From Briefing.com: 5:01PM Volterra Semi reports in-line (VLTR) :Reports Q3 (Sep) earnings of $0.03 per share, excluding non-recurring items, in-line with the Reuters Estimates consensus of $0.03; revenues fell 0.2% year/year to $12.5 mln vs the $12.6 mln consensus.
Close Dow +167.78 at 10385.00, S&P +19.79 at 1199.38, Nasdaq +33.62 at 2115.83: Rallying from its launch, the stock market closed at its best levels of the quarter with the Dow, S&P, and Nasdaq posting respective 1.7%, 1.7%, and 1.6% gains. Bargains left in the wake of three weeks' declines had perhaps lured buyers back to the table, and another round of reassuring Q3 earnings reports, alongside extended pullbacks in energy prices, fed the bullish tone throughout the day. The session's biggest news item and driver was, though, President Bush's nomination of Ben Bernanke to replace Alan Greenspan. The announcement dispelled uncertainty over the Fed Chairman's successor a couple of months earlier than investors had anticipated, and Bernanke's stated intention of maintaining continuity during the transition, as well as a confirmation that Greenspan will remain Fed Head until the official end of his 18 year term in January, seemed to relieve stock investors. While the fourth quarter has been thus far characterized by a lack of leadership, today stood in stark contrast. Each of the ten sectors spent the day on positive ground, and wide-spread buying interest closed eight of them with gains in excess of 1%. Despite crude's 1% decline - and although the commodity hovered below $60.00/bbl for a large part of the day - the Energy sector surged 3.4%. Its 15% quarter-to-date slide likely captured bargain hunters' eyes, and Goldman Sachs' positive comments on the sector and contention that its decline of late is just temporary helped re-attract traders. An upside earnings report from refiner Ashland (ASH 53.40 +0.82) lent some additional support. Speaking of energy prices, the sustained pullbacks sent Consumer Discretionary to a 1.9% gain. Like the Energy sector, Utilities similarly rebounded today from recent profit-taking and posted a second-place 2.6% gain. Driven by an upgrade-induced jump in Eastman Chemical (EMN 50.58 +2.93) as well as surging Phelps Dodge (PD 124.68 +3.72) shares, the Materials sector rose 2.3%. Soaring Verizon (VZ 30.09 +0.57) shares, following Barron's positive write-up, added to follow-through buying interest across the Telecommunications sector and pushed it 1.8% higher while also supporting the Tech sector. Buyers headed towards that sector this afternoon, and a particular rise in Oracle (ORCL 12.84 +0.58) offset the effect of Unisys' (UIS 4.51 -1.04) 18% plummet and sent Tech to a +1.2% finish. A double dose of negative news items sent shares of the latter reeling: The Wall Street Journal reported the government's follow-up over-billing investigation, while Barron's feature on the stock concluded that things could get worse before they get better. Financials (+1.2%), boosted especially by surging brokers, received a strong shot of support after American Express (AXP 49.54 +2.39) disclosed its Q3 earnings intraday. Healthcare, while standing solid throughout the session, did not manage to move out of the laggard seat. Home to two of the morning's most notable upside earners, Merck (MRK 26.99 +0.81) and Schering-Plough (SGP 21.07 -0.04), an extension of relative weakness in Pfizer (PFE 21.12 -0.13) weighed upon pharmaceuticals and stunted the sector's momentum throughout the better part of the session. However, the intensified afternoon buying action sent MRK shares higher and pushed the sector out of its narrow trading range - and to a 0.8% close. Separately, the bond market unexpectedly fell on the Fed Chief announcement and remained weak over the course of the session. While the selection came with little surprise, given that Bernanke was the President's choice to chair his Council of Economic Advisors, speculation that the he may not match the iron fist with which Greenspan has attacked inflation - and instead prove more pro-growth with his policy tactics - appears to have somewhat roiled Treasury traders today.NYSE Adv/Dec 2524/789, Nasdaq Adv/Dec 2173/848
1:50PM Schering-Plough (SGP)
21.10 -0.01: Drug maker Schering-Plough on Monday reported a sharp rise in third quarter profits, driven by the company's ongoing turnaround efforts and strong sales of cholesterol drugs Vytorin and Zetia, which are managed in partnership with Merck & Co. (MRK). The company said it earned $43 million, or $0.03 per share, compared with $14 million, or $0.01 per share, in the year-ago period. Excluding one-time charges and a favorable tax impact totaling $0.05 per share, third quarter earnings were $0.08 per share - two cents better than the consensus estimate.
