From Briefing.com: 4:20 pm : Per usual, Thursday was no exception to the on-again, off-again trading pattern that has driven the stock market for some time now. After stocks posted their second biggest gain of the year yesterday, they reversed course in a noticeable manner following a mixed bag of earnings results from the technology sector that renewed concerns about the pace of a slowdown in economic growth.
The Nasdaq more than erased all of Thursday's 1.8% surge, on above average volume no less. Acting as the biggest drag was Intel Corp (INTC 17.10 -1.38), which plunged 7.5% after reporting a 57% decline in profits and lowering its Q3 sales outlook. Adding insult to injury was a 2.4% drubbing on the SnP 500's fifth most influential component -- Microsoft (MSFT 22.85 -0.55) -- as investors were hesitant to hold onto shares going into its earnings report after Thursday's close. Qualcomm (QCOM 35.85 -0.88) providing a disappointing Q4 outlook also weighed on sentiment and questioned the growth prospects of a sector that continues to underperform.
In stark contrast, there were two tech bellwethers out with solid earnings that enjoyed noticeable gains. Apple Computer (AAPL 60.50 +6.40) soared 12% after handily beating forecasts on stronger than expected Mac shipments while Motorola (MOT 20.60 +1.35) surged 7% after Q2 profits rose 48% on strong RAZR sales, which led to management guiding Q3 revenues sharply higher.
Be that as it may, with Fed Chairman Bernanke's final day of testimony as the center of attention [again] and the release of the FOMC Minutes from the June meeting only offering a slight hint of a pause on August 8th, a renewed wave of afternoon selling interest kept buyers on the sidelines for good and closed the major averages at session lows.
Even though Bernanke basically stuck to yesterday's script, managing to hit all the usual points relating to the moderating economy and risks to inflation, policy makers noting in the Minutes that "significant uncertainty accompanied the appropriate setting of policy going forward," also left investors uncertain as to whether the Fed will finally take a breather after two years of tightening. In fact, while members unanimously voted to raise rates to 5.25% at the last meeting, members had difficulty judging whether the level of rates was now "modestly restrictive or somewhat accommodative," with one member even indicating that the decision to raise rates at the June meeting was "a close call." The Fed's uncertainty aside, it is our belief, based on Bernanke's more recent testimony, that the end of the tightening effort is indeed near. BTK -1.4% DJ30 -83.32 DJTA -4.4% DJUA +0.3% DOT -2.0% NASDAQ -41.29 NQ100 -1.6% R2K -2.7% SOX -2.5% SP400 -2.3% SP500 -10.68 XOI -1.4% NASDAQ Dec/Adv/Vol 2253/745/2.06 bln NYSE Dec/Adv/Vol 2187/1079/1.43 bln
4:35PM Skyworks reports in-line, guides SepQ revs below consensus (SWKS) 4.55 -0.09 : Reports Q3 (Jun) earnings of $0.05 per share, excluding non-recurring items, in line with the Reuters Estimates consensus of $0.05; revenues rose 2.9% year/year to $197.1 mln vs the $195.3 mln consensus. Co issues downside guidance for Q4, sees Q4 revs of $197-200 mln vs. $206.53 mln consensus. Co says "while handset demand remains robust, we experienced isolated forecast changes that reduced our demand signal for Q4."
4:29PM Freescale Semi reports above consensus; guidea Q3 revs in-line (FSL.B) 28.99 +1.46 : Reports Q2 (Jun) earnings of $0.61 per share, $0.12 better than the Reuters Estimates consensus of $0.49; revenues rose 4.8% year/year to $1.6 bln vs the $1.56 bln consensus. Co issues in-line guidance for Q3, sees Q3 revs of $1525-1625 mln vs. $1.56 bln consensus.
4:24PM Microsoft beats by a penny; guides in-line; raises FY07 guidance (MSFT) 22.85 -0.55 : Reports Q4 (Jun) earnings of $0.31 per share, excluding non-recurring items, $0.01 better than the Reuters Estimates consensus of $0.30; revenues rose 16.1% year/year to $11.8 mln vs the $11600.6 mln consensus. Co issues in-line guidance for Q1, sees EPS of $0.30-0.32 vs. $0.31 consensus; sees Q1 revs of $10.6-10.8 bln vs. $10.95 bln consensus. Co raises guidance for FY07, to EPS of $1.43-1.47 from $1.36-1.41 vs. $1.39 consensus; raises FY07 rev guidance to $49.7-50.7 bln from $49-50.5 bln vs. $49.76 bln consensus. Co also announced a new share repurchase programs, comprised of a $20 bln tender offer scheduled to be completed on August 17, 2006, as well as authorization for up to an additional $20 bln ongoing share repurchase program with an expiration of June 30, 2011.
