From Briefing.com: 4:20 pm : A softer than expected read on a closely watched economic report gave buyers a reason to extend the technically-driven momentum that closed Wednesday's indices at multi-year highs. Weakness in technology stocks helped stunt the market's advance, but the Dow and S&P 500 still managed to close at 4 ¾-year highs. The Nasdaq did not fare so well, and booked a loss.
Last month, the core rate of the Consumer Price Index - which excludes food and energy - rose 0.1%. Economists had expected a 0.2% increase. The report was good news in that was not bad news, and it gave the market a sense that the end of tightening is nearing. The data assuages worries over a further increase in inflation, and it was well received by both the stock and bond markets. In our view, though, the trend remains ambiguous. The year-over-year increase was 2.1%, and the rate of increase over the past three months was 2.0%. It is unclear whether inflation is moderate enough to prevent the Fed from raising rates more than just one additional time. A rate hike in March is widely expected, and one after that is possible. Today's read feeds the argument that a third hike may not happen, but, ultimately, monetary policy remains uncertain. The 0.1% rise has not changed our view on the market, and we remain Neutral.
Treasuries rallied on the read. Technical factors and the geopolitical front also played parts in that market's improvement. Yields fell across the curve, and the stock market benefited. The 10-year has particularly been on stock traders' radar; the benchmark bond rose 22 ticks and fell to a 4.64% yield. That is down from 4.76% on Monday. Rate-sensitive areas fared well. The Utilities sector advanced 0.7%, homebuilders gained more than 2%, and the Financial sector notched 0.4%. The investment banking and brokerage industry occupied much of the latter sector's spotlight again today. Bear Stearns (BSC 133.26 -0.95) delivered record earnings results that far exceeded analysts' expectations. But because its news came on the heels of similarly outstanding results from Goldman Sachs (GS 147.69 -1.31) and Lehman Brothers (LEH 142.42 -1.73), traders took the opportunity to secure some of the profits the industry has recently registered. A modest decline in the group pushed the Financial sector off of its high.
On account of a spike in prices across the energy complex, the Energy sector (+1.5%) contributed some spirited leadership. The price of crude pushed $64 per barrel intra-day, and closed about 2.0% higher at $63.45 per barrel. A decline in natural gas inventory, although it was less than expected, was a catalyst. Ongoing geopolitical turmoil and colder temperatures in some parts of the country also helped fuel the rise. Higher energy prices weighed on trade, but investors' attention was somewhat diverted by positive bond market conditions and relief over CPI. The Consumer Discretionary sector managed to close 0.4% higher. Retailers outperformed, and, as mentioned above, homebuilders enjoyed solid buying. On a related note, February Housing Starts dropped 8%, but a decline was anticipated. As the read (2120K) was better than expected, it helped underpin the bullish tone that CPI had set for that area of the market. With respect to retailers, Gymboree (GYMB 25.50 +0.45), one of our recommended holdings for active investors, reported upside earnings and raised guidance today.
Due to an aggressive restructuring plan and a slashed divided announced by ConAgra (CAG 19.50 -0.91), the Consumer Staples sector had been the market's laggard for most of the session. Some broad-based buying helped offset ConAgra's sharp decline, however, and the sector rose 0.1%. By the end of the day, it was Tech that took the laggard tag. Weakness in semiconductors had plagued it for most of the session, and selling picked up in the afternoon. Comments about the semi industry from equipment company Kulicke & Soffa (KLIC 8.99 -2.29) spurred the decline. That stock plunged, and issues across the semi and semi equipment boards faced considerable selling. The SOX Index dropped 3.2%. Apple (AAPL 64.31 -1.92), following Bear Stearns' estimates and target price cut, also weighed heavily. The sector lost 0.9% and helped sink the Nasdaq. DJ30 +43.47 NASDAQ -12.28 SP500 +2.31 NASDAQ Dec/Adv/Vol 1510/1506/2.38 bln NYSE Dec/Adv/Vol 1116/2150/1.65 bln
5:04PM California Micro sees Q4 EPS of $0.07-0.08 vs $0.05 consensus; revs of $16.5-17.5 mln vs $16.8 mln consensus (CAMD) 7.18 +0.25 : Co sees Q4 EPS of $0.07-0.08 vs $0.05 consensus; revs of $16.5-17.5 mln vs $16.8 mln consensus. "In line with our prior Q4 guidance, revenue from mobile handsets is expected to decline sequentially by about 20 percent... In contrast, revenue from personal computers and digital consumer electronics is expected to grow sequentially by 10 percent driven by strong sales of our low capacitance ESD protection ASIP solutions. Not only do we expect our core revenue to be up substantially compared to Q4 of last year, we anticipate that fiscal 2006 revenue, gross margin and net income will all reach record levels. Overall, we are very pleased with the outlook for fiscal 2006." He noted that March quarter bookings and design win activity are currently running well ahead of where they were at the same time last quarter. "Our acquisition of Arques Technology represents a key milestone in the evolution of California Micro Devices and will strengthen both our analog design team and our LED driver product portfolio." Co noted that the agreement is expected to close early in the June quarter.
