Market Dived on Auto Downgrades

123jump.com Staff
30 Nov, -0001
New York City

Productivity report in the morning put market to a good start and mixed same-store sales gain pushed luxury and teen retailer higher, but the GM and Ford downgrade shook the market up. Oil continued to climb higher and closed above $50.

Market welcomed the productivity report from Labor Department. The first quarter productivity rose 2.1% slowing from 2.6% growth in the previous quarter. Unemployment claims for the last week rose by 11,000 to 330,000. Market rallied and stayed in the positive territory till the news on downgrade on auto makers.

Investors found April same-store-sales gain for retail sector mixed. Wal-Mart at 0.9% and Target at 1.1% reported disappointing growth whereas luxury retailers Federated Department at 2.8%, Neiman Marcus at 14.2%, Nordstrom reported at 6.9% had better than expected gains.

American Eagle 20%, Talbots 7%, Abercrombie & Fitch 16% and Chico’s had better than 15% sales gain. Gap suffered 5% decline, Pacific Sun at 6.4% decline and Urban Outfitters gain of 11% disappointed investors.

Gillette reported 1Q profit of 45 cents vs. 37 cents a year ago on 17% rise in sales. The stock traded up but closed down 38 cents.

Whole Foods reported same store sales growth of 11% and reported earnings of 61 cents vs. 53 cents a year ago and stock jumped 7.5%.

On-line jeweler, Blue Nile reported better than expected earnings and the stock jumped more than 7%.

S&P downgraded corporate debt rating for General Motors and Ford Motor to ‘non-investment grade’. This will certainly limit both companies ability to access to new sources of cash and drive the borrowing cost higher.

This comes only a day later when Tracinda, Kirk Kerkorian’s investment vehicle announced $31 share offer for GM shares.

U.S. auto market has been brutally competitive in the last ten years. In the last twenty years GM has lost market share from 45% to 25%. Asian rivals, especially Honda, Toyota, Nissan and now increasingly Hyundai are gaining market share from GM and Ford.

GM and Ford has not gained market share from Asian rivals in the last ten years in any given year.

In the last five years, despite quality improvements at GM and Ford, both companies are still lagging to their Asian rivals. Situation at Chrysler is not any better either.

The typical auto worker on the factory floor makes more than $100,000 compared to less than $40,000 at Asian workforce.

The workforce at GM and Ford is getting older and then drives the healthcare and pension costs of the two companies. Health care cost at GM alone is approaching $5 billion and it is estimated that every GM car purchase price has $1600 health care cost of retired employee who does not even work on the car.

Health care costs exceed the steel cost at GM and Ford.

GM’s total debt stood at $291.8 billion and that of Ford at $161.3 billion on March 31, 2005. GM has $19.8 billion and GMAC has $18.5 billion in cash and short-term securities. In April GM’s shares fell to ten year low.




S&P -DOWN 0.26%
DOW -DOWN 0.43%
Nasdaq -DOWN 0.02%


In Other News

S&P downgrades GM and Ford debt to 'non-investment grade'. GM, F and GE are three largest U.S. debt issuers.

U.S. prevents the 5 billion Euro sale of plastic unit of Shell and BASF to Iran National Petroleum Company.

Lazard, investment bank, was priced at $25 at the low end of its price range of $25-27 by Goldman Sachs. The stock traded all below its IPO price.

Merck replaced its current CEO with the current Manufacturing division and former Medco president and said it will operate without Chairman for at least eighteen months.

Teen and luxury retailers continue thrive while discount retailers post disappointing sales growth.


Earnings Headlines

FindWhat.com reported 1Q profit of 10 cents vs. 16 cents a year ago on 136% jump in revenue.

Insurance holding company Conseco reported 1Q profit of $72.3 million vs. $49.9 million a year ago. Because of higher shares the EPS dropped from 50 cents to 44 cents.

Sabre Holdings reported 1Q profit of 37 cents on adjusted basis and 44 cents on GAAP basis on 8% increase in revenue.
Interstate Hotels and Resorts reported 1Q loss of 5 cents vs. 12 cents a year ago.

Gillette reported 1Q profit of 45 cents vs. 37 cents a year ago. Net sales for the quarter jumped 17% on significant demand for premium products and strong sales growth in Russia, Eastern Europe and Turkey.

MCI reported 1Q net loss of 1 cent vs. $1.19 on revenue loss of 4%.

RR Donnelley, commercial printer, reported 1Q profit of 49 cents vs. loss of 39 cents. Without the charges related to Moore Wallace acquisition earings would have been 54 cents.

Cablevision Systems reported 1Q operating income of $74.9 million vs. $5 million and adjusted operating cash flow of $353.7 million vs. $272.9 million. Telecommunication revenue for the quarter jumped 15%.

3D Systems reported 1Q profit of 5 cents vs. loss of 19 cents on diluted basis.

Blockbuster, video rental chain, reported 1Q loss of 31 cents vs. profit of 63 cents a year ago, the launch of ‘No late fee’ program contributed to losses.

Blue Nile report 1Q profit of 14 cents vs. 12 cents a year ago and said that board has authorized repurchase of up to $30 million worth of shares.

Jones Apparel reported 1Q profit of 71 cents vs. 73 cents a year ago and tightened the 2005 earnings forecast to $2.75 to $2.85 from $2.75 to $2.90.

Sunoco reported 1Q profit of $1.67 vs. $1.17 a year ago on 40% jump in revenue.

Primedia reported 1Q operating loss of $19.4 million vs. $20.9 million a year ago. During the quarter the company reported gain on sale of About.com to NY Times for $378.9 million.

Stein Mart, discount clothing store operator, raised its outlook for the 1Q from 33 to 35 cents to 36 to 37 cents.

TRW Auto reported 1Q profit of 50 cents vs. 2 cents a year ago on 10% revenue growth. On average analysts had estimated 30 cents.

Whole Foods reported 2Q profit of 61 cents vs. 53 cents a year ago on revenue surge of 20%. Same-store sales rose 11.7% on top of the 17% in the last quarter.