Evening Update

Market Resilient in Face of Chrysler Bankruptcy Filing

Stocks were mixed today, despite Big Three automaker Chrysler filing for bankruptcy, as economic news was either better than expected, in the case of jobless claims and Chicago PMI, or benign, with personal income and spending posting in-line numbers. In earnings news, Exxon Mobil missed estimates, but Proctor & Gamble, Dow Chemical, Visa, Comcast, Colgate-Palmolive, and First Solar all posted better-than-expected earnings reports. Treasuries were mixed.

The Dow Jones Industrial Average fell 18 points (0.2%) to close at 8,168, the S&P 500 Index lost 1 point (0.1%) to 873, while the Nasdaq Composite increased 5 points (0.3%) to 1,717. In moderately heavy volume, 1.7 billion shares were traded on the NYSE, and 2.8 billion shares were traded on the Nasdaq. Crude oil gained $0.15 to $51.12 per barrel, wholesale gasoline rose $0.03 to $1.47.42 per gallon, and gold decreased $9.55 to $888.45 per ounce.

Privately-held Chrysler filed for Chapter 11 bankruptcy protection after talks with the ailing firm’s creditors fell through. In announcing a restructuring initiative, the Treasury Department called the process “Shared Sacrifice” and said the U.S. government would provide $3.3 billion in debtor-in-possession financing to Chrysler during the bankruptcy restructuring process, which is expected to last 30 to 60 days, and another $4.7 billion once the company emerges from court. Governments of Canada and Ontario are slated to provide additional funding. In exchange for the aid, the U.S. government will take an 8% stake in the new company, which will be 20% owned by Fiat (FIATY $10). Chrysler will retain its existing factory footprint and continue to produce Chrysler cars in U.S. factories. Fiat will contribute billions of dollars in technology and offer Chrysler access to a global distribution network. President Obama said that “No one should be confused about what a bankruptcy process means” adding “This is not a sign of weakness but one more step on a clearly chartered path to Chrysler’s revival.” General Motors (GM $2), the other struggling US auto maker currently in negotiations with the government, has until June 1 to finish its own restructuring plans. Shares of Fiat were lower, while GM shares were higher.

Dow component Exxon Mobil (XOM $67) reported 1Q EPS fell over 50% to $0.92, three cents shy of the Reuters estimate, as revenues fell 45% to $64 billion, which topped analysts' estimates. The sharp fall in commodity prices has had a large impact on XOM’s results as oil-equivalent production was 2% higher compared to the first quarter of 2008. XOM continued its stock repurchase program and shares outstanding were reduced 2% since the end of 2008. Shares fell.

Dow member Procter & Gamble (PG $49) posted core fiscal 3Q EPS of $0.86, six cents above the Street's forecast, as revenues fell 8% to $18.4 billion on unfavorable foreign exchange and lower shipment volumes. PG called the economic environment very challenging but said it cut costs and grew organic sales and EPS, while maintaining global value share. PG issued full-year guidance in line with analysts' expectations. Shares were lower.

Dow Chemical (DOW $16 ¹) reported 1Q EPS ex-items of $0.12, much better than the Street's forecast, which called for a $0.20 loss, as cost control actions and price/volume management mitigated a 39% drop in revenues to $9.1 billion. Agricultural science sales improved but its basic plastics and basic chemical units posted declines of 47% and 49%, respectively. Looking ahead, DOW said there are some signs that the pace of the global economic decline is moderating, but it is not counting on material improvements in economic conditions in the near term. Shares rose 18%.

First Solar (FSLR $187) reported 1Q fully diluted EPS of $1.99, a growth of nearly 250% over first quarter 2008 EPS and ahead of the Bloomberg estimate of $1.50. Revenue growth in the period was 112%. The company maintained its 2009 guidance of revenue between $1.9 - 2 billion and an operating margin of 31-33%. Shares were up nearly 25%.

