Domestic Auto Makers, Sales Decline

123jump.com Staff
01 Aug, 2006
New York City

Fears of inflation were back on market with the release of consumer spending report. Commerce Department reported that consumer prices are up 2.4% from a year ago so far for this year, highest since inflation rate in April 1995. Another month and another loss of a market share for domestic auto makers. Ford and Chrysler reported a steep decline in auto sales in July from a year ago. Oil climbed back above $75 per barrel. Vodafone refused to sell its take in Verizon back to the company.

[R]3:30PM Domestic Auto Makers Decline.[/R]
Ford ((F)) declined for the sixth straight month in sales of cars and light trucks. The company’s top selling truck, the F-Series pickup, fell 46% in July from its record of 126,905 sold a year ago. Ford is down 35% from a year ago. Chrysler ((DCX)) car sales declined to 150,349, from last year’s sales of 240,146. The company is down 34% from last year. GM ((GM)) declined 22% in sales of light vehicles from a year ago. Light truck sales fell 31% and car sales declined 4.2%. GM is down 22% from a year ago.

Incentive deals for the three automakers are mixed due to heavy discounting last year, fueled by foreign competition and rising fuel costs. Ford has been offering pre-paid fuel cards and five-year interest-free financing. Chrysler began its employee discount program at the end of June again, and three-year 0% financing on most of its 2006 models. GM recently began offering discounts and no-interest financing on some of its models, which will end September 1st.

[R]12:30PM European markets closed steeply lower.[/R]
European markets finished steeply lower on interest rate concerns and mixed earnings reports. European investors picked up Wall Street fears of interest-rate hikes, awaiting the European Central Bank rate-hike decision on Thursday. Among movers, Dutch telecom KPN climbed 5.6% due to doubled second-quarter profit and lifted outlook. Deutsche Bank shares fell 4.7% as quarterly earnings growth came in below estimates. Low-cost airline Ryanair also dropped 3.5% on cautious guidance for the rest of the year. Other decliners included DaimlerChrysler, falling 2% on 34% sales decline in the U.S. and Vodafone, down 1.7% after Verizon Communications'' CEO said that Vodafone wasn''t interested in selling its 45% Verizon Wireless stake. The German DAX 30 slid 1.5%, the French CAC 40 fell 1.2%, and London FTSE 100 lost 0.8%.

Oil prices advanced on supply concerns, related to a tropical storm in the Caribbean and the violent conflict in the Middle East. Light crude September delivery rose 35 cents to $74.75 a barrel. Gasoline rose 5 cents to $2.2625 a gallon, while natural gas dropped 17 cents to $8.04 per 1,000 cubic feet. London Brent gained 32 cents to $75.47. The dollar gained ground versus major currencies. The euro traded at $1.2744, down from $1.2768. The dollar bought 115.17 yen, up from 114.56. The British pound stood at $1.8667, down from $1.8678. European gold prices traded mixed. In London the precious metal traded at $630.80, down from $632.58 per ounce. In Zurich gold traded at $638.18, up from $631.78. Silver closed at $11.45, up from $11.27.


[R]11:30AM Strong economic data raised inflation worries.[/R]
Stock markets continued to trade lower on inflation worries, sparked by strong economic data. The ISM''s manufacturing index added to investor interest rate worries, as the index rose to 54.7 in July, far better than the 53 reading economists had expected. In another report, the Commerce Department said that construction spending rose 0.3%, exceeding expectations of 0.2% growth.

Disappointing earnings news also generated some negative sentiment, with Affymetrix ((AFFX)), down 15%, leading the biotechnology sector lower after reporting a wider-than-expected Q2 loss. Hilton Hotels Corp. ((HLT)) fell 1% after reporting Q2 profit fell 29%, despite a jump in revenue. Hilton earned 35 cents per share, down from 49 cents per share a year earlier. The Nasdaq showed a notable downward move, reflecting significant weakness in the technology sector. The airline sector also turned in one of the market''s worst performances due to a notable increase by the price of oil. In late morning trading, the Dow Jones industrial average fell 85.49, or 0.76%. The Standard & Poor''s 500 index lost 9.80, or 0.77%, and the Nasdaq composite index dropped 31.39, or 1.5%.

