U.S. Stocks Lower on Earnings Warnings

123jump.com Staff
10 Oct, 2007
New York City

Market averages declined in the first hour of trading after mixed earnings news. Monsanto reported wider loss compared to a year ago and lowered its guidance for the next year. Chevron and Valero reported that earnings in the quarter will be substantially lower from a year ago on weak refining margins. Costco jumped 8% after reporting earnings rise on higher sales. Cadbury Schweppes said that it will spinoff its beverage business rather than look for a buyer.

[R]10:30:00AM New York – Stocks in New York trading fell after earnings warnings from energy companies. Costco jumped 8% on earnings.[/R]

In the early trading in New York stocks opened lower on mixed earnings. Dow Jones fell 47 to 14,118, Nasdaq declined 1.5 to 2,802, and S&P 500 lost 3 to 1,561.

Costco ((COST)), largest warehouse club retailer, reported fiscal fourth quarter earnings of 83 cents per share compared to 75 cents a year ago, an increase of 4.7%. Earnings in the quarter were $372.4 million compared to $355 million a year ago. Excluding one-time charges earnings rose 21% to $372 million or 91 cents per share on revenue rise of 3% to $20.5 billion.

Monsanto ((MON)) fell 4% after it reported fiscal fourth quarter earnings. The company reported a loss of $210 million compared to a loss of $144 million from a year ago on revenue rise of 13% to $1.6 billion. Earnings per share were 39 cents loss compared to a loss of 27 cents a year ago. For the fiscal year company reported a profit of $993 million compared to $689 million or $1.79 per share compared to $1.25 a year ago.

Monsanto said that its full-year 2008 EPS guidance, both on a reported and ongoing basis, is in the range of $2.20 to $2.40. The company''s 2008 EPS guidance reflects a projected growth rate of 10 percent to 20 percent from the fiscal year 2007 EPS ongoing base of $2.00 per share.

Chevron Corporation ((CVX)) reported interim update for the third quarter earnings and warned that the company earnings are expected to be ‘significantly below’ the record $5.4 billion in the second quarter of 2007. The company added that one time charge of $700 million and lower refining margins will hurt earnings. In the last quarter the company had booked gain of $860 million for its stake in Dynegy and expects to record a gain of $260 million for sale of its marketing assets in Benelux countries.

Refining margins were $19.36 per barrel in the third quarter of 2006, $20.55 in the fourth quarter of 2006, and rose to $30.28 per barrel in the second quarter of 2007. The margins are estimated to be $14.77 per barrel in the third quarter of 2007.

Separately Valero Energy ((VLO)) also fell after it warned that third quarter earnings excluding one-time charges are likely to be between $1.30 and $1.40 per share. The company added that it expects to report lower throughput margins for the third quarter of 2007 primarily due to substantially higher feedstock costs resulting from increased premiums for light sweet crude oils and narrower discounts for sour crude oils and other feedstocks. Higher feedstock costs are expected to reduce the company’s throughput margins by approximately $700 million in the third quarter compared to a year ago.

The one-time items consist of a $91 million pre-tax gain on repayment of a loan by a foreign subsidiary and the effects on the computation of diluted earnings per share related to the company’s $94.5 million final payment for the accelerated stock repurchase program that was completed on July 23, 2007. Including these special items, third quarter earnings from continuing operations are expected to be in the range of $1.25 to $1.35 per share. The company also expects to report third quarter earnings from discontinued operations of approximately $0.75 per share related to the $827 million pre-tax gain on the sale of the Lima refinery.

[R]6:00AM New York, 7:00PM Tokyo- Japan climbs 0.1% on retailers and commodity stocks. August industrial orders were down 12.3%.[/R]

Japan’s stocks retreated from a 0.3% gain in the morning session to close 0.1% on profit taking in financial stocks. In Tokyo trading Nikkei 225 rose 0.1% or 17.99 to 17,177.89.

Of the Nikkei 225 stocks 102 gained, 100 declined and 23 traded unchanged. Aeon Co Limited led gainers, surging 6.19% after the retailer announced a business alliance with Japan Airlines Corp to expand market share. Energy and commodity stocks rose on higher oil and metals prices.

