Inflation Worries Weigh

Elena
21 Feb, 2006
New York City

Stocks declined on upbeat economic data and strong earnings which raised concerns about further interest rate hikes. Wal-Mart also weighed on mood posting less stellar results of 13.4% profit jump in Q4. Home Depot reported 23% net income rise in Q4 on 16% revenue increase and 5.5% same-store sales rise, beating estimates. Federated Department Stores said Q4 profit rose 59% from last year, above expectations.

U.S. MARKET AVERAGES

After the initial rise, stocks moved to the negative territory as an upbeat reading on the economy and strong earnings raised concerns about additional Fed Reserve interest rate hikes.

The selloff began after the Conference Board said its Index of Leading Economic Indicators rose sharply in January by 1.1%, almost twice as high as economists expected, following a 0.3% increase in December.

In earnings news, Federated Department Stores reported Q4 net income rose 59% from last year, aided by the acquisition of former rival May Department Stores Co. The department store operator also backed its full-year financial forecast.

Home Depot ((HD)), home-improvement retailer, reported that Q4 net earnings rose 23% on strong sales in installations. The company posted 16% revenue growth and 5.5% same-store sales increase.

Less stellar results from the world's top retailer Wal-Mart Stores Inc. ((WMT)) additionally dimmed market's mood. The retailer announced a 13.4% increase in net income for Q4 due to strong demand for laptop computers and gift cards, beating analysts' expectations. Wal-Mart Stores revealed net income of $2.68 per share for fiscal 2006, above the average analyst consensus of $2.62. The company provided 2007 earnings guidance that fell short of estimate.

Dow components Merck ((MRK)), Boeing ((BA)) and Caterpillar ((CAT)) edged higher on Tuesday to set new 52-week highs. Ciena ((CIEN)) and BellSouth ((BLS)) were other noteworthy stocks setting new peaks.

There were few notable stocks moving to new 52-week lows. Centennial Communications ((CYCL)) dropped below a recent range to reach a new low on earnings news. PDI ((PDII)) added to its recent weakness to set a fresh low.

In midday trading, the Dow Jones industrial average fell 45.14, or 0.41%. The Standard & Poor''s 500 index fell 4.76, or 0.37%, and the Nasdaq composite index fell 20.87, or 0.91%.

Bonds were lower, with the yield on the 10-year Treasury note at 4.56%, up from 4.54% late Friday.

MOVERS AND SHAKERS

Evergreen Solar ((ESLR)) received a $100 million four-year supply deal with Germany''s S.A.G. Solarstrom AG. Evergreen will ship about $100 million of photovoltaic modules to S.A.G., which operates solar power stations. The stock jumped 6.7%.

MeriStar Hospitality ((MHX)) agreed to be acquired by an affiliate of the private equity firm Blackstone Group for about $2.6 billion. Under the terms of the deal each share of MeriStar common stock and each unit of limited partnership interest in MeriStar''s operating partnership, will be converted into the right to receive $10.45 in cash. The deal is expected to close in Q2 of 2006. The company’s shares gained 3.7%.

Atari Inc ((ATAR)) said it will cut 20% of its workforce worldwide as part of a previously announced plan to cut costs and dispose of non-core assets, among other actions. The company’s shares gained 4%.

Haverty Furniture ((HVT)), home furnishings retailer, posted Q4 profit drop of $6.8 million, or 30 cents a share from $8.7 million, or $38 cents a year ago, missing estimates of 31 cents. The company said profit was hurt by higher energy and transportation costs. Sales for the quarter rose to $225.6 million from $216.8 million in last year''s fourth quarter. The stock dropped 6%.

ECONOMIC NEWS

The Conference Board released its report on leading economic indicators in the month of January on Tuesday. The report showed that the agency''s index of leading indicators rose much more than economists had anticipated.

The report showed that the index surged up by 1.1 percent in January after an upwardly revised increase of 0.3 percent in December. Economists had expected a more modest increase of 0.6 percent compared to the 0.1 percent increase originally reported for December.

The Conference Board said that the increase by the index in January was largely due to a decrease in initial jobless claims and increases in real money supply and building permits.

The report also showed that the coincident index, a measure of current economic activity, increased by 0.2 percent in January.

The Conference Board noted that the coincident index has been on a relatively steady upward trend since April 2003, although it pointed out that this trend moderated somewhat in the second half of 2005.

INTERNATIONAL MARKETS NEWS

Asian-Pacific benchmarks finished Tuesday session mixed. The Nikkei soared 3% to 15,894.04 on evidence of economic improvement. Among the other regional gainers, Shanghai Composite climbed 1.7%, Singapore Straits Times advanced 0.5%., and Australia’s All Ordinaries rose 0.9%. On the losing side stood South Korea’s Kospi, down 1% and Taiwan’s Weighted index, down 0.8%.

