Fed Raised Rate, Google Falls

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

Market did not react to the rise in expected key interest rate to 4.5%. A batch of economic report failed to excite the market. For January 2006, Dow closed up 1.4% and Nasdaq rose 3%. Oil rose and then fell. Semiconductor stocks fell. Google reported earnings below estimate, stock dropped as low as 19% in the after-market.

U.S. MARKET AVERAGES

Fed raised interest rate by 25 basis points, OPEC meet to decide oil output and batch of economic reports fail to excite market.

Market opened in a defensive posture and stocks in general lacked direction. Traders awaited decisions from OPEC and Fed. OPEC meeting of oil ministers decided to leave oil output unchanged and scheduled the next meeting on March 8th.

Fed raised its target for the key interest rate by 25 basis points to 4.5%. The fourteenth rate hike in 19 months was accompanied by a change in language. For the last two years market had got used to the word ‘measured’ pace of rate hike. The word ‘measured’ was removed to give new the Fed Chairman leeway in deciding the future course of interest rate.

Tech stocks declined for the day led by steady erosion in tech stocks. Material stocks, casinos and brokerage stocks gained during the session.

After the close, Google stock dropped as low as 19%. Google reported revenue of $1.92 billion and earnings of $372.2 million or $1.22 per share or $1.54 per share before stock donation missing the estimate of $1.76 per share. The company blamed shortfall on higher tax rate of 42% vs. 30% estimate. The company guided 30% tax rate for the year 2006.


MOVERS AND SHAKERS

Waddell & Reed Financial ((WDR)) reported Q4 net income decline of $19.9 million, or 24 cents a share, down from $25.7 million, or 31 cents a year ago, missing estimates of 30 cents a share on revenue of $163 million. Revenue rose 11.1%, reaching $163.1 million from $146.9 million, paced by growth in investment-management fees. The stock dropped 6%.

Altria Corp ((MO)) reported Q4 earnings from continuing operations of $2.29 billion, or $1.09 a share, up from a year-ago equivalent profit of $1.99 billion, or 96 cents a share on 9.4% revenue growth, missing estimates for a profit of $1.17 a share. For fiscal 2006 the company sees earnings from continuing operations of $4.85 to $4.95, excluding expected restructuring charges. The stock fell 1.1%.

Napster ((NAPS)) surged 44% following a report in the New York Post that Google is considering an alliance with the digital music company that could lead to an outright acquisition.

Sepracor Inc ((SEPR)) swung to a Q4 profit of $37.2 million, or 32 cents a share, exceeding expectations of 5 cents a share. Revenue soared to $311 million from $131 million, on sales of Xopenex and Lunesta medications. For 2006 the company projected earnings of $1.50 a share on revenue of $1.275 billion. The stock rose 14.5%.

ECONOMIC NEWS

The Conference Board released its report on consumer confidence in the month of January on Tuesday, showing that confidence improved more than economists had been expecting. The Consumer Confidence Index rose to its highest level in more than three years.

The report showed that the Consumer Confidence Index rose to 106.3 in January from an upwardly revised 103.8 in December. Economists had expected the index to increase to 105.0 compared to the 103.6 originally reported for December.

The Conference Board''s Present Situation Index rose to 128.4 in January from 120.7 in December, with those claiming conditions are good increasing to 25.8 percent from 24.4 percent.

The increase was partly due to continued improvement in the assessment of the labor market, with those saying jobs are plentiful rising to 26.9 percent in January from 23.3 in December. Those claiming jobs are hard to get decreased to 20.3 percent from 22.5 percent.

INTERNATIONAL MARKETS NEWS

Asian-Pacific benchmarks finished mostly higher with only four bourses actively trading Tuesday as many regional markets were closed for an extended Lunar New Year holiday. The Nikkei continued its march upward with an advance of 0.6% to 16,649.82, lifted by expectations of strong earnings from key industrial stocks. South Korea’s Kospi climbed 1.1%, Thailand’s SET index gained 0.4%, while Australia’s All Ordinaries lost 0.3%.

European stocks traded in a tight range ahead of the Fed Reserve’s decision on U.S. interest rates. The telecommunications sector weighed on the sentiment with a profit warning from Cable & Wireless and management shake-up at France Telecom. The German DAX 30 added 0.25 %, the French CAC 40 gained 0.23 %, while London’s FTSE 100 fell 0.34%.

OIL, METALS, CURRENCIES

Crude oil prices hovered over $68 a barrel ahead of the closely watched OPEC meeting. Light sweet crude for March delivery fell 43 cents to $67.93 a barrel. Heating oil slightly declined to $1.8479 a gallon, and gasoline inched down to $1.8052. Natural gas lost 7 cent to $9.316 per 1,000 cubic feet. London Brent lost 9 cents to $66.50.

European gold prices climbed. In London gold traded at the fixed price of $569, up from $563.30. In Zurich the precious metal traded at $569.80, up from $561.80. Silver closed at $9.82, up from $9.73.

