BetterTrades After Market Commentary - July 2, 2008

Wall Street relinquished early gains Wednesday as investors resumed their sell-off after oil hit a new record. Investors also closed out positions ahead of the government's June employment report due out Thursday, in that the data is expected to show the sixth month of jobs losses but a slight improvement in the unemployment rate. Employment is crucial because consumer spending accounts for more than two-thirds of U.S. economic activity and the higher energy prices has caused consumers to shave their spending. By the end of afternoon trading Wednesday, the Dow Jones industrial average’s bottom fell out and lost 166.75 points, or 1.46%, to 11,215.51, while the broader stock indicators retreated as well. The S&P 500 index slipped 23.39 points, or 1.82%, to 1,261.52, and the NASDAQ composite index gave up 53.51 points, or 2.32%, to 2,251.46.

U.S. factory orders posted its weakest performance in three months in May, reflecting slumping demand for autos, heavy machinery and steel. The Commerce Department reported Wednesday that factory orders increased by 0.6% in May, less than half the gains turned in during April and March. It was the poorest showing since factory orders had fallen by 0.4% in February. However, the May performance was in line with market expectations. Economists will now be watching as to see how big of an impact the overall economic slowdown will have on manufacturing, which has been hurt by troubles in the auto industry and housing-related industries.

U.S. private-sector employment declined significantly last month as planned layoffs at companies jumped nearly 50% above year-ago levels, according to reports that may presage bad news in the government's labor market report due out on Thursday. Wednesday's data also included a rare bit of good news from the slumping U.S. housing market. Mortgage applications increased last week with help from lower home loan rates, but the bounce follows a 6-1/2-year low the previous week. U.S. private-sector employers slashed 79,000 jobs in June, the largest drop since November 2002, according to a report by ADP Employer Services, and much more than the 20,000 job cuts analysts had expected. May's numbers were also revised to show lower growth. All this led some to worry about a bleak outcome to Thursday's June U.S. payrolls report, which markets see as the most comprehensive job market gauge.

With numerous offerings, lower financing and stronger sales of some cars General Motors Corp. (GM) remained in the number-one spot in U.S. sales over Toyota Motor Corp. (TM) last month, but the past thirty-days was still the worst June for the industry in 17 years and a stern indication of more wretchedness ahead for the auto industry. All major automaker except for Honda Motor Co. (HMC) reported abrupt sales declines for June as buyers continued to flee from trucks and sport utility vehicles to more fuel-efficient models, along with higher gas prices and a sluggish economy helped keep sales low. Even Toyota, with its flexible, efficient factories, couldn't make the shift from trucks to cars as quickly as American drivers. Its sales for June dropped 21% from a year earlier. June sales at GM had just as dismal drop of about 18%, as the overall market fell 18.3%. GM sold about 262,000 vehicles in June, about 69,000 more than Toyota. However, car sales were down 21% at GM and only 9% at Toyota, in addition to truck sales being down 16% at GM and nearly 39% at Toyota. Only Honda, whose lineup is tilted toward smaller and more fuel-efficient cars, reported a sales increase for June, which was slightly over 1%. Honda car sales were up nearly 20%, while truck sales were down 24%. Elsewhere, the picture was far worse. Nissan Motor Co. (NSANY) reported sales off nearly 18%, in conjunction with sales at Ford (F), which still relies on trucks and SUVs, which plummeted almost 28%. And Chrysler LLC took a huge hit, down nearly 36%. Ford sold 41% fewer of their perennial best-seller, the F-series pickup truck, and they sold fewer than half the number of Explorer SUVs as it did in June 2007. The overall market for autos dropped to 1.19 million vehicles sold, down more than 266,000 from last June. U.S. car sales were down about 10% for the first half of this year. Shares of GM, which on Monday traded at their lowest point in more than half a century, dropped another $1.77, or 15.1% on Wednesday to close at $9.98, their 52-week low. Shares of Toyota were lower on the day as well, down $2.26, or 2.4%, to close at $91.40, and shares of Ford slipped again, falling $0.35, or 7.4%, to finish at $4.36. Nissan’s stock retreated today, giving back $0.49, or 3% at $15.80, while Honda shares were down on the day too, giving up $0.73, or 2.1%, to close at $33.29.