Revenue climbed 15.5% from a year ago to $2.3 billion, led by the growth of prescription pharmaceuticals, which gained 18% to $1.8 billion. Among its leading drugs, SGP said sales of hepatitis C treatment Peg-Intron grew 40% to $185 million, sales of rheumatoid arthritis drug Remicade rose 26% to $237 million, and sales of Temodar, a treatment for certain types of brain tumors, rose 25% to $152 million. The combined sales of Vytorin and Zetia contributed $215 million in the quarter, up from $95 million a year ago.
For its other divisions, consumer health care sales decreased 2% to $235 million, while animal health sales increased 14% to $209 million. The decline in consumer health care reflects lower sales of over-the-counter decongestant Claritin-D, which decreased 16% to 92 million, due to recent restriction placed on retail sales of products containing pseudoephedrine. This was partially offset by a sharp rise in sales of sun care products and stable sales of foot care products.
The latest results follow the company's ongoing actions to transform it business, and marks the "beginning of the turnaround phase" - the third of five phases in the six to eight year plan announced by CEO Fred Hassan in April 2003. In addition to broad-based growth, namely among prescription products, the company noted gross margin expanded 190 basis points to 66.0% due primarily to supply chain process improvements as well as a positive foreign exchange impact. Meanwhile, SG&A expenses rose 19% to $1.1 billion in the quarter as the company continued to support launch of Vyortin and Zetia, and increased spending to promote its new nasal spray Nasonex and asthma treatment Asmanex.
Separately, according to the Wall Street Journal, Mr. Hassan said that the company is out of "survival mode" and has begun to aggressively shop for new drugs to bolster its thin pipeline. Mr. Hassan plans to use the $9 billion in profit the company repatriated from overseas operations to strike deals for late-stage drug candidates from other companies and possibly purchase the companies themselves.
Analysts are expecting Schering-Plough to earn $0.07 per share on sales of $2.39 billion in the fourth quarter, according to Reuters Estimates. Last year, the company reported a loss of $0.02 per share and revenue of $2.18 billion.
--Richard Jahnke, Briefing.com
1:39PM Ethan Allen (ETH)
32.28 +1.78: Before the open Ethan Allen announced a 9% decline in fiscal first quarter profits to $17.1 mln, or $0.49 a share, down from $18.8 mln or $0.51 a share in the year-ago period. Excluding an anticipated charge of $0.08 per share, though, first quarter earnings of $0.57 per share were actually two cents better than the Reuters Estimates consensus of $0.55.
On September 7, the company said it would record a pre-tax restructuring and impairment charge of about $0.07 to $0.09 per share related to the conversion of a factory into a regional distribution center in order to strengthen its logistical capabilities and improve remaining U.S. manufacturing operations. First-quarter results surpassed the range of $0.53 to $0.56 provided by management six weeks ago. At the time, the company indicated that July and August wholesale orders and business at retail stores were up by more than 10%.
Evidently, orders in September were also respectable, as Q1 retail sales rose 11.8% to $158.4 mln while wholesale sales jumped 10.6% to $178.4 mln. Total revenues increased 9.1% year/year to $251.3 mln versus the $238.8 mln consensus estimate.
Despite written business slowing during the past three months, and the threat of further increases in fuel and raw materials costs amid competition from low-cost imports, management believes Wall Street's Q2 and FY06 earnings forecasts remain "within reach." The latter declaration appears to have underpinned a sense of relief for ETH shareholders, especially on the heels of profit warnings from competitors La-Z-Boy (LZB) and Stanley Furniture (STLY).