Auto maker DaimlerChrysler AG ((DCX)) reported that its total group sales in U.S. for the month of July declined 34% to 171,940 passenger vehicles. Chrysler Group, comprising Chrysler, Jeep and Dodge brands, posted sales of 150,349 vehicles in the U.S., a decrease of 37% from last year. Mercedes-Benz USA sales for the month rose 4% to 21,591 vehicles.

[R]Construction spending growth exceeded expectations.[/R]
The Commerce Department released its report on construction spending in the month of June on Tuesday, showing that spending rose more than economists had expected. The increase was partly due to growth in spending on public construction. The report showed that construction spending rose 0.3 percent in June after coming in unchanged in May. Economists had been expecting construction spending to increase by 0.2 percent compared to the 0.4 percent decrease originally reported for the previous month. As mentioned above, the increase was partly due to growth on spending on public construction, which rose 0.8 percent in June. A modest increase in highway construction spending contributed to the increase in public construction spending. The report also showed that spending on private construction fell 0.1 percent in June, as spending on residential construction fell 1.0 percent. Spending on non-residential construction rose 2.7 percent in June.

[R]The Institute for Supply Management index rose unexpectedly.[/R]
Tuesday morning, the Institute for Supply Management released its report on business activity in the manufacturing sector in the month of July. The report showed that the pace of growth in the sector accelerated unexpectedly. The ISM said that its purchasing managers index rose to 54.7 in July from 53.8 in June, with a reading above 50 indicating growth in the sector. Economists had expected the index to remain unchanged at 53.8. The increase by the index was partly due to a faster pace of production growth, with the production index rising to 57.6 in July from 55.1 in June. At the same time, the new orders index fell to 56.1 in July from 57.9 in June. The report also showed that employment expanded after a one-month contraction, as the employment index rose to 50.7 in July from 48.7 in June.


[R]10:30AM The Sensex recovers in late trading on news of improved rating[/R]
The Sensex in India finished up 7.78 points, or 0.07%, to close at 10,751.66. The turnover on BSE was Rs 2,191 crore, lower than Monday’s Rs 2,271 crore. The market-breadth was weak, but it had improved greatly in the latter part of trading in the wake of news of Fitch’s investment grade rating of India. On the day’s trading, 1,287 shares declined, 1,106 advanced and 88 shares were unchanged.

Fitch upgraded India''s long-term foreign and local currency debt to ''BBB-'' from ''BB+'', with stable outlooks. The short-term foreign currency debt rating was also lifted to ''F3'' from ''B'' and the country ceiling was upgraded to ''BBB-'' from ''BB+''. Fitch is of the opinion that fiscal consolidation is at last taking hold in India, strengthened by the solid growth and India''s strong external balance sheet.

The major gainers on the day were BHEL, climbing 2.93% to Rs 2,105, ACC gaining 2.15% to Rs 861, Bharti Airtel adding 2.13% to Rs 391, L&T advancing 1.72% to Rs 2,249 and Wipro rising 1.18% to Rs 497. BHEL advanced for the second day running today on strong first-quarter results and ACC after saying on Tuesday its July shipments advanced 11% to 1.42 million tonnes from 1.28 million tonnes a year ago.

Mahindra & Mahindra, India''s top utility vehicle producer, announced on Tuesday that vehicle sales advanced 39% in July. Domestic auto sales gained 41%, while exports advanced 5%. Mahindra & Mahindra lost 1.4% to Rs 582.20. Other auto stocks revived in latter trading. Maruti Udyog closed flat at Rs 787, off a session low of Rs 770.15, reported on Tuesday 10% growth in domestic car sales. Bajaj Auto lost 0.5% to Rs 2,459.50 despite reporting strong sales for the month gone by. Bajaj Auto stated on Tuesday that vehicle sales in July advanced 34%. A weak 2.3% growth in vehicle sales for July pushed Hero Honda Motors down 1.7% to Rs 693. The company’s decision to raise bike prices failed to counter the decline.

