U.S. Stocks Retain Early Gains, Nasdaq Surges

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

U.S. stocks edged higher on stronger than expected earnings from Microsoft and profitable outlook from Countrywide Financial. Microsoft reported third quarter earnings rise of 24% and sales increae of 27%. Microsoft stoc surged 10% near $35, high not seen since July 2001. Countrywide reported third quarter loss of $1.2 billion, first quarterly loss in 25 years. Crude oil edged higher to a new peak. European and Asian markets closed higher.

[R]1:30PM New York – Earnings from Microsoft and Countrywide drive U.S. market averages higher.[/R]

In the morning trading U.S. stocks advanced on earnings report from Countrywide and Microsoft, rising oil and gold prices, and sharply higher closing in Europe and Asia.

Countrywide Financial ((CFC)) reported third quarter loss of $1.2 billion, first quarterly loss in 25 years. Countrywide stock surged 16% after it said that it expects to earn between 25 cents and 75 cents in the fiscal fourth quarter and despite the housing market weakness in 2008 estimates to generate a profit. Countrywide at mid-day trading increased $2.83 to $15.93.

Microsoft ((MSFT)) jumped 9% or $3 to $34.99 after reporting 23.4% increase in earnings on 27% rise in sales. The lackluster stock roared ahead near $35, last seen in July of 2001.

A.M. Castle ((CAS)), metals and plastic products distributor, reported third quarter earnings of 57 cents per share compared to 89 cents per share on 16.5% rise in revenue to $350.3 million.

Alexander & Baldwin ((ALEX)), ocean transportation, logistics, and real estate management company, reported third quarter earnings of $1.14 per share compared to 65 cents a year ago on revenue rise of 3% to $434.7 million.

Baker Hughes ((BHI)) reported third quarter earnings of $389.1 million of $1.22 per share compared to $358.6 million or $1.09 per share a year ago. Revenue in the quarter rose 16% to $2.677 billion from a year ago and 6% from the second quarter of 2007.

Cemex ((CX)), Mexico based but global cement maker, reported third quarter revenue increased 31% to $6.1 billion and operating income increased 15% to $940 million on 3% increase in cement volume, 22% increase in ready-mix volumes, and 62% surge in aggregates volume. Cemex stock added 48 cents to $30.19.

Crude oil futures added 89 cents to $91.35 as tensions in the Middle East remain high and the U.S. consumers show no sign of slowing the purchase of oil.

In European trading markets across the region closed higher. Spain and UK led the gainers with a rise of 1.3% followed by increases in France and Italy of 0.6% and Switzerland of 0.5%.

Asian markets in the overnight trading closed sharply higher across the region. Korean and India led the region with a rise of 2.6% followed by increases in Hong Kong of 1.85%, Singapore of 1.7%, and Malaysia of 1.5% and Japan of 1.4%.

In Tokyo trading financials and energy stocks rebounded. Earnings from Sony, Honda, Nissan, and NT DoCoMo led tech, telecom, and auto stocks higher.


[R]11:00AM New York - Microsoft Corp sales jump 27% and net income up 24%.[/R]

Microsoft Corp, the world largest software firm, reported Thursday third quarter revenues increased 27% to $13.76 billion from $10.81 billion in the year-ago quarter, the highest quarterly growth in 8 years.

Microsoft''s businesses of Client, Microsoft Business Division, and Server and Tools grew combined revenue in excess of 20%, and experienced robust demand for Windows Vista, the 2007 Microsoft Office system, Windows Server, and SQL Server.

In less than a month, Halo 3 generated $300 million to company revenue following its launch in late September.

Net income jumped 23.4% to $4.28 billion from $3.47 billion from a year earlier. Earnings per share increased 28.5% to 45 cents per share compared with 35 cents per a year ago.

Microsoft said operating income increased 34% to $5.92 billion from $4.47 billion last year.

Microsoft''s entertainment and devices unit posted a 91% increase in revenue, to $1.9 billion. In July, the company had estimated sales growth for the division of between 30% and 40%.