On October 18, LZB said it expects a Q2 (Oct) loss of $0.17-0.21 a share, due to an industry wide shortage of polyurethane foam and sluggish retail sales, reversing previous estimates which called for a profit. STLY, meanwhile, lowered its Q4 outlook, citing "an uncertain period due to a sharp decline in consumer confidence levels," setting up its first down quarter in revenue since early 2002 and piquing concerns about demand for an estimated $79 bln furniture industry that remains in a recovery phase.
Shares of ETH are up 6.0% today. The stock, however, is still down more than 20% for the year and trades at 12.6x forward earnings versus a forward multiple of 20.7x for LZB.
--Brian Duhn, Briefing.com
12:17PM Reebok (RBK)
57.26 -0.16: According to Reebok, uncertainty from retailers with respect to the company's impending merger with Adidas caused a significant drag on net sales. The top line declined to $1.04 bln from $1.16 bln last year, led by a noteworthy 20% plunge in US footwear to $241.0 mln. The apparel segment grew a modest 0.3% to $204.8 mln. While some of the slide was caused by Foot Locker's efforts to reduce their inventory levels, the sales performance raises many questions considering it was the worst performance in fourteen quarters. Outside the US, the picture was equally grim. International sales of footwear fell 9% to $238.9 mln, with apparel sliding 3.1% to $227.4 mln. Clearly, Reebok was not on the winning team this quarter as total footwear sales worldwide tumbled 15% to $479.9 mln, with apparel slipping only 1.5% to $432.2 mln.
Reebok's third quarter results were skewed by several one-off items, including an after-tax gain of $49 mln due to the sale of company's Ralph Lauren Footwear business and a $2.5 mln cost in legal expenses associated with the proposed merger. On a comparable basis, earnings were $1.12 per share - well below the consensus estimate of $1.32. The company's in-line guidance for the fourth quarter did little to overshadow the significant slump in sales. The company sees Q4 EPS in a range of $0.55-$0.65 per share vs. consensus of $0.60 Of note, sales of Classic derivative products, which have been the backbone of the Reebok brand, declined this quarter.
In August, the German athletic footwear and apparel company, Adidas, reached an agreement to buy Reebok for $3.8 bln. Targeting Nike's foothold in the US, Adidas cited Reebok's brand and market strength as the compelling factors behind the purchase. The deal, which has already won US antitrust clearance, was expected to close in early October, but has now been pushed ahead to the first half of 2006. The question is whether retailers were just acting cautiously ahead of the merger or whether the quarter represents bigger issues with regard to Reebok's products from product shifts to fashion trends? With the merger pending, the market isn't likely going to hang around for an answer.
--Kimberly DuBord, Briefing.com
11:36AM Cendant (CD)
19.50 -0.59: Shares of Cendant Corp. slipped during the regular trading session after the company announced early Monday that its Board of Directors had approved a plan to separate into four independent publicly traded companies, and reported lower-than-expected Q3 EPS ($0.44 vs. $0.46). Cendant said the planned restructuring aims to "unlock value" by creating four pure-play companies - one each for its real estate, travel distribution, hospitality, and vehicle rental businesses - and is intended to reduce the complexity surrounding investor understanding and analysis of its businesses.
"All of our businesses have done well, yet despite Cendant's consistently strong operating and financial performance in recent years, the market has not fully recognized the value of the company," noted Cendant's Chairman and CEO, Henry Silverman. With efforts to simplify Cendant's structure and to divest non-core businesses already complete, Mr. Silverman concluded that "it is in the best interest of our shareholders to establish pure-play enterprises, as we and our advisors believe the sum of the parts has a value in excess if our current share price."
Following the restructuring, which is expected to be completed through three 100% spin-offs in the summer of 2006, Cendant shareholders will own 100% of the equity in all four independent companies. In addition, the transaction is expected to be tax-free for the company and its shareholders.
As a result of the proposed restructuring, coupled with slowing growth in its travel business, Cendant reduced its fourth-quarter earnings forecast by $0.03 to $0.04 per share to a range of $0.23 to $0.26. That compares to the consensus EPS estimate of $0.28. For 2006, it expects revenue growth of about 10% and EBITDA from core operating segments to grow by 11% to 13% - down from the previous estimates of 11% and 19%, respectively. Separately, the company said it expects to continue to recommend to its Board the payment of its regular $0.11 quarterly dividend until the transaction is completed. While the company's current share repurchase authorization remains in place, its previous target $2 billion through 2006 will no longer be effective as it re-assesses each of the new four businesses.
