From Briefing.com: 4:20 pm: The broader market opened with little fanfare and closed in much the same fashion, as investors weighed what should be a reasonably good Q1 reporting season against surging bond yields and rising oil prices, while the Nasdaq extended its year-to-date gain to more than 5.0%. Nevertheless, our market view remains Neutral since it will be difficult for stocks to make much headway given the negative psychological impact of 10-yr note yields above 5.00% for the first time in nearly four years and crude futures approaching $70 per barrel.
As an aside, the lack of investor participation, with volumes well below average as traders headed home early for the holiday weekend, also lent little credibility behind the market's performance as more notable economic data and a plethora of influential earnings reports next week will set a more definitive tone for the overall market.
The 10-yr note plunging 14 ticks to yield 5.03% was one of the day's most significant news items but the market shrugged off higher bond yields long enough to maintain modest gains into the close. Treasuries were weak across the yield curve amid ongoing concerns that the Fed may go too far with monetary policy to keep inflation in check. Worries were exacerbated late in the day following hawkish commentary from Fed Governor Donald Kohn. Today's economic data did little to sideline such worries as March retail sales came in as expected but were consistent with current forecasts of 4 1/2% or more Q1 real GDP growth.
Meanwhile, investors were also focused on General Electric (GE 33.79 -0.67), which reported double-digit growth in Q1 earnings and revenue. While GE's solid quarter underscores our Overweight rating on Industrials, management merely reaffirming their FY06 outlook left some on Wall Street disappointed and, since GE is the second most influential stock on the S&P 500, stalled the market's recovery efforts. Also weighing heavily on the sector was consolidation in Caterpillar (CAT 76.65 -1.19) -- the Dow's best performing component (+32% year-to-date) so far this year.
In the end, however, it was Technology's leadership, the Financial sector's resilience to rising borrowing costs and a late rebound in Energy that kept the market's head above water. The Tech sector got a lift from positive analyst commentary on IBM (IBM 81.92 +1.17) and Intel (INTC 19.45 +0.33), with overblown concerns over market share losses to Advanced Micro Devices (AMD 32.15 -3.27) providing a boost to rival Intel, a suggested holding in our Active Portfolio. AMD beat forecasts but guided flat Q2 sales growth. Strong earnings from Lam Research (LRCX 46.77 +2.06) also sparked follow-through buying in semiconductor while UBS raising their price target to $23 on Cisco Systems (CSCO 21.18 +0.16) -- another suggested holding, and news that SanDisk (SNDK 61.90 +2.43) will be added to the S&P 500, were additional sources of tech support. DJ30 +7.68 NASDAQ +11.43 SOX +0.4% SP500 +1.00 NASDAQ Dec/Adv/Vol 1211/1778/1.55 bln NYSE Dec/Adv/Vol 1783/1443/1.24 bln
2:15PM Qualcomm confirms that it reaches agreement with Justice Dept, resolving gun-jumping allegations (QCOM) 51.58 +0.61 : Co confirms that that it has reached an agreement with the DOJ resolving "gun-jumping" allegations arising from QCOM's acquisition of Flarion Technologies earlier this year. The acquisition was cleared by the DOJ's Antitrust Division and closed in mid-Jan. The cos disagree with the DOJ's position. The settlement involves the simultaneous filing of a civil complaint by the DOJ under the Act and the entry of a stipulated final judgment. The judgment contains no finding or admission of wrongdoing by QCOM or Flarion. The coms will pay $1.8 mln to the DOJ.
12:01 pm McDonald's (MCD)
34.96 -0.23: McDonald's, a suggested holding in our Active Portfolio, keeps cruising along with its same-store sales performance. The only problem is that it is no longer flying below the market's radar. Hence, the announcement from the company that its 5.3% increase in global comparable sales in March marked the 35th consecutive month of positive results wasn't seen as much of a surprise and has been met with an otherwise disappointing response.
We certainly aren't going to hold it against McDonald's that it continues to show steady operating momentum. Accordingly, we'll continue to voice our support for the stock.