4:43PM California Micro to acquire Arques Technology (CAMD) 7.18 +0.25 : Co announces that it has entered into a definitive agreement to acquire privately held Arques Technology, a fabless manufacturer of innovative analog semiconductor devices. The acquisition of the Santa Clara, California firm adds white LED drivers for mobile handsets and DDR memory voltage regulators for digital consumer electronics products to the CMD product portfolio.
3:23PM Semiconductors Hldrs Trust drop to a new low of 35.82 hovering slightly above its March/4 month low at 35.76 (SMH) 35.86 -0.98 : Initial support below is at the 62% retrace of the Oct/Jan rally at 35.65 with congestion following in the 35.50/35.40 area.
12:25 pm Gymboree (GYMB)
25.89 +0.84: Earlier this month Gymboree, which is a suggested holding in our Active Portfolio, reported an impressive same-store sales gain of 18.0% for February. Having done so, the specialty retailer boosted its same-store sales growth expectation for the first quarter to a mid-single digit increase from a prior forecast calling for a low-single digit increase. The company added that it would refrain from updating its first quarter and full-year EPS guidance until its year-end report on March 15. Reading between the same-store sales lines, though, it was clear Gymboree would be raising its expectations. On Wednesday the company did just that.
Specifically, Gymboree said it now expects first quarter and full-year earnings from continuing operations to be in the range of $0.28-0.30 and $1.16-1.20, respectively, before the impact of stock-based compensation that is estimated to be $0.13-0.15 per diluted share. According to Reuters Estimates, consensus estimates are currently pegged at $0.25 and $1.20.
The good, but not necessarily surprising, news has given shares of GYMB a shot in the arm today and continue to support our bullish backing of the stock, which began in January 2005 when we profiled the stock as a bargain hunting candidate. Since then, Gymboree's management has made impressive strides with initiatives designed to improve merchandise offerings, control inventory growth, expand profit margins, and build brand awareness. Their success was reflected in the year-end results, which were highlighted by a 400 basis point increase in gross margins, inventory growth of just 3.3% versus sales growth of 14.4%, and reports of higher full-priced selling.
On the conference call, the company noted that the first quarter has started strong across all brands. Due to the shift in Easter from March to April, though, it expects some downward pressure on March comps and wouldn't be surprised to see a flat to slightly negative number before comps bounce back in April. Management also acknowledged that it has been deliberately conservative with its planning assumptions for the year. That strategy served the company well in 2005 and we suspect it will again in 2006.
At this point, the biggest risk for Gymboree - and its stock - is that comparisons will grow more difficult in the second half of the year as it anniversaries product cost savings initiatives and faces more challenging same-store sales comparisons. We will be considering this risk more closely as we continue to assess the stock's risk-reward profile.
--Patrick J. O'Hare, Briefing.com
10:44 am Barnes & Noble (BKS)
46.47 +3.25: Barnes & Noble's fourth quarter profits climbed 6% from a year ago, helped by strong book sales during the holiday season. Specifically, the nation's No. 1 bookseller posted net income of $123.0 million, or $1.76 per share, up from a profit of $115.6 million, or $1.56 per share, a year earlier. Excluding charges related to the impairment of assets from underperforming stores, earnings per share totaled $1.87. Analysts on average expected the company to post earnings of $1.75 per share, according to Reuters Estimates.
