BetterTrades After Market Commentary - May 13, 2008
As the major market indices closed their Tuesday sessions, the markets concluded the day mixed after a report on retail sales led investors to see little incentive to extend the previous session's big advance. Investors remain concerned that higher energy and food prices will curtail consumer spending, which makes up more than two-thirds of the U.S. economy. By the end of late-day trading, the Dow Jones industrial average dropped 44.13 points, or 0.34%, to 12,832.18, in-spite of the blue chip index soaring 130 points on Monday as oil prices pulled back and alleviated some concerns about accelerating inflation. The broader indexes were mixed on the day as the S&P 500 index slid 0.44 points, or 0.04%, to 1,403.04, and, the NASDAQ composite index gained 6.63 points, or 0.27%, to 2,495.12.
Median home prices declined in two-thirds of the cities surveyed during the first three months of this year while 46 states experienced declining sales. The National Association of Realtors stated that median prices for existing single-family homes dropped in 100 of 149 metropolitan areas in the January-March period, while 48 metropolitan areas saw prices increase and one reported no change. The price declines in 67% of the areas surveyed was the largest percentage of areas reporting declining prices in the history of the Realtors' survey, which goes back to 1979. Prices had fallen in 34% of the cities surveyed in the October-December survey. Nationally, the median home price dropped to $196,300 in the 1Q, down by 7.7% from the same period a year ago, when the median sales price was $212,600. Nationally, sales declined by 22.2% in the 1Q compared with the same period a year ago.
Consumers, battling soaring gasoline prices and a slumping economy, cut back further on their spending in April. The Commerce Department reported Tuesday that retail sales dipped 0.2% last month, right in line with economists' expectations. It was the second drop in the past three months and was led by a 2.8% decline in auto sales, the biggest setback in this category in 10 months. Excluding autos, retail sales increased by 0.5%, a better performance than had been expected as sales at general merchandise stores, a category that includes big chains such as Wal-Mart, posted a 0.5% increase, much better than the 0.1% rise in March. However, sales at department stores were down 0.1%, indicating that tough economic times may be pushing people to seek out bargains at giant discount stores. The 0.2% drop in retail sales in April followed a 0.2% jump in March and a 0.5% decline in February. Sales at clothing and specialty stores posted a 0.7% gain in April while sales at electronics and appliance stores were up 1.4%. Sales at furniture stores edged up a slight 0.1%. This sector has been under pressure, reflecting the prolonged two-year slump in home sales.
Wal-Mart Stores Inc. (WMT), the world's largest retailer, announced Tuesday that their profits increased 6.9% in its 1Q on higher sales as lower prices helped boost its results, topping analyst's expectations. Wal-Mart earned $3.02B, or $0.76 per share, in the three months, up from $2.83B, or $0.68 per share, a year earlier. Analysts had projected earnings of $0.75 per share. The company had overall revenues of $95.30B, up 10.3% from $86.41B in the prior year. Net sales excluding membership fees advanced to $94.1B from $85.4B a year ago, while analysts were projecting revenues of $93.47B for the quarter. Without fuel, same-store sales for the quarter were up 2.9% at Wal-Mart's domestic properties, rising 2.7% in the Wal-Mart Stores division and 3.6% at Sam's Clubs. Wal-Mart said that for the 2Q the company expects sales in stores open at least a year to be between flat and up 2%. The company expects to earn between $0.78 per share and $0.81 per share. Shares dropped $1.37, or 2.4%, to $56.65 in trading.
Apparel retailer, Liz Claiborne Inc. (LIZ) made it known Tuesday that the business posted a loss in the 1Q due to expenses from the company's streamlining plan which includes store closures and asset write-downs. For the quarter, the company reported a loss of $31M, or $0.33 per share, compared with profits of $16.2M, or $0.16 per share in the 2007 quarter. Excluding discontinued operations and expenses related to streamlining initiatives including payroll, lease terminations, asset write-downs and store closures, the company said it earned $0.28 per share. Meanwhile, analysts were expecting profits of $0.10 per share. Revenues for LIZ increased 5% to $1.12B from $1.07B in the 1Q of 2007, with analysts predicting sales of $955.2M for the quarter. The revenue increase came from stronger international sales, which grew 16%, while domestic sales were virtually flat. By the close of the markets today, shares of LIZ were higher on the day, up $0.38, or 2.1%, to finish at $18.75.