For the record, McDonald's 5.3% increase in March topped the Briefing.com Benchmark consensus estimate of 2.2% and contributed to a hearty 5.2% increase in global comparable sales for the first quarter. The launch of its Premium Roast Coffee fed a 6.6% increase in comparable U.S. sales for the month and the quarter. Elsewhere, comparable sales were up 4.1% for the quarter in the Asia/Pacific, Middle East and Africa region, while Europe registered a 2.0% increase.
Reports indicate that there is some concern over the pace of growth in Europe, which was the slowest pace in the last three quarters. We're not too bothered by that at this juncture, though, given the confidence we have in McDonald's management to transfer the company's turnaround success in the U.S., which has been built around healthier menu offerings and improved customer service, to Europe.
In conjunction with the sales update, McDonald's indicated that it expects first quarter EPS to be $0.49, which includes a $0.01 per share negative foreign exchange impact, a $0.045 expense related to restaurant closings in the U.K., costs to buyout certain franchisees in Brazil, and a loss on the anticipated sale of a small market in Europe to a developmental licensee. It also includes a $0.035 per share gain from the IPO of Chipotle Mexican Grill (CMG). The consensus EPS estimate, according to Reuters Estimates, is $0.49.
McDonald's first quarter EPS guidance represents a 13% decline from its year-ago EPS of $0.56, but it's important to note that the year-ago period was marked up with a $0.13 per share tax benefit.
--Patrick J. O'Hare, Briefing.com
10:41 am New York Times Co. (NYT)
25.23 +0.01: Shares of New York Times Co. opened higher on Friday, after the newspaper publisher released better than expected first quarter results, helped by growing strength in its Internet-related businesses. Specifically, the company, which also owns the The Boston Globe and the International Herald Tribune, posted net income of $35.0 million, or $0.24 per share, including $0.04 per share related to staff reductions. That compares with last year's income of $111 million, or $0.76 per share, which included $0.65 per share for the sale of its headquarters and another property. Excluding one-time items, earnings were a penny better than the Reuters Estimates consensus of $0.27 per share.
On the top line, revenue climbed 3.3% from a year ago to $831.8 million. The Times said advertising revenue rose 3.9% in the quarter, while circulation revenue increased 0.3%. Excluding its Internet site About.com, which was acquired in March 2005, total revenue was up approximately 1.1%.
Amid a secular shift in advertising spending, with more marketing money migrating toward the Internet, the company said its online assets posted solid gains in advertising revenues, which increased 23% in the quarter. Revenues at About.com rose approximately 98%, with all three of its revenue streams demonstrating strong growth due to higher rates and increased spending from advertisers. The company said its Internet businesses now account for about 7.5% of overall revenues, up from 4.5% in the first quarter last year. This stems in large part from the acquisition of About.com.
Total costs and expenses rose 6% to $763.5 million during the quarter, due to higher distribution and outside printing costs, higher raw material costs, and higher promotional expenses. The Times said newsprint expense increased 5.9% in the latest period.
Elsewhere, Tribune Co. (TRB) also reported lower profits from a year ago, hurt by weak advertising revenue, but still beat analysts' expectations. Although shares of both New York Times and Tribune have held up following the latest reports, a soft advertising environment and secular trends in the newspaper industry remain a significant overhang, and continues to underpin our bearish view on the company. While the New York Times reported a growing contribution from its online assets during the quarter, it still accounts for a relatively small portion of overall operations.
--Richard Jahnke, Briefing.com
09:21 am General Electric (GE)
34.46: General Electric, the world's second largest company behind Exxon (XOM) in market capitalization, generated 14% profit growth in the first quarter. The industrial giant benefited from demand for power-plant turbines, jet engines, and health-care and financial services. Profit at all but one of the six GE segments increased at a double-digit rate as revenues climbed 10% to $37.8 bln. Overall, it was a strong quarter for GE characterized by solid fundamentals, broad-based growth, robust order momentum, and healthy cash flow generation.
