- U.S. AAA rating not guaranteed. The U.S. could lose its AAA rating if it fails to reduce its deficit over the next 3-4 years, Moody’s says. Steven Hess, Moody’s lead analyst for the U.S., acknowledges reducing the gap won’t be easy: “Raising taxes is never popular and difficult politically, so we have to see if the government can do that or cut expenditures.” Earlier this year, markets were spooked after S&P cut its outlook on Britain to Negative from Stable. Meanwhile, Moody’s said today European countries’ rising debt won’t trigger across-the-board downgrades.
- Deep pay cuts coming to TARP recipients. In a plan to be made public within the next few days, the government will order deep pay cuts at the biggest bailout recipients – Citigroup (C), Bank of America (BAC), AIG (AIG), GM, Chrysler, GMAC and Chrysler Financial. The plan targets the 25 top earners at each company, who will see their compensation decline this year by about 50%, while bonus payments will be slashed by up to 90%, to be replaced by stock that they’ll be restricted from immediately selling. The plan does not address firms that didn’t receive bailout funds, or that have already repaid their loans.
- South Korea’s $3.9B oil buy. State-owned Korea National Oil Corp. agreed to buy Canada’s Harvest Energy (HTE) for $3.9B – $1.7B for its outstanding shares and the assumption of $2.2B in debt. Shareholders will receive $9.52/share – a 37% premium to Wednesday’s close. The deal is South Korea’s biggest outbound cross-border deal ever in the Oil & Gas sector, and ranks seventh in global Oil & Gas sector M&A transactions in 2009. Harvest produced 53K b/d in Q2, 70% of which was crude oil and 30% was natural gas. Shares +29.1% premarket to $9.05.
- Bove drops a bomb. Rochdale Securities analyst Richard Bove sent stocks into a tailspin late Wednesday after he downgraded shares of Wells Fargo (WFC) to Sell, despite a consensus-beating Q3. Bove is concerned by the positive impact mortgage hedges have had on Wells’ recent results, which “keep coming through for the company whenever it needs to bolster earnings,” but are a nightmare for investors who shouldn’t look at such activity as generating predictable or repeatable profits. Bove also called the portfolio Wells acquired from Wachovia ‘cancerous.’ WFC -5.1% yesterday.
- eBay falters on gloomy outlook. eBay (EBAY) posted Q3 earnings that exceeded expectations, but shares traded lower after-hours after its guidance gave a gloomier vision of the near future than many expected (read eBay’s Q3 earnings call transcript). eBay has struggled as online shopping habits have shifted away from auctions to fixed-price purchases on sites such as Amazon.com (AMZN).
- Beige Book sees signs of growth. The Fed said most regional economies are on the mend, as home sales rebound and manufacturers restart idled operations. “Reports of gains in economic activity generally outnumber declines, but virtually every reference to improvement was qualified as either small or scattered,” the Fed said in its beige book tally. The report also highlighted how heavily businesses are relying on government spending: “There were several reports that the only ‘sure’ business will come from government stimulus projects, although funding for such projects has been slow to materialize,” it said.
- Microsoft’s big day. Microsoft’s much-anticipated OS upgrade, Windows 7, goes on sale today. The company hopes Windows 7 will gain more traction among retail and corporate clients than its most predecessor, Vista, which was seen as slow and clunky. Analysts say the new OS isn’t likely to cause a sudden spike in PC sales, a point conceded by Microsoft CEO Steve Ballmer, who said recently IT budgets “aren’t going to rise just because we shipped a new version.”
- Twin deals for Twitter. Twitter inked deals to sell the rights to mine its pipeline of ‘tweets’ with both Google (GOOG) and Microsoft (MSFT) Wednesday, underscoring the growing importance of real time search. Neither would say how much it’s paying for the rights to index the millions of daily tweets, considered to be Twitter’s most valuable asset. The deals could be the first meaningful revenue for Twitter since its 2006 inception, and begin to answer the much-explored question of “where’s the beef?”
- A strong Q3 for China. China’s Q3 GDP came in at 8.9%, just below the 9% economists forecast. Separate reports showed industrial production and retail sales also accelerated. China’s return to robust growth continues to raise the question of when policy makers will withdraw record fiscal and monetary stimulus in order to avoid another bubble.
- Galleon wind down begins. Managers of Galleon Group’s $500M Asia fund are considering buying the unit, sources say. On Wednesday, Galleon told employees and investors it would wind down the firm after its founder was charged with insider trading. Unless the government intervenes, investors likely won’t get their money back until Jan. 1, 2010.