4:15PM PMC-Sierra reports Q2 results (PMCS) 6.98 -0.18 : Reports Q2 (Jun) earnings of $0.09 per share, excluding non-recurring items, and $9.4 mln of stock-based compensation expense, may not be comparable to the Reuters Estimates consensus of $0.07; revenues rose 66.2% year/year to $118.8 mln vs the $114 mln consensus. Briefing.com note: Consensus includes stock-based compensation expense.
4:15PM Cohu beats on the top line (COHU) 15.66 -1.41 : Reports Q2 (Jun) earnings of $0.23 per share, may not be comparable to the Reuters Estimates consensus of $0.15; revenues rose 24.5% year/year to $61.9 mln vs the $58.3 mln consensus.
7:42AM KVH Industries beats by a nickel; raises FY06 guidance (KVHI) 10.76 : Reports Q2 (Jun) earnings of $0.11 per share, $0.05 better than the Reuters Estimates consensus of $0.06; revenues rose 17.0% year/year to $22 mln vs the $20.7 mln consensus. Co issues in-line guidance for Q3, sees EPS of $0.05 vs. $0.05 consensus; sees Q3 revs up 12-15% (roughly $18.7-19.2 mln) vs. $18.90 mln consensus. Co issues upside guidance for FY06, sees EPS of $0.30-0.33 (vs $0.26 consensus), above prior guidance of $0.24; sees FY06 revs up 12-15% (roughly $79.8-82.0 mln) vs. $79.74 mln consensus.
7:39AM Benchmark Elec beats by $0.07; issues guidance (BHE) 22.97 : Reports Q2 (Jun) earnings of $0.45 per share, $0.07 better than the Reuters Estimates consensus of $0.38; revenues rose 33.6% year/year to $749 mln vs the $658.9 mln consensus. Co issues guidance for Q3, sees EPS of $0.40-0.45, may not be comparable to the $0.37 consensus; sees Q3 revs of $710-750 vs. $644.04 mln consensus. Co issues guidance for FY06, sees EPS of $1.61-1.69, may not be comparable to the $1.52 consensus; sees FY06 revs of $2.76-2.85 bln vs. $2.62 bln consensus.
7:01AM Semtech expects restatement related to stock-based compensation (SMTC) 13.19 : Co announces as previously reported, the co has been engaged in an internal review of its stock option practices in light of an informal SEC inquiry. On June 9, 2006, the Audit Committee, with the assistance of independent counsel and forensic accountants, commenced an internal investigation of the co's stock option practices and associated accounting. Although the investigation is ongoing, the Committee has concluded that, pursuant to the requirements of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, the accounting measurement dates for certain stock options granted primarily during fiscal years 1998 through 2003 differ from the measurement dates previously used for such awards. As a result, new accounting measurement dates will apply to the affected option grants. Consequently, the co expects to record additional non-cash compensation expense and expects the amount of such additional expense to be material. The tax consequences that may result from these matters have not yet been determined. As a result of these adjustments, the co expects to restate its financial statements for fiscal years 2002 through 2006. The restatement will also affect financial statements for earlier fiscal years and adjustments for those earlier years will be reflected as part of the opening balances in the financial statements for the restatement period.
1:01 pm Labor Ready (LRW)
16.49 -3.87: The stock of Labor Ready, a suggested holding in our Active Portfolio, is a sorry sight to see today, as it is getting pummeled on investor concerns about a slowdown in growth at the company that emanated from its second quarter earnings report. Those concerns aren't entirely unfounded, but the sell-off seen today is overdone.
The crux of the growth matter relates to the trend in the company's same-branch sales performance since the beginning of the year. To wit, Labor Ready achieved 11.0% same-branch growth in the first quarter, followed that up with 8.0% growth in the second quarter, and is now forecasting 6.0% growth for the third quarter. The deceleration, by and large, is a result of a slowdown in the residential construction business that knocked second quarter same-branch revenue growth to the low end of the company's 8.0-9.0% guidance range due to canceled construction projects that hit home in mid-June.
Management remains upbeat about the company's prospects, noting that things have stabilized since mid-June and that it would liken the fall-off to "stepping off a small curb and onto some pretty solid ground." It was noted too that the company has a unique ability to shift residential construction workers quickly to other areas, namely commercial construction, which is viewed by management to be running at a very hot pace comparable to how residential was not that long ago. There are also encouraging signs with respect to worker demand in the light industrial, transportation, and warehousing areas.
Because of the market's uncertainty about the Fed's ability to engineer a soft economic landing, though, it is lacking faith at this time in management's forecast, which calls for third quarter earnings between $0.45-0.48 per diluted share (consensus $0.48) on revenue in the range of $380-385 million (consensus $384 mln) and full-year earnings of $1.33-1.38 per share (consensus $1.36) on revenue between $1.37-1.38 billion (consensus $1.40 bln).
