Merrill Lynch, Amazon.com, Techs, Housing Punish Shares
Posted: 12/31/07 1:15 PM ET
An unexpected rise in existing home sales helped to limit losses in midmorning action but selling has resumed on thin volume heading into the New Year's holiday. Equity news is light, with a story in a British newspaper indicating that Merrill Lynch is looking at a possible sale of assets, while Legg Mason said it has it lowered its exposure to structured investment vehicles. Treasuries remain higher amid skittishness in equities.Posted: 10/24/07 11:15 AM ET
A massive write-down by Merrill Lynch is reminding investors that financial institutions may be facing more problems from the woes in the credit markets. But it is nearly a 2% slide in the Nasdaq Composite that has the attention of traders. Amazon.com is trading sharply lower despite reporting much higher profits, Broadcom missed, Altera posted an unexpected drop in sales, and cost issues are weighing on Juniper Networks. And a larger-than-expected drop in existing home sales is adding pressure to the broader market. Meanwhile, Boeing, Freeport-McMoRan Copper & Gold, ConocoPhillips, and AutoNation topped expectations. And Transmeta settled a patent dispute with Intel. Treasuries are higher on the drop in equities and the weak housing figure.
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Posted: 12/31/07 1:15 PM ET
Stocks Sliding at Year's End
An unexpected rise in existing home sales helped to limit losses in midmorning action but selling has resumed on thin volume heading into the New Year's holiday. Equity news is light, with a story in a British newspaper indicating that Merrill Lynch is looking at a possible sale of assets, while Legg Mason said it has it lowered its exposure to structured investment vehicles. Treasuries remain higher amid skittishness in equities.
Merrill Lynch (MER $53) is in talks with Chinese and Middle Eastern sovereign wealth funds that could lead to the sale of another big stake in the brokerage firm, according to British newspaper The Observer,. The report comes on the heels of last Monday's announcement that it will receive a total capital infusion of $6.2 billion through the sale of its common stock to Singapore's Temasek and US-based asset manager Davis Selected Advisers. A US analyst quoted by the paper said, "The multi-billion cash injection from Temasek was not enough." Merrill Lynch did not comment on the report, and shares are lower.
Legg Mason (LM $73) is higher after reporting it has lowered its exposure to structured investment vehicles to 3.2% of its total liquidity assets, down from 6.4% at the end of October, due to the ongoing credit crunch. The company's chief executive said the moves are consistent with the firm's efforts to reduce asset-backed commercial paper exposure in its liquidity funds "in light of current stresses in the credit markets."
Existing home sales post first rise in nine months
Existing home sales in November rose 0.4% to an annual rate of 5.00 million units, just above the Bloomberg forecast of 4.97 million units. The supply of homes fell from 10.7 months to 10.3 months, but the year-over-year median price declined 3.3% to $210,200.
Following steep declines in August and September, a small drop in October and November's first rise in nine months are providing a modest reprieve for the beat-up housing industry, but the trend remains to the downside amid economic skittishness and anxieties that home prices may have more room to fall. Treasuries are higher and are trading off the decline in equities. The bond market will close at 2:00 p.m. ET.
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A massive write-down by Merrill Lynch is reminding investors that financial institutions may be facing more problems from the woes in the credit markets. But it is nearly a 2% slide in the Nasdaq Composite that has the attention of traders. Amazon.com is trading sharply lower despite reporting much higher profits, Broadcom missed, Altera posted an unexpected drop in sales, and cost issues are weighing on Juniper Networks. And a larger-than-expected drop in existing home sales is adding pressure to the broader market. Meanwhile, Boeing, Freeport-McMoRan Copper & Gold, ConocoPhillips, and AutoNation topped expectations. And Transmeta settled a patent dispute with Intel. Treasuries are higher on the drop in equities and the weak housing figure.
Merrill Lynch (MER $67) is lower after reporting a 3Q net loss from continuing operations of $2.3 billion, or $2.85 per share—well below the recently-reduced Reuters estimate of a $0.45 loss—as the brokerage firm took a $7.9 billion write-down related to CDOs and subprime mortgages. The write-down is well below the $4.5 billion disclosed earlier in the month, which Merrill Lynch blamed on "difficult credit markets and additional analysis by management during our quarter-end closing process."
The company said it expects market conditions for sub-prime mortgage-related assets "to continue to be uncertain." It is working to resolve the remaining impact on its positions, suggesting further write-downs are possible. Elsewhere, the company said other divisions experienced strong revenues.
