Norfolk Drags Transportation Stocks

Elena
26 Jul, 2006
New York City

Disappointing earnings from Amazon.com and Boeing Co. helped pull the consumer discretionary and industrials sectors lower. Although General Motors posted strong quarterly results, transportation stocks sharply dropped as railway company Norfolk Southern said Q2 profit fell on higher fuel costs. Shares of Amazon slipped 17%, Norfolk Southern declined 12%, while General Motors advanced 4.5%. Dow component Boeing declined 4.4% on Q2 loss versus a year ago profit.

[R]11:30AM The Nasdaq underperformed the Dow and S & P 500.[/R]
The U.S. stock markets traded in the negative territory due to profit taking. The major averages lingered near their worst levels of the day, with the Nasdaq underperforming the Dow and the S&P 500. Transportation stocks continued to move to the downside, dragged by Norfolk Southern ((NSC)), down 12% on weaker-than-expected Q2 earnings. The Dow Jones Transportation Average fell 3.6%. Losses by airline stocks are also contributed to the weakness in the broader transportation sector. Mesa Air ((MESA)) dropped 6.8% after reporting disappointing quarterly earnings. Some defense stocks also came under pressure, with Dow component Boeing ((BA)) down 4.4% on Q2 loss versus a year ago profit.

The technology sector moved notably to the downside, contributing to the sharp decline by the tech-heavy Nasdaq. Some internet and semiconductor stocks also posted considerable weakness. Among internet stocks, Amazon.com ((AMZN)) stood out with a decline of 17.2%, reflecting Q2 earnings below analyst estimates. Office Depot ((ODP)), Big Lots ((BLI)), and Circuit City ((CC)) also moved to the downside.

Meanwhile, some individual stocks bucked the downtrend. Shares of Mylan Labs ((MYL)) rose 10.9% after the drug maker reported better-than-expected Q1earnings and raised its full-year guidance. Dow component General Motors ((GM)) gained 4.5% as the automaker posted strong Q2 operating profit and raised its cost reduction target. n late morning trading, the Dow Jones industrial average fell 39.70, or 0.36%. The Standard & Poor's 500 index fell 5.60, or 0.44%, and the Nasdaq composite index fell 18.32, or 0.88%. Bonds rose as stocks fell. The yield on the 10-year Treasury note fell to 5.06%, down from 5.07% Thursday.

[R]Crude oil inventories remained steady, while gasoline declined.[/R]
Crude oil inventories were unchanged in the most recent week, according to government statistics released Wednesday. Meanwhile, stockpiles of gasoline declined, reversing a gain posted in the previous period. The Department of Energy''s Energy Information Administration said that crude oil inventories remained steady in the week ended July 21. Specifically, the measure held at 335.5 million barrels. The flat performance followed a gain of 200,000 barrels in the previous week - a build that broke a string of declines. Oil inventories for the July 21 week were 3.8% higher than last year. Meanwhile, gasoline inventories showed a week-over-week decline of 3.2 million barrels. This followed an advance of 1.5 million barrels in the previous week. The level of gasoline inventories was 0.2% above last year. Distillate fuel oil had an inventory advance of 800,000 barrels during the week. This built on a recent streak of gains, including an advance of 1.2 million barrels in the previous week.


[R]10:30AM Market rallies for the third day in a row.[/R]
A day after rise in interest rates of 25 basis points, market continued its advance for the third day in a row. In the last three weeks Sensex index has risen 5.3% or 531 points. The index added 201.66 points or 1.94% to close at 10,617.27 on daily turnover volume of $543 million or Rs 2,446 crore. The daily volume still hovers near the years low despite the steep rise in the market averages in the last three days.

In the absence of economic news and a flood of earnings from large cap companies market devoted its total attention to the earnings. Several companies including Bharti Airtel, ONGC, Mahindra & Mahindra, Deccan Chronicle, Kirloskar Brothers and Bank of India dominated earnings news. Majority of the reporting companies delivered better than expected earnings.