Those concerns notwithstanding, we would be buyers on the weakness given our economic view that GDP growth should average 3.0% over the second half of the year, with the unemployment rate running in the range of 4.60-4.70%. Additionally, at 13.6x trailing twelve month earnings, LRW is trading at nearly a 50% discount to its 5-year historical average. With a projected long-term earnings growth rate of 19.5%, the corresponding price-to-earnings growth rate is a value-oriented 0.70. The likelihood that the company will be instituting a new buyback program in the wake of the sell-off, and Labor Ready's solid financial condition, are added factors that should generate some support for the stock at these oversold levels.
--Patrick J. O'Hare, Briefing.com
11:59 am Dow Jones & Co. Inc. (DJ)
34.45 +0.97: Dow Jones & Co. Inc. released good news for its investors Thursday when it reported second quarter earnings of $0.39 per share, excluding non-recurring items, $0.04 better than the Reuters Estimates consensus of $0.35. Revenues rose 5.9% year over year to $481.2 million versus consensus of $488.5.
The company, which provides global business and financial news, information, and insight through venues including newspapers, newswires, magazines, the Internet, indexes, television, and radio, said June advertising revenue climbed at The Wall Street Journal and internationally, but declined at Barron's as a result of less technology and general advertising.
The company said it expects third-quarter earnings to be in the low teens versus $0.16 Reuters consensus, and said it will review its editorial operations to find ways to cut costs and better serve different kinds of audiences. The review, which will be led by Dow Jones Newswires President Paul Ingrassia, will try to determine how the company's news operations can cut down on reporting duplicative news. No layoffs are planned.
Dow Jones' stock has been on a rather steady decline for the last few years, as it's struggled in the challenging environment which has plagued news providers because of slowing advertising growth, rising costs, and the migration of consumers to the Internet.
Dow Jones' focus on the markets, however, is a saving grace for the company, as the increase of electronic trade and the uncertain interest-rate outlook have added more users to the marketplace than ever before. Because of this, at about 25.3x, shares are trading at a considerable premium to other news companies, including Gannett Co. Inc. (GCI) at 10.7x and Reuters Group plc (RTRSY) at 13.4x. Investors will want to wait for Dow Jones' editorial review, however, to determine whether buying the stock is prudent at these levels.
(Disclosure: Christine Marie Nielsen owns stock in Dow Jones.)
--Christine Marie Nielsen, Briefing.com
11:43 am Illinois Tool Works (ITW)
44.85 +0.58: Illinois Tool Works said Thursday that its second quarter profit jumped 25%. The company also raised its full-year outlook due to reasonable North American market demand, improving international end market activity, and strong operating margin performance. The announcement sent shares of the Glenview, Illinois-based company, which we featured on our Large Cap page in March, up nearly 4% in early trading.
Given Illinois Tool Works' continued strong performance and solid track record of integrating new companies as the economy slows, we believe the outlook for the company remains promising.
Illinois Tool Works earned $465 million, or $0.81 per share, in the second quarter, compared with $373.8 million, or $0.64 per share, in the year ago period. Of the $0.17 per share increase, the company said $0.12 came from operations and $0.05 resulted from a reduction in the tax rate, contributions from investment income, and lower shares outstanding. Analysts were looking for a profit of $0.79 per share, according to Reuters Estimates.
Revenue in the quarter rose 8.9% to $3.58 billion, just short of the consensus estimate of $3.6 billion. Ongoing operations accounted for 4.5% of the growth, while acquisitions added 6.7% to the top line, the company said. Currency translation and other factors reduced revenues by 2.3%. Meanwhile, the company's operating margin improved 140 basis points to 18.4%.
Illinois Tool Works raised its full-year earnings outlook to $3.03 to $3.11 per share, citing relatively stable end markets in North America and modest improvement overseas. It had previously forecasted earnings in the range of $2.94 to $3.04 per share. Analysts were expecting $3.02 per share, according to Reuters Estimates. For the current quarter, the company is projecting earnings of $0.78 to $0.82 per share, versus the consensus estimate of $0.79 per share.
--Richard Jahnke, Briefing.com
11:14 am Ford Motor Co. (F)
6.26 -0.07: Demonstrating the market's skepticism and perfunctory attitude toward Ford, the needle barely moved in shares after the automaker reported a 17 cent miss in the second quarter. The automaker reported a net loss of 7 cents or $123 mln and a loss of three cents or $48 mln from continuing operations. Ford's automotive business lost money in North America, South America, and Europe. Only its Asian business remained in the green, posting a pre-tax profit of $4 mln, yet still down from $36 mln in the prior period.
On a pre-tax basis, worldwide Automotive sector losses totaled $808 mln, which is more than 3x larger than last year's period. Sales fell 3% to $37.7 bln despite higher unit sales of 1.72 bln. Overall revenues contracted by $2.5 billion from a year ago to $42 bln. Providing little relief, Ford Motor Credit Company suffered a major decline in profitability. Higher borrowing costs, lower average receivables and higher depreciation resulted in pretax profits of $646 mln vs. $1.297 bln last year.
