Wal-Mart Downgraded

Elena
13 Jul, 2006
New York City

Stocks opened lower on surging oil prices and brokerage downgrade on Wal-Mart Stores. Positive earnings news from PepsiCo failed to lift sentiment. The beverage producer reported 16% profit rise in Q2 on 12% revenue growth. Marriott International reported Q2 net income rise of 43 cents a share from 29 cents last year on 7% revenue increase. Media company Tribune announced 62% decline in profit in Q2 due to falling newspaper circulation.

[R]9:45AM Stocks opened in the negative, despite Pepsi’s earnings.[/R]
Stocks opened lower as surging oil prices and brokerage downgrade on Wal-Mart Stores raised fears that higher lending rates and gasoline prices would hurt consumer spending. Worries about inflation and economic growth overshadowed a slight rise in weekly unemployment claims and positive earnings news from PepsiCo Inc. ((PEP)). Transportation stocks, and airline stocks in particular, came under pressure due to the surging oil price of nearly $76. The Dow Jones Transportation Index fell about 2.2%, moving to a multi-week low. The broker/dealer sector also posted weakness in the early going, led by Jefferies ((JEF)), the worst performer in the group, falling by 3.4%. E*TRADE ((ET)), and TD Ameritrade ((AMTD)) were each down 2.4%. Retail and technology stocks also moved to the downside. In the first hour of trading, the Dow Jones industrial average slumped 47.54, or 0.43%. The Standard & Poor's 500 index was down 4.51, or 0.36%, and the Nasdaq composite index dropped 18.97, or 0.91%. Bonds continued gaining, with the yield on the 10-year Treasury note sliding to 5.09% from 5.1% late Wednesday.

[R]Initial jobless claims increased more than expected.[/R]
The Department of Labor released its report on initial jobless claims in the week ended July 8 on Friday. The report showed that jobless claims increased by more than economists had been expecting. The Labor Department said that jobless claims rose to 332,000 from the previous week''s unrevised figure of 313,000. Economists had expected a more modest increase in jobless claims to about 320,000. The report also showed that the four-week moving average rose to 317,250 from the previous week''s unrevised average of 308,500. With the increase, the less volatile moving average rose to the second consecutive week. The Labor Department also said that continuing claims for the week ended July fell to 2.429 million from the preceding week''s revised level of 2.447 million.


[R]9:00AM Stock futures pointed to a lower opening on oil and Wal-Mart downgrade.[/R]
U.S. stock futures dropped Thursday, dragged by record-high oil prices and a brokerage downgrade of Wal-Mart Stores Inc.

Oil surged to a record high near $76 a barrel, increasing the risk of inflation. Energy prices rose amid worries over supply from major exporter Nigeria after suspected explosions at a pipeline. Shares of retailers moved to the downside in pre-market trading after Merrill Lynch lowered its rating on Wal-Mart Stores ((WMT)) to ‘neutral’ from ‘buy’ amid suspicion the rate of revenue growth could not be sustained. The Dow
component, slid 1.7% to $44.38 on the Inet.

A couple of higher-than-expected profit reports did little to help futures. PepsiCo Inc. ((PEP)) posted a rise in Q2 profit to $1.36 billion, or 80 cents a share, exceeding expectations of 77 cents a share. PepsiCo shares rose 1.4 percent to $61.94 on Inet. In other earnings news, Marriott International Inc. ((MAR)), hotel operator, reported a 35% rise in quarterly profit, exceeding analyst expectations, reflecting higher room rates and collected higher fees. Media company Tribune Co. ((TRB)) announced a Q2 decline in profit due to falling newspaper circulation and weaker advertising sales. In other news, Warner Music ((WMG)) dropped 23% after a European court annulled the European Union''s approval of a 2004 merger between Sony Music and BMG. Standard & Poor''s 500 futures were down 5 points, below fair value. Dow Jones industrial average futures were down 51 points, and Nasdaq 100 futures were down 10.25 points.

Tribune Co., ((TRB)), media and entertainment company, reported Q2 net income declined 62% to 28 cents a share, hurt by losses at Atlanta and Albany television stations it is planning to sell. Earnings from continuing operations also fell to 53 cents a share from 72 cents a share, including a penny a share gain from a tax adjustment and a 3 cents a share non-operating loss. Revenue sank 1.4% on a decline in circulation revenue and flat advertising revenue from its newspapers. The company missed analysts’ estimates for earnings of 55 cents a share.

Marriott International Inc., ((MAR)), hotels operator, reported Q2 net income of 43 cents a share, up from 29 cents in the same period last year. Quarterly revenue advanced 7%. On an adjusted basis, earnings were 42 cents a share for Q2, the company said. The company topped analysts’ views for earnings of 40 cents a share. Revenue per available room, the widely used benchmark for measuring performance in the hotel industry, advanced 10.7% for Marriott''s North American properties on a comparable systemwide basis from the 2005 second quarter, the company said.

PepsiCo Inc., ((PEP)), soda producer, reported Q2 earnings of 80 cents a share, up from a profit of 70 cents a share a year-ago on 12% revenue growth, beating analyst estimate for a profit of 77 cents a share. The company said it saw continued strong top-line growth across all of its businesses in Q2 with global servings volume up 9%. PepsiCo forecast earnings of at least $2.95 a share for 2006. The company anticipates share repurchases of about $3 billion in 2006.