A. Schulman, Inc. (SHLM) announced today that net sales for the fiscal 3Q were $511.8M, a 9.6% increase over last year's 3Q net sales of $467M. The exchange effect of foreign currencies, primarily the Euro, increased sales 11.4% to $53.5M. Gross profits for SHLM improved to $61.6M or 12% of net sales from $58.7M or 12.6% of net sales a year ago. Gross profit as a percentage of net sales for the quarter increased slightly from the 11.9% of net sales reported for the 2Q of fiscal 2008, reflecting the company's ongoing pricing and mix improvement initiatives that have allowed it to maintain margins despite the challenging economic environment, particularly in North America. Reported net income for the quarter was $7.1M or $0.26 per share, compared with reported net income of $10.1M or $0.37 per share for the 3Q of last year. The exchange rate of foreign currencies increased reported net income by $2M. Reported net income for the quarter included significant unusual after-tax items, which totaled a loss of $4.3M. Excluding the unusual items, net income for the 3Q was $11.4m or $0.42 per share. Unless global economic conditions significantly worsen, the A. Schulman continues to expect net income for full-year fiscal 2008 to exceed $36M excluding unusual items, which would represent a marked improvement over fiscal 2007. Despite a positive outlook for the upcoming quarter, shares of SHLM dropped nearly 9%, or $2.05 to finish at $21.32 per share.

Lighting equipment maker Acuity Brands Inc. (AYI) made it known early Wednesday that the company’s fiscal 3Q profits advanced 6%, helped by sales of energy-efficient lighting and the benefit of the weaker dollar. Profits for the quarter increased to $41.1M, or $1 per share, from $38.7M, or $0.88 per share last year, while revenues for Acuity inched forward 2% to $512.4M from $502.4M last year. Analysts polled, on average, predicted a profit of $0.98 per share on revenues of $526.5M. Sales from Mark Architectural Lighting, acquired last year, and the benefit of a weaker dollar each drove sales by 1 percentage point. Operating profit for the quarter was $71.7M, or 14% of net sales, as compared to prior year’s $59.7M, or 11.9% of net sales. The year-over-year improvement in operating profit margin was due primarily to a better mix of products sold driven by new products, more favorable pricing, and improved productivity. However, the company warned that the slowing economy and signs of a slowdown in nonresidential construction activity will pose a challenging sales environment into 2009 and stated that they plan to pursue price hikes to offset rising commodity costs. Based on the poor outlook, shares of AYI plummeted nearly 15% on the day, dropping $7.11 to close at $40.59.

Discount-store operator Family Dollar Stores Inc. (FDO) confirmed Wednesday that the company’s fiscal 3Q profits jumped 7%, topping both internal and analysts’ expectations, as more consumers flocked to its stores looking for bargains on food and other items. Profit for the quarter increased to $64.7M, or $0.46 per share, from $60.4M, or $0.40 per share a year ago, while total revenues gained 2.9% to $1.7B from $1.65B, with sales in stores open at least one year rising 0.1%. Analysts, meanwhile, had predicted a profit of $0.40 per share on revenues of $1.7B. This past April, the company announced that they expected 3Q earnings between $0.39 and $0.44 per share. Also on Wednesday, Family Dollar raised fiscal 4Q profit guidance by $0.01 per share, following the strong earnings report. FDO now expects quarterly earnings between $0.30 and $0.35 per share, up from prior guidance issued in April of $0.29 to $0.34 per share. Analysts, on average, predict a profit of $0.29 per share. For the year, the company now predicts earnings per share between $1.58 and $1.63 per share, up from previous guidance of $1.50 to $1.60 per share, while analysts expect a profit of $1.51 per share. The company stated that they expect food sales to drive revenues higher by 6% in June and 4% to 6% higher in the 4Q. By the close of the trading session today, shares of FDO were up just over 8%, higher by $1.66, to close at $21.95 per share.