European stocks closed off intraday highs after weakness on Wall Street erased earlier gains. On Tuesday averages reached multi-year highs, boosted by strong utilities which rallied on a bidding war starts for the Spanish Endesa. The German DAX 30 gained 0.1%, the French CAC 40 added 0.2%, and London’s FTSE 100 declined 0.09%.

OIL, METALS, CURRENCIES

Crude oil prices jumped on supply concerns, following a violent militant act against oil pipelines in the Niger Delta. Light sweet crude March delivery climbed 77 cents to $60.65 a barrel. Heating oil rose marginally to $1.666. Gasoline fell 5 cents to $1.456, while natural gas climbed 20 cents to $7.38 per 1,000 cubic feet. London Brent for April delivery traded at $61.51 a barrel

European gold declined. In London gold traded at the fixed price of $554.40 bid per troy ounce, down from $555.70. In Zurich the precious metal traded at $554.60, down from $555.60. In Hong Kong gold gained 20 cents to close at $553.10. Silver closed unchanged at $9.51.

The U.S. dollar was mixed against other major currencies. The euro traded at $1.1915 down from $1.1945. The dollar bought 118.79, up from 118.19. The British pound stood at $1.7439, down from $1.7444.

EARNINGS NEWS

Wal-Mart Stores, ((WMT)), retailer, reported Q4 earnings of 86 cents a share, a 13.4% jump from 75 cents a share in the year-earlier period on sales and 3.1% same-store sales growth, beating analyst view of 83 cents a share. The figures include a 2-cent a share tax benefit.

TRW Automotive Holdings Corp., ((TRW)), provider of automotive parts systems, reported Q4 earnings of 57 cents a share, up from a loss of 63 cents a share a year-ago. If not for items, the company earned 40 cents a share, beating analyst estimate for a profit of 33 cents a share.

Live Nation Inc, ((LYV)), entertainment promoter, reported a wider Q4 net loss of $2.02 a share, despite 38.2% revenue growth. Q4 included a deferred tax expense of $99.7 million. The company pointed out that its primary focus during Q4 was on rightsizing our cost structure and tightening our strategic and operational focuses.

Home Depot, ((HD)), home-improvement retailer, reported that Q4 net earnings reached 60 cents a share, up from 47 cents a share in the year-earlier period on 16% higher revenue while same-store sales grew 5.5%, beating analyst estimate of 56 cents a share.

Triad Hospitals Inc, ((TRI)), owner and manager of hospitals and ambulatory-surgery centers, reported that Q4 earnings advanced 11% to $54.6 million, or 63 cents a share, from $49.2 million, or 64 cents in the same period the prior year on 17% revenue growth, missing analyst estimate of 66 cents.

State Auto Financial ((STFC)), insurer, reported Q4 net income of 71 cents a share, down from 93 cents in the same period the prior year, missing analyst forecasts of 87 cents a share. The company’s net income from operations reached 73 cents a share, down from 92 cents. Revenue advanced to $280.9 million from $273 million, as net premiums written advanced to $244.8 million from $239.9 million.

Federal Signal Corp, ((FSS)), manufacturer of safety and signalling equipment, reversed to a Q4 net loss of 54 cents a share, down from a year-ago profit of 13 cents a share despite 2.1% revenue growth. Federal Signal added that the loss included a $34 million write-down from the decision to exit the refuse truck body business. Income from continuing operations was 28 cents a share.

US Airways Group Inc ((LCC)), carrier, reported a Q4 net loss of $3.26 a share, up from $4.66 a share in the year-ago period. Last period’s loss reflects that the prior period inclusion of only America West''s data. The company included a $69 million unrealized loss related to the airline''s fuel hedges as well as $36 million of special charges and $18 million in charges partially related to the remarketing and warrant repurchase associated with America West''s prior Airline Transportation Stabilization Board loan. If not for these items, the company would have reported a quarterly loss of $1.72 a share, considerably up from $3.89 a share a year ago. Quarterly revenue reached $2.58 billion as opposed to $697 million. Analysts had been expecting a loss of $1.93 a share.

Memory Pharmaceuticals Corp, ((MEMY)),manufacturer of drugs to treat central nervous system conditions, reported that its Q4 net loss was narrower, coming to 10 cents a share, from $6.84 million in the prior quarter on 52.5% revenue growth. The company stated that its net loss included a $2.2 million noncash gain referring to warrants issued in a September private placement.