Earnings: Thur. Before Open
- 3M Company (MMM): Q3 EPS of $1.37 beats by $0.20. Revenue of $6.19B (-5.6%) vs. $5.77B. Shares +1.2% premarket. (PR)
- AT&T (T): Q3 EPS of $0.54 beats by $0.04. Revenue of $30.9B (-1.3%) in-line. Wireless subscribers +2M to 81.6M. Shares +2% premarket. (PR)
- AU Optronics (AUO): Q3 EPS of $0.26 beats by $0.01. Revenue of $3.5B (+8.4%) vs. $3.21B. Operating margin 6.8%. Shares -2.3% in Taiwan. (PR)
- Bristol-Myers (BMY): Q3 EPS of $0.52 beats by $0.01. Revenue of $5.49B (+4.4%) in-line. (PR)
- Bunge (BG): Q3 EPS of $1.62 beats by $0.15. Revenue of $11.3B (-23.6%) vs. $12B. Sees full-year EPS of $3.10-$3.50 vs. consensus of $4.69. Says fertilizer business continues to be pressured by high-cost inventory and a weak pricing environment. (PR)
- Check Point Software (CHKP): Q3 EPS of $0.52 beats by $0.03. Revenue of $234M (+17%) vs. $231M. (PR)
- Cooper Industries (CBE): Q3 EPS of $0.70 beats by $0.06. Revenue of $1.29B (-25.6%) in-line. “Revenue and orders for maintenance and repair items and product lines that declined rapidly at the beginning of the economic downturn are beginning to improve, while the longer cycle products appear to have now bottomed.” Shares -0.3% premarket. (PR)
- Danaher (DHR): Q3 EPS of $0.89 beats by $0.03. Revenue of $2.75B (-14.2%) in-line. (PR)
- Delta Air Lines (DAL): Q3 EPS of $0.06 beats by $0.11. Revenue of $7.57B (+32.4%) in-line. (PR)
- Diamond Offshore Drilling (DO): Q3 EPS of $2.62 beats by $0.32. Revenue of $908M (+0.9%) vs. $874M. Declares special dividend of $1.875/share. (PR)
- Dow Chemical (DOW): Q3 EPS of $0.24 beats by $0.14. Revenue of $12.05B (+6.4%) vs. $11.85B. “The economic outlook for the rest of 2009 appears to be stabilizing with strong growth in Asia Pacific, especially China, and other emerging geographies. The global economy is now on firmer footing, and, in our view, the U.S. economy is beginning a slow and tenuous recovery, with unemployment continuing to be a drag on consumer spending.” (PR)
- EMC (EMC): Q3 EPS of $0.23 beats by $0.02. Revenue of $3.52B (-5.3%) vs. $3.45B. Says customers are signaling more comfort spending their IT budgets. Shares +1.5% premarket. (PR)
- Ensco International (ESV): Q3 EPS of $1.05 beats by $0.01. Revenue of $425M (-31.3%) vs. $439M. (PR)
- Entergy (ETR): Q3 EPS of $2.40 misses by $0.08. Revenue of $2.94B (-25.9%) vs. $3.9B. “We continue to experience the negative effects of the slowed economic recovery.” (PR)
- Ericsson (ERIC): Q3 EPS of 0.25kr misses by 0.61kr. Revenue of 46.4Bkr (-5.7%) vs. 49.46Bkr. “Sales of network equipment declined due to lower demand in the current tougher market environment. Despite lower volumes, Network margins remain stable.” Shares -8.9% premarket. (PR)
- Fifth Third Bancorp (FITB): Q3 EPS of -$0.20 beats by $0.03. Revenue of $M in-line. “The credit environment remains challenging, and we continue to aggressively work to manage risk in the portfolio.” Shares -2.1% premarket. (PR)
- Goodrich (GR): Q3 EPS of $1.12 beats by $0.09. Revenue of $1.65B (-7%) in-line. (PR)
- IMS Health (RX): Q3 EPS of $0.40 beats by $0.04. Revenue of $541M (-5.7%) vs. $522M. (PR)
- Kimberly-Clark (KMB): Q3 EPS of $1.40 beats by $0.27. Revenue of $4.91B (-1.7%) in-line. Sees full-year EPS of $4.50-$4.60 vs. consensus of $4.26, citing increased cost savings, better organic sales growth and a further recovery in currency exchange rates. Shares +5.5% premarket. (PR)