Combined with tighter cost controls and expanding gross margins, stronger book sales boosted bottom-line results. Sales for the fourth quarter rose 5% to $1.8 billion, as higher sales at Barnes & Noble stores outpaced declines at B. Dalton. The company's namesake store sales increased 6% to $1.4 billion, with comparable store sales growth of 3.3%, while B. Dalton sales dipped 18% to $50.1 million due to store closings. Sales at Barnes & Noble.com increased 1% to $152.6 million for the period.
Looking ahead, Barnes & Noble expects comparable store sales to increase in the low single digits for the current quarter and fiscal year. The company pegged first quarter earnings at $0.14 to $0.18 per share, excluding stock-based compensation expense, exceeding analysts' expectations for $0.11 per share. For the fiscal year, the company expects to earn between $2.35 and $2.45 per share, versus the consensus estimate of $2.26 per share.
Rival Borders Group (BGP), which has been actively reinvigorating its stores and increasing focus on revenue growth, is slated to report financial results after the close. In January, the No. 2 bookseller said fourth quarter profits would come in at the high end of expectations, driven by strong holiday book sales. Conversely, online book retailer Amazon.com recently reported a sharp drop in fourth quarter earnings, and missed analysts' revenue target, as it continued to invest heavily in new content and technology. Barnes & Noble shares are trading at 20.4x forward earnings, a premium to 15.5x for a reinvigorated Borders, which looks more attractive at the current price level.
--Richard Jahnke, Briefing.com
10:28 am Winnebago Industries (WGO)
29.64 -2.37: Winnebago Industries said that second quarter net income fell 39% year/year to $7.7 mln, a far cry from the 15% annual earnings growth expected by analysts over the next five years. Excluding stock-option expenses, the Forest City, Iowa-based manufacturer of motor homes reported Q2 (Feb) earnings of $0.25 per share, which was $0.13 worse than the Reuters Estimates consensus. Adding insult to injury, revenues fell 14% year/year to $206.4 mln, also missing analysts' forecast (consensus $226.1 mln).
Management attributed the disappointing quarterly results to lower motor home deliveries as a result of decreased industry retail demand and a shift in product mix towards lower priced motor homes, which Chairman and CEO Bruce Hertzke claimed is occurring industry-wide. Based on statistics from the Recreation Vehicle Industry Association, Class A motor home shipments fell 12.7% in 2005 while Class C shipments for the industry fell only 1.7% for the same period. Winnebago garnered 19.3% of the combined Class A and C market in Q4 and completed calendar 2005 in the number one position with combined Class A and Class C retail sales market share of 17.9%, according to Statistical Surveys, Inc.
Even though Winnebago did not participate in offering incentives at the same level as some of its major competitors, which promotionally discounted their products to deplete large inventories at the beginning of last year, rising raw material costs and high energy costs continued to weigh on margins. Gross margin fell 240 basis points to 9.8% while operating margin fell 180 basis points to 5.1%. In contrast, rival Thor Industries (THO), which we recently highlighted on our Mid Cap page and remains our favorite name in the space, showed improvements in gross and net margins and achieved retail market share gains across all of its RV product categories. Thor's large short position of 12.3% of its public float, however, is high enough for us to remain cautious on the market leader at current prices. An even higher short position for Winnebago (23.50% of float) contributes to our apprehension toward owning its stock as well.
-- Brian Duhn, Briefing.com
09:31 am Altria Group (MO)
73.87: Altria Group announced it will record a tax benefit of one billion dollars in the first quarter after the IRS completed its examination of four years of tax returns. The gains are derived from a reversal of reserves following a final tax audit of years 1996-1999. The non-cash benefit will not impact the company's consolidated cash flows, but Altria will reimburse $337 mln in cash to Kraft Foods (KFT) for its position of the benefit and pre-tax interest of $46 mln. Both companies revised per share profit figures materially as a result.
The benefit will increase Altria's net earnings by approximately $960 mln and diluted earnings per share by 45 cents in the first quarter and full year. Kraft also announced the sale of its Milk-Bone pet snacks brand today, which will reduce Altria's diluted earnings by 5 cents. Net-net, Altria revised its full year forecast to a range of $5.25-$5.35 per share, up from a previously announced range of $4.85 to $4.95.
