US & World Daily Markets Financial Briefing 24-03-2010

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Stocks Posting Modest Losses Following Disappointing Housing Data

Stocks are showing modest weakness in mid-morning trading on Wednesday, as the markets are digesting disappointing housing data while keeping an eye on developments overseas. The major averages are all in negative territory, offsetting some of yesterday's solid gains.

The Commerce Department reported that new home sales unexpectedly decreased in the month of February, with sales falling for the fourth consecutive month to a record low annual rate.

New home sales fell 2.2 percent to an annual rate of 308,000 in February from the revised January rate of 315,000. The decrease surprised economists, who had expected sales to rise to 315,000 from the 309,000 originally reported for the previous month.

In a separate report released earlier, the Commerce Department said that durable goods orders increased by 0.5 percent in February following an upwardly revised 3.9 percent increase in January. Economists had expected orders to increase by 0.6 percent compared to the 2.6 percent growth that had been reported for the previous month.

Excluding a modest decrease in orders for transportation equipment, durable goods orders increased by 0.9 percent compared to a 0.6 percent decrease in the previous month. Ex-transportation orders had been expected to increase by 0.6 percent.

On the corporate front, MF Global Holdings Ltd. (MF) is seeing handsome gains after the firm announced that its Board appointed former New Jersey governor and Goldman Sachs chairman Jon Corzine as chairman and chief executive officer, effective immediately.

In earnings news, Lennar Corp. (LEN) said its first-quarter net loss narrowed to $0.04 per share from $0.98 per share in the prior year period. On average, Wall Street analysts expected the company to report a loss of $0.30 per share for the quarter.

Total revenues for the quarter declined to $574.44 million from $593.06 million in the comparable period but still topped projections, which called for revenues of $568.19 million.

After the markets closed for trading in the previous session, publishing and design software maker Adobe Systems Inc. (ADBE) said that its first quarter profit fell 19 percent from last year, as higher expenses offset a 9 percent increase in revenue.

However, the company's quarterly earnings per share, excluding items, came in above analysts' expectations. Additionally, the company forecast second quarter revenues above analysts' current consensus estimate.

The major averages have all seen choppy movement in recent dealing, lingering modestly below the flat line. The Dow is down 19.43 points or 0.2 percent at 10,869.40, the Nasdaq is down 8.47 points or 0.4 percent at 2,406.77 and the S&P 500 is down 1.32 points or 0.1 percent at 1,172.85.

Sector News

Gold stocks are some of the morning's worst performers, as reflected by the 2.8 percent pullback by the NYSE Arca Gold Bugs Index. With the retreat, the index sunk to its worst level in nearly a month's time earlier.

The weakness among gold stocks comes amid a decline in the price of the precious metal, which is moving lower as the dollar is seeing strength against other currencies. Gold for April delivery is down by $11.30 at $1,092.40 an ounce.

Healthcare provider stocks are also sliding, with the Morgan Stanley Healthcare Provider Index falling by 2.1 percent, backing further off of its recent historic high.

Semiconductor, oil, steel and railroad stocks are also moving lower, while housing stocks are bucking the downtrend, with the Philadelphia Housing Sector Index posting a 0.9 percent gain. The index has jumped to a fresh six-month intraday high even after today's disappointing new home sales data.

Stocks Driven By Analyst Comments

Under Armour (UA) is under pressure after being downgraded at FBR Capital Markets from Outperform to Market Perform. The broker cited the considerable run-up in share price as a reason for the downgrade. The stock has dropped by 3.1 percent, pulling back sharply off of Tuesday's five-month closing high.

Strayer Education (STRA) is also lower following a downgrade at BMO Capital Markets from Outperform to Market Perform. Shares are currently down by 1.8 percent but remain near this month's historic highs.

On the other hand, Consol Energy (CNX) is on the rise after being upgraded at JP Morgan Chase from Neutral to Overweight. The upgrade came on a valuation call. The stock has gained 2.2 percent, continuing to recover from a more than two-month low set recently.

Canadian Stocks Poised For A Lower Opening

Bay Street stocks may struggle to extend gains Wednesday amid weak commodities prices and continued negative news flows from the euro zone. Also the main index was hovering near its calendar year high and could attract profit taking at higher levels.

