From Briefing.com: 6:32PM Briefing Breakout Report : -Technical- The following stocks have staged strong volume breakouts above recent consolidation/resistance areas. The list can be used as an indication of "money flow" for further trading/investment ideas. ASPM, AVY, BER, BMS, BNI, CATY, CSGP, DD, DPZ, FBTX, FRGO, GME, ICBC, ILMN, ILSE, MEOH, MSA, MUSA, MVK, NCI, NITE, PACT, PCR, PTV, QDEL, RNOW, SEE, SLB, SNWL, SON, TNB, WCC, WSO, XRAY.
5:09PM Metrologic Inst beats by $0.05, ex items; guides (MTLG) :Reports Q3 (Sep) earnings of $0.27 per share, excluding non-recurring items, $0.05 better than the Reuters Estimates consensus of $0.22; revenues rose 22.3% year/year to $54 mln vs the $51 mln consensus. Co issues guidance for FY05, sees EPS of $0.96-0.99 vs. $0.84 consensus; sees FY05 revs of $205-208 mln vs. $201.61 mln consensus.
4:51PM RF Micro Device beats by a penny, ex-items; guides up Q3 (RFMD) 5.60 :Reports Q2 (Sep) earnings of $0.04 per share, excluding non-recurring items, $0.01 better than the Reuters Estimates consensus of $0.03; revenues rose 18.7% year/year to $177 mln vs the $177.1 mln consensus. Co issues upside guidance for Q3, sees EPS of $0.07 vs. $0.05 consensus; sees Q3 revs of $205-212 mln vs. $190.98 mln consensus.
4:38PM Silicon Storage beats by $0.09; guides above consensus (SSTI) :Reports Q3 (Sep) loss of $0.05 per share, $0.09 better than the Reuters Estimates consensus of ($0.14); revenues rose 5.3% year/year to $118.1 mln vs the $108 mln consensus. Co issues upside guidance for Q4, sees EPS of $0.00-0.05 vs. -$0.08 consensus; sees Q4 revs of $125-140 mln vs. $124.12 mln consensus.
Close Dow -7.13 at 10377.87, S&P -2.84 at 1196.54, Nasdaq -6.38 at 2109.45: The market failed to extend Monday's gain that was inspired by Ben Bernanke's nomination to replace Alan Greenspan as Chairman of the Federal Reserve. It should be credited, however, with demonstrating resilience in the face of surging energy prices, rising bond yields, and a cautious-sounding sales outlook from chip maker Texas Instruments (TXN 28.55 -2.37). By the session's close, each of the indices had largely pared their intraday declines, and the Dow and S&P respectively erased only a small portion of yesterday's gains. The Nasdaq, however, fared worse and took back a bigger chunk. The Texas Instruments effect infected the Tech sector (-0.8%) from the early going, and, as a result, roiled the Nasdaq. Although the company joined the list of Q3 earners who have surpassed analysts' estimates, the midpoint of its revenue guidance fell short of the consensus estimate and spurred a 8% plunge in its shares that especially left semiconductors reeling. Hardware further dragged the sector south after Lexmark (LXK 39.69 -2.77), which also delivered an upside Q3 report today, warned for Q4. IBM (IBM 83.36 -0.11) offered some brief support after announcing a $4 bln share buyback, but its gain was short-lived. What appears to be the arrival of winter in some parts of the U.S. catalyzed the relentless rise in the prices of crude, gasoline, and natural gas and sent the Energy sector 2.0% higher. Aside from the unsurprising buying action across that sector, leadership in hte broader market was again stifled today. At the same time, however, declines were kept in check, and no sector fell more than 0.8%. While Tech's slide weighed heaviest on the broader market, Consumer Discretionary posted the poorest performance. The aforementioned energy price action sunk retailers, and a read on consumer confidence that reflected a two-year low may have further hurt discretionary stocks. With respect to individual issues, a 4% plunge in eBay (EBAY 38.01 -1.41) shares, due to news that Google (GOOG 346.91 -1.74) intends to launch a product similar to eBay's PayPal, served as the sector's sorest spot. Healthcare extended a 0.6% loss that came on the back of languishing HMOs, while Consumer Staples slid 0.3%. With traders watching bond market action, Financials spent the session in the red and booked a 0.4% loss amid particular weakness in banks and widespread selling pressure. With respect to the Treasury market, the weakness that yesterday's Bernanke announcement initiated was extended today on account of technical issues and anticipation of the remainder of the week's economic calendar. Specifically, the 10-year (-22/32) ran to a 4.53% yield by mid afternoon while, at the inflation-sensitive back of the curve, the 30-year (-1-04/32) rose to a 4.73% yield that may reflect the perception that Bernanke will prove more dovish than Greenspan in battling inflation. Materials (-0.03%), supported throughout the course of the day by DuPont (DD 40.80 +1.18), gave up its gain ahead of the bell; DuPont's earnings-induced rise helped limit the sector's fall, and shined amid the Dow, but its disappointing Q4 guidance ultimately capped its effect. While profit outlooks continue to steal attention from the torrent of Q3 reports, today's results continued to support expectations for aggregate Q3 earnings growth of 18%; about 70% of Tuesday's reporters beat expectations.NYSE Adv/Dec 1285/1995, Nasdaq Adv/Dec 1221/1747
2:28PM William Wrigley Jr. Co. (WWY)
69.46, -1.06, -1.5%: Shares of Wm. Wrigley Jr. Co., the world's largest manufacturer of chewing gum, dropped on Tuesday after the company reported lower-than-expected third quarter results that were crimped by restructuring costs and interest expenses related to recent acquisitions. The Chicago-based company earned $129.7 million, or $0.57 per share, versus $125.8 million, or $0.56 per share, in the same period last year. Excluding a restructuring charge of $0.02, the company would have earned $0.59 per share. Analysts, however, were looking for EPS of $0.60.
