Sales and Output Growth Boost Averages

Elena
03 Nov, 2005
New York City

U.S. business productivity surged in the third quarter according to a Labor Department report. Unit labor costs fell at an annual rate of 0.5%, vs. a forecast of a 2% gain in unit labor costs. Alan Greenspan testified before a congressional committee and Merck received a favorable verdict in a New Jersey Vioxx trial, A report released by the Labor Dept. showed that jobless claims fell to 323,000 from the previous- week revised figure of 331,000.

U.S. MARKET AVERAGES

Upbeat economic data, strong October retail sales, and rebound on oil prices have been supporting market sentiment. Presently, the three major averages are sitting near their intraday highs with the Nasdaq up 1.1%, followed by the Dow, up 0.8%.

Data on third-quarter business productivity, showing a higher-than-anticipated jump of 4.1% and the unexpected fall of unit labor costs by 0.5% provided a considerable boost to the market sentiment. In his testimony to the Joint Economic Committee in Congress, the Fed Reserve Chairman Greenspan reported solid economic growth, easing persistent worries over rising inflation.

The nation's retailers posted surprisingly strong October sales on Thursday, powered by better merchandising and strong consumer demand. According to the International Council of Shopping Centers the overall jump in same-store sales is 4.4%, higher than the previously expected 4% increase.

The following are bright spots among retailers. Abercombie & Fitch ((ANF)) posted a 31% jump in same-store sales, two times exceeding Wall Street’s expectations. Another gainer was Wet Seal ((WTSL)), posting a 47% leap in October comparable store sales, well above estimates. Wal-Mart ((WMT)) released 4.3% same-store sales increase, Costco Wholesale ((COST)) beat estimates by reporting a 10% sales rise.

With regard to sectors, the Energy sector is fighting for leadershipon rebounding oil prices. The Tech sector is also strong with improved interest in chip makers like Intel and Texas Instruments. Reports that Merck ((MRK)) didn''t fail to warn about Vioxx dangers and didn''t engage in consumer fraud has been a victory for both the Health Care sector and the Dow Industrials.

Advancing by 1.8%, the biotech sector is setting new intraday highs. Energy stocks have also shown improvement, extending recent gains. The oil sector is now up about 1.5%.

Very few sectors point to the downside. The gold sector has fallen 1%, reaching a new intraday low. The airline sector has been weak recently, retreating from last-week’s high trading levels.

Apple ((AAPL)) has gained another 3%, extending its 52-week high. SanDisk ((SNDK)) is also adding to its peak. Marvell Technology ((MRVL)) has reached a new high as well.

Guidant (GDT) has dropped to a new 52-week low on lingering concerns about its merger with Johnson & Johnson ((JNJ)). Skyworks ((SWKS)) and Macrovision ((MVSN)) have fallen to fresh nadirs on earnings news.

MOVERS AND SHAKERS

Retailer Wal-Mart Stores Inc. ((WMT)) reported an increase of 4.3% in same-stores sales for October. The company expects same-store sales growth of 3%-5% for November. Wal-Mart''s stock gained 0.9%.

Cable giant Comcast Corp. ((CMCS)) posted third-quarter net income that came slightly below analyst expectations. The company’s stock added 2.5% yesterday, but is expected to be under pressure today.

ECONOMIC NEWS

Thursday morning, the Department of Labor released its report on initial jobless claims in the week ended October 29, showing a decrease compared to the previous week.

The report showed that jobless claims fell to 323,000 from the previous week''s revised figure of 331,000. Economists had expected 330,000 jobless claims compared to the 328,000 originally reported in the previous week.

The Labor Dept. said that 18,000 of the new jobless claims were related to Hurricanes Katrina and Rita while an additional 1,400 were tied to Hurricane Wilma. With the increase, the hurricanes have now led to a total of 521,400 layoffs.

The data sheds some light on the October employment report that is due to be released on Friday. Economists expect the report to show that the U.S. economy added 110,000 jobs in October, while the unemployment rate is expected to remain at 5.1 percent.

The Federal Reserve is likely to be pleased with the Department of Labor''s preliminary report on third quarter productivity, as it showed much better than expected productivity growth as well as an unexpected decline in unit labor costs.

The report showed that productivity in the non-farm business sector rose by 4.1 percent in the third quarter compared to the upwardly revised 2.1 percent growth seen in the second quarter. Economists had expected much more modest growth of 2.7 percent.

The Labor Dept. said that the third quarter productivity growth came as output rose by 4.2 percent while hours edged up only 0.1 percent. In the second quarter, output increased by 4.4 percent while hours rose by 2.2 percent.

The report also showed that third quarter unit labor costs unexpectedly fell 0.5 percent following downwardly revised growth of 1.8 percent in the second quarter. The decrease surprised economists, who had expected labor costs to increase by 1.6 percent.

The drop in unit labor costs came on the heels of increases in each of the previous four quarters and reflected a drop in labor costs in the durable goods sector. The decrease may help to offset some recent inflation concerns.