Reliance Industries gained 0.3% to Rs 982.60 on 16.9 lakh shares traded on BSE. Another large-cap IT company Infosys advanced 0.2% to Rs 1,658 on 4.4 lakh shares traded on BSE. Wipro gained 1.3% to Rs 498. recovering from lower level at the end of the trading session.

Metal shares were down as Sterlite Industries lost 3.7% to Rs 361, National Aluminium Company shed 2.7% to Rs 196.30, and Hindalco declined 2.3% to Rs 157.30. HDFC added 0.4% to Rs 1,180 after the housing finance large-cap today lifted all home loan rates by 50 basis points.

Bharti Airtel, Cellular services company, gained 2%, to Rs 391. The company, last week, posted robust Q1 June 2006 results. Another telephony large-cap VSNL jumped 3.7% to Rs 367.50 on 9.9 lakh shares traded on BSE. Engineering & construction company L&T gained 1.6%, to Rs 2,247. The company has a healthy order-book position.


[R]9:45AM Stocks opened in the negative.[/R]
U.S. stocks started trading in the negative following a government report which showed a rise in core consumer prices, reviving worries about further increases in interest rates. The Commerce Department released a report showing that consumer prices, excluding food and energy prices, rose at an annual rate of 2.4% compared to the 2.2% rate seen in the two previous months. According to the report core personal consumption expenditures rose 0.2% in June. The early weakness was also contributed by mixed earnings reports and the violent conflict in the Middle East.

Transportation stocks posted significant weakness in early trading due in part to an increase by the price of oil. Expeditors ((EXPD)) dropped 10%, helping to lead the sector lower after reporting Q2 earnings that came in below analyst estimates. Technology stocks also moved notably to the downside. Meanwhile, the coal group continued to show strength on the belief that the recent heat wave would spark energy use. The HMO group also advanced. Among other stocks, hotel operator Wyndham Worldwide Corp. said on Tuesday it will formally separate from Cendant Corp. ((CD)) and begin trading as an independent, publicly traded company. Shares of Cendant soared 16%. Eastman Kodak Inc. ((EK)) slid 9.8% after it posted its seventh consecutive quarterly loss. Verizon Communications Inc. ((VZ)) fell 2.2% after reporting a 24% drop in Q2 earnings that nonetheless beat expectations. Investors were disappointed with the company''s full-year forecast. In early trading, the Dow Jones industrial average fell 30.98, or 0.28%. The Standard & Poor''s 500 index lost 4.28, or 0.34%, and the Nasdaq composite index dropped 15.20, or 0.73%.

[R]Personal income and spending rose in line with estimates.[/R]
Tuesday morning, the Commerce Department released its report on personal income and spending in the month of June. The report showed increases in personal income and spending that came in line with economist estimates. The Commerce Department said that personal income rose 0.6 percent in June following an unrevised increase of 0.4 percent in May. Economists had been expecting personal income to increase by about 0.6 percent. The report also showed that personal spending increased by 0.4 percent in June after an upwardly revised 0.6 percent increase in May. Spending had been expected to increase by 0.4 percent compared to the 0.4 percent increase originally reported for the previous month. With regard to inflation, the report showed that consumer prices rose at an annual rate of 3.5 percent in June compared to 3.4 percent in May. Excluding food and energy prices, prices rose at an annual rate of 2.4 percent, up from 2.2 percent in the two previous months.


[R]9:00AM Stock futures pointed to a flat to lower start.[/R]
U.S. stock futures signaled a flat to slightly lower opening Tuesday, reflecting cautiousness before a number of economic reports and a speech by newly installed Treasury Secretary Henry Paulson. In addition to economic data, July auto sales reports are expected. Fighting between Israel and Hizbollah guerrillas in Lebanon also weighed. A heat wave in the eastern United States will also have investors closely watching natural gas prices.