Wrigley's quarterly revenue rose 16% from last year to $1.06 billion, driven by its core gum business as well as the additions of the Altoids, Life Savers, Creme Savers, and Sugus brands, which were acquired from Kraft in late June. North American sales climbed 30%, as higher overall shipments and performance of the Orbit and Extra brands in the U.S. complemented strong gains from the newly acquired confectionary brands. In Europe, sales were up 6% with particular strength in Eastern Europe and increased shipments of Orbit. In Asia, sales rose 23% led by double-digit shipment growth in China, Taiwan, Hong Kong, and Vietnam. Currency also contributed slightly to revenue gains in both Europe and Asia.
Gross margin for the period declined to 53.7% from 55.8% last year, as the supply chain restructuring charge, combined with the impact of the new confectionary brands, more than offset lower costs for Wrigley's core business. The restructuring charge accounted for approximately 60 basis points of the decline. SG&A expenses also rose 13% during the latest quarter, further contributing to margin compression.
Separately, Wrigley said it will pay shareholders of record as of January 16, 2006, its regular quarterly dividend of $0.28 on February 1, 2006.
Given the disappointing third quarter results, which were marred by acquisition-related costs and restructuring charges, the near-term outlook remains undecided. However, as the company remains focused on successfully integrating its newly acquired brands and realigning its global supply chain operations, it is well-positioned to regain momentum and generate strong top and bottom-line growth in the longer-term. At the current price level, shares of WWY are trading at 24.8x forward earnings.
--Richard Jahnke, Briefing.com
2:02PM Burlington Northern Santa Fe (BNI)
60.65, +1.65, +2.8%: The BNSF story continues to play out as we anticipated. The largest US rail by shipments steamed through estimates as earnings reached a new quarterly record on higher rates and yields. Third quarter profits rose to $1.09 per share, up from $0.77 ex-items last year, and bypassing the consensus estimate by nine cents. Freight revenues jumped 18% to a record $3.2 bln as demand for rail transport continues to outpace the rest of the economy. This was the fourteenth consecutive quarter of year-over-year volume growth.
Third quarter freight revenues increased $480 mln, or 18%, to a quarterly record of $3.22 bln. The quarter's performance comes at a time when energy prices have reached record levels. BNSF has successfully implemented fuel surcharges, which accounted for $296 mln of revenue in Q3, up from $95 mln last year. BNSF has the most direct route from the West Coast to the Midwest. As a result, it is well positioned to benefit from strong intermodal demand. In the quarter, it prospered from rising Asian imports entering the US through Southern California where BNSF operates.
BNSF produced positive revenue growth across all four of its business segments. Consumer Products gained $234 mln, or 21%, to $1.33 bln on strong volumes across all business sectors. Industrial Products gained 17% to $743 mln, outpaced by a whopping 25% hike in Agricultural Products revenues to $522 mln. Coal revenues rose 6% to $622 mln. Operating expenses increased 14% to $2.54 bln, reflecting a 5% increase in gross ton-miles and a 45% increase in fuel prices after a hedge benefit. The rail showed impressive cost controls, with the operating ratio declining to 75.8% - a 400 basis point improvement from the prior year.
For those who never thought of the Rails as growth stocks, think again. One of the oldest industries in the nation is finally achieving pricing power. BNSF's Q3 was right on track despite headwinds from fuel, hurricanes, and difficult comps. Looking down the track to Q4, it forecasts earnings growth of 25% on sales growth in the "mid-teens." This equates to a per share estimate of $1.14 - above the current consensus estimate of $1.10. Notwithstanding the 25% rise in shares since we added the stock as a suggested holding for active investors, we retain our positive view. BNSF will continue to enjoy the benefits of operating leverage in a favorable pricing environment, which we anticipate will result in further upside surprises. We expect the fundamentals to remain positive well into 2006 and favor BNSF over its peers due to its mix of volume, yield growth, and efficient operations.
