Market Recovers On Earnings

123jump.com Staff
27 Jan, 2006
New York City

More than 50% of companies, this week, reported better-than-expected earnings. Earnings related momentum and strength in new home sales took market averages near year-high. Market ignored weak GDP report and rising oil price. Gold and natural gas fell during the day. Microsoft, Catepillar, Proctor & Gamble reported strong earnings. Retail, casinos and tech stocks joined in the rally.

U.S. MARKET AVERAGES

This week for the fourth day in-a-row broader averages managed to gain.

Earnings related sell-off induced by General Electric and others last week was overshadowed by generally positive earnings from more than half of three hundred plus companies. Notably Caterpillar, Lockheed Martin, Proctor & Gamble and Microsoft reported earnings that met or exceeded earnings estimates.

Microsoft (((MSFT)) announced revenue of $11.84 billion for the quarter ended December 31, 2005, a 9% increase over the same period of the prior year, marking the highest quarterly revenue in the company's history. Net income for the quarter was $3.65 billion, which grew 5% from $3.46 billion for the same quarter of the previous year. Diluted earnings per share for the quarter were $0.34. Net results included $108 million, or $0.01 per share, in tax benefits.

Holland based Mittal steel ((MT)), world’s largest steel maker announced $22.8 billion unsolicited offer to acquire Luxembourg based second largest steel maker Arcelor SA. If the deal is successful Mittal has agreed to sell recently acquired Canadian steel maker by Arcelor, Dofasco, to German based Thyssen Krupp. Mittal Steel is offering 0.8 share and Euro 7.05 for every share of Arcelor. The deal is judged to be the largest deal ever in the steel industry.

Commerce Department reported that sale of new homes in December rose 2.9% and 6.6% for the year 2005. Initial read on growth in Gross Domestic Product for the fourth quarter in the year 2005 was reported at 1.1% significant decline from the third quarter growth at 4.1%. Most traders believe that this initial read is likely to be revised upwards in the coming weeks.

MOVERS AND SHAKERS

Bebe Stores ((BEBE)), clothing retailer, posted Q2 profit of $25 million, or 27 cents a share, compared with $24.3 million, or 26 cents a share, during the year-earlier period, beating estimates of earnings of 26 cents a share. The company reported quarterly revenue of $167.9 million, compared with $152.6 million a year ago, below expectations of revenue of $170 million. The stock gained 19%.

Broadcom ((BRCM)), chipmaker, said that fourth-quarter profit more than doubled on 52% sales growth of its wireless chips used in consumer electronic devices and high-speed Internet networking gear. The company reported Q4 net income of $194.8 million, or 50 cents a share, up from $71.1 million, or 20 cents a share a year earlier. It also authorized an additional share repurchase program worth $500 million. The stock surged 19%.

Take-Two Interactive Software ((TTWO)) was downgraded at Banc of America to sell from hold, with the broker citing numerous risks for the company, including lower earnings and over-valuation, as well as potential SEC investigations and accounting restatements. The firm also lowered its price target to $12 from $17. The company’s shares dropped 14%.

SanDisk ((SNDK)), flash-memory developer, reported a Q4 profit that rose 72% from a year ago on increased demand for its digital media players resulted in higher sales of its flash-memory chip products. The company earned $134 million, or 68 cents a share, on $751 million in revenue, compared with a net income of $78 million, or 42 cents a share, on $549 million in revenue a year ago. The results exceeded analyst estimates of 62 cents a share, on revenue of $727 million. The company’s shares fell 10.3%.

ECONOMIC NEWS

The Department of Commerce released is report on new home sales in the month of December on Friday, showing that sales rose more than economist had expected after falling rather sharply in the previous month. With the increase, sales for the full year reached a record high.

The report showed that new home sales rose 2.9 percent to a seasonally adjusted annual rate of 1.269 million units in December from a revised rate of 1.233 million units in November. Economists had expected new home sales to rebound to a 1.250 million unit rate from the 1.245 million unit rate originally reported for November.

As mentioned above, the increase in December lifted the number of new homes sold in 2005 to 1.282 million, a new record high. New home sales in 2005 were up 6.6 percent from 1.203 million in 2004. The report also showed that the median sales price of new houses came in at $221,800 in December, down 2.2 percent from the previous month. This marked the third consecutive month of falling prices.

Additionally, the seasonally adjusted estimate of new houses for sale at the end of December rose 2.4 percent to 516,000. The Commerce Dept. said that this represents a supply of 4.9 months at the current sales rate.

The U.S. economy grew at its slowest pace in three years in the fourth quarter, according to a report from the Department of Commerce. The report showed that the gross domestic product for the quarter grew much less than economists had been expecting.

The Commerce Dept. said that its advanced reading of the fourth quarter GDP showed an annual rate of growth of 1.1 percent, the slowest rate of growth since the fourth quarter of 2002. Economists had expected growth of about 2.8 percent compared to the 4.1 percent growth seen in third quarter.

The deceleration in GDP growth in the fourth quarter was primarily due to a slowdown in consumer spending, an acceleration in imports, a downturn in federal government spending, and a slowdown in spending on equipment and software.

The slowdown in consumer spending played a big part in the deceleration seen in the fourth quarter, with consumer spending growth coming in at 1.1 percent for the quarter. This marked the slowest pace of growth since the second quarter of 2001.

The report also showed an acceleration in the pace of core inflation, with the index of consumer prices excluding food and energy prices rising 2.2 percent in the fourth quarter after an increase of 1.4 percent in the third quarter.