ONGC, oil exploration giant, reported a 24% rise in profit to Rs 4,119 crore on 34% rise in gross revenue to Rs 14,677 crore in the first quarter. The company board declared a bonus share of one stock for every stock held. ONGC’s subsidiary Mangalore Refinery & Petrochemicals Ltd. (MRPL) also posted impressive Q1 results, achieving a higher turnover of Rs.7274 crore, up 10.11% (from a year ago), and an Export Sales of Rs.2797 crore, up 68%.

Bharti Airtel, mobile telecom operator, reported revenue growth of 53% and earnings rise of 48% after jumping 49% in the previous quarter. The company stock 3.7% and closed at Rs. 383.

Bank of India reported a revenue growth of 23% to Rs. 2,331 crore and earnings gain of 21% to Rs. 208.53 crore. The company stock rose 3.3% to close at Rs. 102.

Deccan Chronicle reported first quarter earnings of Rs. 23.325 crore a rise of 63% on a revenue growth of 71% to Rs. 109 crore. The company stock rose 16% to close at Rs. 16%.

In other major movers, Ranbaxy gained 4% to close at Rs. 371. Tata Motors rallied 4% close at Rs. 729, the automotive company reported solid rise in earnings after the close of previous trading session. Maruti Udyog gained 3.3% to close at Rs. 764 on the speculation that the company may raise prices for some of its models.


[R]9:45AM Stocks opened lower on profit taking[/R]
Stocks traded lower at opening as traders turned to profit taking after recent rally. Transportation stocks extended yesterday’s decline on UPS earnings report, with the Dow Jones Transportation Average down another 2%. The sector was dragged by railroad operator Norfolk Southern ((NSC)) which dropped 9%, due to lower quarterly earnings.

The technology group was also weak due to disappointing earnings news. Amazon ((AMZN)) fell 17% after it released a disappointing quarterly report, putting pressure on the Internet sector. Earnings-related declines weighed on the semiconductor space, which dropped more than 2% in the early going. Xilinx ((XLNX)) was down 3% to reach a new 52-week low, while Linear Technology ((LLTC)) fell more than 6% after its earnings report.

At the same time, the auto group posted a notable advance as General Motors ((GM)) rallied more than 5.5% on higher operating profit. The Dow component reported better-than-expected results for the second quarter, though it had $4.3 billion in restructuring and other charges during the period.In the first hour of trading, the Dow Jones industrial average fell 27.53, or 0.25%. The Standard & Poor''s 500 index fell 3.48, or 0.27%, and the Nasdaq composite index fell 10.32, or 0.5%. Bonds fell, with the yield on the 10-year Treasury note at 5.08%,up from 5.07% Thursday.


[R]9:00AM Stock futures pointed to a mixed opening on Amazon and GM.[/R]
U.S. stock futures pointed to a mixed opening on earnings reports from Amazon and GM. Tech and consumer stocks are expected to trade down as Amazon ((AMZN)) dropped 13% after the Internet auctioneer posted a sharp quarterly profit drop and cut its profit outlook. General Motors ((GM)) rose 4% in pre-market trading, providing support to blue-chip stocks. The automaker posted Q2 profit loss of $5.62 per share vs. a loss of $1.75 last year on heavy restructuring charges, but operating profit well above estimates and 12% sales.

Several technology-related shares also fell after the closing bell on disappointing earnings reports, including chip maker Xilinx Inc. (XLNX)), down 7.4%, and Plantronics Inc. ((PLT)), down 2.8%. Jet maker and Dow component Boeing Co. ((BA)) fell 1.5% on Inet after reporting a loss in-line with analyst estimates. S&P 500 futures were unchanged, which left them below fair value. Dow Jones industrial average futures rose 1 point, and Nasdaq 100 futures rose 0.75 percent but were below fair value.

Getty Images Inc. ((GYI)), a provider of images to advertisers and media outlets, posted profit drop of 35%, as rising costs and stock-option expenses offset an increase in revenue. The company earned $22.3 million, or 35 cents per share, compared with $34 million, or 53 cents per share last year. Revenue grew to $204.8 million from $185.3 million. Analysts had expected a profit of 61 cents per share on $207.4 million in revenue.