--Kimberly DuBord, Briefing.com
12:45PM Lexmark Intl. (LXK)
40.00 -2.46: Just when you thought Lexmark's complexion couldn't get any worse, another blemish has surfaced on the face of the leading maker of computer printers and related products.
The Lexington, Kentucky-based company reported Q3 (Sep) earnings of $0.59 per share, excluding non-recurring items, $0.12 better than the revised Reuters Estimates consensus of $0.47. Lexmark, however, slashed its Q3 EPS outlook just three weeks ago to a range of $0.40-0.50, compared to Wall Street estimates of $1.02 at the time and versus previous guidance of $0.95-1.05. Fierce competition from rivals Hewlett-Packard (HPQ) and Dell (DELL) have forced Lexmark to cut prices which, in turn, has squeezed profit margins. Further, third-quarter net income of $70.2 mln (Sep) fell by more than 50% from $156.1 mln earned a year ago due to weak demand for Lexmark's printers and replacement ink supplies.
The company confirmed early indications that Q4 (Dec) revenue and EPS will also disappoint. Due to more aggressive product pricing and promotional activities adversely impacting demand for its laser and inkjet supplies, the company now sees Q4 EPS of $0.40-0.50 (consensus $0.65), compared to EPS of $1.18 in the same period a year ago.
Third quarter revenue fell 4.0% year/year to $1.22 bln, but also checked in better than analysts' revised expectations of $1.21 bln. Q4 sales are likely to show a decline in the high-single- to low-double-digit range from $1.54 bln a year ago.
The negative Q3 pre-announcement on October 4 prompted several analysts to revise their estimates and led to a 28% decline in LXK. The stock is down 6.0% today and trading at its lowest level in four years. With several analysts saying things may only get worse, continued margin compression, and a lack of major catalysts to lift the stock out of its current doldrums, LXK is apt to continue to underperform through year-end.
--Brian Duhn, Briefing.com
12:12PM IBM (IBM)
83.26 -0.21: IBM on Tuesday announced that its Board of Directors authorized the repurchase of up to $4.0 billion of the company's outstanding shares - a sign of confidence that has helped to lift shares in early trading. IBM, which has approximately 1.6 billion shares outstanding, said it plans to buy back the shares on the open market or in private transactions from time to time, depending on market conditions. In April, the company approved a $5 billion repurchase program.
Amid languishing market performance, the announced share repurchase program provided an early boost to investor sentiment and triggered a slight reversal in shares of IBM. However, shares have since retracted below the flat level. While a share repurchase is usually considered a positive for shareholders, as it reduces the number of shares outstanding and increases earnings per share, it is often used as a marketing tool by management when stock prices are depressed. The announced program does not mean IBM is obligated to buy back shares.
The company also declared a regular quarterly cash dividend of $0.20 per common share, payable to shareholders of record as of November 10, 2005, on December 10, 2005.
--Richard Jahnke, Briefing.com
11:39AM Northrop Grumman (NOC)
53.66 -0.24: Amid what could become one of the most stringent Pentagon budget cycles in years, defense contractors across the board have been in focus for weeks, as President Bush considers making deep budget cuts to trim the federal deficit and offset mounting costs related to the conflict in Iraq and the devastation wrought by Hurricane Katrina.
With many in D.C. identifying warships and fighters as the most defenseless to such adjustments, Northrop Grumman Corporation has been under close scrutiny recently by investors. Just two weeks removed from warning Wall Street that damage and delays caused by Katrina would slash earnings, the leading provider of technologically advanced solutions in shipbuilding and aircraft reported third quarter 2005 income from continuing operations of $288 mln, or $0.80 per diluted share.
The nation's #2 defense contractor beat the Reuters Estimates consensus of $0.70 by ten cents. However, one must not overlook the fact that FY05 (Dec) earnings estimates were revised lower on October 10 to a range of $3.55-3.65 per share, well below prior EPS guidance of $3.90-4.00. The company said hurricane-related delays in production and damage to its Ship Systems facilities in Louisiana and Mississippi of about $1.0 bln would shave approximately $0.40 per share off its bottom line.
Third quarter revenues were relatively unchanged at $7.4 bln, checking in below the $7.58 bln consensus estimate. The company's revised FY05 revenue range of $30.5-31.0 bln (consensus $30.9 bln), down from earlier estimates of $31-31.5 bln, were reaffirmed this morning.
