Earnings Season Engines Start
Stocks have pared losses in early action as earnings season unofficially kicks off with the release of earnings by Dow component Alcoa, who missed EPS expectations but reported in-line revenues. Futures pared losses and are higher after Pulte Homes said it has agreed to buy rival Centex. In other equity news, earnings from Mosaic missed estimates, Bed Bath & Beyond reported 4Q EPS that beat forecasts, Family Dollar Stores reported an in-line quarter and raised guidance, and preliminary earnings were released from technology companies Juniper Networks and F5 Networks that were in-line with estimates. The Mortgage Bankers Association announced that mortgage applications rose for the fifth-straight week. Investors will be watching the release of the Fed's FOMC March meeting minutes and any changes to the "uptick rule" by the Securities and Exchange Commission later today. Asian markets closed lower and European markets have pared losses and are higher in overseas action. Treasuries are higher.
As of 8:46 a.m. ET, the June S&P 500 Index Globex futures contract is 3 points above fair value, the Nasdaq 100 Index is 13 points above fair value, and the DJIA is 11 points above fair value. Crude oil is down $1.05 to $48.10 per barrel, and gold is up $5.21 at $886.45 per ounce.
Dow component Alcoa (AA $8) posted a 1Q loss ex-items of $0.61 per share versus the estimate of a loss of $0.56 per share. Revenues were $4.15 billion versus the expectation of $4.08 billion. The company cited the continuing economic downturn and a 26% decline in metal prices. However, the company said that they moved to strengthen their balance sheet and reduce costs.
Pulte Homes (PHM $11) announced an agreement to buy fellow homebuilder Centex (CTX $8) for $3.1 billion in stock. Centex holders will receive 0.975 shares of PHM for each share of CTX they own. Based on the 4/7 closing price of PHM, the transaction is valued at $10.50 per CTX share and represents a premium of 32.6% to the 20-day volume weighted average trading price of CTX. The companies said they will have a combined $3.4 billion in cash as of 3/31, and plan on retiring more than $1 billion in debt by year-end. Centex CEO Eller said there's "no way to call the bottom" and Pulte CEO Dugas said he's "cautiously optimistic about the housing market."
Mosaic (MOS $43) reported 3Q EPS of $0.18 ex-items, after revenues fell 36% year-over-year to $1.38 billion. The report fell short of analysts' estimates of $0.24 EPS and $1.89 billion in sales. The fertilizer company said that the quarter was driven by significantly lower sales and production volumes, higher raw material costs and lower phosphate selling prices due to a change in buyer sentiment resulting from lower grain prices and a build-up in inventories. MOS said that the outlook for the global phosphate market appears to have stabilized, but potash customers continue to be cautious, and the company expects 4Q potash sales to remain weak.
Bed Bath & Beyond (BBBY $26) is trading higher after the company reported 4Q EPS of $0.55, higher than the company's guidance of $0.40 - 0.46 earnings per share and the Street estimate of $0.44 per share. Same-store sales fell 4.3%, compared with guidance of a mid-single digit percentage decline.
Family Dollar Stores (FDO $33) reported 2Q EPS of $0.60, in line with the consensus estimate, and revenues of $2.0 billion. The company had previously previewed the quarter's results, which included a rise in same-store sales of 6.4%. FDO noted that they have benefitted from the increase in budget-minded consumers in the current economic environment, as well as improving merchandise quality and shopability of their stores. Management guided for 3Q EPS of $0.54-0.58, and 2009 EPS of $1.90-2.00, higher than analyst estimates of $0.51 and $1.90, respectively.
Technology stocks could benefit from in-line reports from several companies in the sector. Juniper Networks (JNPR $16) reported preliminary 1Q revenue below prior guidance but said that lower expenses would bring EPS in line with prior guidance. F5 Networks (FFIV $23) said that its 2Q EPS would be in line with guidance, despite revenue below guidance.
Mortgage applications rise, Fed minutes and SEC short selling restrictions later today
In economic news, the US MBA Mortgage Application Index rose 4.7% to 1250.6 for the week ended April 3, marking the fifth-straight gain. The Refinance Index advanced 3.2% to 6813.5, and the Purchase Index also rose, gaining 11% to 297.7. The Mortgage Bankers Association said the average 30-year fixed loan rose to 4.73% from 4.61% the week before, which was the record low rate since the weekly MBA survey began in 1990. Treasuries are higher.
The Federal Open Market Committee's (FOMC) March monetary policy meeting minutes will be released at 2:00pm EST, and traders will be interested in the discussion that led to the surprise announcement that the Fed would purchase up to $300 billion in longer-term Treasuries-aimed at making borrowing more affordable for a range of loans and drive new capital flows into higher-risk assets. However, while the equity markets have been comforted by the willingness of the government to do whatever it takes to stabilize the credit markets, some credit spreads have started to widen again, casting doubts on the ultimate success of these initiatives. They add that keys to long-lasting recovery are the degree to which private money will enter credit markets and the return of confidence so vital to their functioning.
