Alcoa Meets Earnings Expectations

123jump.com Staff
10 Jul, 2006
New York City

Market gained in the early hours of trading but began to lose steam in the afternoon. European market closed higher and in the overnight trading Tokyo rebounded. Alcoa reported earnings of 85 cents vs 52 cents a year ago on revenue rise of 19%. AMD, EMC and Kronos traded lower on earnings warnings. Tech sector traded lower on broker downgrade. Oil and gold fell. Oil dropped 1.5% at mid-day. Getty Images droped to 20 month low.

[R]4:00PM Alcoa meets earnings but revenue was shy by $50 million of estimates.[/R]

-S&P 500 closed up 1.86 points, Dow closed up 12.88 and Nasdaq closed down 13.14.
-Yield on 10-year bond closed at 5.13% and 30-year bond closed at 5.16%.
-Crude oil traded as low as $72.85 but recovered to a loss of 48 cents to close at $73.61.
-Gold closed $8.70 down to $626.10 per ounce. Copper closed at $3.5825.

-Asian Markets closed higher led by a near 2% rise in Korea, India and Japan.

-European Markets closed higher with Switzerland, France, Germany and Russia closed up near 0.5%.

-Latin American Markets closed lower led by a decline of 0.7% in Mexico.

Tech heavy Nasdaq closed lower but broader average S&P 500 and industrial stocks closed higher. Earnings related enthusiasm supported early gains in the market but in the afternoon market averages fell. Earnings are expected to rise at least 11% according most market watchers in the current earnings season. For the eleven consecutive quarters, five hundred largest companies have reported at least 11% earnings growth. Market watchers expect earnings to rise in double digit in the second quarter as well.

It has been lately a familiar pattern of merger news on Monday and today was not any different. Kimco Realty Corp ((KIM)) agreed to acquire Pan Pacific Retail Properties ((PNP)) for $2.9 billion. Kraft Foods agreed to buy Spanish and Portuguese units of United Biscuits for $1.07 billion. WPS Resources ((WPS)) said that it will acquire Peoples Energy Corp ((PGL)) for $1.52 billion in stock.

Earnings warnings from AMD, Kronos and EMC kept shares in check. AMD ((AMD)) lost $1.05 to close at $22.51 and EMC ((EMC)) lost 5% or 77 cents to close at $10.41 but Kronos ((KRON)) lost 20% to close at $29.46.

After the close, the aluminum company, Alcoa ((AA)) kicked-off the earnings season with earnings of 85 cents vs. 52 cents a year ago on revenue rise of 19%. The company met earnings expectations but missed the revenue guidance of $8.01 billion by $50 million.

European markets closed mostly higher, but by a fraction only. Falling oil and metals prices hurt the mining stocks in South Africa and in London. Earnings expectations drove stocks in Europe too. L’Oreal gained 1.6% and Novartis advanced 1.3% ahead of earnings. Broker upgrade and earnings expectations drove ASML Holding and ARM Holdings.

Markets in Mexico closed lower as investors awaited the next twist in the recently completed Presidential election. Mr. Lopez Obrador has requested a vote-by-vote recount. The local election authority has until the end of August to investigate and report the results by September 6th. IPC index closed at its worst level of the day. Wal-Mart de Mexico kicked-off earnings season and reported earnings rise of 33% beating the estimates of 25%. The stock closed higher 1.25%. Grupo Carso Telecom, Cemex ((CX)), Banorte closed down near 3%. American Movil ((AMX)) closed down 2.4%.

Bovespa index in Brazil closed near unchanged level. Telecom, electric utilities and banking sector stocks led the gainers. Electropaulo Metropolitana, Cemig and Cesp gained more than 1%.


[R]12:30PM European markets closed higher.[/R]
European markets closed in the positive, reflecting robust opening on Wall Street ahead of the second-quarter earnings season and gains for L’Oreal and Novartis. Cosmetics giant L’Oreal climbed 2.6% ahead of Wednesday’s sales figures, while drug maker Novartis rose 1.3%. The German DAX 30 closed up 0.4%, the French CAC 490 rose 0,.6%, and London FTSE 100 edged up 0.1%.