In conjunction with the Q3 report, FY05 EPS guidance was increased slightly to $3.60 to $3.70 and NOC reaffirmed its FY06 EPS outlook of $4.10-4.30 on revenues of about $32.0 bln. The affirmation has done little to help the stock, though, as investors are cognizant that FY06 EPS could be up just 8.0% at best when the hurricane impact is excluded from the FY05 result. That compares to profit growth of around 30.0% in FY05, when the hurricane impact is excluded, versus FY04. Virtually unchanged year to date, NOC shares are more than 8.0% below a 52-week high reached Sept. 9.
On a positive note, NOC cited higher operating margins in all of the company's segments, with the exception of Ships, and announced a $1.5 bln buyback.
--Brian Duhn, Briefing.com
11:20AM BellSouth (BLS)
25.83 +0.21: Despite Katrina-related costs, BellSouth managed to meet analysts' earnings expectations on improving wireless and broadband margins. The company - a leading telecommunications provider in the southeast United States - said it earned $817 million, or $0.44 per share, during the third quarter, compared with $852 million, or $0.46 per share, last year. Excluding non-recurring items, such as hurricane-related costs, wireless merger integration costs, and a gain from the sale of cellular communications operator Cellcom, BellSouth's earnings were $845 million, or $0.46 per share - in line with analysts' target. Adjusted revenue climbed 25.7% to $8.49 billion.
Cingular Wireless, BellSouth's joint venture with SBC Communications (SBC), added 867,000 net customers in the latest quarter, bringing its nationwide customer base to 52.3 million customers. The unit reported revenue of $8.7 billion, reflecting a 6.2% increase from a year ago. Third quarter operating margin expanded 270 basis points to 31.6% as the company continued to make progress on merger integration initiatives related to AT&T Wireless. With Cingular representing 41% of BellSouth's revenue and a growing percentage of its profit, continued margin expansion at the unit will have a compounding effect on profitability, the company said.
Meanwhile, the Communications Group posted revenue of $4.59 billion, down slightly compared to the same quarter a year ago as damage caused by Hurricane Katrina reduced revenue by about $44 million. Revenue growth from long distance, DSL, and small business services offset declines from residential access lines and large business services. During the latest quarter, the company added 205,00 net DSL customers, bringing it total to 2.7 million customers, on continued strong demand for broadband services. At the same time, however, total access lines were down 354,000 from the previous quarter to 20.4 million, due in large part to wireless substitution, as well as disconnections associated with Katrina. Operating margin for the group fell 270 basis points to 22.3%.
Amid declining wireline trends, BellSouth continues to focus on its wireless and broadband services to drive margin growth. With integration efforts with regards to Cingular and AT&T Wireless beginning to produce marginal benefits, the company's increasing exposure to wireless should bolster its position in the face of ongoing consolidation in the industry. At the current price level, BLS is trading at 13.4x forward earnings, compared with 11.8x for Verizon (VZ) - which is in the process of acquiring MCI (MCIP) - and 14.5x for Sprint-Nextel (S).
--Richard Jahnke, Briefing.com
11:05AM DuPont (DD)
40.55 +0.93: There were many moving parts to DuPont's third quarter release, but the market is eagerly welcoming the upside in earnings, enhanced shareholder value, and accelerated cost cutting initiatives. Several firms raised their ratings and earnings estimates on the stock following a larger than expected buyback plan. The Dow Industrial suffered a loss in Q3 to the tune of $82 mln, or $0.09 per share, due to a tax and Hurricane-related charges of $0.42 per share. Last year, DuPont earned $331 mln, or $0.33 per share, which also included a tax gain of $0.08. Excluding these items, DD would have earned $0.33 per share, surpassing consensus by four cents, on revenue growth of 5% to $6.3 bln.
The quarter was characterized by production disruptions and high energy costs. What was impressive was DuPont's ability to mitigate raw material cost pressures through higher price realizations. New product introductions and pricing expanded margins. Several segments, including Electronics, Safety, and Agriculture in South America and Emerging Markets were standouts. While the impact from Hurricanes Katrina and Rita were felt in Q3, the impact will be even more severe in Q4. DuPont estimates earnings will range from $0.20-0.25 per share, well below consensus of $0.37. The downtrodden outlook was expected, which is why shares are holding up following the guidance. DuPont attributed the downside to damage at its largest titanium dioxide manufacturing plant from Katrina, full capacity not returning until year end at its Orange, Texas ethylene copolymers and intermediaries plants, lower results at its agriculture and nutrition unit, and a higher tax rate of 26% versus 20% last year.
The Wilmington, Delaware-based company has finally answered investors' calls to enhance shareholder value and put to use its considerable cash position. Chairman and CEO Charles O. Holliday said the hurricanes "accelerated what we believe is a structural shift in input costs that will affect the competitiveness of industries we serve." This environment has caused DD to respond more aggressively. Its new strategies include capital deployment to ensure every business at least earns the cost of capital, productivity advancements, growth acceleration, bio-based materials expansion, and share repurchases.