Later today, the Securities and Exchange Commission is planning to unveil a proposal intended to weaken the ability of investors to drive down prices when stocks are falling. Short sellers, who sell borrowed shares in the bet that they can buy back the shares later at a lower price, and have been blamed for exacerbating price declines. Under examination is the "uptick rule," which until 2007 required short sellers to wait for a rise, or uptick, in a stock price before selling the shares.
European shares higher in afternoon trading
European stocks have pared losses and are higher in afternoon trading, and financials are lower after a report yesterday that the International Monetary Fund will raise its estimates of toxic bank assets to $4 trillion and Moody's downgraded the ratings on 12 Irish banks on concerns about rising loan losses. Ireland's government yesterday said it cut its economic outlook, increased taxes, and said it would take control of banks' toxic real estate loans. The Irish government announced it would take control of property loans from banks worth as much as 90 billion euros ($119 billion) and work them out over time, as the loans have deteriorated after residential prices have fallen 17.7% and commercial property values have fallen 37% from the peak. Shares pared losses after ECB council member George Provopoulos suggested the bank could cut its benchmark interest rate below 1% and could buy corporate debt to stimulate lending. Bayerische Motoren Werke (BAMXF $31) fell after the automaker said March vehicle sales fell 17% and analysts downgraded the shares.
Asian shares fall on global economic concerns
Shares fell across Asia amid concerns the global economy continues to decline. Anxiety over the state of housing prices in China hit developer stocks in Hong Kong trading, bringing the Hang Sang Index down 3.0%, and energy related names were down on lower oil prices and fears of rising crude inventories. In Japan, a rising yen and worse-than-expected earnings results contributed to the 2.7% decline in the Nikkei 225 Index. Sharp Corp (SHCAF $8) fell after posting its first annual loss since listing on the Tokyo Stock Exchange in 1956. Daiwa Securities Group (DSECF $4) lost ground after saying it wrote down its securities holdings by 17.4 billion yen ($174 million). Commodity-related names fell after the Alcoa earnings report, with the Australian S&P/ASX 200 Index declining 2.3%.
Stocks have pared losses in early action as earnings season unofficially kicks off with the release of earnings by Dow component Alcoa, who missed EPS expectations but reported in-line revenues. Futures pared losses and are higher after Pulte Homes said it has agreed to buy rival Centex. In other equity news, earnings from Mosaic missed estimates, Bed Bath & Beyond reported 4Q EPS that beat forecasts, Family Dollar Stores reported an in-line quarter and raised guidance, and preliminary earnings were released from technology companies Juniper Networks and F5 Networks that were in-line with estimates. The Mortgage Bankers Association announced that mortgage applications rose for the fifth-straight week. Investors will be watching the release of the Fed's FOMC March meeting minutes and any changes to the "uptick rule" by the Securities and Exchange Commission later today. Asian markets closed lower and European markets have pared losses and are higher in overseas action. Treasuries are higher.
As of 8:46 a.m. ET, the June S&P 500 Index Globex futures contract is 3 points above fair value, the Nasdaq 100 Index is 13 points above fair value, and the DJIA is 11 points above fair value. Crude oil is down $1.05 to $48.10 per barrel, and gold is up $5.21 at $886.45 per ounce.
Dow component Alcoa (AA $8) posted a 1Q loss ex-items of $0.61 per share versus the estimate of a loss of $0.56 per share. Revenues were $4.15 billion versus the expectation of $4.08 billion. The company cited the continuing economic downturn and a 26% decline in metal prices. However, the company said that they moved to strengthen their balance sheet and reduce costs.
Pulte Homes (PHM $11) announced an agreement to buy fellow homebuilder Centex (CTX $8) for $3.1 billion in stock. Centex holders will receive 0.975 shares of PHM for each share of CTX they own. Based on the 4/7 closing price of PHM, the transaction is valued at $10.50 per CTX share and represents a premium of 32.6% to the 20-day volume weighted average trading price of CTX. The companies said they will have a combined $3.4 billion in cash as of 3/31, and plan on retiring more than $1 billion in debt by year-end. Centex CEO Eller said there's "no way to call the bottom" and Pulte CEO Dugas said he's "cautiously optimistic about the housing market."