GE continues to benefit from the strength within the industrial sector globally, experiencing strong sales of jet engines, power-plant turbines, locomotives, and large scale equipment, spurred by development within India and China. The Commercial Finance unit's profits rose 27% to $1.17 bln, while Infrastructure grew 11% to $1.70 bln. Soaring energy prices have led to a resurgence in demand for alternative energy sources, such as GE's wind turbines. The company is the largest maker of power plant equipment and services in the world. The only segment in the red remained NBC Universal due to a decline in primetime ratings that offset gains from the Winter Olympics. Overall, order growth was quite strong, gaining 33% and including a 67% increase in equipment and a 20% increase in services.
GE's shares continue to lag the broader market, but have reversed course from near-term lows reached at the end of January. As always, GE came in right on target with expectations for its top and bottom line. In the quarter, cash from operating activities rose to $6.7 bln from $2.9 bln due to robust growth in its industrial units, as well as the sale of its remaining stake in Genworth Financial. GE repurchased 88 mln shares for $3 bln in the quarter. CEO Jeffrey Immelt reiterated full-year profit guidance in the range of $1.94 to $2.02 per share representing 13-17% growth.
With rates on the rise, we continue to favor the economically-sensitive sectors like Energy, Technology, and Industrials, which have all outperformed year-to-date. That is a trend we expect to continue. GE has been successful at rebalancing its portfolio. As expected, the industrial segment has taken over the lead profit generator position. We continue to like the name due to its high quality and predictable nature of earnings and strong, flexible financial position. GE will be able to achieve the multiple expansion that has alluded it through driving revenue growth within its long-cycle businesses. Over the longer-term, it will be the industrial areas, like aircraft engines and power turbines, that will bring good things to life for GE shareholders.
--Kimberly DuBord, Briefing.com
09:03 am Tribune Co. (TRB)
28.02: Tribune Co. on Thursday reported first quarter profits fell 29% from a year ago, hurt by weak advertising revenue. For the latest period, the Chicago-based newspaper publisher earned $100.7 million, or $0.33 per share, down from $140.8 million, or $0.44 per share, a year earlier. Excluding severance charges and a non-operating loss totaling $0.06 per share, stock-based compensation expenses of $0.04 per share, and a $0.01 per share gain from a property sale, earnings were $0.38 per share. On that basis, the results topped the Reuters Estimates consensus by two cents.
Meanwhile, Tribune's operating revenues slipped 1.3% to $1.3 billion as newspaper advertising revenues were flat for the quarter. The company said strength in classifieds, led by a 30% increase in interactive revenues, was offset by declines in national and retail advertising. By segment, publishing revenues fell 1% to $997 million, while broadcasting and entertainment revenues revenues decreased 2% to $303 million. While down 2%, television revenues showed less of a decline than in any quarter last year as the company's New York, Washington D.C., and six Fox stations showed solid growth.
Amid challenging industry conditions for newspaper publishers, highlighted by the secular shift to the Internet and a weak advertising environment, Tribune has cut approximately 1,200 positions, or about 5% of its total workforce, in the past year as part of its cost cutting initiatives. Although the company said cost controls remain in effect and that it expects significant cost savings later this year, slower advertising growth and challenges related to an evolving industry continue to weigh on the company and its stock, which has largely underperformed over the past two years.
--Richard Jahnke, Briefing.com
08:44 am Adv. Micro Devices (AMD)
35.42: The market was anticipating a strong result from AMD after Intel confessed to losing market share to its smaller revival, but what AMD posted was a mixed bag of goodies. AMD reported its largest profit in more than five years in the first quarter of $184.5 mln, or 38 cents per share, up from a loss of $17.4 mln or 4 cents per share in the prior year. The per share profit figure surpassed expectations by nine cents. Revenues rose 8.6% year/year to $1.33 bln, as units declined 7%, while average selling prices rose the same.
Gross margins came in at 58.5% versus the street's expectation of 54.5% due in part to lower than expected depreciation. According to CSFB, gross margins widened by only 30 basis points to 57.6% after stripping out lower incentives and depreciation. Looking ahead, pricing pressures will start to rear their ugly head as Intel, which commands 80% of the marketplace, has vowed it will cut prices on some products by as much as 50%. AMD's CEO Hector Ruiz stated he is "cautious" about the second quarter, but states over the longer-term, "We still believe we are going to outpace the growth of the competition and gain share."