Citing strong international and US growth, Amazon.com (AMZN $85) reported 3Q EPS nearly quadrupled to $0.19, one penny above the Street's estimate, as net sales grew 41% to $3.3 billion, which was slightly above expectations. AMZN offered 4Q revenues guidance above the Street's estimate. But shares are down nearly 15% as the stock has surged in recent months, and analysts expressed concern that margin expansion may slow.
Broadcom (BRCM $35) reported net earnings fell from $0.19 per share a year ago to $0.05, below the Street's view of $0.07, as net sales increased 6% to $950.0 million. The company said revenue growth was driven by Bluetooth, wireless LAN, and digital TV markets, but a jump in research and development costs pressured profits. Shares are down almost 20% on the earnings miss and the company's statement that it will keep spending heavily on R&D.
Altera (ALTR $20) is down about 15% after recording a 1% drop in sequential sales to $315.8 million, shy of the Street's view of $325 million and below guidance released in September. EPS of $0.20 matched the consensus forecast. The number two maker of programmable logic chips said the consumer market was strong, but sales to the communications and industrial markets were more challenging than anticipated and came in below expectations.
Juniper Networks (JNPR $34) recorded a four cent increase in 3Q profits ex-items to $0.22 per share, one penny ahead of analysts' estimates. Nonetheless, shares of the maker of telecommunications equipment and routers for the internet are down significantly as some analysts complained about cost issues while others said that investors were expecting even better profits.
Dow member Boeing (BA $95 1) posted 3Q net earnings of $1.44 per share, easily topping the consensus estimate of $1.24, as revenues grew 12% to $16.5 billion. Boeing said it has a record backlog and its markets are healthy and growing. Looking ahead, the company reduced 2008 revenue guidance from commercial aircraft due to a shift in 787 deliveries from 2008 to 2009, but BA maintained 2008 profit guidance. Shares have shed an early gain and are lower.
ConocoPhillips (COP $83) reported net earnings fell from $2.31 per share to $2.23, four cents above the Street's view, as revenues slipped by $2 billion to $46.1 billion. ConocoPhillips blamed lower volumes, lower natural gas prices, and higher operating costs. Significantly lower refining margins also played a role in the drop in profits.
AutoNation (AN $17) reported 3Q operating earnings fell by a penny to $0.39 per share, beating the Street's estimate by one cent, as a challenging environment for new vehicle sales was driven largely by housing weakness in California and Florida. The company's CEO said subprime issues are not affecting auto lending, but he expects housing issues to persist for at least another year and he sees further rate cuts from the Fed. Shares are up modestly.
Transmeta (TMTA $15) is up well over 200% after announcing it has settled all patent claims with Intel (INTC $26). Intel will make an initial $150 million payment and will pay Transmeta an annual license fee of $20 million for the next five years.
Home market slumps again
Treasuries are up and are extending gains. Accelerating losses in stocks and the seventh-consecutive drop in existing home sales are aiding bonds. Sales for September dropped 8.0% to an annual rate of 5.04 million units, below the Bloomberg estimate of a 4.5% decline, and the inventory of homes on the market rose from 9.6 months to 10.5 months.
The credit squeeze in August, tighter loan standards, and nervousness among potential buyers pressured sales. The home market continues to slide and still shows no signs of bottoming.
Nosedive in US market leans on Europe
Stocks in Europe have given up midafternoon gains as weakness in the US pressures sentiment. STMicroelectronics (STM $16) remains higher after posting 3Q net earnings of $187 million, beating the Reuters estimate of $150.6 million. The chipmaker plans to speed up restructuring plans, concentrate on value-added products, and move lower-end manufacturing to China.
Volvo (VOLV $19), the second biggest truck maker in the world, is gaining ground after providing an upbeat outlook for the European truck market. The company recorded lower earnings on weakness in North America.
Tokyo slides into the red
Stocks in Japan opened higher amid the enthusiasm from a solid advance yesterday in the US, but early enthusiasm faded in afternoon action as the yen strengthened and the Nikkei 225 Index closed down 0.6%. Stocks received some support from maritime transportation issues, which benefited from a new high in the Baltic Dry Index. But weakness in banking, consumer finance, and insurance companies pulled down the broader market.
In earnings news, Elpida Memory (ELPDF $45), Japan's largest memory chip maker, reported after the close that net earnings fell 75% to 3.3 billion yen as the glut in DRAM chips weighed on prices.
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