So what did the quarter tell us? Nothing good. Ford's operating performance continues to leave much to be desired. Tack on heightened competitive pressures, rising interest rates, and mounting structural costs and it's no wonder the shares have been left for dead. Ford has already cut its third quarter production, indicting further deterioration in financials ahead.
--Kimberly DuBord, Briefing.com
11:03 am DR Horton (DHI)
20.57 -0.28: DR Horton on Thursday reported dramatically lower third quarter earnings, as the housing market continues to cool from the white-hot levels of previous years. For the latest quarter, the nation's largest homebuilder posted earnings of $292.8 million, or $0.93 per share, down from $371.7 million, or $1.17 per share, in the same period last year - still, the numbers were a penny better than the Reuters Estimates consensus. The results include a pretax charge of $0.11 per share to write off earnest money and pre-acquisition costs related to land option contracts. Revenue climbed 8.5% year/year to $3.59 billion.
In another downturn for the industry, DR Horton said net sales orders for the quarter fell 4.4% to 14,316 homes, or $3.8 billion, from 14,980 homes, or $4.1 billion, a year earlier. The company attributed the decline to more difficult selling conditions in the homebuilding industry, characterized by a greater number of new and existing homes available for sale, higher cancellation rates, and an increase in the use of sales incentives in many of its markets.
Amid a tighter housing market, DR Horton reaffirmed its outlook from a week ago for full-year earnings of $3.65 per share or greater on about 50,000 homes closed. Analysts on average are expecting $3.70 per share, according to Reuters Estimates.
Many homebuilders have lowered their financial projections for the year, citing rising interest rates, negative new order trends, higher cancellation rates, and larger inventories. Accordingly, with earnings subject to further downward revisions as the housing market continues to slow, we remain cautious on the industry, and on shares of DR Horton.
--Richard Jahnke, Briefing.com
10:47 am CBOT Holdings (BOT)
122.01 +6.50: The parent company of the Chicago Board of Trade, CBOT Holdings Inc., saw its shares gain over 5% on Thursday morning after the company said it saw second quarter earnings of $0.82 per share, $0.09 better than Reuters Estimates consensus of $0.73. Revenues rose 31.4% year over year to $158.5 million versus the $154.7 million consensus.
Gains came as the company continued to realize volume growth across each of its product categories, advance its strategic initiatives aimed at creating new opportunities for customers, and extend its reach globally.
Key for the company is that its rate per contract was up 2% quarter over quarter and in line with expectations. Rate per contract is likely to top the latest period's gains in the third quarter. Company executives said Thursday that through temporary fee waivers, the exchange is increasing trading opportunities and encouraging volume growth among traders located in countries that have not historically been active in CBOT markets.
Company executives said they continue to work with the New York Board of Trade, and remain optimistic about opportunities - including those involving the alternative fuels area. The CBOT is also adding electronic trading hours for its agricultural products beginning Aug. 1 and is seeing increased business out of Asia.
Briefing.com took a bearish stance on CBOT Holdings in April, noting that though the company has posted strong revenue growth and improved bottom-line performance in recent quarters, further revenue and volume growth will be needed to justify the upward price trajectory - especially since the CBOT lacks the profitable clearing facility which plays a part in making the Chicago Mercantile Exchange Inc. (CME) such a hot commodity. While the view on the stock is no longer negative, a neutral stance is warranted as valuation of the stock continues to exceed its fundamentals.
--Christine Marie Nielsen, Briefing.com
10:46 am E*Trade Financial (ET)
22.73 +0.32: Like competitor TD Ameritrade (AMTD), E*Trade Financial checked in with record results for its second quarter, aided by the contribution of recent acquisitions that have been successfully integrated, and raised its earnings guidance for the year.
Specifically, E*Trade's net income of $156 million, or $0.36 per share, which included a $0.01 per share impact from acquisition-related integration expenses, surged 53% from the year-ago period when it reported a profit of $0.27 per share. Net revenue increased 58% to $611 million and net interest income after a provision for loan losses soared 71% to $334 million. Non-interest income was up 45% to $277 million and operating margins expanded 700 basis points to 43%.
For the full-year, E*Trade now expects earnings of $1.42-1.52 per share. That range excludes $0.05 per share of acquisition-related integration expenses and is up from its previous range of $1.35-1.50.
The good news has given ET a lift in today's trading, although the gain is modest. That response isn't as guarded as it seems considering ET jumped 7.5% yesterday and is up 13% since its intra-day low a week ago. Frankly, we're a bit surprised the good news hasn't been viewed as a profit taking opportunity. To its credit, though, E*Trade is executing in commendable fashion and is giving investors reason to believe its earnings forecast is achievable and that its stock, at roughly 15.5x estimated earnings, remains a value-based investment option.
