Tobacco Stocks and Earnings

123jump.com Staff
17 Oct, 2005
New York City

General Motors reported larger than expected loss but investors cheered as the company annouced agreement with UAW to cut 25,000 jobs and cut total of $5 billion in annual cost by 2006. Citigroup, Schwab and Wachovia reported better than forecasted earnings. Citigroup shares fell. After-the-close IBM reported earnings of 94 cents vs. $1.03 a year ago. Excluding one-time charges, the earnings were $1.26 vs. average estimate of $1.13 per share.

U.S. MARKET AVERAGES

-Citigroup, Schwab, W.W. Graniger and Wachovia report better than forecasted earnings.
-General Motors, Saks, Mattel and Hasbro fall short of expectations.
-Tobacco stocks rallied on a Supreme Court ruling.

In a day of earnings, market had little distraction other than gyration in oil price. At the opening market’s negative sentiment was replaced by a glimmer of hope. It was not General Motor’s earnings but it was management’s release of agreement with UAW to reduce annual healthcare bill by $1 billion and shut additional plants and cut total of 25,000 employees. Management forecasted that annual savings could reach $5 billion beginning next year. For the record GM reported loss of $1.92 vs. profit of 56 cents a year ago and estimate of loss of 87 cents.

Afternoon trading was dominated by rise in oil price. As oil price rose close to 2.5% during the mid-session, stocks in consumer discretionary, casinos, retails, and transportation sectors lost ground.

Tech stocks IBM, Intel and 3M rose before the earnings release scheduled for this evening and tomorrow evening.

Tobacco stocks rallied on the Supreme Court ruling that industry is no liable to pay to federal government $280 billion in penalties related to civil racketeering lawsuit against tobacco industry. Shares of Altria ((MO)) were up 6% and Reynolds American ((RAI)) were up 6.4% and Loews Group ((LTR)) closed up 3.5%.


MOVERS AND SHAKERS

Dow component Citigroup Inc ((C)) reported earnings this morning. According to the report, the banker’s earnings from continuing operations came below Wall Street predictions, because of expenses connected to Hurricane Katrina. Revenue was above analyst estimates, due to an increase in corporate and investment banking business and a gain of $2.12 billion on the sale of life insurance and annuities. Citigroup’s stock added 1%.

Wachovia Corp ((WB)) also posted quarterly results. Both adjusted earnings and revenue topped Wall Street estimates. Wachovia posted earnings of $1.67 billion, or $1.06 a share. The company’s earning results were $1.26 billion, or 96 cents a share, a year ago. Wachovia’s stock was up 1.3% on Friday.

General Motors Corp ((GM)) gained because of the news that it has made an agreement with the United Auto Workers' union to reduce health care costs. By this reduction the company will save $15 billion. The car maker also said it is planning to sale its financial unit GMAC. In another report the company announced a third-quarter loss that was more than expected.

Doughnut seller Krispy Kreme Doughnuts’s ((KKD)) stock lost nearly 30% after the company said its unit Freedom Rings LLC has filed for Chapter 11 bankruptcy protection.

Brokerage Legg Mason upgraded Anheuser-Bud ((BUD)) to “hold” from “sell”, primary due valuation. The beer giant’s stock is expected to gain today.

Home improvement retailer Pier 1 Imports Inc. ((PIR)) was upgraded by Lehman Bros. to “equal-weight” from “underweight”. The financial broker citied as a reason limited downside potential to the company’s share price.


ECONOMIC NEWS

For the week market expects report on PPI on Tuesday. On Wednesday petroleum weekly statistics, housing starts and mortgage loan applications are released. Initial claims for the unemployment are released. Market is forecasting rise in PPI, for the month of September, of 1.2% followed by rise of 0.6% in August. Core PPI is expected to be flat.


INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks closed largely in the negative territory on a fourth-day decline in bank shares as Prime Minister Junichiro Koizumi’s controversial visit to a shrine, provoked criticism from neighboring countries, causing concerns over the successful completion of the economic reforms. The Nikkei lost 0.2%, South Korea’s Kospi shed 1.2%. Taiwan’s Taipei’s Weighted Index was the biggest loser, down 2.4%, on tech stocks, hurt by the disappointing fourth-quarter earnings.

European markets finished higher, boosted by energy sector and strength in early U.S. trading. Rising crude oil prices lifted energy stocks, such as BP, Royal Dutch Shell, and Total. The market sentiment was also supported by a strong earnings report from Philips Electronics. The German DAX 30 gained 0.3%%, the French CAC 40 added 0.4%, and London’s FTSE 100 rose 0.4%.

ENERGY, METALS, CURRENCIES

Oil price rose about $1.73 as another tropical storm, called Wilma, gathered strength in the Caribbean, threatening to hit the vulnerable oil platforms and refineries in the Gulf of Mexico. Light sweet crude for November delivery rose $1.73 cents to $64.36 a barrel on the Nymex. London Brent gained 57 cents to $60.05. Natural gas rose 63 cents to $13.85 per MBTU.

In European trading gold prices advanced. In London gold December contract closed at $474.30 per troy ounce, up from $466.70. In Hong Kong gold gained $1.70 to close at $472.4. Silver opened at $7.84, up from $7.62

In European trading the U.S. dollar gained strength against its major counterparts. The euro was quoted at $1.2030, down from $1.2092. The dollar changed hands at 114.78 yen, up from 113.92. The British pound was trading at $1.7538, down from $1.7689.

EARNINGS NEWS

Commerce Bancorp Inc. ((CBH)), banking services company, reported a Q3 net income of 45 cents a share, 13% up from 42 cents a share in the year-earlier period, matching analyst estimate of 45 cents a share.

Citigroup Inc (C), financial services company, posted that Q3 earnings advanced 34.6% to $1.38 a share on 14.7% revenue growth up boosted by a 34.6% rise in corporate and investment banking revenue. Earnings from continuing operations of 97 cents a share missed expectations for 99 cents despite that the revenue figure topped forecasts of $20.5 billion.

Eaton Corporation ((ETN)), diversified industrial manufacturer, reported Q3 net income of $1.30 per share, a rise of 19 %, compared with net income of $1.09 per share in the same time last year on 10% sales growth. Net income in both periods incorporated charges for restructuring activities related to the integration of acquisitions. Before these restructuring charges, Q3 operating earnings per share were $1.33, an 18% rise compared with $1.13 per share in the year-ago period.

Hasbro Inc. ((HAS)), toymaker, reported Q3 earnings of 47 cents per share, up 4 % from 43 cents per share in the year-ago period on 4 % revenue growth, boosted by strong sales of games and ‘Star Wars’ products, though the company missed analysts’ forecasts of earnings of 51 cents per share. The year-ago results were restated in view of the adoption of new accounting rules.

Wachovia Corp. ((WB)), banking and retail brokerage firm, reported Q3 net income of $1.06 per share, up from 96 cents in the year-earlier period on 19% revenue growth and an increase in consumer banking and its other segments. Excluding merger-related charges, earnings reached $1.09 per share. The company's adjusted profit beat the analyst estimate of $1.07 per share.

CORPORATE NEWS

General Motors ((GM)), car maker, has reached a tentative deal with the United Auto Workers union to cut health-care costs. The agreement is expected to cut its retiree health care liabilities by about $15 billion. In addition, GM stated that the agreement would cut its annual employee health care expense by about $3 billion. The annual cash savings from the agreement are projected to be $1 billion.