From Briefing.com: 4:36PM Market Internals : The Dow increased 0.82% closing at 11260, the Nasdaq was up 1.88% to finish at 2220, and the S&P was up 1.23% to finish at 1286. Leading sectors included: auto parts and equip +5.7%, agrcul pdcts +4.0%, const matrls +3.8%, communication equip +3.5%, managed hlth +3.3%. Lagging sectors included: airlines --1.3%, dist and vint -1.2%, gold -0.92%, div mtls and min -0.73%, home entertainment sfw -0.47%. Today's movement came from slightly above average volume (NYSE 1690, vs. closing avg of 1670; Nasdaq 2153, vs. 2119), with higher advance/decline ratios (NYSE 2527/720; Nasdaq 2229/799, and with new high's coming in lower than new low's on the NYSE, but higher on the Nasdaq (NYSE 71/73, Nasdaq 101/45).
4:20 pm : The market chalked up another solid performance amid signs that consumer spending is holding up well in the face of high gas prices. Additionally, a report that first quarter labor productivity increased, and that wage inflation remained contained, also provided support. An added factor that fostered bargain hunting efforts following one of the worst monthly performances for the broader market since July 2004 was the sense that stocks remain oversold on a short-term basis. Further, reports late in the day that the U.S. reached an agreement with five other world powers regarding Iran's nuclear program gave stocks an extra boost into the close of trading.
Helping to kick off the month of June on a more positive note that carried broad-based buying efforts into the close was the consumer's resilience to high gas prices, as evidenced by strong monthly same-store sales across the board. According to the International Council of Shopping Centers, retail sales rose 4.2% in May, versus an expected 3.5% rise, led by department stores and specialty clothing chains. J.C. Penney (JCP 64.79 +3.95) surged after exceeding expectations with an 11.1% gain in May same-store sales and boosting its Q2 EPS outlook. Gymboree (GYMB 34.59 -0.80), a suggested holding in our Active Portfolio which hit a 52-week high at the open, also turned in a strong report.
The Labor Dept. showing that Q1 productivity was revised up to a 3.7% annual rate, but that inflation was contained, as evidenced by a smaller than expected rise in unit labor costs of 1.6%, eased concerns about the Fed going too far with its tightening efforts. The ISM manufacturing index, meanwhile, fell a larger than expected three points to 54.4% in May -- the lowest reading since August -- offering evidence that higher rates are helping to curtail economic growth. Also, pending home sales fell for a third straight month and construction spending fell for the first time since last June, which were both consistent with the slowdown in housing. Separately, initial claims unexpectedly rose to 336,000, which lifted the four-week average to its highest level since October of 2005 and could signal a bit of softening in the labor market. However, with the focus on tomorrow morning's May payrolls data, the initial claims report garnered little attention.
With regard to industry strength, upside leadership from all 10 economic sectors, especially underperforming areas like Technology and Health Care, also provided some relief. Chip stocks got a recent boost after Advanced Micro Devices (AMD 31.39 +0.50) said it aims to supply a third of the chip market by 2008, up from about 21%. Health Care chipped away at its year-to-date leading 5.6% decline as HMOs rebounded on the back of encouraging FY06 revenue guidance from UnitedHealth Group (UNH 45.72 +1.76). Financials also turned in a solid performance after Fannie Mae (FNM 51.44 +1.69) said last night its mortgage portfolio grew by an annualized 15.7% in April while falling bond yields also acted as a source of support. Even Energy and Materials provided some leadership, despite oil prices losing 1.3% and gold falling to a five-week low. The pullback offered investors further relief on the commodity price front which has served as a proxy for inflationary pressure.BTK +1.0% DJ30 +91.97 DJTA +1.6% DJUA +1.3% DOT +1.3% NASDAQ +40.98 NQ100 +2.3% R2K +2.1% SOX +2.3% SP400 +1.5% SP500 +15.62 XOI +0.7% NASDAQ Dec/Adv/Vol 799/2229/2.13 bln NYSE Dec/Adv/Vol 745/2504/1.69 bln
2:41PM KVH Industries prevails in hearing, court denies request for preliminary injunction by King Controls (KVHI) 11.31 -0.06 : Co announces that following a hearing before the U.S. District Court for the District of Minnesota, a motion for a preliminary injunction brought by Electronic Controlled Systems, King Controls, has been denied. King Controls had sought to enjoin KVHI from selling its TracVision R4 and R5 satellite TV systems pending resolution of a patent infringement claim filed by King Controls in May 2005. In its arguments before the court, KVH raised significant doubts regarding the validity of the asserted claim in King Controls' U.S. Patent #6,864,846 due to the co's own prior art employed in its products as early as 1998, prior to the filing of King Control's patent application.