Online services unit revenue climbed 25.2% to $671 million compared to $536 million a year earlier. Yet the unit reported a widened operating loss, to $264 million from $102 million.

In the quarter, Microsoft said client segment revenue gained 24% to $4.1 billion over prior year. This unit also includes Windows Vista that was introduced in January. Microsoft said the Russia and China demand was. The company forecast to earn $3.9 billion from Vista.

The company said demand for 2007 Microsoft Office system, Windows Server and SQL Server were very strong in the quarter.

For the fourth quarter, Microsoft has guided revenue in the range of $15.6 billion to $16.1 billion. At full-year, revenue is forecast at between $58.8 billion to $59.7 billion.

Analysts at Thomson Financial estimate fourth quarter revenue at$14.11 billion and $57.4 billion for the full-year.

Operating income is estimated at between $5.9 billion and $6.1 billion while earnings per share are targeted in the region 44 cents to 46 cents.

Microsoft estimated 2007 earnings per share in the range $1.78 to $1.81 and estimated operating income between $23.3 billion and $23.7 billion.

The earnings guidance include nearly $85 million of estimated integration costs and research and development expenses, or a $0.01 impact to diluted earnings per share, due to the acquisition of aQuantive.

Friday morning, Microsoft was up 13.29% or $4.25 at $31.99. In the last 52 weeks Microsoft stock traded in the range $26.60 to $32.22.

[R]9:00AM New York – Countrywide jumps 16% after reporting first quarterly loss in 25 years.[/R]

Countrywide Financial ((CFC)) reported its first quarterly loss in 25 years.

For the third quarter the company reported a loss of $1.2 billion or $2.85 per share. Excluding the impact of the accounting loss related convertible loan issuance, the loss per share was $2.12. Earnings in the third quarter were $648 million or $1.03 per share.

Disruptions in capital markets for mortgage loans securitization, higher credit costs for selling these loans to investors, and continued deterioration in the housing values hurt mortgage issuance. The sub-prime segment of the market felt the most severe credit crunch in the last quarter.

Lending in the third quarter was impacted by tightening underwriting standards. The loan origination volume decreased to $90 billion from $123 billion in the second quarter and $106 billion from a year ago.

The company hopes to be profitable in the fourth quarter 2007 and in the year 2008 despite its expectations of weak housing market.

The mortgage broker relied on securities market for its mortgage loans and is now taking steps to rely on its depositor base. The Countrywide Bank was the source of 90% of its mortgage loans, a stable source of loan origination.

''Countrywide''s results for the third quarter of 2007 reflect the impact of unprecedented disruptions in the U.S. mortgage market and the global capital markets, as well as continued weakening in the housing market,'' said Angelo R. Mozilo, Chairman and Chief Executive Officer. ''However, during the period we also laid the foundation for a return to profitability in the fourth quarter.”

Mozilo explained, “During September, Bank funding approached 90 percent of total funding.”

The Bank, which is presently the 3rd largest Federal Savings Bank in the nation, has $8.9 billion or 7.3 percent of total Tier 1 capital at September 30, 2007. Furthermore, the Bank with the deposit base of $60 billion has 150 financial centers and expects to increase to 200 by the year end.

The banking operations reported a pre-tax loss of $389 million compared to profit of $136 million in the second quarter of this year and $378 million profit in the third quarter a year ago.

The loss in the current quarter was primarily driven by a significant addition to loan loss reserves in anticipation of higher future charge-offs. As a result, the provision for credit losses in the third quarter was $784 million, compared to $246 million in the prior sequential quarter and $28 million in the prior year quarter. During the third quarter of 2007, net charge-offs in banking operations were $126 million, which compares to $109 million in the second quarter of 2007 and $6 million in the third quarter of 2006. The allowance for credit losses at September 30, 2007 grew to $1.1 billion from $469 million at June 30, 2007.

Countrywide said that net consumer accounts rose by 9%.