Hewlett-Packard Co. (HPQ) has agreed to buy Electronic Data Systems Corp. (EDS) for approximately $12.6B in cash to build a technology-services company that could challenge IBM. The companies announced Tuesday that their boards had unanimously approved the deal, in which EDS shareholders would get $25 per share. That is a premium of almost 25% over what EDS had been trading on Friday, as word of the talks emerged late-Monday before the close of the markets. The sale is expected to close in the second half of this year and more than double HP's revenues from services, which were $16.6B in 2007, while EDS had $22.13B in revenues last year. Their combined services business would have 210,000 employees and operations in more than 80 countries. In Tuesday's announcement, the companies said the deal would have an enterprise value of $13.9B without defining what that included. But based on 502.6 million EDS shares outstanding as of April 25th, the acquisition would be worth $12.57B. If the deal is completed, it would be HP's biggest acquisition since it bought Compaq Computer Corp. for $19B in 2002. That acquisition paved the way for HP to supplant Dell Inc. as the world's largest PC maker. HP earned $7.3B on $104B in revenues last year while EDS made $716M on $22.1B in revenue. At the close, shares of Hewlett-Packard were down $2.56, or 5.5%, to finish at $44.27.
Shares of Canadian Solar Inc. (CSIQ) surged in trading Tuesday after solar cell maker managed to post a profit in the 1Q on a big increase in its European business. The results easily surpassed analyst expectations along with a surprisingly large forecast for 2Q revenues. The company reported net income for the recent quarter of $19M, or $0.61 per share, compared with a loss in the year-earlier quarter of $3.9M, or $0.14 per share. Analysts, on average, expected earnings per share of $0.31. The per-share results reflect an 18% higher number of shares outstanding in the recent quarter versus last year. Revenues for CSIQ jumped to $171.2M from $17.5M, with analysts expecting revenues of $151.9M. Revenues from Europe, especially Spain and Germany, soared to $167.6M from $12.1M in the year-earlier period. Shares jumped $6.68, or 19.6%, to $40.78 in trading, in relation to the stock closing Monday’s trading at $34.10.
Watch maker Fossil Inc. (FOSL) stated Tuesday that their 1Q profits climbed 21%, helped by international growth and strong watch and jewelry sales, however, falling short of expectations. For the recent quarter, earnings advanced to $30.2M, or $0.43 per share, compared with $25M, or $0.36 per share, in the corresponding quarter last year. Quarterly revenues increased 17% to $356.2M, from $304.8M in the year-ago quarter. Analysts, on average, predicted net income of $0.40 per share on sales of $348.2M. Gross profit margins were helped by a weaker dollar, lower product costs, and higher-margin international sales. This was partially offset by higher freight costs and an increased mix of lower margin mass market and third-party distributor shipments. Despite a positive earnings report, shares of Fossil were down today lower by $3.03, or 8.1%, at $34.22.
Oil prices surged to a new record near $127 a barrel Tuesday on reports that Iran is planning to cut crude oil production. Light, sweet crude for June delivery advanced as high as a record $126.98 a barrel in midday trading on the New York Mercantile Exchange before retreating slightly to trade up $1.57 at $125.80. In other NYMEX trading Tuesday, June gasoline futures gained $0.0358 to settle at $3.20 a gallon, and June heating oil futures added $0.1391 to settle at $3.6989 a gallon after earlier rising to a record $3.7146. Analysts said heating oil futures were boosted by reports that supplies of distillates, which include heating oil and diesel, fell last month in Europe. June natural gas futures increased $0.121 to settle at $11.422 per 1,000 cubic feet.
Gas prices, meanwhile, advanced to a new record over $3.73 a gallon Tuesday, and their surge shows little sign of slowing with Memorial Day weekend, the traditional start of the summer driving season, just 10 days away. At the pump, the national average price of a gallon of regular gas added $0.014 overnight to a record $3.732, according to a survey of stations by AAA and the Oil Price Information Service. Prices have now risen to the level at which the Energy Department forecasts they'll peak in June, on a monthly average basis. That means prices may still go higher, but their average will peak at around $3.73. Retail diesel prices jumped $0.029 Tuesday to a national average of $4.39 a gallon, according to AAA and the Oil Price Information Service. The high price of diesel has helped drive up costs for goods and services throughout the economy.
Treasury prices declined Tuesday as signs of modestly better-than-expected consumer spending and rising inflation made safe government securities less attractive to investors. The prospect of high inflation particularly dampens the value of long-term bonds. The benchmark 10-year Treasury note slipped 24/32 to 99 28/32 and its yield grew to 3.89% from 3.80% late Monday, while the 2-year note dropped 7/32 to 99 13/32 and its yield advanced to 2.43% from 2.32%. The 30-year long bond declined 1 6/32 to 96 4/32 and yielded 4.61%, up from 4.54% late Monday.
The U.S. Dollar strengthened against most major currencies Tuesday despite gloomy U.S. economic data. The 15-nation Euro dropped to $1.5480 in late trading from $1.5540 on Monday, while the British pound declined to $1.9459 from $1.9566. The Dollar also climbed to 105.26 Japanese yen, up from 104.17 yen late Monday. In other New York trading, the Dollar advanced to 1.0529 Swiss francs from 1.0444 francs, but fell to 1.0033 Canadian dollars from 1.0050 late Monday.
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