2:38PM InterVoice receives U.S. Patents for call center technology (INTV) 6.57 -0.01 : Co announced that the U.S. Patent and Trademark Office issued four patents over the past 18 months for technology designed to provide enterprises with enhanced call center technology.
10:50 am Movado Group (MOV)
18.69: Movado Group, a leading maker of fine watches and jewelry, on Thursday said its profit for the first quarter more than doubled from a year ago, helped by higher sales and growing appeal for its portfolio of brands. The Paramus, New Jersey-based company, whose brands include Movado, Concord, and Ebel, also raised its earnings forecast for fiscal 2007. Based on the announcement, Movado shares traded sharply higher in early market activity, gaining more than 9%.
For the fiscal first quarter, Movado said it earned $2.9 million, or $0.11 per share, up from $1 million, or $0.04 per share, a year ago. The company said its latest results benefited from a more favorable tax rate, which boosted earnings by $0.01 per share. Sales for the period rose 11.4% to $97.7 million from $87.8 million last year. According to Reuters Estimates, analysts on average were expecting the company to earn $0.02 per share on revenue of $96.1 million.
Meanwhile, the company said gross margin improved to 61.0%, compared to 60.2% last year. Operating profit increased 60.5% to $3.4 million from $2.1 million in the year ago period.
Given the latest results, Movado raised its earnings outlook for fiscal 2007 to between $1.53 and $1.58 per share, including approximately $0.08 per share related to stock option expense and the shift in the composition of the equity-based compensation plan from options toward restricted stock. That compares with its previously forecasted range of $1.35 to $1.39 per share and the consensus estimate of $1.37 per share. Movado also said it expects fiscal 2007 year/year net sales growth to be at the high end of its previously guided range of 9% to 11%.
At the current price level, Movado shares are trading at roughly 27.1x trailing twelve month earnings, compared with 21.1x for rival Fossil Inc. (FOSL) and 21.2x for Tiffany & Co. (TIF).
--Richard Jahnke, Briefing.com
10:29 am Dollar General (DG)
16.30: Discount retailer giant Dollar General Corp. said Thursday that higher gas prices and an increase in interest rates and consumer debt levels reduced the spending power of its target customers, resulting in first-quarter earnings for the company of $0.15 per share, $0.01 worse than a Reuters Estimates consensus of $0.16.
The company, which offers bargain-priced products at more than 8,000 locations in economically challenged areas, issued downside guidance for the second quarter, anticipating earnings per share of $0.18 to $0.22 versus consensus of $0.23. However, it anticipated a slight improvement going forward, seeing earnings per share of $1.10 to $1.17, excluding a $0.01 charge. That compared to consensus of $1.14.
Revenues rose 8.8% year over year to $2.15 billion versus consensus of $2.15 billion, with the gains primarily reflecting the opening of 527 net new stores since the end of the prior year's first quarter.
The company, which has a market cap of about $5.14 billion, incurred unexpected expenses of approximately $2.4 million in the quarter related to a voluntary product withdrawal. It also saw unanticipated losses related to several store fires.
The company on Wednesday declared a dividend of $0.05 per share, payable July 20 to shareholders of record as of July 6.
--Christine Marie Nielsen, Briefing.com
10:04 am Brown-Forman Corp
76.30: It's not the whiskey talking. Brown-Forman bested analysts' expectations by seven cents in the fourth quarter on strong demand for Jack Daniel's and Finlandia vodka. The wine and spirits company reported per share profits, excluding items, of $0.61 per share, up 20% from the same period last year reflecting double-digit revenue and profit growth for its premium brands. The company's brand-building efforts clearly paid off in 2006, resulting in one of the best years in its 136-year history.
Net income grew 30% year/year to $78.4 mln, or 63 cents on sales growth of 16% to $594.3 mln, excluding the sale of the company's Lenox china business. Operating income grew an impressive 15%. The company has been expanding its product line and promotional activity for its Jack Daniel's and Southern Comfort liquor lines to boost global sales. Their efforts have generated considerable momentum in these brands. Global depletions for Jack Daniels rose 8% in the quarter, while gross profits grew at a double-digit rate. Southern Comfort volumes grew 5% for the second consecutive year.
For 2007, the company forecasts earnings in a range of $3.10-$3.30 per share, representing growth of 7-15% vs. consensus of $3.16. The market has awarded BF-B a premium multiple, which along with concerns over the growth of its wine business and lack of share buybacks, restrains our near-term view. Its rival, Constellation Brands (STZ), meanwhile trades at a forward P/E ratio of 14.1x, compared to 26.7x for BF-B.