Today Fitch Ratings downgraded Portugal by one notch to AA- and said the country's prospects for recovery were weaker than its peers in the euro zone. The news fueled concerns that debt problems may not be contained to Greece. The euro slipped to a 10-month low versus the dollar, putting pressure on the prices of commodities.

On Tuesday, the S&P/TSX Composite Index rose 77.37 points or 0.65% to 12,044.54, gaining for a second day.

The price of oil was down $1.37 to $80.54 a barrel and the bullion slipped below the $1,100 mark, shedding $13.50 to $1,090.20 an ounce.

In corporate news, oil fields services provider Black Diamond Group reported lower earnings of C$4.2 million for the fourth quarter, compared to C$5.9 million in the year-ago quarter. Looking ahead, the company expects new project deployments and the expanded fleet and operating platform to be accretive to earnings in the next two quarters.

Oil and gas firm Twin Butte Energy reported a narrower net loss for the fourth quarter of C$0.01 per share, compared to a net loss of CC$0.09 per share in the year-ago quarter.
 
Oil and natural gas explorer Rock Energy reported fourth quarter Funds from operations C$0.20 per share, compared to C$0.21 per share in the previous year.

WestFire Energy reported improved net income for the fourth quarter of C$0.43 per share, compared to C$0.06 per share for the year-ago quarter.

Wealth management company AGF Management said its profits more than doubled to $30.6 million in the first quarter from a year ago.

Bio pharmaceutical company Æterna Zentaris swung to profit in fourth-quarter reporting net earnings of $0.19 per share versus a loss of $0.27 per share a year ago. Analysts were expecting loss per share of $0.18 for the quarter.

Bio pharmaceutical company Theratechnologies reported a narrower net loss of C$0.07 per share in the first quarter, compared to a loss of C$0.18 per share in the year-ago quarter.

Pharmaceutical company Ondine Biopharma said its fourth-quarter loss narrowed to C$0.01per share from C$0.03 in the prior year.

Metal parts maker Martinrea International reported adjusted net profit of C$0.10 per share for the fourth quarter, compared to adjusted net loss of C$0.02 per share in the year ago period

Manufacturer of heavy duty transit buses New Flyer Industries slipped in the red, reporting a net loss of $30.4 million for fiscal 2009, compared to net earnings of $87.6 million in the year-ago period.

Recreation sports company Canlan Ice Sports reported lower net earnings in fiscal 2009 at C$0.20 per share compared to C$0.29 last year.

In economic news from the U.S., the Commerce Department said Durable goods order increased by 0.5% in February following an upwardly revised 3.9% increase in January. Economists were expecting orders to increase by 0.6% compared to the 2.6% percent growth reported for the previous month.

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The major Asian averages ended Wednesday’s session mostly higher, although the gains were modest.

Japan’s Nikkei 225 average rebounded, with the average opening sharply higher, but it was seen surrendering its gains from late morning trading until in the late afternoon. Subsequently, some buying emerged, helping the average to close firmly in positive territory. At the close of trading, the index was up 40.88 points or 0.38% at 10,815.

Most technology stocks advanced, with electrical machinery makers seeing notable buying interest, while auto stocks ended on a mixed note. However, some financial chemical, pharma and retail stocks came under selling pressure.

Fujikura, Furukawa Electric, Jtekt, Kubota, Kyocera, Mitsumi Electric, NSK, Sharp and Toshiba recorded strong gains. On the other hand, Asahi Breweries, Fuji Electric, J Front Retailing, Mitsui Chemicals and Nippon Light Metals receded sharply. In corporate news, Nintendo rose after it said it would sell a 3-D gaming console.

On the economic front, the Japanese Ministry of Finance releases the nation’s trade data for February, showing that exports fell 1.7% month-over-month, the first contraction in about a year. Real exports, which are adjusted for price and currency effects, rose 1.6% in February compared to a 4.7% increase in January. BNP Paribas suggested that the disparity between the first two months of the year is due to the Lunar Day holidays in China. The average export performance for both the months showed a robust 7.8% clip, above the average rate for the fourth quarter.

On a year-over-year basis, exports climbed 45.3%, helped by shipments of automobiles to the U.S. At the same time, imports climbed 29.5%. The country recorded a trade surplus of 651 billion yen compared to a surplus of 70.8 billion yen in the year-ago period.

