Inflation Worries Overshadow Earnings

Elena
18 Oct, 2005
New York City

Commodities broker Refco, listed IPO on August 11th, filed for Chapter 11 bankruptcy protection. The financial advisor Merrill Lynch released 51% Q3 earnings rise on strong trading activity, beating estimates. 3M posted better-than-anticipated Q3 results.IBM exceeded profit expectations, but fell short of revenue estimates.

U.S. MARKET AVERAGES

The major market indices have been trading close to the flat line due to an overall lack of leadership, keeping eight of the ten economic sectors in the negative territory. In a busy day of major earnings reports, about 65% of reporters are beating estimates. Inflation worries took over the markets sentiment after the Labor Department released a report on monthly wholesales and even the strong earnings reports from major Dow Industrial companies couldn’t bring relief to the investors. The Producer Price Index, which measures prices at the wholesale level, rose 1.9% in September on high energy and food costs. The core rate, which excludes food and energy and is considered to give a more accurate inflation indication, was up 0.3% compared with last month’s flat reading.

The airline sector has continued to advance steadily since the start of trading and is now up 2%. SkyWest ((SKYW)) is the best performer in the group, climbing by more than 5.5%.

Energy stocks have reversed yesterday’s advance and are showing notable weakness. Housing and semiconductor stocks also post significant losses.

Novartis ((NVS) has advanced to a new 52-week high on earnings report. St. Jude Medical ((STJ)) has reached a fresh peak continuing yesterday’s rally on earnings news and an agreement to acquire Advanced Neuromodulation Systems ((ANSI))..

National City ((NCC)) is breaking to a new 52-week low on earnings released before the opening bell. Novellus ((NVLS is posting a 13%-loss on disappointing earnings release. Ford ((F)) has also slipped to a new low.

MOVERS AND SHAKERS

3M Co. ((MMM)) posted third-quarter results that were above analyst expectations. Sales increased 8.3% in the three months ended September 30 to $5.38 billion from $4.97 billion in the same period a year ago, according to the report. The company also increased its share buyback program. 3M Co.’s stock gained 1.4%.

Diversified industrial company United Technologies Corp. ((UTX)) raised its profit outlook for this fiscal year after its third-quarter report topped expectations. The company posted earnings of $821 million, or 81 cents a share, up from $693 million, or 68 cents, in the same period a year ago. Quarterly revenue came to $10.91 billion from $9.34 billion, up 17%, according to the report. The stock fell 1% yesterday, but it is likely to gain today.

Healthcare company Johnson & Johnson ((JNJ)) could be under pressure after it has reported a third-quarter profit that topped analyst estimates, but its sales fell below Wall Street forecast.

IBM ((IBM)) reported earnings that came in ahead of Wall Street expectations. The computer giant posted net income of $1.52 billion, or 94 cents a share, for the three months ended September 30, down 2.5% from $1.55 billion, or 92 cents, a year ago. Sales from continuing operations increased slightly as the company sold more hardware and services. The company’s stock added 2.6%.

In financial sector, Merrill Lynch’s ((MER)) stock was up 2.1% as the investment bank posted a record profit for its third quarter, easily jumping over analyst estimates. Wells Fargo ((WFC)) also reported earnings that came in above analyst expectations.

In semiconductor sector, Goldamn Saches downgraded Texas Instruments ((TXN)) to “underperform” from “in-line”, pointing increased competition from Qualcomm Inc. ((QCOM)) in the third-generation broadband business. At the same time, the financial broker upgraded Entegris Inc. ((ENTG)) to “outperform” from “in-line”, citing merger and business divestitures are likely to create improved secular earnings. The sector is likely to be in focus today.

ECONOMIC NEWS

Wholesale prices rose at their fastest pace in over 15 years in the month of September, according to a report from the Department of Labor. The sharp increase in prices was largely due to a surge in energy prices.

The report showed that the producer price index rose 1.9 percent in September after rising 0.6 percent in August. The increase came in above economist expectations of a somewhat more modest 1.1 percent increase.

As was the case with the increase in consumer prices, the increase in producer prices was largely due to a 7.1 percent increase in energy prices. The increase reflects the sharp rise in energy prices that was seen following Hurricane Katrina.

The report also showed that the core PPI, which excludes food and energy prices, rose 0.3 percent in September after coming in unchanged in August. Economists had expected core prices to increase by 0.2 percent.

The relatively modest increase in core prices may help to offset some of the recent inflation concerns, although many traders and economists remain concerned that the surge in energy prices will start to be reflected in prices for other goods, driving the rate of inflation higher

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks closed mostly higher, although the Nikkei lost 0.4% on tech stocks, ahead of Intel Corp.’s earnings release. Today’s decline of the Japanese stock markets continued the negative trend from the previous four sessions. Across the region, Hong Kong’s Hang Seng gained 0.4% and South Korea’s Kospi rose 0.8%.