During the quarter, disruption in the capital markets caused a severe lack of liquidity for non-agency loans and mortgage-backed securities which resulted in losses on the sale or write-downs of such loans and securities that aggregated to approximately $1.0 billion. Approximately $12 billion of non- agency loans were moved to the Company''s held-for-investment portfolio after their write-down.

Loan loss provision was increased in this investment portfolio to $934 million from $38 million a year ago and $293 million at the end of the second quarter. The company also incurred impairment to the loans held by $690 million, higher than $417 million in the second quarter and $27 million a year ago. The provisions for loans warranties and representations were increased to $291 million from $41 million a year ago.

During the third quarter Countrywide announced a plan to reduce headcount by 10,000 to 12,000 people before the end of 2007 in response to the expected decline in volume.

The charge taken in the third quarter of 2007 related to the Company''s restructuring efforts was $57 million. Approximately $70 million to $90 million of additional restructuring charges will be recorded, primarily in the fourth quarter of 2007.

Countrywide sounded a positive note in the press release for the rest of the 2007 and 2008. The release said, “Despite these expectations of continued industry challenges, management expects the Company to be profitable in the fourth quarter of 2007 and in 2008. Countrywide''s consolidated earnings are expected to range between $0.25 and $0.75 per diluted share for the fourth quarter of 2007.”


[R]6:00AM New York, 7:00PM Tokyo – Investors returned for financial stocks. Earnings from Sony and Honda lead Tokyo up 1.36%. Consumer prices fell 0.2% in September from a year ago and industrial production declined 1.4% in the month.[/R]

Japan stock index rallied on better than expected earnings from Honda Motor Corp and Sony Corporation. Financial stocks also recovered as investors focused on domestic earnings in the sector.

In Tokyo trading Nikkei 225 firmed 1.36% or 221.46 to 16, 505.63, while the broader Topix Index edged up 1.7% or 25.90 to 1,573.98.

Of the Nikkei 225 stocks 141 gained, 72 declined, and 12 were unchanged. Honda Motor Corp led the gainers in the index rising 8.89% after reporting three months earnings profit to September jumped 63% to 208.5 billion yen.

Energy stocks climbed as oil topped $92 per barrel on growing battle between Kurdish rebels in northern Iraq and Turkish military and declining U.S. petroleum inventories. Inpex rose 3.25% to 1.27 million yen, Mitsubishi Corp firmed 4% to 3,640 yen, Mitsui & Company gained 5.6% to 3,030, and Nippon Oil Corp gained 1.59%.

In the first section of the Tokyo Stock Exchange 6.8 billion shares worth 1 trillion yen were traded and 145 million shares valued at 3.2 billion yen were traded.

The Ministry of Internal Affairs and Communication’s Statistics Bureau reported today that core consumer price index was unchanged in September from August but down 0.1% from a year ago. The Bank of Japan is meeting on October 31st to decide interest rate direction.

Statistics from the Ku-area in Tokyo, a key gauge of nationwide prices, revealed that food prices were up 0.2% for the month and 0.1% for the year, while fuel, light and water charges were unchanged for the month but firmed 0.2% over the previous year. Clothes and footwear prices gained 6.4% in September and 0.6 over last year. Reading and recreation fell 1.3% for the month and 1.2% for the year. Services plunged 0.4% from August, but rose 0.2% from last year.

However, for the month of October food prices fell 0.1% but rose 0.5% for the year. Housing remained unchanged from August and increased 0.2% for the year. Fuel, light and water were up 0.8% for the month and 1.2% from the previous year. Clothes and footwear gained 1.2% from August but tumbled 1.7% over the previous period last year. Service prices for October remained unchanged, while firming 0.3 over the corresponding period last year.

The Ministry of Economy, Trade and Industry said today industrial production fell 1.4% in September for the first time in two months, on a sharp rise of 3.5% in August when automakers resumed production after July 0.4% decline due to an earthquake. However, September production was up 0.8% from a year ago.