Cendant - which operates the Days Inn and Ramada hotel brands, car rental agencies Avis and Budget, and Internet travel sites Orbitz and Cheaptickets.com - is scheduled to report third quarter financial results today after the market closes. Analysts had been expecting earnings of $0.46 per share on revenue of $4.94 billion, according to Reuters Estimates.
--Richard Jahnke, Briefing.com
10:11AM Merck (MRK)
26.23 +0.05: Merck's third quarter results and full-year guidance came as a relief to investors as the beleaguered drug maker has been reeling from an influx of Vioxx-related news, as well as a host of impending patent expirations. Merck, based in Whitehouse Station, New Jersey, said Monday that it earned $1.42 billion, or $0.65 per share, compared with $1.33 billion, or $0.60 per share, last year - three-cents better than the consensus EPS estimate of $0.62.
Third quarter sales, however, fell 2% from a year ago - reflecting a decrease of 3% related to the Vioxx withdrawal - which was offset by lower production costs. The most recent quarter includes costs related to ongoing position eliminations of $80 million, while last year's period included position elimination costs of $34 million and Vioxx withdrawal costs of $141 million. Including these costs, marketing and administrative expenses decreased 1% year/year. Excluding them, costs were 5% higher for the quarter.
Among its key franchises, Merck said sales of Zocor, the company's statin for modifying cholesterol, declined 14% to $1.0 billion in the latest quarter, compared with the same period last year. Sales of asthma drug Singulair grew 11% to $692 million, the blood pressure medicines Cozaar and Hyzaar gained 6% to $751 million, and the osteoporosis drug Fosamax was flat year/year at $777 million.
The company offered an update on litigation involving Vioxx, the painkiller that the company pulled from the market in September 2004 after studies linked it to increased risk of heart attack and stroke in long-term users. Merck said it has not established any reserves for any potential liability relating to the lawsuits.
Although the continuing fallout from Vioxx and lack of near-term growth drivers remain an overhang, Merck provided full-year guidance in-line with analysts' projections. The company expects full-year EPS in the range of $2.47 to $2.51. On average, analysts had projected earnings of $2.49 per share on sales of $22.02 billion.
--Richard Jahnke, Briefing.com
9:56AM PetMed Express (PETS)
11.20 +1.15: Shares of PetMed Express are up 11% in early trading after the company reported record Q2 (Sep) financial results. Earnings of $0.11 per share checked in a penny ahead of the Reuters Estimates consensus of $0.10, as revenues surged 34.4% year/year to $38.7 mln, well above analysts' expectations of $33.9 mln.
The company attributed strong top line growth to the acquisition of approximately 208,000 new customers during the quarter, a 35% increase over the 154,000 new customers acquired a year ago. More than 1.4 mln customers have dialed up orders through its 1-800-PetMeds toll free number, or its website, in the past 24 months, with an average order size of about $76 in fiscal 2005 versus $73 in fiscal 2004.
Long known for its advertising acumen, it was not surprising to see PETS capitalize on ad buys during the hurricane coverage. To that end, increased advertising efficiency with more effective advertising (e.g. placements on The Weather Channel), helped drive ad costs for acquiring a new customer down to about $33 compared to $37 in the same period a year earlier.
With a market capitalization of around $240 mln versus $3.2 bln and $1.1 bln for Petsmart (PETM) and Petco, respectively, PetMed Express is still a small fish in a big pond. The company, however, should could continue to capitalize on the conversion of customer purchases away from vets, which accounted for 97% of the $3.0 bln market for pet medications. With net cash increasing by $6.1 mln to $12.7 mln for the six months ended September 30, 2005, PETS remains well positioned to expand future offerings beyond its niche pet med market and to capture a larger piece of the $34.4 bln pet services industry.