- Legg Mason (LM): FQ2 EPS of $0.30 beats by $0.11. Revenue of $660M (-31.7%) vs. $652M. (PR)
- Logitech (LOGI): FQ2 EPS of $0.11 beats by $0.06. Revenue of $498M (-25.1%) vs. $474M. Sees FQ3 revenue of $575-595M vs. $623M. Shares +7.2% in Zurich. (PR)
- McDonald’s (MCD): Q3 EPS of $1.15 beats by $0.04. Revenue of $6.05B (-3.5%) in-line. Comps +3.8%, with U.S. +2.5%, Europe +5.8% and the rest +2.2%. Shares +1.3% premarket. (PR)
- Merck (MRK): Q3 EPS of $0.90 beats by $0.08. Revenue of $6.05B (+1.8%) in-line. (PR)
- NII Holdings (NIHD): Q3 EPS of $0.69 beats by $0.14. Revenue of $1.14B (-3.5%) in-line. (PR)
- Philip Morris (PM): Q3 EPS of $0.93 beats by $0.02. Revenue of $6.59B (-5.3%) vs. $6.71B. “While we experienced lower organic volume in the quarter, this was largely anticipated given our pricing actions and the on-going impact of the economic crisis on total consumption levels.” Shares +0.75% premarket. (PR)
- PNC Financial Services (PNC): Q3 EPS of $1.00 beats by $0.69. Revenue of $4.05B (+144.7%) vs. $3.8B. (PR)
- Potash (POT): Q3 EPS of $0.82 beats by $0.01. Revenue of $1.1B (-64.1%) in-line. Sees Q4 EPS of $0.65-0.85 vs. consensus of $1.18. “The uncertainty among fertilizer buyers has lasted far longer than we anticipated, but cannot continue indefinitely.” Shares -2.9% premarket. (PR)
- Schering-Plough (SGP): Q3 EPS of $0.40 in-line. Revenue of $4.5B (-1.7%) in-line. (PR)
- Starwood Hotels (HOT): Q3 EPS of $0.14 beats by $0.04. Revenue of $1.22B (-20.7%) vs. $1.16B. “It is very difficult at this time to provide any definitive point of view on 2010. While business conditions have clearly stabilized, it is very hard to forecast the pace of recovery, especially rate.” (PR)
- SunTrust Banks (STI): Q3 EPS of -$0.60 misses by $0.05. Revenue of $1.94B (-21%) vs. $2.11B. Earnings include $131M writedown on debt. Allowance for loan losses +128M to $3.02B. (PR)
- Terra Industries (TRA): Q3 EPS of $0.45 misses by $0.07. Revenue of $347M (-56.1%) vs. $356M. Shares +0.8% premarket. (PR)
- Thermo Fisher (TMO): Q3 EPS of $0.78 beats by $0.02. Revenue of $2.53B (-2%) in-line. (PR)
- Travellers (TRV): Q3 EPS of $1.61 beats by $0.30. Revenue of $6.3B vs. $6B. Sees full-year EPS of $5.30-5.50 vs. consensus of $5.28. Raises quarterly dividend to $0.33 from $0.30. Authorizes an additional $6B share buyback. “We remain cautious about the magnitude of rate gains that are achievable in the near term given general economic conditions.” (PR)
- UPS (UPS): Q3 EPS of $0.55 beats by $0.03. Revenue of $11.15B in-line. Volume of 927M packages, -2.4%. “I’m encouraged by the signs of economic recovery that are becoming apparent, although we still have a long way to go,” CEO Scott Davis said. Shares -1% premarket. (PR)
- Xerox (XRX): Q3 EPS of $0.14 beats by $0.02. Revenue of $3.67B (-15.9%) in-line. Sees full-year EPS of $0.55-0.57 vs. consensus of $0.53. (8-K)
Earnings: Wed. After Close
- Alliance Data Systems (ADS): Q3 EPS of $0.83 misses by $0.51. Revenue of $483M (-5%) vs. $500M. Expects 2010 EPS of $6.00 vs. $6.10. Shares -6.3% AH. (PR)
- Amgen (AMGN): Q3 EPS of $1.49 beats by $0.22. Revenue of $3.8B (-2%) in-line. Raises full-year EPS guidance to $4.90-5.05 from $4.80-4.95, vs. $4.88. Shares -3% AH. (PR)