With regard to the latter, DuPont laid plans for a $5 bln share buyback, which included an agreement with Goldman Sachs to acquire $3 bln shares at $38.62 - the price as of Monday's close. The pre-bought deal alone accounts for 7.5% of shares outstanding. The large buyback also eased concerns of a potential acquisition. The stock trades at 16x forward earnings. DuPont also offers investors a dividend yield of 3.65%.
--Kimberly DuBord, Briefing.com
10:29AM Cablevision (CVC)
24.52 -3.28: The more things change, the more they stay the same. Such is the lot for Cablevision shareholders who were informed today that the Dolan Family Group, who owns approximately 20% of the common stock and 71% of the voting power of Cablevision, is withdrawing its offer to take the company private. That offer was presented to the Board of Directors on June 19 and it translated to $33.50 a share for Cablevision shareholders, which represented a 25% premium to CVC's closing price of $26.87 on June 17. On Monday, June 20, shares of CVC closed at $32.00.
In hindsight, the realization that Cablevision shares were back at the level they were trading at before the Dolan's proposal was made suggests that the market was having its doubts as to whether the deal would come to fruition. Today there will be no more doubts. The offer was withdrawn following good faith negotiations with the special transaction committee, which, apparently, wasn't enamored with the terms of the buyout proposal. Investors' disappointment with this news is as recognizable as their enthusiasm was when the proposal was made, as CVC is down 12% and trading at a level that is 9.0% below the level it was trading at prior to the Dolan proposal in June.
The disappointment is understandable as the Dolans were vocal about their belief that their proposal, which also included a pro rata spin-off of Rainbow Media, would unlock significant shareholder value. Now that the deal isn't getting done as previously proposed, the stock of Cablevision is feeling the weight of competitive concerns that formed the basis for the Dolan's proposal.
In conjunction with the announcement of its withdrawn proposal, the Dolan Family Group did recommend that the Board consider the declaration of a $3 billion one-time, special dividend payable pro rata to all shareholders. The Board is said to be considering that proposal. Be that as it may, investors are clearly dismayed by the implication in today's decision that Cablevision, barring an interest in its assets from outside parties, could remain an undervalued entity.
--Patrick J. O'Hare, Briefing.com
9:36AM Ameritrade (AMTD)
21.30 +0.18: Ameritrade Holding on Tuesday reported fourth quarter profits that surpassed Wall Street expectations, driven by sharply higher commission fees and net interest revenue. The online brokerage, which recently announced a deal to acquire TD Waterhouse, earned a record $97 million, or $0.23 per share, compared with $57 million, or $0.14 per share, last year. Revenue was $274 million in the latest quarter, representing a 47% year/year increase. The results topped analysts' projections for earnings of $0.22 per share on revenue of $263.72 million.
For the full year, Ameritrade posted record earnings of $335 million, or $0.81 per share, on revenue of $1 billion. On average, analysts had expected EPS of $0.80 and revenue of $989.0 million, according to Reuters Estimates.
The record results for the quarter were further highlighted by operating margins of 65% - compared with 61.9% a year earlier - as well as continued progress in new accounts. Total accounts for the company grew to approximately 3.7 million, with 69,000 new accounts and 41,000 closed accounts in the quarter. Client assets at the close of the quarter totaled $83.3 billion, while average client trades per day were 146,000 - up from 123,630 last year.
As industry consolidation continues to unfold, Ameritrade's acquisition of TD Waterhouse, which is expected to close by early 2006, should bolster its already strong position by enhancing its asset gathering capabilities and diversifying its revenue stream. As the company works to integrate operations and realize potential synergies, the benefits should broaden its market position in the face of formidable competitors Charles Schwab (SCH) and E*Trade (ET). The company, based in Omaha, Nebraska, expects fiscal 2006 earnings between $0.83 and $1.02 per share on revenue in the range of $1.01 to $1.18 billion. That compares with analysts' projections for earnings of $0.87 per share and revenue of $1.14 billion. (Disclosure: Briefing.com has a business relationship with Ameritrade, E*Trade, Charles Schwab, and TD Waterhouse)
--Richard Jahnke, Briefing.com
9:27AM U.S. Steel (X)
36.35: The market has had little taste for steel producers as prices of the metal have continued to fall over the last year. Yet the downtrend was abruptly halted in September after prices jumped 15% after producers cut production and customers increased inventories. Over the past four months, US production has declined by 9%. Prices of steel sheet used in automobiles rose to $500 per ton in September, but are still down over 34% from a record of $756 a ton reached last year. According to the Metals Service Center Institute, steel inventories reached a 15- month low prompting the rise in orders. This bodes well for producers in the fourth quarter, but how did the environment translate into earnings in Q3?