--Brian Duhn, Briefing.com
9:46AM Arch Coal (ACI)
72.85 +1.44: We hear continually about the tightness in many of the commodity markets, from natural gas to copper. Coal, however, is one commodity that remains in abundance. The combustible black sedimentary rock, commonly associated with the Industrial Revolution, remains an important fuel source. It is the most common source of electricity worldwide and accounts for over half the electricity generated in the US. Coal stocks have been the darlings of the market, enjoying an undeterred rise over the last year, as utilities switched to coal-fired power due to soaring natural gas prices.
Arch Coal, one of the nation's largest coal producers, generated a 75% increase in third quarter profits to $18.9 mln, or $0.26 per share. Excluding items, the comparable figure was $0.31 per share - two cents ahead of consensus. The top line climbed 24% to $654.7 mln from $527.8 mln last year. The rise in sales was derived from higher average realized prices, which were up 14% to $17.91 per ton, and a volume gain of 8% to 35.2 mln tons. The company commented on the outlook for the US coal markets, saying "(they) continued to strengthen through the quarter." According to CEO Steven Leer, "coal stockpiles at US power generating stations fell to their lowest levels in decades." Adding the Hurricanes in the Gulf has made coal "even more attractive" as the hurricanes caused natural gas and crude prices to soar. Arch estimates that natural gas is 4-5x more expensive at present to generate electricity than it is to use coal.
Arch said it expects growth to continue over the next three years, as the majority of its contracts expire and get reset to market-based pricing. ACI said that it, as well as the rail carriers, estimate the Power River Basin, the nation's largest coal production region in Wyoming, is poised to capture most of the new coal demand. Coal continues to regain momentum as the fuel of choice, and with more coal-fired plants being built, the longer-term outlook keeps getting brighter. The stock trades at an astounding 71.7x forward earnings, compared to the largest producer, Peabody Energy (BTU), at 24.5x.
--Kimberly DuBord, Briefing.com
9:11AM Kimberly-Clark (KMB)
56.82: Kimberly-Clark, the maker of Kleenex, Scott, and Huggies brands, reported an in-line result, earning $0.95 per share before unusual items in the third quarter. Volume growth boosted sales by 5.8% to $4.0 bln. Diluted net income was $0.68 per share, down 22% due to one-time items related to what it called "competitive improvement initiatives for streamlining operations." The recurring theme for manufacturers, no matter the industry, remains the high cost of energy. KMB highlighted this headwind, which, coupled with direct expenses from Hurricane Katrina, totaled $15 million before tax, or $0.02 per share.
Excluding sales from divested pulp operations, the company's top line increased by 7%, of which 4% was derived from volume supported by strength in Emerging Markets and double-digit growth for personal care and consumer tissues brands in North America and Europe. Currency tacked on 2%, with higher prices adding on another point. KMB is fairly evenly spit between its two largest segments, Personal Care and Consumer Tissue, which generated net sales growth of 7.5% and 8.1%, respectively. Intense competition in Europe, primarily for diapers, offset higher price realizations in Asia and Latin America within the Personal Care group. Yet, KMB was able to expanded operating margins by 50 basis points year-over-year to 20%. Within the Consumer Tissue segment, volumes rose 4% with prices and currency benefits gaining 2%. NA was particularly strong driven by new product introductions of bathroom tissue. Again, a taxing market in Europe weighed on sales, while Asia contributed double-digit growth.
Kimberly-Clark's focus on returning value to shareholders via stock buybacks continued. The Dallas, Texas-based company bought back 8.0 mln shares at a cost of $499 mln. This brings the year-to-date total to 15.7 mln, cutting its share count by 4%. Fewer shares and a lower tax rate contributed to earnings in the quarter. What will weigh on shares Monday was the company's downside guidance. KMB said it does expect to raise prices, yet higher costs for resins and other oil-based materials, energy, and distribution following Hurricanes Katrina and Rita will result in a $30 mln, or $0.05 per share, drag on earnings. For the fourth quarter, KMB sees earnings of $0.94-$0.96, ex-items, which is below the consensus estimate of $0.97. This challenging environment has and will continue to be reflected in the market's perception of the stock, which has sent shares down almost 14% year-to-date.