--Kimberly DuBord, Briefing.com
09:40 am Hovnanian Enterprises (HOV)
31.83: Hovnanian Enterprises on Wednesday reported a 4.9% drop in second quarter profits as rising mortgage rates continue to weigh on the housing market. Furthermore, the Red Bank, New Jersey-based homebuilder said it expects a more challenging near-term sales environment and provided downside guidance for the current quarter. The report marks the latest sign that the nation's housing market is continuing to cool from the feverish levels of previous years, as many other homebuilders, such as Toll Brothers (TOL), have tempered their outlooks for the year.
For the most recent quarter, Hovnanian reported earnings of $101 million, or $1.55 per share, compared with $106.1 million, or $1.62 per share, a year earlier. Analysts on average had expected the company to earn $1.55 per share, according to Reuters Estimates. Revenue increased 30% year/year to $1.57 billion, versus the consensus estimate of $1.39 billion. The company said it delivered 4,555 homes in the quarter, with a total sales value of $1.5 billion. That compares with deliveries of 3,748 homes, with a total sales value of $1.2 billion, in the year ago period. Gross margin, excluding interest expense, decreased to 23.7% from 26.4% a year earlier, weighed by higher costs for materials.
During the quarter, the number of net new contracts fell 18.5% to 4,342, led by weaknesses in the Southeast and West regions, as growth continued to slow. The value of the contracts fell 18.2% to $1.52 billion, while the average price of a home under contract rose $349,140 from $348,031.
Hovnanian reaffirmed its tempered guidance for the fiscal year that it issued on May 2, with earnings expected to be between $7.20 and $7.40 per share. That compares with its previous forecast of $8.05 to 48.40 per share and the consensus estimate of $7.00 per share. For the third quarter, the company projected earnings of $1.40 to 41.50 per share, short of analysts' expectations for $1.75 per share, as it continues to experience a tougher sales environment.
--Richard Jahnke, Briefing.com
09:02 am HJ Heinz Co. (HNZ)
42.35: Shares in HJ Heinz Co. were poised to open near unchanged Thursday after the company poured out better-than-expected financials, guidance above consensus, and gave details of the latest steps in its multi-year strategy of slimming down its business, including a plan to cut about 8% of its workforce.
Heinz, which has a market cap of about $14.19 billion, reported fourth-quarter earnings of $0.54 per share, $0.05 better than a Reuters Estimates consensus of $0.49. Revenues rose 7.6% year over year to $2.4 billion versus the $2.37 billion consensus.
The company, which has been facing pressure from investor Nelson Peltz to return more money to shareholders and cut costs, issued upside guidance for 2007, seeing earnings per share of $2.35 versus consensus of $2.25. The company sees 2007 revenue growth of 3% to 4%, equating to $8.9 billion to $8.99 billion versus $8.62 billion Reuters consensus.
During the next two years, Heinz plans to achieve $355 million in cost savings and $145 million in trade spend reduction. The company intends to reinvest a portion of the savings in growing its sharply focused portfolio of leading brands. The plan includes $317 million in marketing and advertising in the full year 2007, an 18.7% increase over the full year 2006, the launch of more than 100 new products in 2007 and a double-digit increase in research and development funding in each of the next two years.
As part of its cost-cutting plan, Heinz expects to cut 2,700 jobs and exit 15 plants in 2007. The company said another five plants could be closed in 2008. As a result of the changes, the company hopes to see earnings per share growth of 10% in 2007 to $2.35 per share and a further 8% to $2.54 in 2008. The company also sees sales growth of 3% to 4% in 2007 and 4% or better in 2008. The company expects operating income growth of more than 8% in 2007.
Heinz intends to return around $2 billion to shareholders over the next two years as a result of a 16.7% dividend increase of $1.40 per common share in 2007, with future increases indexed to expected earnings per share growth. The company also plans to make $1 billion in share repurchases over the next two years.
--Christine Marie Nielsen, Briefing.com
08:44 am Ciena Corp (CIEN)
4.21: While the technology sector remains in the doldrums prompted by concerns over PC demand and general consumer spending with interest rates on the rise, one subgroup, telecom equipment, continues to enjoy strong end-market demand. With telecom providers and cable MSOs ramping up networks to offer a bundled-suite of high-speed data, voice, and video offerings, demand for telecom equipment has enjoyed a resurgence. The cable companies and telecos are locked in a battle to lure in and keep customers, but it's the equipment companies that will emerge victorious.
The increase in data, voice, and video subscribers drives growth for both sides, and although the MSOs do appear to have the lead, the capital investment benefits the entire value chain from the front end cable boxes to the regional and backbone network equipment (Ethernet switches, optical equipment), which is the basis for our recommendations of Motorola (MOT) and Cisco (CSCO), both suggested holdings in our Active Portfolio. Even the traditional telecom equipment companies stand to benefit. This includes Ciena Corp, which has design wins within this space for its 4200 for Ethernet transport. Today, this Linthicum, Maryland-based company reported its smallest quarterly loss since 2001 on strong demand for networking equipment.