Australia’s All Ordinaries opened higher and showed sideways movement for most of the session. The index closed up 15.30 points or 0.31% at 4,903. All sectors, with the exception of telecommunication, real estate and industrial stocks, showed strength.

Among miners, BHP Billiton, Fortescue Rio Tinto and Newcrest Mining advanced, while Incitec and Lihir Gold moved to the downside. In the banking space, Westpac, Commonwealth Bank and National Australia Bank rose, but ANZ Bank lost ground.

Hong Kong’s Hang Seng Index opened moderately higher, but it surrendered most of its gains over the course of the session to close only modestly higher. The index ended up 20.84 points or 0.10% at 21,009. Property, resource and other China-related stocks ended higher in the session. However, index heavyweights HSBC Holdings and China Mobile and retail stocks declined.

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The major European averages are declining on Wednesday, with the French CAC 40 Index and the German DAX Index moving down 0.54% and 0.03%, respectively. The U.K.’s FTSE 100 Index is receding 0.28%.

In economic news, a report released by Eurostat showed that industrial new orders IN the euro zone region fell by 2% month-over-month in January, reversing some of the 0.8% growth in the previous month. On a year-over-year basis, industrial new orders climbed 7%, slower than the 9.5% growth in the previous month. Economists had expected a 1.8% monthly gain and a 13.9% annual increase.

The business climate in Germany improved in March, according to the results of a survey carried by the Munich-based Ifo Institute for Economic Research. The business climate index rose to 98.1 in March from 95.2 in the previous month, representing a 21-month high. Economists expected a more modest increase to 95.8.

The current conditions index rose 4.6 points to 98.1, ahead of the 95.8 consensus estimate. The expectations index also increased, rising 1 point to 101.9.

Flash purchasing managers’ indexes released from Europe showed that activity levels in the private sector are improving. The composite output index for Germany rose 0.8 points to 58.5 in March, representing a 31-month high, while the manufacturing PMI rose 8.7 to 59.6 and the services PMI was up 2.8 points to 54.7.

The flash composite output index for the euro zone region rose 1.8 points to 55.5 in March, coming in forecast for a reading of 53.8. While the manufacturing purchasing managers’ index rose to a 39-month high of 56.3, the services purchasing managers’ index climbed 1.9 points to 53.7.

U.S. Economic Reports

The Commerce Department’s durable goods orders report showed a 0.5% month-over-month increase in orders for goods designed to last for more than 3 years. Economists had been estimating a 0.6% increase for the month. In January, orders had risen by 3.9%.

Machinery orders climbed 4.7% and were responsible for much of the upside. Excluding transportation, orders increased by a steeper 0.9%. Shipments fell 0.6% and unfilled orders rose by 0.4%. Inventories also increased, rising 0.3%. Non-defense capital goods orders, excluding aircrafts, a key measure of capital spending rose 1.1%, while shipment of this category of goods edged up 0.8%.

The Commerce Department is due to release its new home sales report for February at 10 AM ET. The consensus estimate calls for an increase in new homes sales to 315,000.

New home sales declined to 309,000 in January from 348,000 in December, with sales dipping to a record low. New home inventories as measured by the months of supply rose to 9.1 months from 8 months in the previous month. In absolute terms, new home inventories increased to 234,000 from 233,000. The median price of a new home declined 2.4% year-over-year and fell 5.6% month-over-month to $203,500.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended March 19th at 11 AM ET.

The oil inventory report for the week ended March 12th showed a 1 million barrel increase in crude oil inventories. Stockpiles of crude oil remained above the upper limit of the average range.

Gasoline inventories fell by 1.7 million barrels but were still above the upper limit of the average range. Distillate inventories also declined, dropping by 1.5 million barrels. Refinery capacity utilization averaged 81.1% over the four weeks ended March 12th compared to 80.9% in the previous week.

Kansas City Federal Reserve Bank President Thomas Hoenig is scheduled to speak on the Financial Foundation for Main Street at the U.S. Chamber of Commerce Center for Capital Markets Competitiveness in Washington at 10:45 AM ET. Hoenig has been the lone dissenter at the past two FOMC meetings, calling for a change in the language about leaving rates at exceptionally low levels for an extended period.