Kraft, which is 84% owned by Altria, raised its full year per share guidance by 17 cents to $1.55-$1.60, which included 50 cents per diluted share of charges from Kraft's restructuring program. The prior guidance was $1.38-$1.43 per share. Shares in Kraft have been rising on expectations raw material costs pressures will moderate and help lift profits, while favorable legal developments are supporting shares in Altria Group. The news today is non-operational in nature, meaning it has no bearing on how either company is performing on the top or bottom line. As members of the consumer staples index, both stocks are also receiving investor interest due to their defensive characteristics.
--Kimberly DuBord, Briefing.com
09:19 am ConAgra Foods (CAG)
20.41: ConAgra Foods, one of the nation's leading packaged foods companies, on Thursday announced an aggressive restructuring plan aimed to strengthen its long term operating performance. The company, whose brands include Chef Boyardee, Healthy Choice, and Butterball, also said it would cut its dividend by approximately 34%, sending shares of the company sharply lower in pre-market action.
Under the restructuring, ConAgra said it plans to sell its seafood and cheese businesses, a move that follows the company's February announcement that it would sell most of its refrigerated meats operations. Collectively, those businesses accounted for approximately $2.8 billion of the company's $14.6 billion in annual revenue. The company also declared a quarterly dividend of $0.18 per share, payable on June 1, 2006 to shareholders of record as of May 1, 2006. That is 9.25 cents per share, or roughly 34%, lower than its most recent quarterly dividend, as it plans to increase its investments in its key brands to build higher quality earnings in the future.
ConAgra expects fiscal 2007 earnings in the range of $1.10 to $1.15 per share, excluding one-time items. That compares with analysts' target of $1.36, according to Reuters Estimates. "Although the company expects to return to current earnings levels during fiscal 2009, the cost of implementing the actions and the impact of planned divestitures are expected to depress operating earnings until that time," it said.
ConAgra, which trades at 15.0x forward earnings, has seen its shares fall more than 26% over the past year amid volatile commodity prices and ongoing efforts to boost operating performance. Given the company's announced restructuring plans, which overshadows near-term earnings prospects, the current risk/reward profile does not look favorable at this time.
--Richard Jahnke, Briefing.com
09:09 am Cost Plus, Inc. (CPWM)
19.20: On January 9th, Cost Plus warned Wall Street that fourth-quarter earnings would come in at the low end of its previously guided $0.98-1.08 range. Less than a month later management reiterated EPS guidance "at or near" $0.98 (consensus $0.99), reported a 2.1% decline in Q4 same-store sales, which was slightly better than the Briefing.com consensus of -2.8%, and posted overall Q4 revenue of $367 mln that also outpaced expectations (consensus $366 mln). That news helped lift shares to their best levels since mid-September. Nevertheless, uncertainty continued to loom as to whether the company could get margins back on track, leaving shareholders on the edges of their Wicker seats
Today, some of those questions were answered, and it doesn't appear as though things will be turning around anytime very soon. The Oakland, California-based home furnishings retailer reported Q4 earnings of $0.97 per share, a penny worse than the Reuters Estimates consensus. Gross profit margin was 34.0%, which was down 110 basis points from a year ago. Operating margin was 5.9%, an improvement over Q3 but still down 90 basis points from a year earlier, as SG&A expenses rose 8% and net interest expenses surged more than 80%. Net sales increased 7.0% year/year to $367 mln but those figures were pre-announced last month.
President and CEO Barry Feld reminded investors that the initial results of key operating and marketing initiatives contributed to strong customer count, solid same store sales performance in January and flat inventory growth for the year. Be that as it may, management forecasted a net loss in the range of $0.08 to $0.16 per share compared to a net loss of $0.01 per share a year ago. While Q1 EPS guidance includes stock-based compensation expenses of $0.03 and may not be comparable to an expected profit of $0.04, it's readily apparent that the company is beginning fiscal 2006 on a bad note. As a result, the outperformance of CPWM, which is up 12% year-to-date, compared to 4.4% for the S&P Retail Index, isn't likely to be sustained.
-- Brian Duhn, Briefing.com
08:58 am Bear Stearns (BSC)
134.21: The expectations bar was high for Bear Stearns following blowout quarters from Goldman and Lehman. Call it destiny, or what you will, but it looks like all the brokers have been invited to The Big Dance. Bear, the largest underwriter of mortgage-backed bonds, was facing stiff headwinds, but no matter, the company reported profit growth of 36% led by trading, derivatives selling, and investment banking. Once again, growth was broad-based with Bear reporting its second consecutive quarter of record net revenues, net income, and EPS.
