U.S. Stocks Fall on Airlines, Merrill

123jump.com Staff
17 Apr, 2008
New York City

Merrill Lynch large loss and asset write down surprised the market and U.S. stocks edged lower as new worries related to credit market emerged. Separately, American Airlines reported quarterly loss of $1.32 as its fuel bill surged 48%. Southwest earnings declined on higher operating and fuel costs. However, IBM reported better than expected earnings. TD Ameritrade earnings increased but the stock declined.

[R]11:30AM New York – U.S. stocks edged lower and unemployment claims increased.[/R]

U.S. stocks in the morning trading edged lower after a large loss and asset write down at Merrill Lynch and string of negative earnings from airlines.

In addition the Labor Department reported initial claims of joblessness increased 17,000 at the end of last week to 372,000 and four week average was nearly unchanged at 376,000. Total insured unemployment was unchanged at 2.2% and 2.98 million people filed for continuing claims, an increase of 28,000 from the previous week.

IBM ((IBM)) stock added $2.58 to $123.08 after it reported a strong rise in first quarter earnings. Revenue in the quarter increased 11% to $24.5 billion and earnings rose 36% to $2.3 billion or $1.65 per share from $1.844 billion and $1.21 per share from a year ago.

Company’s global technology and global business services revenues increased 17% and software revenue increased 14% to $4.8 billion. International revenue accounted for 65% of revenue increase. New service contracts were $10.8 billion at constant currency and $12.6 billion at existing rate.

TD Ameritrade ((AMTD)) stock fell 35 cents to $17.23 after it reported second quarter net revenue increase of 60% to $623 million compared to $525 million for the same quarter of 2007.

First quarter net incomes were $187 million or $0.31 per diluted share versus $141 million or $0.23 per diluted share for the quarter of 2007.

Bank of New York Mellon ((BK)) stock fell $1.12 to $42.87 after it reported net income in the first quarter of 2008 from continuing operations of $749 million, or $0.65 per share, compared to $437 million, or $0.61 per share, in the same quarter of 2007 and $700 million, or $0.61 per share, in the fourth quarter of 2007.

AMR, parent of American airlines ((AMR)) fell 39 cents to $8.58 after it reported first quarter loss on higher fuel prices.

Airline holding company reported loss in the first quarter of $328 million or $1.32 per share compared to $81 million or 30 cents per share a year ago. Revenue in the quarter rose 4.9% to $5.70 billion.

Sharp increase in fuel prices of 48% from a year ago affected the earnings. The airline paid $2.74 a gallon compared to $1.85 a gallon a year ago which added to the fuel cost by $665 million.

The airline also announced plans to reduce its domestic capacity by 3.6% and increase international capacity by 2.5% with a net reduction of 1.4%.

AMR is planning for an average system price of $3.01 per gallon in the second quarter of 2008 and $2.98 a gallon for all of 2008. AMR has 36 percent of its anticipated second quarter 2008 fuel consumption capped at an average crude equivalent of $72 per barrel (jet fuel equivalent of $2.42 per gallon), with 29% of its anticipated full-year consumption capped at an average crude equivalent of $75 per barrel (jet fuel equivalent of $2.41 per gallon).

Consolidated consumption for the second quarter is expected to be 771 million gallons of jet fuel.

Southwest Airlines ((LUV)) stock fell 8 cents to $12.42 after it reported first quarter revenue rise of 15% to $2.53 billion and earnings of $34 million or 5 cents per share compared to $93 million or 12 cents per share.

Excluding special items, first quarter 2008 net income was $43 million, or $.06 per diluted share, compared to $33 million, or $.04 per diluted share, in first quarter 2007.

Gary C Kelly, chief executive said, “Our first quarter 2008 unit costs, excluding special items, increased 7.3% due largely to the significant increase in our economic jet fuel costs. Even with $302 million in favorable cash settlements from derivative contracts, our first quarter 2008 economic jet fuel costs increased 20.7% to $1.98 per gallon.

We have derivative contracts in place for approximately 70 percent of our second quarter 2008 estimated fuel consumption, capped at an average crude-equivalent price of approximately $51 per barrel. Based on this derivative position and yesterday''s market prices, we currently anticipate our second quarter 2008 economic jet fuel costs will be in the $2.35 per gallon range, significantly higher than first quarter even with anticipated hedging gains significantly higher than first quarter.

For the full year 2008, we have derivative contracts for over 70 percent of our estimated fuel consumption at an average crude-equivalent price of approximately $51 per barrel.

Our first quarter 2008 unit costs, excluding fuel, increased 2.4 percent over last year, which was better than we anticipated. Based on current cost trends, we expect our second quarter 2008 unit costs, excluding fuel, to increase from first quarter 2008''s 6.70 cents.”