Earnings

General Mills (GIS) reported that its third quarter net sales rose 3% to $3.63 billion. On an adjusted basis, the company’s earnings rose 23% to 97 cents per share. Analysts estimate earnings of 93 cents per share on revenues of $3.62 billion. For 2010, the company raised its adjusted earnings per share guidance to $4.57-$4.59 from its earlier estimate of $4.52-$4.57, while the consensus estimate calls for earnings of $4.60 per share.

Lennar (LEN) reported first quarter revenues of $574.4 million, down 3% year-over-year. The company’s loss narrowed to 4 cents per share from a loss of 98 cents per share last year. The consensus estimates called for a loss of 30 cents per share on revenues of $568.19 million.

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Darden Restaurants (DRI) saw slight weakness in Tuesday’s after hours session after it reported that its third quarter net earnings from continuing operations rose 22% to 95 cents per share. Sales from continuing operations climbed to $1.87 billion from the year-ago’s $1.80 billion. Analysts estimated earnings of 92 cents per share on revenues of $1.85 billion. For 2010, the company expects net earnings per share growth from continuing operations of 8%-10%, translating to earnings per share of $2.86-$2.92, an upward adjustment from its earlier estimate of 5%-8%. The consensus estimate calls for earnings of $2.88 per share.

Progress Software (PRGS) rose slightly in Tuesday’s after hours session after it reported first quarter GAAP revenues of $127.5 million, up 6% year-over-year, and non-GAAP revenues of $128 million, up 5% year-over-year. On a non-GAAP basis, the company’s earnings rose to 53 cents per share from 39 cents per share last year. The results were ahead of the consensus estimates. For the fiscal year ending November 2010, the company expects non-GAAP earnings of $2.20-$2.32 per share on non-GAAP revenues of $540 million to $550 million. Analysts estimate earnings of $2.22 per share on revenues of $544.45 million.

Adobe Systems (ADBE) rose sharply in Tuesday’s after hours session after it reported that its first quarter non-GAAP earnings slid to 40 cents per share from 45 cents per share in the year-ago period but beat the consensus estimate of 37 cents per share. Revenues climbed to $858.70 million from $786.39 million last year, also exceeding the mean analysts’ estimate of $827.40 million. For the second quarter, the company expects non-GAAP earnings of 39 to 44 cents per share on revenues of $875 million to $925 million. The consensus estimates call for earnings of 41 cents per share on revenues of $860.45 million.

On the other hand, Jabil Circuit (JBL) receded sharply in Tuesday’s after hours session despite reporting second quarter core earnings of 29 cents per share compared to 13 cents per share last year. The company’s net revenues rose to $3 billion from $2.9 billion last year. The consensus estimates called for earnings of 28 cents per share on revenues of $3.01 billion. For the third quarter, the company expects net revenues of $3.1 billion to $3.3 billion and core earnings of 30-36 cents per share. The Street estimates earnings of 32 cents per share on revenues of $12.50 billion.

Sonic Corp. (SNIC) is likely to see weakness after it reported a net loss of 1 cent per share for its second quarter compared to net income of 14 cents per share last year, which included a gain of 6 cents per share. Revenues declined 33% year-over-year to $112.8 million. Analysts estimated earnings of 2 cents per share on revenues of $117.90 million. Citing a continued challenging economic and credit market environment, the company retained its earnings guidance for the full year of 55-60 cents per share compared to the 58 cents per share consensus estimate.

RR Donnelley (RRD) may gain ground after it announced that it has been awarded a multi-year catalog production and distribution services agreement by Williams-Sonoma (WSM) to produce Williams-Sonoma, Williams-Sonoma Home, Pottery Barn and Pottery Barn Bed & Bath catalogs.

School Specialty (SCHS) is likely to see some activity after it said it has acquired the rights to the Think Math curriculum product from Houghton Miffline Harcourt Publishing Company.

Stryker (SYK) is also likely to be in focus after it said it has been informed by the FDA that the actions undertaken by the company to address the issues related to quality system requirements at its reconstructive implant manufacturing facility in Mahwah, New Jersey, in 2007 are sufficient.

Rogers Corp. (ROG) may also see some activity after it announced an agreement with SK Chemicals of South Korea to acquire its high performance polyurethane foam manufacturing unit, SK Utis Co. located in Ansan, South Korea, for $29.1 million. The transaction is expected to close within the next few weeks.

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