Oil prices fell below $74 on gasoline futures sell-off. Light crude August delivery dropped 84 cents to $73.25 a barrel. Gasoline lost 6 cents to $2.176. London Brent slipped 87 cents to $72.64. The dollar traded higher versus major currencies. The euro traded at $1.2731, down from $1.2814. The dollar bought 114.14 yen, up from 113.91. The British pound stood at $1.8389, down from $1.8514. European gold prices declined. In London the precious metal traded at $627.20, down from $631.40 per ounce. In Zurich gold traded at $626.20, down from $631.75. Silver closed at $11.14, down from $11.36.


[R]11:30AM Stock markets rallied on earnings optimism.[/R]
Stocks rallied Monday as after weeks of volatile trading on confusion about interest rates, investors gained optimism for a strong Q2 earnings session. A few multibillion-dollar acquisitions also helped to generate positive sentiment. Kraft Foods Inc. ((KFT)) agreed to buy the Spanish and Portuguese units of United Biscuits for $1.07 billion and Kimco Realty Corp. agreed to acquire Pan Pacific Retail Properties Inc. for $2.9 billion. Lower oil prices supported the market''s advance, helping stocks steady themselves from steep losses in the prior session.

The airline sector continued its strong performance, sending the Amex Airline Index higher by 2.1%. Despite the decrease by the price of oil, some strength emerged in the oil service sector, lifted by strong gains by Cameron ((CAM)) and Schlumberger ((SLB)). The health insurance sector also showed continuous strength, with Morgan Stanley Healthcare Payor Index up 1.2%. Some retail stocks also posted significant gains, with Gap ((GPS)) turning in one of the sector''s best performances, rising up 5.4%. Meanwhile, some technology stocks came under pressure, helping to limit the upside for the tech-heavy Nasdaq. Some computer hardware, networking, and semiconductor stocks also moved notably lower. In late morning trading, the Dow rose 72.12, or 0.65%.The Standard & Poor''s 500 index was up 6.16, or 0.49%, and the Nasdaq composite index gained 2.75, or 0.13%. Bonds pulled back from last week''s rally, with the yield on the 10-year Treasury note ending up to 5.15% from 5.13% late Friday.


[R]10:30AM The Sensex end higher buoyed by rise in IT and cement shares.[/R]
The Sensex in India ended 174.77 points, or 1.6% higher, to close at 10,684.30. The turnover on BSE was $500 million or Rs 2,236 crore, a decline of 20% from Friday’s trading. The market-breadth was weak with 1,304 stocks advanced, 1,040 declined and 71 shares were unchanged.

IT shares soared on hopes that firms may lift their earnings and revenue guidance for the fiscal year 2007 on strong volume growth and weak rupee against dollar. I-flex solutions surged 6.5% to Rs 1,211, Wipro rose 5% to Rs 494, HCL Tech gained 5% to Rs 517, TCS rose 3% to Rs 1,804, Infosys advanced 2.7% to Rs 3,190 and Satyam Computer gained 2.6% to Rs 710.

Bharti Airtel climbed 5% to Rs 390 on 1.1 million trading volume at a price of Rs 403 and Rs 412. Bharti Airtel added more than 1.2 million GSM base subscriber in June 2006, enlarging its user base to about 23.1 million customers.

ONGC advanced 4% to Rs 1,136.15. ONGC and Mittal Steel will work together in 21 countries, as the two firms have a joint venture, ONGC Mittal Energy, to buy energy assets outside India. GAIL India advanced 2.6% to Rs 254. ONGC and GAIL, on Friday, signed an agreement under which ONGC will supply gas for 15 years to GAIL. Under the agreement, ONGC will supply 50 million cubic metres of gas per day.

Metal shares advanced in the wake of stable metal prices in London trading and on the back of recent increase in domestic prices. Sterlite Industries advanced 4.4% to Rs 425 and Hindalco gained 2.3% to Rs 172.65. Hindustan Zinc advanced nearly 4% to Rs 600.

Reliance Communications gained 3.3%, to Rs 256 supported by reports that it had won a bandwidth order from China Netcom for an estimated value of $35 million. Reliance Industries advanced 1.1% to Rs 1,043.50 on volume of 2 million.