Seasonally adjusted production index decreased to 110.3, shipment index declined 1.9% to 114.5, and inventory index increased 1.0% to 97.0.

According to METI, industries such as general machinery, transport equipment, information and telecommunications electronic equipment in that order where the main contributors to the decline.

Shipments fell 1.9% in September, but climbed 2.1% for the year, and inventory increased 1% from previous month. However, the survey of production forecast in manufacturing showed production is expected to increase 3.8% in October and 0.7% in November.

Kyodo News reported today Land, Infrastructure and Transport Minister Tetsuzo Fuyushiba has raised concern over the acquisition of a 19.89% stake in Japan Airport Terminal Company by Macquarie Airports Management Limited of Australia.

Of the index shares, Honda Motor Corp led gainers, with a rise of 8.89%, followed by gains of 8.81% in Sony Corp, 8.74% in Softbank Corp, 7.27% in Matsushita Electric and 5.57% in Mitsui &Co.

Honda Motor Corp gained on strong second quarter performance. Operating profit rose 63% to 208.5 billion yen on weaker yen in the quarter and increased sales of fuel efficient Civic and Accord. The two models managed to lure customers from U.S. companies General Motors Corp and Ford Motor Corporation whose strength is in pick up cars and SUVs.

Honda projected operating revenues will rise by 10.9% in the fiscal year ending March 31 to 12.3 billion, while operating income is projected to soar 3.3% to 880 million yen. Net income is forecasted to rise 8% to 640 million yen. The company is planning a 22 yen dividend per share in the quarter and a full year dividend of 88 yen per share.

Sony also leapt after third quarter net income rose to 73.7 billion yen from 1.7 billion yen a year earlier spurred by 12% rise of sales to 2.08 trillion yen. Profits in the consumer electronics division climbed 106.9 billion compared to 8 billion yen a year earlier. The movie division jumped 2.7 billion in operating profit against to a 15.3 billion-yen loss a year before after the production of “Spider-Man 3” and “Resident Evil: Extinction”. Sony Financial Services, the largest IPO in Japan in 2007, is projected to generate 11 billion yen to profit during the quarter.

Ricoh Company Limited led decliners, falling 4.20%, followed by losses in Resona Holdings of 3.87%, in Toyo Seikan of 3.84%, in Shinsei Bank Limited of 3.66% and Nippon Soda Company of 3.29%.

Daiwa Securities reported today second quarter net profit declined 14% from 17 billion yen last year to 14.7 billion yen for the three months ending September 30. While revenues were unchanged at 211.7 billion yen, equity underwriting shares fell from 12.5 billion yen a year ago to 6.4 billion yen in the second quarter.

Mizuho Securities also reported today it experienced a net loss of 27.06 billion yen from a profit of 11 billion yen in the six months to September due to investment losses tied to the U.S. housing slump.

Nikkei reported today Sumitomo Mitsui Financial Group’s consolidated net profit is expected to fall 20% from 220 billion yen forecasted for half year to September. The stock advanced 1.21% on the rally in financial stocks.

Nissan Motor Corp said today operating profit rose 12% to 218.7 billion yen in the second quarter, buoyed by 13% increase in sales to 2.62 trillion yen as the company managed to gained new customers with its Qashqai SUV in Russia and Ukraine. The company currently has a six months backlog for the model in Russia, Ukraine and Northeastern Europe. Overseas sells in China and the Middle East rose 25 % and 21% respectively helping to offset a 7.2% decline in domestic sales.

Mobile company NTT DoCoMo released results today that showed net income fell 15% to 123.7 billion yen from 146.3 billion yen a year earlier as price were cut by 50% and 1.1 million customers defected from the mobile company. Operating profit dropped 16% to 204.6 billion yen. Sales dropped 1.9% to 1.14 trillion yen. The company said annual profits might miss target by 1.3%. NTT DoCoMo will be merging eight subsidiaries to enhance operational efficiency.