Mosaic (MOS $43) reported 3Q EPS of $0.18 ex-items, after revenues fell 36% year-over-year to $1.38 billion. The report fell short of analysts' estimates of $0.24 EPS and $1.89 billion in sales. The fertilizer company said that the quarter was driven by significantly lower sales and production volumes, higher raw material costs and lower phosphate selling prices due to a change in buyer sentiment resulting from lower grain prices and a build-up in inventories. MOS said that the outlook for the global phosphate market appears to have stabilized, but potash customers continue to be cautious, and the company expects 4Q potash sales to remain weak.
Bed Bath & Beyond (BBBY $26) is trading higher after the company reported 4Q EPS of $0.55, higher than the company's guidance of $0.40 - 0.46 earnings per share and the Street estimate of $0.44 per share. Same-store sales fell 4.3%, compared with guidance of a mid-single digit percentage decline.
Family Dollar Stores (FDO $33) reported 2Q EPS of $0.60, in line with the consensus estimate, and revenues of $2.0 billion. The company had previously previewed the quarter's results, which included a rise in same-store sales of 6.4%. FDO noted that they have benefitted from the increase in budget-minded consumers in the current economic environment, as well as improving merchandise quality and shopability of their stores. Management guided for 3Q EPS of $0.54-0.58, and 2009 EPS of $1.90-2.00, higher than analyst estimates of $0.51 and $1.90, respectively.
Technology stocks could benefit from in-line reports from several companies in the sector. Juniper Networks (JNPR $16) reported preliminary 1Q revenue below prior guidance but said that lower expenses would bring EPS in line with prior guidance. F5 Networks (FFIV $23) said that its 2Q EPS would be in line with guidance, despite revenue below guidance.
Mortgage applications rise, Fed minutes and SEC short selling restrictions later today
In economic news, the US MBA Mortgage Application Index rose 4.7% to 1250.6 for the week ended April 3, marking the fifth-straight gain. The Refinance Index advanced 3.2% to 6813.5, and the Purchase Index also rose, gaining 11% to 297.7. The Mortgage Bankers Association said the average 30-year fixed loan rose to 4.73% from 4.61% the week before, which was the record low rate since the weekly MBA survey began in 1990. Treasuries are higher.
The Federal Open Market Committee's (FOMC) March monetary policy meeting minutes will be released at 2:00pm EST, and traders will be interested in the discussion that led to the surprise announcement that the Fed would purchase up to $300 billion in longer-term Treasuries-aimed at making borrowing more affordable for a range of loans and drive new capital flows into higher-risk assets. However, while the equity markets have been comforted by the willingness of the government to do whatever it takes to stabilize the credit markets, some credit spreads have started to widen again, casting doubts on the ultimate success of these initiatives. They add that keys to long-lasting recovery are the degree to which private money will enter credit markets and the return of confidence so vital to their functioning.
Later today, the Securities and Exchange Commission is planning to unveil a proposal intended to weaken the ability of investors to drive down prices when stocks are falling. Short sellers, who sell borrowed shares in the bet that they can buy back the shares later at a lower price, and have been blamed for exacerbating price declines. Under examination is the "uptick rule," which until 2007 required short sellers to wait for a rise, or uptick, in a stock price before selling the shares.
European shares higher in afternoon trading
European stocks have pared losses and are higher in afternoon trading, and financials are lower after a report yesterday that the International Monetary Fund will raise its estimates of toxic bank assets to $4 trillion and Moody's downgraded the ratings on 12 Irish banks on concerns about rising loan losses. Ireland's government yesterday said it cut its economic outlook, increased taxes, and said it would take control of banks' toxic real estate loans. The Irish government announced it would take control of property loans from banks worth as much as 90 billion euros ($119 billion) and work them out over time, as the loans have deteriorated after residential prices have fallen 17.7% and commercial property values have fallen 37% from the peak. Shares pared losses after ECB council member George Provopoulos suggested the bank could cut its benchmark interest rate below 1% and could buy corporate debt to stimulate lending. Bayerische Motoren Werke (BAMXF $31) fell after the automaker said March vehicle sales fell 17% and analysts downgraded the shares.
Asian shares fall on global economic concerns
Shares fell across Asia amid concerns the global economy continues to decline. Anxiety over the state of housing prices in China hit developer stocks in Hong Kong trading, bringing the Hang Sang Index down 3.0%, and energy related names were down on lower oil prices and fears of rising crude inventories. In Japan, a rising yen and worse-than-expected earnings results contributed to the 2.7% decline in the Nikkei 225 Index. Sharp Corp (SHCAF $8) fell after posting its first annual loss since listing on the Tokyo Stock Exchange in 1956. Daiwa Securities Group (DSECF $4) lost ground after saying it wrote down its securities holdings by 17.4 billion yen ($174 million). Commodity-related names fell after the Alcoa earnings report, with the Australian S&P/ASX 200 Index declining 2.3%.
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