Lower prices and downtime caused by rebuilds cut into US Steel's earnings. US Steel earned $107 mln, or $0.82 per share, down considerably from earnings in the last quarter of $245 mln or $1.88 per share. Demonstrating just how severely the market dynamics have changed for X over the last year, it generated earnings of $354 mln, or $2.72 per share, in the third quarter of 2004. Nonetheless, US Steel met expectations despite its largest domestic blast furnace and its largest European blast furnace both being down for the entire quarter for major rebuilds.
Revenues sank 13.7% to $3.2 bln. On the back of an improving price environment and continuing reduction in service center inventory levels, X anticipates the conditions will improve in Q4. Management stated its "order book remains strong across all industries," but it is feeling the effects of higher natural gas prices and reduced domestic raw steel capability due to the rebuild at the Gary blast furnace. For the flat-rolled segment, Q4 shipments and prices are again expected to improve, but may be more than offset by higher natural gas prices. US Steel Europe should see shipments rise due to restarts, as well as prices. The tubular segment should remain strong driven by demand from the energy markets.
In July the company announced an 8 million share buyback. During Q3, it completed the purchase of 1.2 mln shares for a total cost of $52 mln. As expected, margins took a hit on the gross and operating level. Gross margins dropped to 12.2% from 18.3% last quarter, while operating profits were halved to 5%. Shares of US Steel follow steel prices. Accordingly, they have lost almost 30% to date. Yet, the downside appears limited at this point with shares basing around $35. Considering the challenging quarter, it was notable that X was able to meet expectations. We think current levels represent a good buying opportunity with shares trading at 5x forward earnings.
--Kimberly DuBord, Briefing.com
9:02AM Brinker Intl. (EAT)
39.45: As anticipated, Brinker International posted better-than-expected results for a fifth consecutive quarter. The Dallas-based owner and operator of casual-dining concepts that include Chili's, Romano's Macaroni Grill and On The Border reported Q1 (Sep) earnings of $0.50 per share, excluding certain special items. The Reuters Estimates consensus was $0.47.
Total revenues rose 12.0% to $975 mln, driven primarily by a 3.7% increase in comparable store sales, but checked in shy of Wall Street's forecasted $1.015 bln. Brinker posted an increase of 4.8% in blended September comparable store sales versus the Briefing.com Benchmark Consensus estimate of 3.2%. Chili's, which accounts for nearly 70% of the company's total locations and total profits, posted an 8.4% increase in comps versus the Briefing.com Benchmark Consensus of +4.5%. Macaroni Grill and On the Border both saw a 2.5% decrease in comparable store sales versus the Briefing.com Benchmark Consensus of +1.2% and +0.5%, respectively. Finally, Maggiano's comps increased 3.8% vs. the Briefing.com Benchmark Consensus of +2.5%.
In addition to first-quarter highlights, which included 44 new store openings and the declaration of Brinker's first ever quarterly dividend ($0.10 per share), the company issued upside guidance for the second quarter. Brinker sees EPS of $0.56-0.58, excluding special items, versus a consensus estimate of $0.54. Brinker also issued an outlook for FY06, guiding EPS to a range of $2.37-2.45 (consensus $2.44).
Separately, Brinker agreed three weeks ago to sell its Corner Bakery Cafe chain (93 units in only eight states) to Il Fornaio and a New York private equity firm for an undisclosed sum. The move will enable management to increase its focus on international expansion and growing its flagship Chili's franchise.
Shares of Brinker, the nation's #2 restaurant operator behind Darden (DRI), are up 12.5% for the year and trade at a forward P/E of 16.2x. Rival DRI trades at a forward P/E of 15.5x and has enjoyed a 16.5% year-to-date gain.
--Brian Duhn, Briefing.com
8:39AM Texas Instruments (TXN)
30.92: The market was expecting a solid third quarter and outlook from Texas Instruments on the heels of positive earnings from several tier one handset and semiconductor-related companies that indicated they are enjoying strong demand for portable digital consumer devices. The quarter was solid, but the market is having issues with TXN's conservative fourth quarter guidance. The surge in demand was so strong in the third quarter, from customers like Motorola and Nokia, that it caught TXN off guard. The world's largest maker of chips used in mobile phones had to pull through product, leaving inventories "quite a bit below" the desired levels, according to the company. TXN said the situation presented "challenges in the fourth quarter if demand surges."
The third quarter is TXN's strongest seasonal period as its customers ramp up production of consumer products ahead of the holiday season. For the quarter, TXN earned $631 mln, or $0.38 per share, up from $563 mln, or $0.32 per share in the prior year. Stripping out three cents in stock-based compensation and a penny charge for a higher than expected tax rate, earnings were $0.42 per share. Revenues met expectations, coming in at $3.59 bln, up 10% year-over-year on strong demand for digital signal processors (DSPs) and analog chips used in handsets and other communication devices.