E*Trade has made impressive strides in its effort to diversify its business, but nonetheless, its stock is still driven to a large extent by prevailing market sentiment. While we agree that the market's reaction to Bernanke's remarks yesterday was justified, we suspect there will remain ample resistance to the idea that the Fed will be successful in engineering a soft landing. As the uncertainty over that issue persists, sentiment will likely swing from one extreme to another. Mindful of this, we wouldn't make an aggressive commitment to E*Trade at this juncture, but we would be using the recent weakness to build a minor position in the stock as it is reasonably priced relative to its growth prospects.
(Disclosure: Briefing.com has a business relationship with E*Trade Financial and TD Ameritrade)
--Patrick J. O'Hare, Briefing.com
10:19 am Qualcomm (QCOM)
36.79 +0.06: Qualcomm posted a 15% gain in third quarter earnings on Thursday, driven by strong shipments of microchips and higher royalties from companies that sell phones based on its CDMA wireless technology. However, the San Diego-based company issued a disappointing forecast for the fourth quarter, fueling investors' concerns about slowing growth.
Qualcomm said earnings for the third quarter rose to $643 million, or $0.37 per share, from $560 million, or $0.33 per share, in the year ago period. Excluding stock-based compensation, earnings were $0.42 per share, matching the Reuters Estimates consensus. Sales climbed 43.6% to $1.95 billion, from $1.36 billion last year, also in line with analysts' expectations.
For the fiscal fourth quarter, Qualcomm projected a profit of $0.39 to $0.41 per share on sales between $1.88 and $1.98 billion. The guidance falls short of analysts' forecast for earnings of $0.42 per share and sales of $1.99 billion, according to Reuters Estimates.
Based on the disappointing forecast, which exacerbates investors' concerns about slowing growth, shares of the company were moving lower in early trading. The stock is down approximately 17% since late June, when Nokia (NOK), the world's largest cell phone maker, said it would no longer make phones based on the company's CDMA wireless technology.
--Richard Jahnke, Briefing.com
10:04 am Nokia Oyj (NOK)
19.33: Contrary to numerous cautionary component datapoints, the mobile device market remained robust in the second quarter. Both Nokia's and Motorola's (MOT) results today underscore the industry's balanced growth globally from robust demand in the Emerging Markets in the low-mid range segment, to the high-end developed markets selling pricier phones with multifunctional capabilities. Nokia, the world's largest mobile phone maker, reported its fastest growth in three years as the company, under new leadership, expanded sales in India and China. Profits rose 43% to $1.44 bln, or 28 cents per share.
The Espoo, Finland-based company reported that sales rose 22% to 9.81 billion euros from 8.06 bln euros. Competition is fierce and Nokia once again lost market share, most likely to Motorola, which over the past few years has come on strong with iconic, must-have handsets that appeal to consumers worldwide. NOK's global share fell from 35% to 34%, where it expects to remain in the third quarter.
Excluding a one-time gain from the sale of Telsim Mobil, per share profits expressed in euros were 0.24 vs. consensus of 0.25. Nokia delivered 78.4 mln mobile devices - right on target with expectations. Impressively, however, WCDMA volumes increased by almost 50% from the first quarter, lifting Nokia's share in this fast-growing market to over 30%. Average selling prices for devices fell to 102 euros from 103 euros due to weaker US demand and stronger sales in emerging markets.
Looking ahead, Nokia expects mobile device volumes in Q3 to be up sequentially, although less than the second quarter increase. Operating margins were on track with expectations. Overall, it was an in-line quarter for Nokia, but we still prefer Motorola, which continues to gain in market share over all of the major handset vendors. Both stocks trade at a discount to the overall market with only a slight difference between the two. NOK trades at 14.8x forward earnings vs. MOT at 14.9x with the latter slightly cheaper on a price to sales basis at 1.1x.
--Kimberly DuBord, Briefing.com
09:44 am Allstate Corp. (ALL)
56.15: Shares in Allstate Corp. were poised to open higher Thursday after the insurance giant said it saw second-quarter earnings of $2.00 per share, $0.39 better than a Reuters Estimates consensus of $1.61. Revenues rose 1.0% year over year to $8.88 billion versus only a $6.95 billion consensus.
Adding to the up feeling was the fact that the company raised its upside guidance for the full year of 2006, seeing earnings per share of $6.70 to $7.00 versus $6.57 consensus, up from previous guidance of $6.00 to $6.40.
Certainly Allstate, which was founded in 1931 and became a publicly traded company in 1993, has long been viewed as a defensive holding in times of economic uncertainty. With a beta of about 0.88, the stock offers a lower risk than the market. However, the company has had to do a bit of damage control in recent days to stay on course.
