the rise of global competition that has made it difficult for manufacturers to gain pricing power, the decision made by DuPont, which is an industry leader, will likely embolden others to implement price increases of their own, even if those price increases aren't as high as those that will be passed along by DuPont.
The "passed along" part is what the Fed must consider when determining monetary policy. To date, producers have been fairly reluctant to pass along their higher costs, but you can almost sense that the tipping point has been reached with DuPont mentioning in its press release that the Producer Price Index for industrial chemicals rose 11% in 2003, 15% in 2004, 14% in 2005, and was up another 10% in the first quarter versus the same period last year. Furthermore, DuPont offered the reminder that its raw material costs hit another record high in its first quarter and that, even if costs declined over the remainder of the year, they will remain above the 2005 average level.
The timing of DuPont's announcement is all the more discouraging from an inflation standpoint given that it came on the heels of a higher than expected increase in the April core-CPI report. It's a move that should rightfully pique inflation concerns and feed the market's fear that the Fed has more tightening to do.
As an aside, Reuters reported today that Fuji Photo is considering raising the cost of its film products by as much as 20% because of the spike in silver and oil prices. In April Eastman Kodak (EK) said it will raise prices by 3-17%.
--Patrick J. O'Hare, Briefing.com
10:32 am XM Satellite Radio (XMSR)
16.98 -0.65: Members of the Recording Industry Association of America on Tuesday filed a lawsuit against XM Satellite Radio Holdings, charging the company with copyright infringement, unauthorized digital delivery, reproduction infringement, and unfair competition, according to The Wall Street Journal. The suit stems from the XM's new Inno device, which went on sale earlier this month, that allows users to record songs heard on the radio and allows them to transform the broadcasts into playlists, much like a digital download service, such as Apple Computer's (AAPL) iTunes.
While XM, along with rival Sirius Satellite Radio (SIRI), are in talks about the licensing of content and to renegotiate royalty contracts for broadcasts, the current lawsuit presents another overhang on the company. This, combined with recent cost pressures related to new programming and acquiring new subscribers, further supports our bearish opinion on the stock.
XM said it would fight the lawsuit, calling it a bargaining tactic by the music industry. "The music labels are trying to stifle innovation, limit consumer choice and rollback consumers' rights to record content for their personal use," the company said in a statement. "This is a negotiating tactic on the part of the industry to gain an advantage in our private business discussions."
XM asserts that the Inno only allows users to store content and does not allow the transfer of content to other music devices or computers. Furthermore, it said content is stored on the devices only as long as the user remains a subscriber to XM's service. For perspective, Sirius agreed about two months ago to a settlement with the music industry for its S50 device, a device similar to the Inno, in which it will make a payment to each company for every device sold. The settlement, however, does not pertain to new products that the company plans to introduce in the future.
--Richard Jahnke, Briefing.com
10:18 am Too Inc. (TOO)
40.00 +2.10: Shares of Too Inc. opened higher after the pre-teen apparel company said its earnings jumped 58% in the latest period thanks to stronger sales. The company also provided stronger guidance for the year than had been anticipated.
The company said it saw earnings of $11.7 million, or $0.35 per share, for the fiscal first quarter that ended Apr. 29, compared with $7.4 million, or $0.21 per share, a year earlier. Analysts surveyed by Reuters Estimates had looked for earnings of $0.30 per share for the quarter. Revenues rose 18.7% year over year to $195.1 million versus $190.3 million consensus.
The company said an increase in girls' clothing and accessory sales helped earnings rise as it pared down costs by eliminating some television advertising.
Looking ahead, the company said it expects full-year earnings per share to rise more than 25% from the year-ago quarter, to $2 to $2.10 per share, including costs of about $0.05 to $0.06 per share related to stock option expensing.
The company, which has a market cap of about $1.25 billion, is holding a conference call this morning to discuss its financials.
--Christine Marie Nielsen, Briefing.com
09:37 am Nike Inc. (NKE)
80.67: Nike Inc. has taken a bit of a blow, with an arbitrator ruling that the shoe giant must pay $52.5 million in damages to settle a contract dispute between its Converse subsidiary and Latin American Converse licensee Alon International SA.