The Semiconductor segment delivered revenues of $3.13 bln, representing a gain of 13% from last quarter - the highest in fifteen years. This level of growth reflects the healthy environment for semis globally. Wireless chip revenues gained 16% quarter-over-quarter due to rising demand for 3G and low-price handsets sold into emerging markets like India and China. These markets are contributing more to TXN's earnings base and hold huge potential considering the low penetration rates. Digital light processors used in displays and TVs gained 40%. Gross margins widened by an impressive 230 basis points to 49.3% - well within the company's 50% target.
The market is likely to look past the solid quarter, focusing instead on the concerns over whether Texas Instruments can meet demand. Further, current supply shortfalls could cause TXN's customers to over-compensate and ramp up orders, causing a supply glut. This could cause future earnings to fall, if end-market demand fails to materialize. The Dallas, Texas-based company said it sees fourth quarter earnings in the range of $0.35-$0.40 per share, including three cents in stock based compensation, on revenues of $3.425-$3.715 bln. This indicates a sequential decline on the top line of 1% vs. consensus estimates of a 2% q/q rise to $3.629 bln. The consensus estimate of $0.40 may not be comparable due to the inclusion of the stock-based compensation. Shares are trading 4.0% lower in pre-market activity.
--Kimberly DuBord, Briefing.com
8:30AM Page One - Bernanke Is Good for Stocks
Comments posted yesterday afternoon regarding the nomination of Ben Bernanke for Federal Reserve Chairman are at the bottom of this page.
This morning, stock futures indicate a slightly lower open. Texas Instruments reported third quarter revenue and profits ahead of expectations, but gave a range of revenue guidance for the current quarter which Wall Street found disappointing. The mid-point of the range was below the average analyst forecast.
This and a reaction to the strong rally yesterday are the main reasons that a lower open is likely.
Oil is flat at about $60 a barrel. Lockheed Martin reported earnings 6 cents ahead of expectations and Northrop Grumman had a strong report. DuPont and International Paper also produced very good earnings reports. All of these companies are two to three times as large as Texas Instruments, but apparently less important than a minor variance in the range of revenue estimates from that company. BellSouth, Burlington Northern, and Omnicom also had good reports.
Earnings reports are coming in on track for an impressive 18% growth for operating earnings for the S&P 500 this quarter.
From yesterday:
The stock market rallied strongly on Monday. This was in part to strong earnings reports, but was also due to the announcement that Dr. Ben Bernanke was nominated to be the next Federal Reserve Chairman when Greenspan's term ends on January 31, 2006.
The stock market rallied on the assumption that Bernanke will be less aggressive in raising interest rates in 2006 than Greenspan would have been. This is a logical conclusion.
There is no sure way to assess just how hawkish Bernanke will be. However, the data with Greenspan is clear - he was very hawkish. He raised interest rates into the recession of 2000, which the authoritative National Bureau of Economic Research places as starting in the fall of 2000 and did not ease rates until January of 2001. He was concerned about "irrational exuberance" back when the Dow was at 6,000.
Greenspan probably would have continued to aggressively raise rates into 2006. Bernanke may not be quite so hawkish.
That is one of the reasons why the financial and cyclical sectors rallied sharply on Monday. It is also why the long bond sold off a bit.
Our view is that a more centrist Bernanke would be good for the stock market. Inflation is not getting out of control and the Fed does not need to raise rates excessively. The core rate of CPI has been just 0.1% each of the past five months. That is hardly cause for panic. And energy prices are now leveling off an easing. Meanwhile, consumer spending is cooling off.
There is no reason to curtail demand under these circumstances, and it is hard to say that interest rates are now overly stimulative.
The jury is still out on Bernanke, but it is rational for the markets to assume that the interest rate outlook is likely to be somewhat more favorable under Fed Chairman Bernanke than under Greenspan. -- Dick Green, Briefing.com
8:22AM Coach (COH)
31.25: For its fiscal first quarter, specialty retailer Coach saw its net income increase 53% from the year-ago period to $94 million, or $0.24 per diluted share. The bottom-line result includes the impact of stock option expense. Excluding that impact, net earnings jumped 48% to $100 million, or $0.26 per diluted share, which was two cents ahead of the Reuters Estimates consensus. Clearly, rising gas prices are having little impact on Coach's core customer as net sales for the same period surged 30% to $449 million, driven by a 25% increase in U.S. comparable store sales.
The company attributed its strong performance to the vibrancy of the Coach brand, product mix, and sourcing cost initiatives. The latter two factors enabled gross margins to expand 100 basis points to 76.0%. SG&A expenses, as a percentage of net sales before option expense, dropped 130 basis points to 41.3% as the robust sales performance provided expense leverage.