On the earnings news front, Verizon Communications ((VZ)) reported Q2 earnings declined but came in above analyst estimates, while revenue rose on strong growth in its wireless business. Verizon reported Q2 earnings of $1.6 billion, or 55 cents a share, down from $2.1 billion, or 75 cents a share last year, citing charges and merger integration costs. Eastman Kodak ((EK)) said Q2 loss widened to $282 million, or 98 cents per share from $155 million, or 54 cents per share a year ago on restructuring charges and rising silver prices. TXU ((TXU)) posted higher Q2 earnings, helped by power prices. International Paper Co. ((IP)) also posted higher Q2 profit, helped by better pricing. Also on the earnings front, Hilton Hotels ((HLT)), Loews ((LTR)) among companies scheduled to report quarterly results. Before the opening bell, shares of Whole Foods Market ((WFMI)) fell about 8%a day after the organic foods retailer said profit rose but sales were below estimates. Morgan Stanley cut its price target for Whole Foods to $70 from $80. Shares of Hot Topic Inc. ((HOTT)) fell 13% on Inet after the apparel retailer cut its earnings outlook. S&P 500 futures were down 1.10 points, a shade below fair value. Dow Jones industrial average futures fell 17 points, and Nasdaq 100 futures dropped 4 points.

Global Imaging Systems, ((GISX)), technology solutions company, reported Q1 net income advanced 6.6% to 61 cents a share, from 58 cents a share in the year-ago period on revenue growth to $195.7 million from $182.5 million. The company missed analysts’ forecast earnings by a penny. For Q2, the company sees split-adjusted earnings of 32 to 34 cents a share.

Loews Corp, ((LTR)), commercial property and casualty insurance company, reported that Q2 net income on a per share basis, attributable to Loews'' common stock of 85 cents a share, beating analyst estimate for earnings of 79 cents a share. Consolidated Q2 earnings were $568.7 million, up from a equivalent profit of $435.6 million a year-ago. The consolidated results include the results of Loews Group and Carolina Group, a tracking stock, that primarily consists of the company''s Lorillard tobacco unit. Carolina Group''s total net income for Q2, including the profit attributable to its intergroup interest with Loews, was $187.2 million, up from $142.1 million a year ago.

Pinnacle Entertainment Inc., ((PNK)), entertainment company, said it swung to a Q2 profit, helped by strong results at Boomtown New Orleans. For Q2, it reported a net profit of 93 cents a share, up from 10 cents a share in the year-ago period. Revenue rose to $228.8 million from $151.5 million. The company beat analyst estimate for earnings of 31 cents a share.

International Paper Co, ((IP)), paper and packaging company, reported its Q2 net income rose to 24 cents a share, from 16 cents a share in the year-earlier period. Sales at company rose 7% in Q2 to $6.27 billion from $5.86 billion. IP announced it recorded earnings from operations before special items of 41 cents a share in Q2. The company missed analysts’ forecasts for earnings of 33 cents a share.

Electronic Data Systems Corp, ((EDS)), provider of information technology services, reported Q2 earnings of 20 cents a share, up from a profit of 5 cents a share a year-ago. On a pro forma basis, the company posted a profit of 20 cents a share. The pro forma results exclude an after-tax loss of $5 million from discontinued operations and a pre-tax reversal of $4 million in previously recognized restructuring costs but include the impact of stock option expensing. Revenue advanced 3.9% in Q2 to $5.19 billion from $5 billion in the same period a year earlier. The company beat analysts’ estimate for a profit of 16 cents a share.


[R]8:00AMNorthwest flight attendants rejected a second contract with the company.[/R]
Northwest Airlines Corp. ((NWACQ)) flight attendants rejected Monday their second tentative labor contract with the company, a move that will likely lead the bankrupt airline to unilaterally impose a new, cost-cutting contract on the union. The airline''s 9,300 flight attendants warned that any attempt by the airline to enforce new work rules will lead to random mini-strikes aimed at hampering the carrier''s operations.

For the second time a bargaining group failed to broker a deal for the flight attendants, who dismissed the Professional Flight Attendants Association after it negotiated a tentative labor contract on their behalf in March that fell far short of what they would accept.