Nike, the world's largest athletic shoe maker, said it will appeal the decision but would take an unspecified charge to its fiscal fourth-quarter earnings as a result of the settlement. The arbitrator also awarded Alon legal fees, less some amounts previously paid.
Nike said in a press release that confidentiality provisions in the arbitration rules forbid the company from commenting on the substance of the ruling. Nike's financials for the fourth quarter are expected to be reported in late June.
--Christine Marie Nielsen, Briefing.com
09:13 am Hewlett-Packard (HPQ)
31.11: Hewlett-Packard shares are poised to open higher on Wednesday after the world's No.2 PC maker delivered another strong quarter and issued third quarter guidance ahead of analysts' expectations - the latest sign that its restructuring efforts are coming to fruition. In its fiscal second quarter, the Palo Alto, California-based company reported net income of $1.46 billion, or $0.51 per share, up 51% from $966 million, or $0.33 per share, a year earlier. Excluding one-time items, HP had a profit of $0.54 per share, beating the analysts' estimate of $0.49 per share, according to Reuters Estimates.
Sales for the period rose 5% year/year to $22.6 billion, led by the No.1 printer maker's PC and printing units. During the quarter, revenue from the personal systems group grew 10% to $7.0 billion, with unit shipments up 16%. Desktop revenue increased 1%, while notebook revenue grew 27%. In imaging and printing, revenue grew 5% to $6.7 billion, driven by a 10% gain in supplies and a 4% gain in commercial hardware, partially offset by an 8% decline in consumer hardware. Enterprise storage and servers, meanwhile, reported revenue of $4.3 billion, up 2% over the prior year period.
Benefiting from stronger PC demand and continued cost-cutting initiatives, gross margin improved to 24.8% in the second quarter, compared with 23.4% a year ago, and perating margin increased 190 basis points to 8.0% from 6.1% last year.
Based on its latest performance, HP said it expects third quarter earnings between $0.45 and $0.48 per share on revenue of $21.75 billion. According to Reuters Estimates, analysts on average are looking for a profit of $0.43 per share on revenue of $21.75 billion. Overall, HP's strong second quarter results and raised guidance supports our Overweight rating on the Technology sector and sets the stage for rival Dell Inc. (DELL), which recently lowered its first quarter outlook due to "pricing decisions". Dell is slated to release results after the close on Thursday.
--Richard Jahnke, Briefing.com
08:41 am Abercrombie & Fitch (ANF)
59.73: The first quarter for teen clothing retailer Abercrombie & Fitch was a good one. Net income surged 39% to a record $56.2 million, or $0.62 per diluted share, net sales increased 20% to $657.3 million, and comparable store sales improved 6.0%. The results topped consensus EPS and sales estimates of $0.54 and $649.2 million, according to Reuters Estimates.
ANF is up 3.0% in pre-market action. The favorable response is warranted.
Aside from the better than expected top- and bottom-line results, Abercrombie & Fitch also reported that gross margins for the quarter increased 10 basis points to 65.4%, as it benefited from an improvement in initial markup and a lower markdown rate versus last year. The translation is that there was solid demand for the company's products at higher price points. Separately, competitor American Eagle Outfitters (AEOS) said yesterday that its gross margin rate dipped slightly to 48.6% in the first quarter as its merchandise margin came down from a record high last year.
The real boon for ANF, however, was the indication that it is raising its first half EPS guidance to a range of $1.28-1.33, which includes a charge of approximately $0.08 per share for stock-based compensation expense, from $1.23-1.28.
On its conference call, management noted that inventory levels will moderate in the second quarter and said it has plans to open 107 new stores in 2006 across its Abercrombie & Fitch (10), abercrombie (20), Hollister (70) and RUELS (7) concepts. In lauding the success of its flagship store in New York, the company also sounded upbeat about its international opportunities and indicated that it will open a new flagship store in London next Spring.
At its current level, ANF trades at 13.8x estimated FY06 earnings. Despite having higher margins, that's a discount to AEOS, which trades at 15.3x estimated earnings. While the task of meeting high expectations will remain difficult in coming months, ANF remains an attractive option for value-oriented investors seeking growth at a reasonable price.
--Patrick J. O'Hare, Briefing.com |