--Kimberly DuBord, Briefing.com
8:52AM Page One - Oil Down, Earnings Good, Stocks May Go Up
There will be a flood of earnings reports this week. There will also be a fair number of economic releases.
The earnings news continues to be good. This morning, Merck, Schering Plough, and Ashland all reported earnings above expectations. Johnson Controls and Kimberly-Clark reported in line with expectations. Cendant missed. This collection of reports won't have broad impact, but adds to the overall view that earnings are on track for a solid quarter. Operating earnings for the S&P 500 in aggregate will be up about 18%.
After the close today, American Express and Texas Instruments lead the list of reports.
Oil is down over $1 this morning to about $59.50 a barrel. Hurricane Wilma has missed the major oil production facilities in the Gulf. The recent downtrend in energy prices may well continue this week.
The economic releases this week include third quarter GDP on Friday. Real GDP is expected to rise at about a 3.6% annual rate. This would mark the tenth straight quarterly increase above long-term trends. Yet, there are still substantial concerns that the economy is either currently in a recession, or about to enter one. The reason for the disconnect between economic reality and perceptions is explained in Briefing.com's Big Picture column this morning.
The market looks to open slightly higher this morning. Our view continues to be that the fundamentals remain good for long-term investors and that a late earnings season rally is very possible. -- Dick Green, Briefing.com
8:39AM Ceridian (CEN) Morgan Stanley upgrades Equal-weight to OVERWEIGHT. Firm believes that improving financial controls, strong demand, solid pricing power, earnings leverage from rising interest rates, and a C.E.O. now being held accountable for Human Resource Services performance should drive above-consensus earnings results through 2006.
8:30AM Quebecor World (IQW) CIBC Wrld Mkts downgrades Sector Perform to SECTOR UNDERPERFORM . Downgrade follows co's negative Q3 pre-announcement. Firm thinks the co continues to face challenging mkt conditions with pricing pressures and higher energy costs, as well as continued underperformance in Europe. They believe a recovery by the co now appears to still be a longer-term event, even if execution improves immensely.
8:29AM DST Systems (DST) Morgan Stanley downgrades Overweight to EQUAL-WEIGHT. Firm believes that, absent an improvement in low-single digit mutual fund industry account growth, and/or substantial awards from its new business pipeline, potential operating earnings out-performance may be limited.
7:53AM Brookline Bancorp (BRKL) Ryan, Beck & Co downgrades Mkt Perform to UNDERPERFORM . Target $16 to $14. Firm says while the co should report 16% EPS growth in 2005, the co will likely struggle to grow earnings at a double-digit rate in 2006. More importantly, firm thinks the pace at which ROE improves looks to be more deliberate than previously expected
7:52AM MB Financial (MBFI) Ryan, Beck & Co downgrades Outperform to MKT PERFORM. Target $45 to $40. Firm believes that continued intense competitive forces in the co's mkt, particularly Chicago, could put downward pressure on the co's net interest margin and keep operating expenses at levels higher than originally anticipated.
7:49AM Eldorado Gold (EGO) CIBC Wrld Mkts initiates SECTOR OUTPERFORM. Target $4.5. Firm believes EGO boasts one of the most impressive production profiles in the sector with gold output expected to grow 570% from 69,000 ounces in 2005 to over 450,000 ounces by 2007. They say this growth is also fully funded and permitted. Firm also initiates GSS with a Sector Perform and $3.40 tgt.
7:48AM CapitalSource (CSE) Goldman Sachs downgrades In-Line to UNDERPERFORM . Downgrade reflects firm's incremental concern on credit. Firm has long had reservations about CSE's rapid loan growth and eroding credit trends, and these reservations have been heightened by recent but broadly unrecognized credit data showing losses in July and August.
7:46AM Rowe (ROW) BB&T Capital Mkts downgrades Buy to HOLD. Firm cuts their sales and margin forecast based on conversations with industry leaders at the High Point market last week. They believe a slower retail sales environment and spiking raw material costs are the main operating challenges for the next one to three quarters. |