Hourly compensation rose at an annual rate of 3.6 percent in the third quarter compared to the 4 percent growth seen in the second quarter. Adjusted for inflation, hourly compensation fell 1.4 percent.

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks finished mixed with bourses in Japan and Singapore closed for holidays. Today’s gainers were led by Australia’s All Ordinaries, rising 1.2% on gains from Westpac Banking Corp. South Korea’s Kospi rose 0.8%, supported by Samsung Electronics, while Hong Kong’s Hang Seng declined 0.1%.

European markets rallied to close higher on strong U.S. markets and earnings news from major companies like BMW, Unilever and Adidas-Salomon. Stocks were also supported by the European Central Bank’s decision to keep interest-rate steady. The German DAX surged 1.1%., the French CAC 40 rose 1.6%, and London’s FTSE 100 climbed 1.4%.

ENERGY, METALS, CURRENCIES

Crude oil traded over $60 a barrel on bargain-hunting. Light sweet crude December contract gained 75 cents to $60.50 a barrel on the Nymex. Heating oil added 3 cents to $1.8180 a gallon. Gasoline climbed 2 cents to $1.5950. Natural gas advanced 7 cents to $11.670 per 1,000 cubic feet. London Brent rose 74 cents to trade at $59.12.

Gold lost ground in Europe. In London gold traded at $460.50 per troy ounce, down from $461.75. In Zurich it was fixed at $460.25, down from $462.80. In Hong Kong the precious metal rose $3.50 to close at $464.75. Silver closed at $7.52, up from $7.49.

In European trading the U.S. dollar advanced against its major counterparts. The euro was quoted at $1.2009, down from $1.2060. The dollar changed hands at 116.91 yen, up from 116.80. The British pound was trading at $1.7745, up from $1.7750.

EARNINGS NEWS

MCI Inc. ((MCIP)), telecom carrier, posted Q3 net income of 82 cents a share, up from a net loss of $10.65 a share in the year-ago period. Q3 Results reflected the continued impact of new services and cost-cutting initiatives started in 2004, the company said, as well as it incurred and recorded a $164 million tax reduction in Q3. The year-ago loss largely stemmed from $3.5 billion in impairment charges.

Goody''s Family Clothing, Inc ((GDYS)), retailer, announced that sales advanced 6.8%, with same-store sales up 2.5%. The company expects to report a greater loss in Q3 than the net loss of 2 cents a share posted in the year-earlier period.

American Retirement Corp ((ACR)), senior living communities operator, reported that it reversed to to a Q3 profit of 13 cents a share, from a loss of 27 cents a share in the same period last year. Sales rose 11.3%. The company predicts 2005 adjusted earnings in the range of 48 cents to 50 cents a share.

Aquila Inc ((ILA)), electricity and natural gas utility operator, posted a Q3 loss of 20 cents, up from a loss of 44 cents share on 46% higher revenue. Aquila said its electric- and gas-utility businesses strengthened but earnings were cut by the costs of its remaining obligations related to its merchant business.

Cost Plus ((CPWM)), discount home products retailer, reported Q3 same-store sales dropped 4.7% from the year-ago period. The company expects a loss of 12 cents a share, in line with the analyst estimate.

CVS Corp ((CVS)), drugstore and pharmacy chain, reported that Q3 net profit advanced 37% to 30 cents a share from the year-ago period on 13.4% revenue growth, matching analysts’ forecasts.

Entertainment ((HET)), casino operator, posted Q3 earnings of 91 cents a share, down vs. $1.07 a share in the same period last year despite revenue growth. Excluding non-recurring items, the company would have earned $1.01 a share, beating analyst estimate of 99 cents a share.

R.R. Donnelley & Sons Co ((RRD)), printer, announced that Q3 net profit from continuing operations advanced 15% to 62 cents a share, compared with the year-ago period on 15% revenue growth. The company raised its guidance for fiscal-year operating earnings from continuing operations by 4 cents to $2.21 a share.

Sara Lee ((SLE)), consumer products maker, posted Q1 earnings of 9 cents a share, down from 44 cents a share in the same period a year earlier on revenue decline, missing analyst expectations of 27 cents a share. If not for non-recurring items, the company would have earned 34 cents a share. For its Q2 the company expects earnings of 25 to 30 cents a share, down from analyst expectations of 32 cents.

Tesoro Petroleum ((TSO)), petroleum products producer, posted Q3 earnings of $3.20 a share, up from 93 cents a share in the year-ago period, topping analyst estimate for a profit of $3.17 a share. Q3 results include a charge of 8 cents a share, related to insurance premium surcharges. The company announced that it has approved the buyback of up to $200 million worth of common stock.

Sabre Holdings ((TSG)), travel services company, posted Q3 earnings of 45 cents a share, down from 49 cents a share in the year-ago period despite revenue growth. If not for non-recurring items, the company would have earned 50 cents a share, topping analyst estimate of 47 cents a share. The company also expects adjusted fourth-quarter earnings of 16 to 19 cents a share, below analyst estimate of 22 cents a share.