Strong Earnings Boost Market

Elena
18 Jul, 2006
New York City

Stocks showed a strong upward move at the start of trading as stronger-than-expected earnings from major companies offset worries about Mideast fighting, rising oil and growing inflation. United Technologies, industrial company, reported Q2 earnings rise to $1.1 billion or $1.09 a share, from $971 million, or 95 cents a share a year ago. The company boosted its 2006 earnings and revenue outlook.

[R]9:45AM Stocks opened higher on strong earnings.[/R]
Stocks showed a strong upward move at the start of trading as stronger-than-expected earnings from major companies offset worries about Mideast fighting, rising oil and growing inflation. Companies like Coca-Cola Co. ((KO)), Johnson & Johnson ((JNJ)), Merrill Lynch ((MER)), and United Technology ((UTX)) boosted market sentiment after reporting better-than-expected quarterly results. Coca-Cola said higher sales helped its profit grow 7% to beat targets by 2 cents per share. Johnson & Johnson posted a 9% jump in earnings, helped by record sales. Merrill Lynch's earnings jumped 42% on solid trading activity. United Technologies posted 15% Q2 profit rise and boosted 2006 earnings and revenue outlook. Mild wholesale price data brought relief to investors’ worries about inflation and interest rates, as June producer price index grew 0.5%, while core PPI rose just 0.2%, in line with expectations.

Among sectors, the disk drive and computer hardware sectors moved higher by more than 1%. The Dow Jones Transportation sector advanced about 1.1%, helped by a gain in the airline group, up 1.5%, despite renewed strength in oil prices. The HMO sector stood out among losers, falling about 4.2%. Molina Healthcare ((MOH)) led the group lower with a decline of more than 8%, and Amerigroup ((AGP)) falling by more than 7% as Deutsche Securities initiated the stocks with Hold rating. Meanwhile, Unitedhealth Group ((UNH)) and CIGNA ((CI)), posting gains in the early going, were initiated with Buy ratings. Retail stocks were also weak due to lowered monthly sales guidance from Target ((TGT)). In the first hour of trading, the Dow rose 42.26, or 0.39%. The Standard & Poor's 500 index was up 3.36, or 0.27%, and the Nasdaq composite index gained 7.87, or 0.39%. The PPI report pushed bonds lower, with the yield on the 10-year Treasury jumping to 5.11% from 5.07% late Monday.

[R]Price producer index growth in June exceeded expectations.[/R]
Tuesday morning, the Department of Labor released its report on wholesale prices in the month of June. The report showed that prices rose more than economists had expected due in part to a significant increase in food prices. The Labor Department said that its producer price index rose 0.5 percent in June following an unrevised increase of 0.2 percent in May. Economists had been expecting a much more modest increase of about 0.2 percent. The increase was partly due to a surge in food prices, which rose 1.4 percent in June after falling 0.5 percent in May. The sharp rise in food prices reflected a 12.1 percent increase in prices for processed young chickens as well as higher prices for eggs, fruit, and dairy products. The report also showed that energy prices continued higher in June, rising 0.7 percent following a 0.4 percent increase in the previous month. Still, the pace of growth was far slower than the 4.0 percent increase seen in April. A sharp rise in gasoline prices contributed to the increase in energy prices, with the gasoline index rising 6.3 percent in June following a 2.2 percent increase in May. Prices for home heating oil and diesel fuel also rose more in June than they had a month earlier. Excluding food and energy prices, wholesale prices rose by a more modest 0.2 percent, coming in line with economist estimates. The increase in core prices compares to the 0.3 percent increase that was seen in May.