Allstate sells 13 major lines of insurance, including auto, property life and commercial. In an effort to reduce exposure to catastrophic losses, Allstate announced that it would be dropping earthquake insurance for most of its 407,000 clients nationwide who had that coverage. Allstate also said it would drop coverage for about 12.5% of its commercial policies in Florida, where it was the second-largest home insurer as of 2004. The company plans to gradually discontinue most coverage in the state.
The company, which lost about $1.55 billion in the third quarter last year largely because of Hurricane Katrina, has also said it purchased $2 billion in "reinsurance" (or insurance for itself) to help cover future losses from named storms, earthquakes and fires after earthquakes. In 2005, almost 2,300 deaths were caused by the devastation in the Gulf Coast. Damage estimates ranged from $80 to $100 billion.
June 1st marked the start of the 2006 hurricane season in the Atlantic, Caribbean, and Gulf of Mexico, which extends to November 30th, and the question now is what type of blow the company may receive from this year's claims; however with the new measures put in place, it appears Allstate is confident it can weather future storms. Any price dips would be viewed as a buying opportunity as at about 18x trailing 12-month earnings the stock is at a bit of a premium to its competitors.
--Christine Marie Nielsen, Briefing.com
09:19 am eBay (EBAY)
25.93: Investors were bidding up shares of eBay Inc. overnight after the company said its second quarter earnings were on target thanks to growth across eBay, PayPal and Skype. Earnings per share came in at $0.24, excluding non-recurring items, in line with a Reuters Estimates consensus of $0.24. Revenues rose 29.9% year over year to $1.41 billion versus consensus of $1.41 billion.
The company also issued downside guidance for the third quarter, seeing non-GAAP earnings per share of $0.22 to $0.23 versus $0.24 consensus. EBay also said it sees third-quarter revenues of $1.355 billion to 1.430 billion versus $1.44 billion consensus. However, eBay raised its full-year earnings per share guidance midpoint, pegging earnings per share at $0.98 to $1.01 versus $1.01 consensus. That compared to prior guidance of $0.96 to $1.01. The company reaffirmed its 2006 revenues of $5.7 billion to $5.9 billion versus $5.91 billion consensus.
Investors who have been watching this stock for a while know that the company often gives guidance that leans toward the pessimistic side. While this habit tends to weigh on market enthusiasm, other announcements are tipping the scales toward the positive.
The company on Wednesday said its board of directors has authorized the repurchase of up to $2 billion of the company's stock within the next two years. Ebay executives said the repurchase plan underscores eBay's confidence in its ability to generate strong profitability and cash flows while investing in the future of the company.
EBay also said this week that it will raise fees on the online stores that had been diverting traffic from eBay's auctions. EBay's new listings totaled 596 million in the second quarter, 35% higher than the 440 million new listings reported in the second quarter of 2005.
Furthermore, eBay's decent showing in combination with expectations of a strong earnings release from Google Inc. (GOOG) this evening could power a bit of a rebound in the sector. And at 34x trailing 12-month earnings, eBay's discount to Amazon.com Inc. (AMZN) and Google make it the most attractive pick in the litter.
--Christine Marie Nielsen, Briefing.com
09:08 am Pfizer (PFE)
23.30: Pfizer, the world's largest drug maker, reported a 30% drop in second quarter profit, as loss of revenue from patent expirations and generic competition offset growth from in-line and new products. Specifically for the period, the company, which has agreed to sell its Consumer Health business to Johnson & Johnson (JNJ), earned $2.42 billion, or $0.33 per share, compared with $3.46 billion, or $0.47 per share, a year earlier. Excluding one-time items, such as merger related expenses and restructuring costs, earnings were $0.50 per share - two cents better than the Reuters Estimates consensus.
On the top line, revenue edged up 3% to $11.74 billion, but fell short of the consensus estimate of $12.71 billion. The increase was driven by strong sales of cholesterol-lowering medicine Lipitor and arthritis drug Celebrex. Lipitor achieved 9% revenue growth during the latest quarter, while Celebrex, Geodon, and six other major in-line products each delivered double-digit revenue growth. Two new products, Lyrica and Sutent, also demonstrated strong performance in the quarter, the company said.
"We said in the beginning of the year that 2006 would be the year when we begin to substantially offset the loss of revenue due to patent expirations with growth from in-line and new products," said chief executive Hank McKinnell. "We understood the scope of the challenges we were facing, and we realized that we had set ambitious revenue targets for the full year for some of our key products, in particular Lipitor and Celebrex. I'm pleased to report that we are making substantial progress in creating the next-generation Pfizer."
Given the robust performance of its best-selling drug Lipitor, Pfizer raised its adjusted full-year earnings forecast to $2.00 per share, up from its previous guidance of $1.93 per share. According to Reuters Estimates, analysts on average are predicting $2.01 per share.