Daily trading volume on the first section was recorded at 1.7 billion shares valued at 2.2 trillion yen and in the second section trading volume was recorded at 80 million shares at 12.5 billion yen. Mining, air transportations, and retailers led the stocks and banks, insurance, and rubber products companies fell according to indexes tracked by Tokyo Stock Exchange.

Of the 1,722 listed issues in the first section, 706 gained, 863 declined, and 146 were unchanged. Three stocks did not trade. Of the 470 issues listed on the second section, 201 advanced, 153 declined, and 56 were unchanged.

Crude oil prices gained 1.6% to $80.26 per barrel lifting energy trading and exploring companies. Inpex Holdings firmed 3.42%, Nippon Mining Holdings rose 2.08% and Nippon Oil Corp edged up 2.09%.

Metal prices rose as nickel climbed 1.8%, copper spiked 1.3% and zinc rose 1.5%. Sumitomo Metal Mining Company rose 0.56%, while Nippon Light Metal Company jumped 0.37%.

Japan Society of Industrial and Machinery Manufacturers said Tuesday the value of orders for industrial machinery placed with Japanese companies slumped 12.3% in August to 541.03 billion yen from a year earlier. However orders for industrial machinery rose 32.3% in July.

According to the survey covering 193 members of the Society, orders in the domestic market fell 0.3% from last year to 238.85 billion yen in August, while orders from abroad were down 18.5% to 302.18 billion yen.

Nomura Securities Financial and Economic Research Center said today company share buybacks reached a record 2.68 trillion-yen in the first half of 2007, as stocks declined and fears of the U.S. subprime mortgage crisis gripped the market. The Research Center forecasts purchases for fiscal year is expected to surpass the record of 3.98 trillion posted in 2006.

Of the index shares, retailer Aeon Company Limited paced gainers with a rise of 4.62% in Toki Carbon Company, 4.33% in Japan Airlines Corp, 3.69% in Seven & I Holdings and 3.68% in Mitsub Motors Company.

Aeon Company Limited and Japanese Airlines Corp rose after the two companies separately announced plans for a business alliance starting with the creation of two new loyalty cards to be introduced in March 2008 aimed at expanding market share.

The cards will combine the airline’s frequent flyer mileage card, the JMB Card and Aeon’s WAON Card that has both e-money and credit functions. Business tie-ups including sharing sales channels and distribution of goods during emergency situations are also being considered.

Retailers gained as well. Seven & I Holdings soared 3.7%, Daiei Inc rose 3.9% while Takashimaya Company climbed 3.2% after posting a second quarter profit of 2.24 billion yen and brokerage firms raised the company’s rating.

GS Yuasa Corp led declining stocks in the Nikkei 225 index with a fall of 4.44%, followed by losses in Shinsei Bank Limited of 3.02%, in Olympus Corp in 2.75% and in Japan Tobacco and Taiheiyo Cement of 2.51% each.

Financial stocks also tumbled on profit taking after gains in the last two weeks. Mitsubishi UFJ Financial Group fell 0.25%, Mizuho Financial Group declined 1.13% and Sumitomo Mitsui Financial Group decreased 2.47%.

Mitsubushi Heavy Industries said yesterday it plans to spend 150 billion yen on a project called Mitsubishi Regional Jet (MRJ) that aims to sell 1,000 regional passenger jets over the next 20 years, seizing a fifth of projected new demand. The company has selected Pratt & Whitney to supply engines for its new 70 to 90 seat passenger jets.

Yamazaki plans to raise the price of 500 products including bread and confectionery items by an average of 8% in December for the first time in 17 years on rising prices of cooking oil, wheat, wrapping materials and dairy products. Sliced bread will rise to a 24 year high as the popular loaf will be priced at 190 yen up from 170 yen.

Wholesale prices have risen for more than 3 years yet consumer prices continue to decline. Consumer prices slipped 0.1% in August. However the quarterly Tankan survey released last week showed consumers expect costs of goods to rise by 4.6% over the next 12 months, heightening expectations the economy will be able to stave off a decade old deflation.