Net income rose to $514.2 bln, or $3.54 per share. The per share figure topped analysts' projections by 58 cents. Revenues rose 19% year/year to $2.19 bln. Diversification has been the recurring theme all week, as firms expand their footprint across markets and regions. The bulk of Bear's earnings comes from its Capital Markets business, which posted a 20% jump in revenue to a record $1.7 bln. Institutional Equities soared 56% to $488 mln driven by derivatives, customer activity, and market share gains. Fixed Income grew 3% to $889 mln led by credit derivatives and leveraged finance areas. Mortgage-related revenues increased year/year as origination volume remained high and customer demand increased, according to the company.
Investment Banking revenues rose 36% to $297 mln on ramping M&A and merchant banking activity. Bear, the fifth largest securities firm by market value, advised on some of the biggest deals in the quarter, including Verizon's (VZ) takeover of MCI. Bear's ability to offset a decline in mortgage business by expanding into derivatives is bearing fruit. Again, there was little to argue with in the Bear result. We continue to think investors should add to, or initiate positions, on pullbacks. Our favorite remains Goldman Sachs due to its best-in-class franchise that is underscored by its breadth and depth across the global financial markets. We also appreciate Goldman's exposure to the international markets, which is nearly 50% of revenues, and its premier status in investment banking.
--Kimberly DuBord, Briefing.com
2:25 pm EchoStar: Kaufman Bros reiterates Buy. Target $33 to $37. Kaufman raises their tgt on DISH to $37 from $33 saying they think that investors have overstated the competitive threat to DBS from the cable/telco bundle. The firm says with cable rolling out voice and changing the basic consumer proposition to a sub-$100 triple play bundle, they believe the telcos need to partner with DBS more than ever, and DISH stands to benefit from its relationship with AT&T.
2:23 pm Amer Italian Pasta: . Janney upgraded PLB to Neutral from Sell noting the co's new $295 mln five-year credit facility is the first positive piece of news this co has had in nearly two years. Firm says while the co has not filed a 10-Q since 2Q05, and plans to restate earnings back to fiscal 2002, the new credit facility adds confidence to their belief that there is a viable business model beneath the rubble of the current operating structure. The firm says based on very preliminary estimates for fiscal 2007, they believe the stock could have enough "earnings power" to reach the $8 per share level in 12-18 months, but they need to see audited financial statements before they can have any confidence in their projection. The firm says with the current short position at 40% of the outstanding shares, and the threat of a near-term bankruptcy eliminated, they would expect heavy short covering in these shares.
2:22 pm Rudolph Tech: . WR Hambrecht upgrades RTEC to Buy from Hold and sets an $18 tgt saying they now believe that 1) the merger will be accretive to 2006 proforma EPS by about 10% (after excluding several one-time charges); 2) their stronger conviction of the merits related to the larger scale and scope of the new entity which should enhance the co's ability to compete in the marketplace and 3) their view that the recent 20% drop in RTEC is likely to act as a floor.
2:21 pm Martin Midstream: RBC Capital Mkts upgrades Sector Perform to Outperform. Target $35 to $41. RBC upgrades MMLP to Outperform from Sector Perform and increases their tgt to $41 from $35 based on Q4 results and the organic project inventory. Firm believes the units offer above average total return potential relative to the group. Firms higher distribution outlook is predicated on increased growth visibility driven by $70-$80 million in announced organic projects that yield 15-25% EBITDA returns. Further, the recent January equity offering has reloaded the balance sheet and helped improve trading liquidity. Firm believes that MMLP is a solid MLP with diverse operations and, while not necessary for near-term growth, can pursue assets that have limited appeal to other MLPs.
2:20 pm InfoSonics: Kaufman Bros upgrades Hold to Buy. Target $14. The firm anticipates new wins/expansions in Latin America. They believe the co could see new wins in larger Latin America markets (such as Chile, Mexico, Peru and Colombia) this year. They also believe that the co's relationships with wireless operators such as America Movil and Telefonica in El Salvador, Nicaragua and Guatemala could help in expanding its handset distribution business into "sister" carriers within the Central American region.
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