[R]9:00AM Stock futures pointed to a lower opening on PPI.[/R]
U.S. stock futures moved lower after government data showed a steeper-than-expected growth in U.S. producer prices, raising concerns of higher interest rates. The 0.5% rise in the PPI beat expectations for just a 0.3% gain, but the increase in the core index matched forecasts. Negative sentiment was also generated by the ongoing violent conflict in the Middle East and a notable rise by the price of oil, up $0.70 at $76 a barrel. Nonetheless, strong earnings helped limit losses. Merrill Lynch ((MER)), Dow components United Technologies ((UTX)) and Coca-Cola ((KO)) reported quarterly earnings above expectations. Shares of Target Corp. ((TGT)) are expected to be in focus as the retailer lowered its July sales forecast to 3% to 4% increase from previous forecast of 4% to 6% rise.Standard & Poor''s 500 futures were down 1 point, about even with fair value. Dow Jones industrial average futures were down 12 points, and Nasdaq 100 futures were down 1.50 points.

Charles Schwab ((SCHW)), online financial services company said Q2 profit rose 35% as higher asset-based fees offset the lower trading activity. Charles Schwab earned $251 million or 19 cents a share in the most recent quarter on revenue of $1.31 billion versus profit of $186 million, or 14 cents a share on revenue of $1.01 billion a year ago. The management said that the total client assets of the firm reached $1.278 trillion as of the end of the second quarter, up 16% than a year ago.

The Coca-Cola Co. ((KO)), the world’s biggest beverage maker, reported a 7% increase in Q2 profit on a modest rise in sales, beating expectations. The beverage maker said it earned $1.84 billion, or 78 cents a share, up from $1.72 billion, or 72 cents a share a year ago. Revenue rose 3% to $6.48 billion, compared to $6.31 billion recorded in the same period last year.

Merrill Lynch ((MER)) posted 42% profit growth in Q2 as the company managed a strong performance in its proprietary stock trading. The company reported a profit of $1.63 per diluted share, compared with $1.14 per share last year on 29% revenue increase to $8.2 billion. The results surpassed projections for earnings of $1.52 per share on revenue of $7.53 billion.

Johnson & Johnson ((JNJ)) reported second-quarter earnings of $2.82 billion, or 95 cents a share, vs. $2.59 billion, or 86 cents a share a year earlier. On an adjusted basis, excluding a charge of $87 million tied to Vascular Control Systems acquisition, earnings were $2.91 billion, or 98 cents a share in the second quarter. Sales advanced 4.7% from a year ago to $13.36 billion. Domestic sales grew 4.4% while international sales jumped 5.1%.

Jefferies Group ((JEF)) second-quarter earnings increased to $45.6 million or 32 cents a share, from $35.4 million, or 26 cents a share a year ago. Revenue advanced 33% to $457.1 million as investment banking revenue grew 20% and trading revenue jumped 16% from last year.

United Technologies ((UTX)), industrial company, reported that its second-quarter earnings advanced to $1.1 billion or $1.09 a share, from $971 million, or 95 cents a share a year ago. The latest quarter results include gains in excess of restructuring of 7 cents a share. Revenue rose to $12.26 billion from $11.15 billion a year ago, while growing demand in aerospace segment and better margin overshadowed the weakness at the company’s Carrier business. United Technologies boosted its 2006 earnings outlook to $3.55 to $3.65 a share on revenue of $46 billion to $47 billion.

Blackrock’s ((BLK)) second-quarter net income jumped 19% to $63.4 million, or 95 cents a share, from $53.3 million, or 80 cents a share a year ago. Adjusted earnings were $1.19 a share, while revenue increased 33% to $360.7 million. Assets under management totaled $464.1 billion at the end of the most recent quarter, $49.7 billion more that a year ago and above the previous quarter by $1 billion. BlackRock expects adjusted 2007 earnings of $6.45-$7.05 a share.

Traffix Inc. ((TRFX)), interactive media company, posted second-quarter net earnings of $636,961, or 4 cents a share, down from $707,684, or 5 cents a share a year ago as stock-based compensation expense of $197,880 lowered net income by 2 cents a share. Revenue in the most recent quarter increased 17% to $19 million from $16.3 million in the prior-year comparable period.