Before Monday, Northwest already had permission from a bankruptcy judge to impose the terms of an earlier tentative agreement that 80% of flight attendants rejected in June. On Monday night the union asked a bankruptcy judge to limit Northwest to imposing the terms rejected on Monday, rather than the terms rejected in June. Both would save Northwest $195 million a year, and both include pay cuts of roughly 21%. The union said the reduction amounted to 40% once health care costs and other givebacks were included.
Northwest sought Chapter 11 bankruptcy protection in September, 2005, hit by soaring fuel prices, costly retirement and benefit plans for employees, and stiff competition.


[R]7:30AM Asian markets close lower on profit-taking pressure.[/R]
Asian markets ended lower on Tuesday. Japan''s Nikkei 225 Average after three consecutive sessions closing higher, shed 0.1% to 15,440.91. Blue-chip electronics shares such as Sony and Canon shed 0.97% and 1.11% respectively. Hitachi, the largest electronics conglomerate of Japan, dropped 2.2%. Electronics maker Pioneer bucked the trend and gained more than 8% after reporting an unexpected quarterly profit on plasma TV sales and cost reductions. Auto makers traded mixed, with Toyota shedding 1.16% while Honda advancing 0.26%. Toyota is to report strong results on Friday. Honda announced a record profit last week.

In Hong Kong, stocks ended slightly down on declines in China-related companies, as investors attention moved back to interest rates ahead of next week U.S. Federal Reserve meeting. The Hang Seng Index slipped 0.4% to 16911.37, ending six sessions of advances. HSBC Holdings finished flat despite its report Monday that first-half net profit soared by 15%.

South Korean shares ended lower as profit-taking in banks and shipbuilders erased gains in technology shares. The Korea Composite Stock Price Index, or Kospi, declined 0.8% to 1287.36. Bank shares, sharply declined as investors took profits. Kookmin Bank lost 5%, despite announcing a better-than-expected rise in second-quarter net profit Monday.

Elsewhere in the Asian region, Australia''s S&P/ASX 200 Index shed 0.09%, New Zealand''s NZSX-50 Index eased 0.06% and Taiwan''s Taipei Index dropped 0.20%.


[R]6:30AM European stock markets overcome early weakness to turn higher.[/R]
European markets traded higher by mid morning. The U.K. FTSE 100 index advanced 0.2% at 5,941 and the French CAC-40 index added 0.1% at 5,016, with only the German DAX Xetra 30 index dipping 0.1% at 5,676. In early trading Deutsche Bank reported a 30% increase in second-quarter net profit on stronger commission income. The bank, however, stated that income from trading financial assets was weaker-than-expected in the wake of recent market volatility and the shares shed 2%. Ryanair was also off 2.3% after its statement that it maintains a cautious outlook for the rest of the year.

Positive results from KPN and Man AG counterbalanced the news from Deutsche Bank and Ryanair. Dutch telecommunications operator KPN rose 5 per cent to €9.33 after reporting a stronger-than-expected 10 per cent rise in core earnings and an improving outlook. German truckmaker and printing machine manufacturer Man AG gained 2.6% after it revealed that its second-quarter net profit more than doubled to 198 million euros ($252 million), from 97 million euros a year earlier.

Crude oil bounced back after the U.S. National Hurricane Center said Tropical Storm Chris, the third named storm of the Atlantic hurricane season, had formed in the Caribbean southeast of Puerto Rico and was likely to strengthen. Crude oil for September delivery was up 14 cents to $74.54 a barrel on the New York Mercantile Exchange at 11:02 a.m. in London. Brent crude oil for September settlement gained 22 cents to $75.36 a barrel on the ICE Futures exchange in London.

Gold in London traded at US$632.00 per troy ounce, down from US$632.58 on Monday. The U.S. dollar was mixed against other major currencies in early European trading Tuesday. The euro was quoted at $1.2739, down from $1.2768 late Monday in New York. The British pound was traded at $1.8651, down from $1.8678 and the dollar bought 114.77 Japanese yen, up from 114.56.