Wal-Mart Sales Miss Forecast

Elena
30 Oct, 2006
New York City

Stock market futures indicated a weak opening, as Wal-Mart reported lower-than-forecast October sales which added to concerns about the health of the U.S. economy. The retailer said same-store sales gained just 0.5% in October, its smallest rise in nearly 6 years. Meanwhile, Yahoo shares offered support, rising 2% after Merrill Lynch upgraded its stock to buy from neutral. American Power Conversion climbed more than 26% due to an acquisition offer.

[R]9:00AM Stock futures pointed to a lower start amid disappointing Wal-Mart sales.[/R]
Stock market futures indicated a weak opening, as Wal-Mart reported lower-than-forecast October sales which added to concerns about the health of the U.S. economy.

Wal-Mart ((WMT)) said same-store sales gained just 0.5% in October, its smallest rise in nearly 6 years, blaming the lower growth on disappointing apparel demand and disruption from store remodeling projects. The world''s largest retailer had previously predicted a sales rise between 2% and 4%. Wal-Mart shares fell 1.4% in electronic composite trading. At the same time, Yahoo ((YHOO)) shares rose 2% after Merrill Lynch upgraded its stock to buy from neutral ahead of the seasonally-strong holiday period. American Power Conversion ((APCC)) shares jumped more than 26% after French electrical engineering company Schneider Electric agreed to buy the company for $6.1 billion.

On the earnings news front, Humana ((HUM)), health benefit company, said Q3 net income more than doubled to 95 cents a share, up from 28 cents a share, with revenue up 48% to $5.65 billion. However, results came in below expectations of 97 cents a share on revenue of $5.9 billion. Blue-chip telecommunications provider Verizon Communications Inc. ((VZ)) reported Q3 profit slightly above analyst estimates, while No. 1 U.S. radio company Clear Channel Communications Inc. ((CCU)) posted net income drop, despite revenue growth. S&P 500 futures were down 2.2 points, barely above fair value. Dow Jones industrial average futures fell 17 points, and Nasdaq 100 futures were down 1.25 points.


[R]8:00AM Schneider Electric offered $6.1 billion for American Power Conversion.[/R]
Schneider Electric, French electrical-equipment group, agreed on Monday to acquire American Power Conversion Corp. ((APCC)) for $6.1 billion in cash. Schneider’s offer is worth $31 for each APC share, a 30% premium to the Friday closing price. The deal is based on an enterprise value of $5.5 billion and will be financed through a combination of cash, debt and a 1.2 billion-euro ($1.5 billion) capital increase. Schneider expects the deal to complete in Q1 of 2007. It has been approved by APC’s board of directors, but still needs to be approved by APC shareholders. Lazard and Merrill Lynch are Schneider’s advisors for the deal, while Goldman Sachs is APC’s financial advisor.

The acquisition will make Schneider a world’s leader in the market for critical-power services, which ensure uninterrupted power supplies to data centers and production facilities. Schneider is planning to merge APC with its power-protection MGE UPS unit to strengthen its position in a secured power-market that''s expected to grow at 8% a year.

The transaction is expected to help Schneider''s earnings per share increase from 2007 and meet its criteria for three-year return on capital employed for acquisitions. By 2009, the combined critical power business is expected to generate annual sales of $4.1 billion to $4.3 billion, representing a 10% growth per year, from a pro forma $3.1 billion in 2006. Earnings before interest, taxes, depreciation and amortization should rise to $700 million to $800 million from $300 million, with the margin rising to 17% to 19% from a pro forma 10 %. Schneider expects the acquisition to generate over $3 billion of ‘value creation.’


[R]7:30AM Asian markets declined due to weak American economic growth.[/R]
Asian markets ended mostly lower on Monday. The Nikkei 225 Index shed 1.9% to end at 16351.85. Honda lost 3.3%, Kyocera fell 2% and Canon declined 3.4%. Banks and real-estate stocks also declined, with Mitsubishi UFJ slipping 2% and Mitsubishi Estate losing 1.2%. Softbank advanced 0.8% on news that a flood of customers wanted to switch their mobile phone service to the company.

In South Korea, the Kospi Index shed 1% to close at 1356.11. Tech shares and brokerage stocks led the decline. Samsung Electronics fell 1.8% and Samsung Securities was down 1.4%. In Sydney, the S&P/ASX 200 gained 0.8% to close at 5399.40. Stocks were buoyed by building-materials company Rinker Group, whose shares soared 26% among expectations that Cemex of Mexico will need to improved its $11.7 billion takeover offer.

In New Zealand, the NZSX-50 Index ended up 0.94% to 3754.83. Taiwan Weighted Price Index dropped 1.3% to 6995.20, while Singapore Straits Times Index shed 1.4% to 2691.60. Markets in Hong Kong were closed for a public holiday.


[R]6:30AM European shares declined on Monday on weak auto stocks.[/R]
European markets were lower, by mid morning on Monday. The FTSE 100 in London lost 0.6% to 6,124.5, Frankfurt Xetra Dax fell 0.7% to 6,218.24, and the CAC 40 in Paris shed 0.9% to 5,349.35.

Advancers

Italian bank Capitalia led the few advancers, up 1.1 %, on rumors that Santander of Spain as considering a bid. Santander denied the report.

Hennes & Mauritz, the Swedish fashion group, gained 1 % after Morgan Stanley raised its price target. The move reflected the new initiatives of the company of international expansion, home shopping, shoes and a new higher-priced former.

Decliners

Eiffage, the French construction and concessions group, was the worst performing stock on the Eurofirst 300. It fell 4.5% after Spanish constructor OHL denied speculation that the two companies were in talks to form an alliance.

Carmakers were weaker as Volkswagen of Germany attracted differing broker views following its forecast-beating results released on Friday. Other stocks in the sector also fell. BMW shed 2.1%, while Renault lost 1.1% and Porsche lost 1.9%.

Erste Bank in Austria fell 3.3% after it reported a 16% rise in third-quarter net profit that fell shy of expectations. Raiffeisen International, the main competitor of Erste Bank in eastern Europe, fell 2.4%. ABN Amro, the Dutch bank, fell 1.6% after announcing a 5.6% fall in third-quarter net profit.

Oil and gold

Oil prices edged up Monday tracking a terror alert in the petroleum-rich Gulf region last week and as traders watched for signs that OPEC nations were following through on announced production cuts. Light, sweet crude oil for December rose 7 cents to $60.82 a barrel on the NYME.

Gold opened Monday at a bid price of $602.30 a troy ounce, up from $596.80 late Friday.

Currencies

The European currency was in trading against the U.S. dollar on Monday, dipping nominally as investors pondered whether the European Central Bank would keep interest rates unchanged when it meets this week. In morning trading, the euro bought $1.2727 compared with $1.2736 in late New York trading on Friday. The British pound fell to $1.8985 from $1.8963 on Friday and the dollar dipped to 117.36 yen from 117.59 yen on Friday.