Visa (V $65) reported adjusted fiscal 2Q EPS of $0.73, well above analysts' expectations of $0.64, as revenues increased 13% to $1.6 billion. The credit card transaction processor said it received contributions across all revenue categories despite the challenging economy as an ongoing secular shift from cash and check to electronic forms of payment continued to benefit the firm. Total transactions increased 9% versus the prior year to $14.9 billion. V reaffirmed its full-year outlook and shares were higher.

Comcast (CMCSA $15) reported adjusted 1Q EPS growth of 42% to $0.27, beating analyst expectations of $0.23 per share. Revenue increased 5% to $8.8 billion as the 25% fall in advertising revenue was offset by customer gains as consumers switch to cable from getting their TV over the air in preparation for the analog TV shutdown in June. The company pointed to lower capital expenditures and a focus on expense management as reasons for its strong earnings report. CMCSA shares rose.

Colgate-Palmolive (CL $59) reported 1Q EPS of $0.97, an 8% improvement over the same period last year, which was slightly better than the $0.96 that analysts expected. Adjusted revenues fell 5%, as sales in the company’s Europe/South Pacific and Latin America divisions fell 20% and 4% respectively, which was offset by 3% growth in the company’s US sales. CL reported that it is “comfortable” with analyst earnings expectations of $4.21 per share for the year. The stock was slightly lower.

Slew of data from the economic docket

Weekly initial jobless claims (chart) fell by 14,000 to 631,000, versus last week's figure that was upwardly revised by 5,000 to 645,000. The drop pushed claims below the Bloomberg consensus of 640,000. The four-week moving average declined by 10,750 to 637,250, and continuing claims jumped again, gaining 133,000 to 6,271,000, versus the forecast of 6,200,000. The report marks the thirteenth-straight week of claims above 600,000.

Personal income (chart) declined 0.3% in March, versus the Bloomberg estimate of -0.2%, and February was unrevised at -0.2%. Personal spending dropped 0.2% in March, slightly more than the expectation of -0.1%, while February's 0.2% increase was revised higher to 0.4%. The savings rate of 4.2% was up slightly from the downwardly revised 4.0% last month.

Also, the PCE Price Index, which is released with the income and spending data, rose 0.6% in March, just below the 0.7% forecast, and February's gain was revised slightly lower. The core PCE Price Index, which excludes food and energy, increased 0.2%, on top of expectations of 0.1%. Year-over-year, core prices remained 1.8% higher, in line with the consensus of economists surveyed by Bloomberg.

In other economic news, the Chicago PMI (chart) increased to 40.1 in April from 31.4 in March. That is ahead of the expected figure of 35 and is the best reading in this data point since last September. A reading below 50 in the PMI signals a continued contraction but the uptick in this figure is showing that US business activity contracted at a slower pace in April than in previous months.

Elsewhere, the Employment Cost Index(chart) increased 0.3% in 1Q, below the estimate of 0.5%. This is the smallest gain on record, a sign that the recession is holding down employee wages. Labor costs constitute approximately two-thirds of corporate expenses and this is a sign that inflationary pressures in the economy remain low. Treasuries were mixed following the plethora of economic reports. The yield on the 2-year note lost 6 bps to 0.90%, while the yields on the 10-year note and 30-year bond were unchanged at 3.11% and 4.03% respectively.

Reading on the state of manufacturing in April on tap for tomorrow

The ISM Manufacturing Index will be released tomorrow and is expected to improve to 38.4 in April from 36.3 in March, according to a survey of economists by Bloomberg. The separation point between contraction and expansion is 50, and the improvement expected in the index would indicate the economy is contracting at a slower pace, and would be the fourth-straight monthly improvement.

Manufacturers pared inventories by dramatically cutting back production after the economy came to a standstill in the fall. Now that inventories are at low levels, and credit markets have been somewhat unfrozen, manufacturers have some of the capital and confidence needed to start to move production back in line with demand.

Other releases on the economic calendar tomorrow include factory orders, which are expected to have fallen 0.6% in March after rising 1.8% in April, and University of Michigan consumer sentiment, which is expected to be 61.9 in April, unchanged from March.