European markets closed in the negative, erasing early gains, on U.S. wholesale inflation data. However, the healthcare sector was a strong market supporter. The German DAX 30 lost 0.6%, the French CAC 40 shed 0.6%, and London’s FTSE 100 declined 0.4%.

ENERGY, METALS, CURRENCIES

Oil prices fell as fears over the threat of Hurricane Wilma eased down. The vulnerable oil platforms and refineries in the Gulf of Mexico are expected to avoid being hit by the storm. Light sweet crude for November delivery fell 86 cents to $63.50 a barrel on the Nymex. Heating oil lost 4 cents to $1.9425. Gasoline prices fell 8 cents to $1.7325. Natural gas dropped 45 cents to $13.44 per 1,000 cubic feet. London Brent lost 77 cents to trade at 59.80.

In European trading gold prices fell. In London gold December contract closed at $472.20 per troy ounce, down from $474.30. In Hong Kong thee precious metal lost 80 cents to close at $473.25. Silver closed at $7.78, down from $7.84.

In European trading the U.S. dollar gained further strength against its major counterparts. The euro was quoted at $1.1926, down from $1.2035. The dollar changed hands at 115.89 yen, down from 114.88. The British pound was trading at $1.7463, down from $1.7543.

EARNINGS NEWS

Merrill Lynch ((MER)), investment and financing services provider, posted a record Q3 of $1.40 a share, 51% up from last year’s in the same period, topping analyst estimate of $1.18 per share. Revenue amounted to $6.7 billion.

American Standard Cos. ((ASD)), maker of bath and kitchen products and vehicle control systems, posted Q3 earnings of 74 cents a share, up vs. profit of 71 cents a share in the year-ago period. Sales advanced in Q3 to $2.62 billion vs. $2.4 billion in the comparable period. On an adjusted basis, aside from items, the company earned gained 75 cents a share in Q3, missing analyst estimate of 78 cents a share. The company revised its outlook down for the full year to earnings of $2.54 to $2.58 a share from a previous projection for a profit of $2.60 to $2.75 a share.

Great Atlantic & Pacific Tea Co ((GAP)), regional grocery chains, posted Q2 net income of $14.40 a share, up from a loss of $1.67 a share in the year-earlier period. The company’s sales amounted to $2.17 billion, down vs. $2.49 billion on a 1.1% decline in U.S. comparable-store sales. In Q2, A&P won $919 million connected with the disposal of its Canadian operations together with $152 million in charges.

Station Casinos, Inc. ((STN)), casino properties operator, reported that Q3 net income advanced 34% to 63 cents a share, up from 46 cents a share in the year-ago period on 14% revenue growth. Q3 Same-store revenue increased 16%.

U.S. Bancorp ((USB)), financial services provider, announced that Q3 earnings increased 8.3% to 62 cents a share on 1.8% revenue growth on better revenue from credit and debit cards as well as corporate payment products, beating analysts’ estimate by a penny.

KeyCorp ((KEY)) financial-services company, posted Q3 net income of 67 cents a share, up vs. 61 cents in the same period a year ago on revenue growth, beating analysts’ forecasts by a penny. Net interest margin increased to 3.67% in Q3, while both net loan charge-offs and nonperforming loans declined from last year.

3M Co. ((MMM)), maker of industrial and household products, posted Q3 earnings of $1.10 a share, up from profit of or 97 cents a share in the year-ago period, beating analysts’ forecasts of $1.08 a share. Sales in Q3 advanced 8.3%. 3M Co. has approved the buyback of an additional $300 million worth of its common stock, bringing its total repurchase authorization to $2.3 billion for calendar 2005. The company estimates about $500 million of that authorization remains.

State Street Corp. ((STT)), asset management services company, posted



Q3 earnings of 43 cents a share, down vs. 52 cents a share in the year-ago period despite revenue growth. Apart from discontinued operations, earnings would have been 75 cents a share, beating analyst estimate of 67 cents a share. The company anticipates earnings growth going forward from continuing operations of 10% to 15% and return on equity of 14% to 17%.

Wells Fargo ((WFC))banking, insurance and investment company posted record Q3 net income of $1.16 a share, up 13% from $1.02 a share in the same period last year on 16% revenue growth, beating analysts’ forecasts by a penny. The company recorded a $100 million provision in excess of net charge-offs for the impact of Hurricane Katrina on its loan portfolio.

Genzyme Corp. ((GEVZ)), biotech group, posted strong Q3 earnings of 43 cents share, up from, 41 cents a share for the same quarter a year ago on 24% revenue growth. Apart from charges amounting to about $63.5 milion, adjusted earnings would have been 61 cents a share, up from 49 cents in the comparable period, beating on that basis analysts’ expectations of 58 cents a share.