The second quarter net loss narrowed to $1.91 mln, or breakeven, from $74.8 mln, or 13 cents in the prior year. Revenues grew 26.3% year/year to $131.2 mln above consensus estimates of $129.1 mln. The company also issued upside guidance for Q3, forecasting sequential revenue growth of 7-10%, which equates to $140.4-$144.3 mln vs. consensus of $138 mln. Gross margins widened by 600 basis points to 48% on cost reductions and a favorable product mix. Given the underlying demand fueling the need for capacity growth and next generation networks, coupled with the company's improved operating performance, Ciena is clearly on the right track.
--Kimberly DuBord, Briefing.com
09:59 am ADC Telecom: Janney Mntgmy Scott reiterates Neutral. Target $23 to $20. Firm cuts price tgt saying the Andrew acquisition creates uncertainty. The firm says Andrew currently carries sub-25% gross margins and faces continuing pressure in copper pricing (30% hedged into 2007). The firm notes ADC contends it can still reach its 14% long term operating model goal through $70-80 mln in cost synergies. They says while ADC was making progress, they believe the addition of Andrew could slow this trajectory.
09:57 am Distributed Energy: Merriman Curhan Ford upgrades Neutral to Buy. Firm ups rating as backlog growth returns after Natural Gas prices return to pre-rally levels. Firm also believes that the co's growing relationship with PEMEX, in addition to increasing penetration of the O&M market, could provide meaningful upside to our current 3Q06 and 4Q06 revenue estimates. Firm believes that the stock price does not yet reflect the co's improving fundamental outlook.
09:56 am Williams-Sonoma: BB&T Capital Mkts upgrades Hold to Buy. Target $45. Firm ups rating saying since early May, Williams- Sonoma's share price has fallen nearly 20%, in part with the market selloff and in part due to a negative reaction to last week's upside Q1 earnings release. The firm thinks this "markdown" on WSM's stock has created a buying opportunity.
09:51 am IDT Corp: Janco Partners reiterates Buy. Target $13.85 to $16.5. Firm raises their tgt saying the main asset that catches investors' eyes is the large cash balance at IDT. They calculate that IDT will have about $1 bln in cash with the addition of the $186 mln of cash from Liberty Media. Also, they expect mgmt to retire the 17.2 mln shares that they receive from Liberty, reducing the fully diluted share count to about 86 mln shares (including 7m options). With only $86 mln of debt left on the balance sheet.
09:48 am Corillian: Roth Capital initiates Buy. Target $4. Firm initiates with a Buy saying they believe the timing of the co's recent investments aligns well with underlying changes in the industry. While Corillian has been in an investment period dating back to late 2004, the firm says they expect the co to transition out of this period in 2H06.
09:47 am ADTRAN: Morgan Joseph initiates Buy. Target $31. Firm initiates with a Buy saying that the co is able to leverage cheaper silicon pricing and provide improved functionality at a lower cost by waiting for competitors to work through the capital intensive first phases of product development, standardization, and carrier certification in order to size the market and determine key features upon which to improve. Firm believes that the co's most recent development efforts are about to bear fruit. Going forward, they expect sales of DSLAMs, optical access products, and NetVanta routers should reach an inflection point over the balance of 2006, becoming the major driver of overall revenue growth.
09:38 am Borg Warner: Prudential downgrades Overweight to Neutral. Target $65 to $66. Firm lowers rating, but raises price tgt saying strong fundamentals are intact, but limited upside in the near term. The firm says opportunities for diesel in N. America and D.C.T in emerging markets are long term, but investors appear to see them sooner.
09:34 am Novell: Credit Suisse downgrades Outperform to Neutral. Firm lowers rating and price tgt saying they believe the window of opportunity for the co to realize their restructuring opportunity and leverage their SUSE asset has passed. The firm says despite the best efforts of industry partners like IBM it seems that the turnaround task is much too daunting given the structural problems with the co.
09:33 am Pan Pac Rtl Prop: Credit Suisse downgrades Outperform to Neutral. Firm lowers rating and price tgt saying they are now using a cash implied cap rate of 6% to value Pan Pacific, compared to their prior cash cap rate of 5.5%. They say this is based on the current interest rate environment and how that could impact cap rates on community center assets. They believe community centers cap rates conceptually should be more tied to the interest rate environment than cap rates on more economically sensitive assets. The firm says the reason for the rating change is that their total return potential, taking into account their new tgt price is less that it previously.
09:29 am Headwaters: RBC Capital Mkts downgrades Outperform to Sector Perform. Firm lowers rating and price tgt to account for for the lack of Sec. 29 legislation and increased likelihood additional customers will shut down synfuel production as a result of continued high oil prices. |