Casino operator Isle of Capri Casinos Inc. (ISLE) on Wednesday reported an increase in the company’s fiscal 4Q loss, which was due in large part to a robust impairment charge related to its U.K. business and an increase in operating expenses. For the past three months, the company reported a loss of $51.3M, or $1.66 per share, compared with a loss of $14.6M, or $0.48 per share, in the year-ago period. Excluding an impairment charge of $1.60 per share related to its U.K. operations, the company's loss totaled $0.06 per share in the latest quarter. Revenue, meanwhile, increased 15% to $350.1M from $304.7M in the prior-year quarter. Analysts, on average, estimated a larger loss of $0.12 per share on sales of $301.8M. Much of the loss was in direct correlation to the total operating expenses climbing 49% to $361M from $242.5M in the 4Q of last year, due in part to a steep increase in write-offs and other valuation charges. For the full year, the company reported a loss of $96.9M, or $3.16 per share, compared with a loss of $4.6M, or $0.15 per share, in fiscal 2007, while revenues for the year increased 9% to $1.33B from $1.22B. On the day, shares of ISLE moved lower by $0.25, or 5.6%, to conclude the day at $4.20 a share.

Schawk Inc. (SGK), a provider of digital imaging services, announced Wednesday morning that the company’s 1Q profits plunged 29%, due in large part by reductions in marketing and promotional activities by its clients. For the current quarter, net income dropped to $4.3M, or $0.15 per share, from $6M, or $0.22 per share, in the prior-year quarter. Analysts were expecting a profit of $0.13 per share, on average. Revenues for Schawk dropped nearly 3% to $126.4M from $129.6M in the 1Q of 2007, as the company stated that their sales declined in North America and Europe. Investors seemed to focus mainly on the profit beat as shares of Schawk advanced $1.59, or 14.4%, to $12.66 in Wednesday’s trading.

The price of oil ventured past $143 a barrel and beyond Wednesday as the government reported a bigger-than-expected drop in U.S. crude stockpiles. Light, sweet crude for August delivery jumped as high as $144.15, a new record, on the New York Mercantile Exchange before easing somewhat to trade up $2.60 at $143.57, a closing record. In other NYMEX trading, heating oil futures added $0.128 to $4.0715 a gallon, while gasoline futures inched up $0.036 to $3.5494 a gallon. Natural gas futures slipped $0.116 to $13.389 per 1,000 cubic feet.

The Energy Department's Energy Information Administration (EIA) announced earlier today that crude oil supplies declined by 2 million barrels last week, about 800,000 barrels more than analysts predicted. Distillates, used to make diesel fuel, jet fuel and heating oil, increased by 1.3 million barrels while gasoline supplies moved up by 2.1 million barrels. Analysts were looking for an increase of 2.4 million barrels in distillates supplies and a decline of 500,000 barrels in gasoline stockpiles.

Prices at the pump hit a new high ahead of the upcoming holiday weekend, adding $0.005 overnight to a new national record of $4.092 a gallon on average, according to AAA, the Oil Price Information Service and Wright Express. The survey also showed that the national average price for diesel fuel advanced to $4.767 from $4.762 the day before.

Treasury prices advanced Wednesday as investors prepared for another downbeat reading on the U.S. job market due out tomorrow. The bond market has long been anticipating the report to show the sixth straight month of job losses and a reading on the private sector bolstered that prediction on Wednesday. The 10-year note gained 8/32 to 99 7/32, while its yield dropped to 3.97% from 4.01% late Tuesday, and the 30-year long bond added 18/32 to 97 21/32, and its yield slipped to 4.52% from 4.55% late Tuesday. The 2-year note increased 4/32 to 100 18/32, and yielded 2.59%, down from 2.65% late Tuesday.

The Dollar retreated against the Euro Wednesday as traders expect the European Central Bank (ECB) to lift its benchmark interest rate for the first time since last summer. Such a move would make the already-strong Euro more desirable to investors. The market also expects the Dollar to slide lower later in the week, as the ECB holds its rate-decision meeting Thursday. Many economists believe the ECB is likely to raise its main interest rate to 4.25% from 4% in the middle of high Euro-zone inflation, but then hold the rate steady. The 15-nation Euro bought $1.5888 in afternoon trading, up from the $1.5793 it bought in New York late Tuesday. The British pound bought $1.9936, down slightly from $1.9944 the night before. Meanwhile, the Dollar bought 105.99 Japanese yen, moving below the 106.01 it bought in New York Tuesday night.

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