Cement shares gained on a strong guidance for cement prices over the medium-term and on expectations of strong results in the first quarter of 2006. Gujarat Ambuja Cements advanced 3.3%, to Rs 103.45, ACC gained 2.2% to Rs 811.45, and Grasim added 1.5% to Rs 1,930.50.

Among other gainers were large-cap Maruti Udyog rising 2.4%, to Rs 800 and BHEL gaining 3% to Rs 1,950.


[R]9:45AM Stocks opened higher on acquisitions.[/R]
Stocks opened higher on optimism for another solid earnings season and merger-and acquisition news. Kraft Foods Inc. ((KFT)) agreed to acquire the Spanish and Portuguese units of United Biscuits for $1.07 billion, and Kimco Realty Corp. said it will buy Pan Pacific Retail Properties Inc. for $2.9 billion.

The airline sector turned in one of the market''s best performances in early trading due to a notable decrease by the price of oil. Some strength emerged in the health insurance sector, supported by notable gains for Cigna ((CI)) and Coventry ((CVH)). Semiconductor stocks also moved to the upside after ending at a one-year closing low Friday. Meanwhile, gold stocks posted significant weakness, followed by oil stocks which also moved lower, as the decrease by the price of oil generated some selling pressure. In the first hour of trading, the Dow rose 59.93, or 0.54%. The Standard & Poor''s 500 index was up 6.45, or 0.51%, and the Nasdaq composite index gained 12.30, or 0.58%. Bonds pulled back from last week''s rally, with the yield on the 10-year Treasury note ending up to 5.15% from 5.13% late Friday.


[R]9:00AM Stock futures pointed to a higher start.[/R]
U.S. stock futures moved higher at the start of the week ahead of the second-quarter earnings season. Aluminum producer Alcoa ((AA)) is due to announce its results after the closing bell, with analysts predicting it will earn 86 cents a share on revenue of $8.01 billion. General Electric ((GE)), PepsiCo ((PEP)), Genentech (DNA), and Texas Instruments ((TI)) are also due to report quarterly earnings this week.

Merger-and-acquisition activity is also likely to attract some attention on Monday, with shares of Heritage Property ((HTG)) moving higher in pre-market trading after the real estate investment trust said it agreed to be acquired by Australia-based Centro Properties Group for $3.2 billion. Under the terms of the deal, Heritage Property shareholders will receive $36.15 for each share held, representing a 5.7% premium to Heritage Property''s average closing price over the past 10 days. Reportedly, Kraft Foods ((KFT)) said that it agreed to acquire the Spanish and Portuguese operations of United Biscuits in a deal value at $1.07 billion. At the same time, housing stocks are expected to see some early weakness after KB Homes ((KBH)) said negative trends in the U.S. housing market could extend in 2007. Dow Jones futures were recently up 25 points, S&P 500 futures rose 2.5 points, and Nasdaq futures rose 2.8 points.

Chattem Inc, ((CHTT)), manufacturer of healthcare products, reported Q2 net income dropped to 52 cents a share, down from 76 cents a share in the year-earlier period despite revenue growth. If not for items, net income in Q2 was 57 cents a share. The company quoted increased advertising and promotional spending to support new products, primarily Icy Hot Pro-Therapy and Selsun Salon. The company missed analysts’ forecasts for earnings of 58 cents a share.

Shaw Group Inc, ((SGR)), engineering and construction firm, reported its Q3 loss was narrower, coming to 21 cents a share, from 31 cents a share in the year-ago quarter on 37% revenue growth. The company said it overstated Q2 net income by 14%, because of two errors. Shaw added it will refile and restate those results, which it said came from errors that were a result of material weaknesses in financial controls.

Helen of Troy Ltd., ((HELE)), maker of household and personal care products, reported Q1 net earnings sank to 21 cents a share, from 33 cents a share in the year-ago period despite net sales growth, missing analysts’ forecasts for a profit of 26 cents a share. The company reaffirmed its fiscal year sales forecast of $600 million to $620 million and earnings of $1.70 to $1.80 a share.