Media General Inc, ((MEG)), media company, reported that Q2 net income dropped to 85 cents a share, from $1.61 a year ago. If not for a gain from the sale of a stake in the Denver Post newspaper last year, earnings would have increased from 80 cents in 2005. Revenue advanced 3.3%. The company topped analysts’ forecasts for earnings of 82 cents a share.

Polaris Industries Inc, ((PII)), maker of snowmobiles and all-terrain vehicles, reported Q2 earnings of 48 cents a share, down from a profit of 66 cents a share a year-ago. On a continuing operations basis, the company earned 53 cents a share, down from a year-ago equivalent profit of 66 cents a share. Sales dropped 13% compared with the same period last year. The company missed analysts’ estimate for earnings of 53 cents a share. Polaris cited the decline in sales and earnings to reduced dealer shipments in North America. The company also narrowed its fiscal 2006 outlook to earnings from continuing operations of $3.10 to $3.20 a share from $3.08 to $3.20 a share. It now expects a sales decline of between 3% and 5% for the year, compared to a prior estimate for a drop of 1% to 3%.


[R]8:00AM Britain’s Aviva PLC acquires AmerUs for $2.9.[/R]
Britain''s largest insurance company Aviva PLC agreed Thursday to acquire U.S. insurance company AmerUs Group Co for $2.9 billion. AmerUs is the largest provider by sales of indexed life insurance products in the United States, and one of the country''s top five providers of indexed annuities. Aviva will pay $69 in cash per AmerUs share, a 10% premium to the closing price of July 6, the day before Aviva confirmed they were in talks. The transaction is expected to be completed in the fourth quarter.

Aviva said it will raise 900 million pounds ($1.7 billion) in new shares at 700 pence ($12.90) each to finance the cash purchase, with the remainder to be paid with debt and money it has on hand. Aviva expects the acquisition will contribute $45 million in annual pre-tax cost savings.

Aviva said the purchase will ‘transform’ its U.S. business and will give it a leading position in the world''s largest savings market. It will combine AmerUs with its Aviva U.S. unit, and the business will use the Aviva name.

Aviva shares fell 0.8% to 707 pence ($13.02) on the LSE.


[R]7:30AM Asian markets fall spurred by U.S. losses and oil worries.[/R]
Asian markets closed lower on Thursday. The Nikkei 225 shed 0.99% to close at 15,097.95. Toyota Motor dropped 2.02% after the Asahi newspaper reported that the automaker intends to revise its domestic sales target downward. Honda Motor losses were restricted to 0.56% after announcing Thursday that its North American sales were better than expected and domestic sales were on target. Among electronics exporters, Canon Inc. fell1.92%, while Toshiba Corp shed 2.07%.

Hong Kong''s Hang Seng Index shed 1.31% to 16,305.48. The China Enterprises Index of Hong Kong-listed mainland companies fell 1.44%. HSBC Holdings, the largest stock in Hong Kong by market capitalization, declined 1.16%. South Korea''s Kospi index edged down 0.9%, while Australia''s benchmark S&P/ASX 200 sank 0.85%. China''s benchmark Shanghai Composite Index declined 4.8% to settle at a two-week low of 1,655.77. Concerns about impending policy tightening combined with selling pressure ahead of a flood of upcoming IPOs to trigger the losses.


[R]6:30AM Europe declines on higher oil prices and geopolitical concerns.[/R]
European markets were lower by mid-morning trading. The U.K. FTSE 100 index lost 0.7% at 5,818, the German DAX Xetra 30 index declined 1.3% at 5,563 and the French CAC-40 index declined 1.1% at 4,885. Britain insurance company Aviva attracted the attention. The company was partially responsible for the insurance sector decline. It traded 1% lower following its statement that it would place shares to partly finance its $2.9 billion purchase of U.S. insurance company AmerUs.

Emap fell 7.2% after the UK media group warned that underlying first half revenues were likely to drop and that trading conditions were likely to remain difficult. Swedish technology company Ericsson shed 0.9%, having announced that jointly owned mobile phone venture, Sony Ericsson, produced a 91% rise in second-quarter net income but average selling price dropped slightly sequentially in the quarter.

German subscription TV provider Premiere AGbucked the downtrend, soaring 23% in the wake of its announcement that it has agreed a deal to market Arena, a new TV channel for the German Bundesliga soccer league, to its cable TV customers.

Oil prices hit a record Thursday as an escalation of violence in the Middle East triggered concerns about stability in the region. Light, sweet crude for August delivery rose 93 cents to $75.88 a barrel. Gold bullion opened Thursday at a bid price of $650.10 a troy ounce, down from $653.40 late Wednesday.

The euro was higher nominally against the dollar Thursday, even though the prospect of higher European interest rates kept gains for the European currency at bay. The euro bought $1.2701 in afternoon European trading, up from $1.2699 in New York late Wednesday. The British pound dropped to $1.8335 from $1.8343 while the dollar fell to 115.43 Japanese yen from 115.52 yen as traders took the opportunity to buy the currency at a cheaper price before an expected interest rate increase from the Bank of Japan.