Briefing.com currently has a Market Weight rating on the Health Care sector; however, we continue to favor growth industries such as managed care over pharmaceutical, which continues to face a host of patent expirations and increased generic competition. Pfizer, in particular, is losing roughly one third of its Human Health revenue between 2004 and 2008.
--Richard Jahnke, Briefing.com
08:43 am Apple Computer Inc.
59.75: For the high-end consumer product market, it has been a very good 24 hours with Motorola, Apple Computer, and Nokia all reporting strong second quarters. For its part, Apple, whose shares have been bruised and battered by the bears, repeated rewards this quarter on robust sales of the Mac. The Mac is back and it plans to take full advantage of Microsoft's Vista delay. The trifecta of results signals that consumer demand is stronger than many market participants expected, which in turn is lifting stock index futures this morning on optimism over sustained profit growth.
Taking the spotlight from the iPod, this quarter was all about the Mac. Shipments topped 1 million units for the seventh straight quarter, benefiting from the transition to faster, Intel-based chips. Shipments increased 12% year/year driven by a 61% spike in notebook units, following the widely successful launch of the Intel-based MacBook. As a result, net income swelled by 48% to $472 mln or 54 cents per share as sales rose 24% to $4.37 bln.
iPod shipments rose 32% year/year, but fell sequentially from 8.5 mln to 8.1 mln units. Nonetheless, shipments exceeded expectations. Continued cost declines and new product refreshes and launches underscore Apple's strong profit outlook. The market is waiting with bated breath for Apple's newest products for the back to school and holiday seasons, which are expected to be announced during the Aug 7th technology conference.
The street is still ahead of Apple in terms of Q4 guidance. The company targets sequential revenue growth of 3-5% and EPS of $0.46-$0.48 vs. $4.9 bln and $0.51 per share, respectively. The recent sell-off gives investors an attractive entry point, as we continue to think APPL remains a strong long-term investment given its marketing-moving innovation, brand integration, and market share dominance.
--Kimberly DuBord, Briefing.com
08:00 am Motorola Inc. (MOT)
19.25: We think the market is finally beginning to dial into the Motormomentum the Schaumberg-based mobile device maker continues to exhibit quarter after quarter. Shares are set to open up almost 10% above Wednesday's closing price, after the world's second largest handset company reported a strong second quarter result, besting analysts' expectations and raising the bar for the third quarter.
Over the last two years, Motorola has been gaining market share, generating strong revenue growth, and driving margin expansion. And the story just keeps getting better. We expect that Motorola, a suggested holding in our Active Portfolio, will continue to benefit from its product positioning at the high-end and in the high-growth emerging markets, driving overall profitability through ongoing cost reduction and operating efficiencies. The company targets $10.9-$11.1 bln in revenues for the third quarter, over 6% above consensus of $10.3 bln.
This quarter, MOT sold 52 million mobile device units, well above expectations on robust growth in Asia and Latin America, along with strong demand for its new "Q" device and RAZR phones. And while the mobile devices segment is its largest revenue and profit generator, growth was broad-based this quarter from infrastructure, to government, to connected home segments. Second quarter revenues were $10.9 bln, up 29% year/year, while per share profits topped expectations by a few pennies at $0.33.
--Kimberly DuBord, Briefing.com
07:50 am Intel (INTC)
18.49: Expectations were on the low side heading into Intel's second quarter earnings report and it is fair to say that the chip maker lived down to those expectations.
Revenue of $8.0 billion was at the low end of the company's guidance range and its net income of $885 million, or $0.15 per share on a GAAP basis, was down 57% from the year-ago period. Alas, it mattered little that its EPS figure was two cents above the downwardly-revised consensus estimate.
Aided by the earlier than expected qualification of its Conroe microprocessor, Intel's gross margin of 52.1% was a positive surprise. Any enthusiasm there was mitigated, though, by its forecast for gross margins in the third quarter to be 49%, plus or minus a couple of points, and its revenue to be $8.3-8.9 billion. The mid-point of the revenue guidance range is comfortably below the $9.04 billion analysts had been expecting.
On the conference call, management made note of the competitive pricing environment and some overall softness in the PC market that drove down average selling prices, but they continued to express optimism about the introduction of the company's Core 2 Duo processors across the server, desktop, and mobile PC lines that will provide it with a "compelling technology advantage at every price point." Analysts on the call seemed to acknowledge the market opportunity available to Intel, but many couldn't help but to express their reservations about Intel's significant inventory build (+$765 million to $4.33 billion) since April 1 in the face of what appears to be a slowing worldwide economy.
Management shot down the inventory concerns, noting they didn't want to be in a position again where the company didn't have enough inventory to meet demand, and thus, open the door for competitor AMD to take market share. In turn, the inventory build was rationalized because management expects there to be strong demand for its dual-core microprocessors (Woodcrest, Conroe and Merom), which increase computing capabilities using less power.