Coach expects fiscal second quarter EPS before option expense to be at least $0.45 and FY06 EPS before option expense to be at least $1.28. According to Reuters Estimates, analysts had been projecting EPS of $0.44 and $1.26. Coach's guidance translates to EPS growth of at least 32% and 28% for those respective periods.
If there is a sticking point in Coach's latest earnings update, it lies with its sales outlook. For its fiscal second quarter, which encompasses the key holiday selling season, Coach is forecasting sales of at least $645 million, or growth of at least 21%. For the full fiscal year, sale are expected to be about $2.1 billion, or 23% above the prior year. Neither estimate exceeds consensus expectations, which are pegged at $648 million and $2.11 billion. Coach, however, has a reputation of raising its guidance at least once during the quarter, so the market isn't likely to be dismayed by the conservative forecast at this juncture, especially since Coach acknowledged its strong performance has continued into October.
To its credit, Coach continues to post results that are characteristic of a growth company and shows no signs of being hurt by a slowdown in consumer spending. In fact, management indicated limited edition styles sold extremely well at higher price points during the quarter. At 24.4x estimated FY06 earnings, Coach is priced at a premium to the market, but relative to its anticipated EPS growth of 28% in FY06, and given its impressive track record of solid execution, Coach remains a reasonably priced stock for the growth-oriented investor.
--Patrick J. O'Hare, Briefing.com
10:02AM Avista (AVA) KeyBanc Capital Mkts / McDonald initiates BUY. Target $20. Firm believes that a positive rate case settlement in Washington, coupled with the expected turnaround of the trading business should act as the primary catalysts to drive earnings growth into 2006.
10:00AM Aon (AOC) Lehman Brothers upgrades Equal-weight to OVERWEIGHT. Target $30 to $37. Firm is citing just-released commercial P&C pricing data from the Council of Insurance Agents and Brokers that shows a favorable inflection point in commercial insurance pricing trends.
9:56AM Celgene (CELG) Lazard Freres initiates BUY. Target $66. Firm expects the co to gain full approval for Revlimid for the treatment of 5q- MDS by year-end 05. They anticipate worldwide Revlimid sales of $235 mln, $675 mln, and $1.1 bln during 2006-2008, respectively, representing one of the most successful oncology drug launches to date. They also note that recent L.C.M. survey indicates rapid uptake of Revlimid for MDS, fueled by hematologists' anticipation toprescribe the drug outside of the initial narrow indication. Significant milestones over the next two-three months include two PDUFA dates, additional filings for Revlimid, and an ex-U.S. strategic deal announcement for Revlimid at Celgene's analyst day.
9:55AM Unisys (UIS) Moors & Cabot upgrades Sell to HOLD. Target $5. Firm notes that the stock fell 19% yesterday, compared to a 1.66% gain in the Dow, which they believe was due to concerns about an audit of its $1 bln TSA contract. They say the issues cited appear to be real but not extraordinary. Firm believes these sorts of issues occur regularly and are usually resolved quietly.
9:51AM CNET (CNET) Avondale Partners downgrades Mkt Outperform to MKT PERFORM. Downgrade follows Q3 results. Firm notes that while they believe the co's dominance in technology content makes it a strong core holding in Internet Media and the recent M&A activity of online media companies provides more reason to maintain investments, they do believe the stock is trading close to fair valuation.
9:50AM PortalPlayer (PLAY) Wedbush Morgan downgrades Buy to HOLD. Target $36 to $28. Downgrade follows Q3 results, and because of continued high investor expectations for 4Q05, possible flash memory shortages, the likely prospects of a compressing valuation multiple during the seasonally slower 1H'06, and $0.10 of secondary-driven shareholder dilution.
9:22AM AVANIR Pharma (AVN) Leerink Swann initiates OUTPERFORM. Leerink Swann initiates AVN as they think that with the potential for an FDA approved product by mid-2006, Phase III results in a major indication approximately six months later and a pipeline including two programs partnered with large-cap pharmaceutical companies, the shares represent an attractive opportunity for small-cap investors.
9:22AM Vical (VICL) Piper Jaffray initiates MARKET PERFORM. Firm notes that In February, Vical received an SPA for the Phase III trial of Allovectin-7 in metastatic melanoma, and they expect Vical to partner Allovectin-7 prior to commencing Phase III trials. Firm also cites an emerging clinical pipeline and several valuable partnerships, noting that MRK is using Vical technology to develop cancer and HIV vaccines. Firm notes that Vical will likely have to raise additional capital and could face future, unforeseen litigation and have to defend its patent estate.
9:21AM Distributed Energy (DESC) Adams Harkness initiates BUY. Target $9.5. Firm thinks the co is well positioned to benefit from the growing distributed power generation and alternative energy markets, with new product cycles and partnerships beginning to gain momentum. While the stock has sharply rebounded from several qtrs of inactivity, they see an attractive risk/reward here.
biz.yahoo.com
Half full again!
RtS |