Digi International Inc. ((DGII)), networking products company, reported an increase in third-quarter sales as net income advanced to $3.35 million, or 14 cents a share, from $2.48 million, or 11 cents a share a year ago. Quarterly revenue grew to $35.9 million from $30.2 million in the prior-year period. For the fourth quarter, the company expects EPS income of 9 cents to 16 cents, or 11 cents to 18 cents on a pro forma basis and revenue of $34.5 million to $39.5 million.

Crown Holdings Inc. ((CCK)), packaging products supplier, posted second-quarter net earnings of $50 million, or 29 cents a share, up from $28 million, or 16 cents a share a year ago. Net income from continuing operations was $74 million, or 43 cents a share vs. $16 million, or 9 cents a share in the prior-year comparable quarter. Revenue was $1.81 billion vs. $1.78 billion last year, while quarterly gross profit was $247 million compared with $257 million.

U.S. Bancorp ((USB)), bank holding company, posted second-quarter earnings of $1.2 billion, up 7.1% from $1.12 billion a year earlier. Net income applicable to common shares totaled $1.18 billion, or 66 cents a share, up from $1.12 billion, or 60 cents a share last year. The strong performance was attributed to the growth in most of the company’s fee-based products as the latest period included a gain of $35 million tied to the company’s proportionate share of MasterCard’s IPO. Total net revenue on a taxable-equivalent basis for the quarter increased 4.5% from a year ago to $3.45 billion.


[R]8:00AM Oil prices rebounded amid the ongoing Mideast conflict.[/R]
Oil prices rebounded Tuesday, recovering from a steep decline yesterday as ongoing fighting in the Mideast added more tension to the already jittery market. The conflict built on persistent market concerns about the West''s nuclear standoff with Iran, threats of supply disruptions in Nigeria and the Gulf of Mexico hurricane season. U.S. inventory figures were also awaited with expectations of drops in gasoline supplies and a slight increase in crude levels.

Light, sweet crude for August delivery on the Nymex rose 37 cents to $75.67 a barrel in electronic trading by midday in Europe. September Brent crude futures on London''s ICE Futures exchange rose 17 cents to $76.09 a barrel. Gasoline and heating oil futures rose more than 2 cents to $2.299 and $2.030 a gallon, respectively, on Tuesday. Natural gas futures were essentially flat at $5.780 per 1,000 cubic feet.


[R]7:00AM Asian markets closed in the red. The Nikkei dropped 2.75%[/R]
Asian-Pacific benchmarks finished in the red as modest U.S. gains overnight and retreating oil failed to prevent the heavy sell-off. The ongoing violent conflict in the Middle East also weighed on sentiment. Stock exchanges in Japan and South Korea reopened after a national holiday to close sharply lower following Monday session of broad decline. The Nikkei dropped for a fifth consecutive session, down 2.75%. The leading losers were blue-chip exporters, with Toyota Motor losing 2.6%, Sony Corp. falling 3.6%, Mitsubishi Motor slipping 4.04%, and Softbank, down 6.27%. South Korea''s Kospi tumbled 1.73%. Hong Kong’s Hang Seng lost 0.13%, with some telecom stocks falling down. Singapore’s Straits Times followed suit to close down 0.98%, while Australia’s benchmark lost 0.66%. China’s Shanghai Composite edged up 0.08% reflecting upbeat GDP data, showing 11.3% economic growth in the second quarter. Oil stocks dropped, with China’s largest oil company CNOOC falling 0.8% and oil refiner Sinopec, down 1.18%.


European stocks slightly advanced at mid-day trading, benefiting from improved guidance at Heineken, which helped offset some losses amid the ongoing Mideast fighting. The shares of the brewer rose 3.3% in Amsterdam after the company lifted its 2006 profit outlook. Among declining stocks, a notable loser was the French IT services group Atos Origin, which dropped 16.7% on revenue warning for the full year. U.K. online gaming stocks sharply dropped for a second straight session, with Party Gaming down 6.8%, and Sportingbet slipping 21.2%. A downbeat update from peer Empire Online also added pressure, with the stock falling 8%. The German DAX 30 added 0.2%, the French CAC 400 advanced 0.2%, while London FTSE 100 added a fraction of a percentage point at 5,701.