INTERNATIONAL MARKETS NEWS

Asian-Pacific benchmarks ended Friday session sharply higher, boosted by strong U.S. corporate earnings and better-than-anticipated results from key industrial shares. The Japanese Nikkei skyrocketed 3.6% to 16,460, posting the biggest one-day advance in four years. The index recorded 556.66 points, recovering all last-week losses on the back of record-high quarterly results released by Sony. South Korea’s Kospi gained 0.35%, Singapore Straits Times advanced 0.4%, while Australia’s All Ordinaries climbed 1.15% on oil and gas prices.

European stocks closed Friday session, posting huge gains on merger-and-acquisition news, led by the world’s top steelmaker Mittal Steel’s offer to buy rival Arcelor for $22.7 billion. The German DAX 30 surged 1.8%, the French CAC 40 soared 1.6%, and London’s FTSE 100 climbed 1%.

OIL, METALS, CURRENCIES

Crude oil prices were pushed back above $67 a barrel on continuous tensions in Nigeria and Iran. Light sweet crude for March delivery gained $1.50 cents to $67.75 a barrel. London Brent rose 85 cents to $65.77.

European gold prices lost ground. In London gold closed at $556.95, down from $559. In Zurich the precious metal traded at $557.30, down from $558.50. In Hong Kong gold fell $2.50 to close at $559.60. Silver closed at $9.57, up from $9.52. In New York gold closed down $1.10 to $558.80 per ounce.

The U.S. dollar advanced against other major currencies. The euro was quoted at $1.2152, down from $1.2209. The dollar bought 116.88 yen, up from 116.33. The British pound stood at $1.7746, down from $1.7802.

EARNINGS NEWS

Black & Decker Corp., ((BDK)), tool maker, reported Q4 net income of $1.27 a share, down from $1.62 a share in the year-ago period. Adjusted earnings came to $1.93 a share after charges for taxes related to repatriating foreign earnings, beating analyst estimate of $1.90 a share. Sales in Q4 advanced to $1.73 billion from about the same level in the previous period.

FPL Group Inc., ((FPL)), electric energy producer, reported Q4 earnings of 53 cents a share, up from 47 cents a share a year-earlier, topping analyst forecasts of 40 cents a share. Q4 results incorporated a gain related to the mark-to-market impact of non-qualifying hedges. If not for the gain, the company earned 46 cents a share.

T. Rowe Price Group Inc., ((TROW)), investment advisory services provider, reported that Q4 profit advanced to 85 cents a share, up vs. 71 cents a share a year ago, beating analyst estimate of 83 cents a share.

Microsoft, ((MSFT)), software company, reported that Q2 earnings advanced 5% to 34 cents per share, up from 32 cents per share in the same period last year on 9% revenue growth. The company predicted earnings for the March quarter of 32-33 cents per share on revenue of $10.9-$11.2 billion.

Manor Care Inc, ((HCR)), health care services company, reported Q4 net earnings of 40 cents a share, down from 55 cents in the year-ago period. Q4 profit included the impact of approximately 15 cents for unusual items related to debt refinancing, hurricane-related losses and a higher tax rate. Without the charge, the company matched the analyst estimate for earnings of 55 cents a share. Quarterly revenue went up to $864 million from the previous year's $806 million.

ITT Industries Inc, ((ITT)), manufacturer of engineered products, reported a Q4 net loss of 91 cents a share, down from last year’s profit of $1.29 a share in the same period. The quarterly loss includes the impact of special items amounting to $218.6 million, primarily related to a previously announced non-cash asset impairment charge in the company's switches business. If not for items, ITT would have come in with earnings from continuing operations of $1.43 a share, beating on that basis analyst estimate for earnings of $1.41 a share.

Compuware Corp, ((CPWR)), information technology software maker, posted Q3 net earnings of 10 cents a share, down 9.6% from 11 cents a share a year ago, in line with the analysts’ forecasts. Revenue dropped 7.5%. Compuware announced that it made organizational changes aimed at improving sales, but doesn't plan any layoffs.

Frontier Airlines Inc, ((FRNT)), airline, reported a Q3 net loss of 28 cents a share, narrower than a net loss of 31 cents a share in the year-earlier period. If not for certain items, the company's loss was 25 cents a share, missing analyst mark of a loss of 19 cents a share.

Massey Energy Co, ((MEE)), coal company, reported a Q4 net loss of $2.76 a share, down from a net profit of 2 cents a share in the year-ago period. Q4 included an after-tax charge of $216.2 million related to the company's recent debt repurchase and exchange offers. If not for special items, the company earned $3.1 million. Revenue advanced 15%, to $517.9 million from $452.3 million.

Emulex Corp, ((ELX)), HBA producer, reported Q2 net earnings of 19 cents a share, up vs. 16 cents a share in the same period last year. Aside from items, earnings came in at 28 cents a share vs. 21 cents last year, missing on that basis analyst estimate by a penny. Revenue advanced to $110.3 million from $91.7 million.

Certegy Inc., ((CEY)), payment processing company, reported a Q4 net income rise of 2.6% to 57 cents a share on 5% revenue growth, missing analyst view for earnings of 61 cents a share. The company announced that if not $2.9 million of mergers and acquisitions costs earnings were 61 cents a share. The company also stated it hopes to use its upcoming merger with Fidelity National Information Services to cross-sell its products to Fidelity customers globally.

CORPORATE NEWS

Mittal Steel ((MT)) announced that it made a bid for steel producer Arcelor for more than $22 billion. The deal would value Arcelor at 28.21 euro per share, a 27% premium over the company's closing price on the Paris exchange on Thursday. Mittal said it also agreed to resell Canadian steel maker Dofasco, which Arcelor recently agreed to acquire, to German steelmaker ThyssenKrupp. ThyssenKrupp lost a bidding war for Dofasco earlier in the week, when Dofasco accepted a deal from Arcelor to be acquired for C$5.6 billion, or 3.95 billion euro.