Shares traded down in extended trading after the chip maker forecasted revenues below what the market had been anticipating. For the second quarter, AMD forecasted revenues to be flat to down sequentially, despite an extra week, from $1.33 bln in Q1 and versus the consensus estimate of $1.34 bln. The fierce battle between Intel and AMD will play on throughout the year and, at this point, it's Intel that has the most to lose. While AMD will most likely continue to gain share in the server market, while Intel gains in notebooks, the biggest question remains what will happen in the desktop segment with the delay of Vista. For our part, we think Intel, a Dow Industrial and suggested holding in our Active Portfolio, offers a strong investment on a risk/reward basis trading at 13.4x current earnings versus its 10-year average of 28x.
--Kimberly DuBord, Briefing.com
09:29 am Gentex: Robert W. Baird downgrades Outperform to Neutral. Target $22 to $19. Firm downgrades after the co announced the surprising resignation of an Executive Vice President due to disagreement over compensation. Firm expects the stock to trade lower this morning. Firm also notes that the co named a successor to the current CFO, who retires early next year. With no near-term catalyst and this mgmt change, it is difficult to maintain their Outperform.
09:28 am Medcath: Stifel Nicolaus downgrades Hold to Sell . Firm downgrades based on the release last night of the FY07 Hospital Inpatient Prospective Payment System Proposed Rule by the Centers for Medicare and Medicaid Services, which proposes an 11.2% cut for fiscal 2007 increasing to an 11.7% cut for fiscal 2008 for cardiac specialty hospitals.
09:28 am C.H. Robinson: Stifel Nicolaus downgrades Hold to Sell . Firm downgrades due to near-record valuation and what they believe is a predominantly negative outlook for the stock over the next 12 months.
09:27 am Lexington: Stifel Nicolaus initiates Hold. Firm is saying they view LXP as a traditional triple net co that should be attractive to income-oriented investors looking for a safe and above-average dividend yield (7.1%). The firm thinks the current environment makes positive spread investing difficult without going way out the risk and asset quality curve.
09:26 am Datalink: Needham & Co reiterates Buy. Target $5.5 to $7. Firm is saying DTLK appears to be benefiting from a modestly improved spending environment among its customer base as well as recent internal productivity improvements it has implemented. The firm believes the stock can gradually work higher contingent on more evidence of improving productivity and better execution ultimately leading to sustained profitability.
09:26 am Harrah's: Calyon Securities reiterates Buy. Target $85 to $90. Firm cites better rev trends at acquired properties and a faster than expected pace of revs in New Orleans, as well as the impact of a temporary casino in Biloxi.
09:25 am Five Star Quality Care: Ferris Baker Watts reiterates Buy. Target $12 to $15. Firm is saying they believe that the co's assisted living and institutional pharmacy businesses are well positioned to drive revenue, profit, and free cash flow growth. They also believe that the co's mgmt team is capable of identifying and incorporating accretive acquisitions to further increase the economic value of the co.
09:24 am Cache: Nollenberger Capital initiates Buy. Target $23. Firm is saying they believe the co is on the cusp of a strong, multi-year earnings growth cycle after a transition year in 2005 when considerable improvement was achieved at the Cache division. In their view, the merchandise assortment at Cache is the best they have seen in the last two years. The firm says looking forward, they believe several new initiatives will enhance results for 2006 and beyond, including a direct-sourcing strategy, a more broad-based marketing plan, and a new customer loyalty program.
09:20 am aQuantive: WR Hambrecht upgrades Hold to Buy. Firm is saying that in addition to creating a first-mover advantage for itself in the emerging V.O.D. advertising market, they believe aQuantive's existing services and technology are well-positioned to continue to capture growth in the Internet advertising market, both domestically and internationally. The firm notes the co has recently signed an agreement with Charter Communications, to test its V.O.D. ad serving technology, Atlas On-Demand, the firm says this is an important catalyst to future growth that broadens aQuantive's market opportunity from the $12.5 bln online advertising market to a considerably larger $70 bln television market. |