The U.S. dollar fell against other major currencies ahead of Fed Reserve’s meeting. The euro was quoted at $1.2138, up from $1.2083. The dollar bought 117.08 yen, down from 117.59. The British pound stood at $1.7765, up from $1.7666. In New York gold rose $7.00 to $570.80 per ounce.

EARNINGS NEWS

Hilton Hotels Corp, ((HLT)), hotel chain, reported net income of 26 cents a share, up from 16 cents a share in the year-ago period, beating analyst forecasts of 19 cents a share. Asset dispositions and hedging loss impaired Q4 of 2005 earnings per share by 4 cents.

Illinois Tool Works Inc., ((ITW)), maker of industrial components, reported Q4 net income of $1.42 a share, up vs. $1.21 a share in the year-ago period, topping analyst estimate of $1.39 a share. Illinois Tool announced that Q1 and 2006 earnings would be $1.12-$1.18 a share and $5.60-$5.78 a share, respectively.

Cinergy Corp., ((CIN)), electric energy company reported 30% earnings growth to 95 cents a share, up from 79 cents a share in the year-ago period on contributions from its commercial power and gas businesses If not for special items, earnings would have been 77 cents a share, beating analyst estimate of 69 cents a share.

Kellogg Co., ((K)), cereal and packaged-food maker, reported that Q4 profit advanced to 47 cents a share, from 45 cents a year ago, beating analyst estimate by a penny. Sales for Q4 increased fractionally to $2.39 billion.

Haemonetics Corp., ((HAE)), medical tools manufacturer, reported Q3 net income of $1.02 a share, up 155% from 42 cents a share in the year-earlier period on 7.7% revenue growth, beating analyst estimate of 45 cents a share. Q3 included an arbitration award of 61 cents a share and an impairment charge of 9 cents a share for an intangible asset related to pathogen reduction.

Station Casinos, ((STN)), casino properties operator, reported Q4 earnings of 61 cents a share, up from 55 cents a share in the same period a year ago. If not for non-recurring items, earnings would have been 69 cents a share, beating on that basis analyst estimate of 64 cents a share. Revenue rose to $285.1 million from last year''s $264.7 million, just shy of analyst forecasts of $286.5 million.

American Standard, ((ASD)), manufacturer of control systems, reported Q4 earnings of 30 cents a share, up from a loss of 41 cents a share a year ago, missing analyst estimate of 46 cents a share. Total sales in Q4 advanced to $2.55 billion from $2.35 billion a year ago. If not for consolidation expenses and tax items, net income per share was 46 cents, the same as Q4 of 2004. Analysts polled by Thomson First Call had, on average, expected the company to earn 46 cents a share.

Entergy Corp., ((ETR)), reported Q4 earnings of 43 cents a share, down from 68 cents a share in the year-ago period, beating analyst forecasts of 54 cents a share. Operating earnings were 59 cents a share, up from 50 cents a share in the year-ago period. The utility firm said it expects 2006 operating earnings of $4.50-$4.80 a share.

Wyeth, ((WYE)), manufacturer of pharmaceutical products, reported Q4 income of 54 cents a share, up from a loss of $1.32 in the year-ago period, missing analyst view of 60 cents a share. The year-ago period included $124 million of licensing costs, primarily for collaborations with Progenics and Trubion. The latest quarter also included charges of $94.8 million related to productivity initiatives. If not for the negative impact of foreign exchange, worldwide net revenue increased 5%.

Constellation Energy Group Inc., ((CEG)), energy provider, reported Q4 net income of $1.09 a share, up from 76 cents in the same time the previous year, beating analyst forecasts of $1 a share. On an adjusted basis, the company posted a profit of $1.07 a share for Q4. Revenue increased to $5.16 billion from the prior year Constellation Energy expects 2006 earnings at $3.65 to $3.95 a share, while reaffirming its 2007 profit range at $4.75 to $5 a share, excluding any effects of the company''s planned merger with FPL Group.

Waddell & Reed Financial Inc., ((WDR)), financial-services company reported Q4 net income of 24 cents a share, down from 31 cents, earned in the year-ago period, beating on that basis analyst estimate of 30 cents a share. If not for items, the company would have earned 29 cents a share. Revenue rose 11.1%, paced by growth in investment-management fees.

ARM Holdings, ((ARMHY)), chipmaker, reported that Q4 net income reached 13 million pounds ($23.1 million) or 9 pence a share, up from 4.5 million pounds a year ago. Revenue for Q4 advanced 51.4% to 62.9 million pounds with an operating margin of 35%. The company announced that its processor division performed particularly well in Q4 and the company has begun shipping its two latest processors to key partners.

Steris Corp., ((STE)), medical equipment maker, reported Q3 net income advanced 14.8% to 41 cents a share on 5%. revenue growth. Earnings from continuing operations were steady at 34 cents, in line with analyst forecasts. The group is planning to take a 27 cent Q4 charge connected with its previously announced relocation of a plant. The company expects earnings of 16 cents to 18 cents in Q4. Revenue should rise 5% to 6%.

Knight Ridder Inc., ((KRI)), newspaper publisher, reported that net income fell 22.2% to $1.24 a share as operating revenue went up 3.1% at $820 million, beating analyst estimate of $1.22 a share