Lucent Technologies ((LU)), telecommunications equipment maker, said that its third-quarter earnings dropped to $79 million, or 2 cents a share, from $372 million, or 7 cents a share a year ago. Revenue slid to $2.05 billion from $2.34 billion last year, as the lower product revenue offset the growth in service revenue. Gross margin declined to 41% of revenue vs. 45% a year earlier.

P.F. Chang''s China Bistro ((PFCB)), restaurant chain, earned $8.1 million, or 30 cents a share, in the second quarter, versus $9.3 million, or 34 cents a share a year ago. Revenue climbed to $225.9 million from $198.1 million last year. The company cut its 2006 earnings forecast to $1.12, on estimates of a drop in revenue.

Air Products ((APD)), industrial company, earned $210 million, or 92 cents a share, in the third quarter, versus $190.6 million, or 82 cents a share a year ago. Revenue advanced 12% to $2.32 billion. The company lifted its full-year earnings projections to $3.49 to $3.53 a share, up 18% to 20% from last year.

Black & Decker Corp. ((BDK)), power tool maker, said that its second-quarter net profit increased 0.9% from a year ago to $152.2 million, or $1.98 a share, while sales declined 0.1% to $1.697 billion. The slight growth in power tools sales was offset by a 6% drop in sales of the company’s hardware and home improvement products. The company expects third-quarter earnings from continuing operations to be from 1.70 to $1.75 a share, while full-year earnings from continuing operations are projected to come in at $7.20 to $7.30.

International Flavors and Fragrances ((IFF)) reported 8% higher net income at $61.2 million, or 67 cents a share, with sales up 3% from a year ago to $531 million. The managements forecast sales to go up by a low-single-digit percentage and guided earnings in the range of $2.20 to $2.28 a share.

CGI Group Inc. ((GIB)), IT services firm, said that third-quarter net earnings declined 37.8% to C$35.9 million ($31.7 million), or C$0.11 a share, as revenue declined 7.5% to C$866.5 million. Revenue dropped hurt by the exchange rates and a decline in revenue from BCE, the company''s biggest customer. The company took C$15 million pre-tax costs tied to severance pay and restructuring issues.

PRA International ((PRAI)), clinical research organization, said that its second-quarter net income was $6.8 million, or 28 cents a share compared with $8.6 million or 35 cents a year ago. Quarterly revenue was $79.4 million vs. $85.2 million a year earlier. On an adjusted basis, the company would have reported earnings of 31 cents a share for the most recent quarter.

Monaco Coach Corp. ((MNC)), recreational vehicles manufacturer, posted second-quarter net income of $372,000, or 1 cent a share, down from $755,000, or 3 cents a year ago. Quarterly sales totaled $321.3 million vs. $304.5 million last year. Motorhome sales came in at 1,408 units, down 12.3% from a year ago. The management expects the third quarter to remain challenging and forecasted quarterly sales at $330 million to $340 million.


[R]8:00AM Blackstone Group is considering a bid for HCA.[/R]
Blackstone Group is reportedly considering a possible bid to top the $21.3 billion leveraged buyout of hospital chain HCA Inc. ((HCA)) by a group of private equity firms, including Bain Capital, Kohlberg Kravis Roberts & Co. and Merrill Lynch & Co. Blackstone hasn''t yet invited other private-equity firms to join any potential offer.

Terms of the agreement give Bain, KKR and Merrill the right to top any counteroffer. A second bidder would have to go through due diligence, which could cost $10 million to $20 million, without the certainty that a deal would be reached. According to a filing with the SEC, a breakup fee of $300 million is payable to Bain, KKR and Merrill if a rival bidder tops the current agreement. If Blackstone outbids the rival offer, a bidding war may start, driving up the price, but ultimately making the deal less profitable.

Experts say that paying a higher price for the health-care company would be hardly possible. Besides, the sector is subject to regulation and possible legislative action due to surging health-care costs. Some potential Blackstone partners also have antitrust concerns as a result of investments in other hospital operators.

The investment bankers representing Morgan Stanley and the Credit Suisse unit of Credit Suisse Group, plan to open a data room to let prospective bidders examine HCA data. Shares of HCA closed Tuesday at $49.25 on the Nymex, a discount to the $51-a-share price tag of the buyout deal announced Monday.