- Ameriprise Financial (AMP): Q3 EPS of $1.03 beats by $0.39. Revenue of $2B (+20%) vs. $2.1B. Debt-to-total-capital ratio of 18.7%. Shares +1.6% AH. (PR)
- Citrix Systems (CTXS): Q3 EPS of $0.43 beats by $0.02. Revenue of $401M (+1%) vs. $400M. Sees full-year revenue up 8-9% sequentially to $1.73B. Shares -3.6% AH. (PR)
- Covanta (CVA): Q3 EPS of $0.28 beats by $0.04. Revenue of $409M (-7%) vs. $388M. Shares +0.3% AH. (PR)
- eBay (EBAY): Q3 EPS of $0.38 beats by $0.01. Revenue of $2.2B (+6%) vs. $2.1B. Shares -4.9% AH. (PR)
- Equifax (EFX): Q3 EPS of $0.57 beats by $0.02. Revenue of $452M (-7%) in-line. Shares -3.2% AH. (PR)
- F5 Networks (FFIV): FQ4 EPS of $0.50 beats by $0.09. Revenue of $175M (+2%) vs. $164M. Shares +8.1% AH. (PR)
- Fidelity National Information Services (FIS): Q3 EPS of $0.46 misses by $0.01. Revenue of $851M (-4%) vs. $870M. Shares -0.4% AH. (PR)
- Fidelity National Financial (FNF): Q3 EPS of $0.32 misses by $0.02. Revenue of $1.5B (+52%) in-line. Shares +0.2% AH. (PR)
- Intersil (ISIL): Q3 EPS of $0.10 in-line. Revenue of $168M (-23%) vs. $162M. Sees Q4 EPS of $0.14-0.17 vs. $0.13. Shares -2.8% AH. (PR)
- Knight Transportation (KNX): Q3 EPS of $0.16 in-line. Revenue of $173M (-17%) vs. $165M. Shares +1.2% AH. (PR)
- Lam Research (LRCX): FQ1 EPS of $0.03 beats by $0.11. Revenue of $319M (+46%) vs. $288M. Shares +3.2% AH. (PR)
- Newfield Exploration (NFX): Q3 EPS of $1.58 beats by $0.24. Revenue of $375M (-45%) vs. $536M. Shares -0.1% AH. (PR)
- Noble (NE): Q3 EPS of $1.63 beats by $0.10. Revenue of $906M (+5%) in-line. Shares +1.1% AH. (PR)
- Novellus Systems (NVLS): Q3 EPS of -$0.03 beats by $0.01. Revenue of $177M (-29%) vs. $172M. Shares +0.9% AH. (PR)
- OSI Pharmaceuticals (OSIP): Q3 EPS of $0.81 beats by $0.49. Revenue of $111M (+18%) vs. $106M. Shares -1% AH. (PR)
- Pactiv (PTV): Q3 EPS of $0.54 beats by $0.03. Revenue of $839M (-9%) vs. $858M. Shares -0.2% AH. (PR)
- QLogic (QLGC): FQ2 EPS of $0.21 beats by $0.03. Revenue of $132M (-23%) vs. $126M. Shares -2.6% AH. (PR)
- Range Resources (RRC): Q3 EPS of $0.26 beats by $0.04. Revenue of $204M (-67%) vs. $261M. Shares -0.2% AH. (PR)
- Skechers (SKX): Q3 EPS of $0.52 beats by $0.17. Revenue of $405M (+1%) vs. $385M. Shares +5.2% AH. (PR)
- Terex (TEX): Q3 EPS of -$0.95 misses by $0.61. Revenue of $1.2B (-51%) vs. $1.3B. Shares -10.5% AH. (PR)
- TriQuint Semiconductor (TQNT): Q3 EPS of $0.10 in-line. Revenue of $173M (-7%) vs. $178M. Shares -19.9% AH. (PR)
- VMware (VMW): Q3 EPS of $0.24 beats by $0.04. Revenue of $490M (+4%) vs. $474M. Sees Q4 revenue of v$540M-560M vs. $523M. Shares +1.6% AH. (PR)
Asian and European markets followed the U.S. into the red Thursday. Stock futures are marginally lower.
- Asia: Nikkei -0.64% to 10,267. Hang Seng -0.48% to 22,211. Shanghai -0.62% to 3,051. BSE -1.29% to 16,790.
- Europe at midday: London -1.2%. Paris -1.5%. Frankfurt -1.5%.
- Futures at 7:00: Dow flat at 9897. S&P -0.1% to 1076.50. Nasdaq -0.2%. Crude -1.2% to $80.40. Gold -0.7% to $1,056.70. 30-year Tsy +0.13%. Euro -0.4% vs. dollar. Yen -0.3%. Pound -0.6%.
Thursday’s Economic Calendar
- 8:30 Initial Jobless Claims
8:30 Boston Fed: After the Fall, Day 2
10:00 Leading Indicators
10:00 FHFA Housing Price Index
10:00 Mass Layoffs
10:00 Hearing: TARP
10:00 Romer testifies on the economy
10:30 EIA Natural Gas Inventory
11:00 Hearing: Too Big to Fail
4:00 PM Fed’s Evans: Steps Toward Recovery