[R]8:00AM The U.S. and South Korea opened second round of free trade talks.[/R]
Following a week of negotiations in Washington last month, the U.S. and South Korea opened second round of free trade talks trying to reach an ambitious free trade agreement that aims to slash tariffs and other trade barriers between the two countries. The two sides aim to wrap up an agreement by the end of 2006 so they can submit it to their legislatures for debate and approval.

The talks face strong resistance from South Korean labor groups, especially farmers who have protested against any reduction in protections for agriculture, particularly rice. Except for agriculture, the status of a South Korea-backed industrial zone in North Korea is seen as another major sticking point in hammering out an accord. South Korea wants goods produced there subject to the agreement, while Washington has opposed the idea, saying a deal should only cover goods manufactured in the Republic of Korea. The U.S. wants more access to South Korea''s agriculture, automobile and pharmaceuticals markets, among others. Police expect about 50,000 protesters, while groups opposed to the talks hoped for numbers to top 100,000.


[R]7:30AM Asian shares finished trading mostly in positive territory.[/R]
Asian markets finished broadly higher. Japan''s Nikkei 225 Average closed up 1.6% at 15,552.81. Banks including Mizuho Financial led the gainers. Other financials on the increase included Resona Holdings, shares of which gained 6.4%, and Mitsubishi UFJ which closed up 5.16%. Among blue chips, Canon advanced 2.3% and Honda gained 2.2%.

South Korean investors followed Japan''s lead, as bank and construction companies led shares higher. The Korea Composite Stock Price Index, or Kospi, ended up 2%, or 25.36 points, at 1299.29. GS Engineering & Construction led the increase in the construction sector, adding 6.9% ahead of its second-quarter earnings release tomorrow. Hyundai Engineering & Construction gained 4.7% and Daewoo Engineering & Construction advanced 2.7%.

Among markets, which made smaller gains were Taiwan''s Weighted Index, up 0.33%; Australia''s S&P/ASX 200, gaining 0.15% ; and Hong Kong''s Hang Seng Index, advancing 0.88% to close at 16,603.81. Shares in Shanghai and Wellington were marginally higher. The China Enterprises Index of Hong Kong-listed mainland shares inched lower 0.14% at 6,828.04. Indonesia''s Jakarta Composite was off 0.6%, while Singapore''s Straits Times Index dipped 0.27%. Shares in Kuala Lumpur ended basically flat.


[R]6:30AM European stocks start the week lower due to cheaper oil prices.[/R]
European markets were lower by mid-morning trading. The U.K. FTSE 100 index declined 0.1% at 5,886, the German DAX Xetra 30 index lost 0.1% at 5,677 and the French CAC-40 index sank 0.2% at 4,945. As August delivery US crude was down 41 cents to $73.68, this weighed on the oil sector with Neste Oil off 1.6 per cent to, Norsk Hydro down 2.1% and Statoil 1.6% off. Renault declined 1.7% following General Motors statement late Friday that it has authorized alliance talks with the French car maker and partner Nissan.

European movers included, British insurance company Standard Life advancing to 240.5 pence on its first day of trading as a listed company, after pricing its offering at 230 pence. Standard Life, which previously was mutually owned by its customers, will join the FTSE 100 at the next quarterly reshuffle.

Crude oil prices fell Monday as traders took profits in the wake of recent gains and amid easing worries about Iran''s nuclear dispute after the country''s top nuclear negotiator expressed optimism that the standoff can be resolved peacefully. Light, sweet crude oil for August delivery shed 37 cents to $73.72 a barrel. The Brent crude oil contract for August shed 27 cents to $73.24 a barrel. Gold traded lower at $625.70 an ounce, down $4.60 an ounce from Friday''s close of $630.30.

The euro fell against the U.S. dollar on Monday as traders pondered the wider impact of a decision to leave interest rates unchanged by the European Central Bank. The euro bought $1.2788 in morning trading, down from its level of $1.2814 late Friday. The British pound fell to $1.8485, down from $1.8525 at the end of last week. The dollar bought 113.63 yen, down from 113.91 yen in New York late Friday, a dip that comes in the face of a planned meeting by the Bank of Japan on interest rates this week.