The demand ramp isn't likely to happen in a significant way, though, until the fourth quarter, so Intel will continue to work on clearing out older inventory as it gears up for what it expects to be a much improved performance in 2007 that is facilitated by its current effort to cut costs by $1 billion. On that note, CFO Andy Bryant, in response to a question, hinted on the call that more job cuts are likely to be announced before the end of the year. He also suggested that newer products will be a higher percentage of revenue in the fourth quarter, and as a result, that Intel should start delivering better margin performance as the company's unit costs improve quarter by quarter through next year.
In looking at Intel's stock, it clearly isn't a pretty picture. The ramp of the dual core processors, though, should invite better returns in the year ahead provided the worldwide economy doesn't go into recession (which neither Intel nor Briefing.com expects to happen). In the interim, Intel is apt to trade in a choppy manner, and in a fairly narrow range, as the market vacillates in terms of its thinking about economic prospects. Given our favorable economic outlook and Intel's strong product roadmap, we are standing by the stock as a suggested holding in our Active Portfolio and would use the weakness as a long-term buying opportunity.
--Patrick J. O'Hare, Briefing.com
09:59 am Elec For Imaging: Oppenheimer reiterates Buy. Target $32 to $25. Firm lowers price tgt following Q2 results. The firm says a delay in the launch of an O.E.M product resulted in lower than anticipated top and bottom line. The firm notes mgmt indicated same O.E.M is likely to delay several products scheduled for 2H into 4Q and 1Q07.
09:57 am Alliance Data: CIBC Wrld Mkts reiterates Sector Outperform. Target $60 to $63. Firm raises price tgt following another very strong qtr. The firm says despite the headlines, they believe data points about the high-end consumer remain encouraging: wages inch upward and unemployment remains steady. The firm says they anticipate charge-off to rise to 6.5% in 2H, vs. an unsustainable 4.7% in 2Q. This should not surprise investors.
09:56 am Lam Research: Am Tech/JSA Research upgrades Sell to Hold. Firm upgrades saying while timing of industry weakness remains unclear within the 3Q06-1Q07 time period, as well as the duration of the downturn, it remains clear that it is inevitable and they argue will hold back investor interest on the sector. Furthermore, LRCX will stop issuing order guidance beginning in January 2007 as the company, and they, believe orders are becoming less useful in a shortened lead time environment. They remain cautious and neutral on the semi equipment sector. Co raises their CY06 EPS est to $3.66 from $3.19 (consensus $3.20) and CY07 from $3.25 to $4.05 (Street at $3.03).
09:52 am Applied Industrial: BB&T Capital Mkts upgrades Hold to Buy. Target $31. Firm upgrades saying they believe AIT stock is currently fetching a recessionary multiple, but that the cycle has legs yet. The firm believes there are a couple ways to profit: investors get comfortable with the industrial outlook and bid up the multiple and/or strong fundamentals yield higher earnings.
09:50 am Motorola: Piper Jaffray upgrades Market Perform to Outperform. Target $25 to $26. Firm upgrades based on strong handset sales and increased confidence in margin expansion.
09:48 am Insignia Sys: Miller Johnson initiates Outperform. Target $5.5. Firm initiates saying the co is in the early stages of a renewed growth phase following several very challenging years where sales and earnings declined steadily. While recent performance has been highly encouraging, firm stresses that ISIG shares are still quite speculative due to the historical lack of profits and limited visibility. Firm also notes that fundamental trends have improved considerably and new business activity has accelerated.
09:47 am Bioscrip: Avondale Partners initiates Mkt Perform. Target $5. Firm initiates noting BIOS was formed by a combination of two underperforming publicly-traded specialty pharmacy companies. The firm says integration has been slower than expected resulting in weak earnings and management transition. They say while there is significant potential in the combined operations, there remain significant challenges as well. The firm would prefer to see some evidence of earnings improvement before recommending an investment in these shares.
09:32 am St. Jude Medical: CE Unterberg Towbin downgrades Buy to Market Perform. Firm downgrades saying although mgmt reiterated yesterday that it is optimistic that it can achieve a minimum 15% growth in rev and earnings per share in 2007, they believe that they will be unable to do so on the top line. The firm believes that since approx 40% of projected 2006 rev is generated from low-single-digit growth pacemaker and cardiology businesses, this creates too much of a burden on the other faster growing businesses to overachieve in order to hit the 15% 2007 rev tgt.
09:30 am MGI Pharma: Am Tech/JSA Research downgrades Buy to Hold. Firm downgrades saying MOGN is now expecting an authorized generic version of competitor GSK Zofran, earlier than both the firm, and mgmt, had previously expected. The company now expects a generic version to be available in early 4Q06, potentially significantly disrupting sales in that quarter. |
