Tuesday, October 26, 2010

Morning Note...

Futures are ~50bps lower this morning as markets digest recent earnings reports.  In fact, 46 S&P500 names are due to report today.  European financials are lower as Swiss bank UBS and Spanish bank STD both disappoint.  Steel giant Arcelor Mittal (MT) also missed estimates.  On this side of the pond, US Steel (X) disappoints, Kimberly-Clark (KMB) missed and lowered guidance, Dupont (DD) beat and raised, Texas Instruments (TXN) reported in-line, and retailer Coach (COH) beat handily.  Europe down 1% on aggregate.  Asia mixed to slightly lower overnight.  Oil -60bps.  Gold -50bps.  USD +60bps.  In economic news, home prices rose at a slower pace than expected.  

Here’s this morning’s cheat-sheet, courtesy of MSCO:

Financials:
+ ACGL: EPS $2.55 beats MS estimate $2.20 and Street $2.19. Core margin (ex. cat and reserve release) improved 440 bps YoY, driven by lower CATs. Premiums written down -12.5% YoY
= WRB: EPS $0.67 vs. MS $0.64 and Street $0.63. Low quality beat, driven by ~$10m higher investment income. Premiums written grew +1.8% YoY and the Combined ratio was 95.4% inline with MSe
- RF: EPS -17c vs MS -10 and Cons -8c. Weak qtr vs most peers. Credit remains the key drag on RF, with provisions ahead of expectations and NPAs down slightly QOQ
- AMTD: EPS missed slightly, 20c vs Cons 23, driven by weaker trading (already known b/c of SCHW's qtr). Gave F'11 guidance range of $0.90 - $1.20, Cons was at $1.15.

Industrials/Materials:
+ DD: Reports headline EPS of $0.40 vs MSe of $0.34 and cons of $0.33; Clean Beat, Raising Guidance
+ F: Great qtr with the beat driven by strength in the N. Am Autos biz; Expectations were very high walking into today, and the co comes in at the high-end of the likely buy-side cons of $0.45-0.48
+ CE: EPS of $0.88 vs cons of $0.75; Solid qtr across all segments; Raising 2010/11 guidance
= JCI: EPS is in-line as JCI beats on revs but margins come in a touch light; Guidance re-affirmed
= ATI: In-line with preannouncement; A&D and Oil & Gas showing strength
- ASH: EPS $1.05 vs street $1.07 est; Modestly disappointing qtr on cost inflation weighing on margins
- Mittal Steel (MT) - Q3 Ebitda in-line with estimates at $2.3bn but they are guiding Q4 Ebitda at $1.5bn-$1.9bn. That's very low vs. expectations.
-- X: Big Miss, adjusting for increased maintenance and FX gets us to a number closer to a loss of (-$1.01) well below street expectations; Guidance below already low expectations

Consumer/Retail:
++ WYN: $.68 vs street $.63 (+.02 tax rate) but also raised Q4 to $.40-$.44 vs street of $.39.   Rev and EBITDA guidance for 2011 is above the street on both ends. Thus, decent beat with strong guidance
+ UA: Solid Print although beat was driven by a lower tax rate - $.68 would have read $.63 vs street of $.60.  (GMs weak); Preliminary 2011 Guidance Looks Solid
+ COH: Solid Results; $.08 beat ($.63 vs .55) driven by a very strong comp 8.5% (Street was 4-5, Whisper 6-7) and stronger Gross Margins.
= SPLS: Reiterated guidance for the year and issued 2011 with the street at the mid-point - Pretty much a non event; very blah across the board
- CPLA: 3rd out of 3 education companies this EPS season to guide to weakening growth; fine quarter but weak guidance
- KMB:  $1.14 is light, street $1.27 (miss was GM related with sales inline, and Org sales 1.3% light); They cut guidance for EPS and Org Sales, Now $4.6-$4.7 and 2% (Street was $4.80 and roughly 2%) driven by commodity costs
TMT:
+ DRIV: Beat and raise, looks to be on track to replace lost SYMC business (at a lower margin).  Convert to be used to buy back stock.
= TXN: Revs & EPS slightly ahead for the quarter and guidance down 2-10%q/q or -6% at the midpoint vs street looking for -5%q/q & normal seasonal is -4%q/q - so numbers pretty much inline and stock only down 30C after acting well the last few weeks
= IDTI: Headline numbers look okay, no guidance yet
= ARM.LN: 3Q and 4Q in line, backlog up 10% q/q, GM a bit light.  More of an expectation game than anything else, story all about the 'long term'
=/- ATHR: EPS came inline on revs $1M light of consensus; Press release alludes to potential PC/netbook weakness but also that "increasing demand for ATHR's ROCm low-power mobile" solutions fueled record revs in 3Q
=/- ADVS: 3Q results look like a slight beat but guidance weaker
- RCI/b: Wireless margins and ARPU light; no guidance change which likely will be a surprise
- UCTT: Posted a slight miss with guidance below the street - mgmt "anticipates a slight decline in overall demand, partially offset by continued progress in penetrating the HB-LED market."
- VLTR: Slight miss though within guidance - release talks up record revs "led by [their] notebook business."
- VECO: Posted inline revs but guided below the street citing pushouts of tool shipments "from 4Q into 1Q by several customers in Korea & Taiwan"
-- ZRAN: Posted inline revs but 4Q guide looks atrocious at $60-65M vs St $95M.

Energy:
+ NOV: Very good quarter.  Book to bill > 1;  Drillships likely in order book this Qtr; Outlook commentary likely to be bullish
+/= COG: Earnings beat but higher capex in 2011 remains a headwind for the stock; EPS of $0.31 (ex items) vs. MS at $0.30, and cons at $0.28

Healthcare:
+ WAT - reports small upside surprise, should see stock trade higher, organic revenues accelerated and beat, +9% growth vs MSe 8%, reported revs a bit higher and eps 1c ahead, '10 guidance on the call
+ HSP - beat top and eps by 4c, did lower '10 rev guidance 3-5% cc growth to 2-3%, raise eps 3.35-3.45 to 3.40 to 3.45.  Given messy qtr expected + co tends to be conservative, expect stk to be up.
~ AMGN - revenues and eps were ahead (revs beat 1.3%, reported eps by 7%), most drugs beat but guides to lower end of range for '10 eps and D-mab sales in 1st launch qtr fall short ($10m<$25m cons)
~ BMY - top line light, beats by eps by 9c, maintain guidance. Key is understanding drivers of eps beat, we are still looking into it
- VRTX - qtr not impt (costs were higher, incr negative pipeline update), rather its all about Telaprevir data/filing/decision...co did discontinue trial combination arm, an incremental disappointment.
- EW - slight miss on revenues, eps 1c ahead, bump guidance higher, importantly Sapien growth of ~100% was in-line BUT did guide down Q4 Sapien growth. Will get 2011 Sapien guidance on Dec 13
- CNC - modest disappointment, eps beats (excluding a charge) but co tweaks eps range lower (midpoint now 1.78, a few cents < street), margins and enrollment were light in qtr

Utilities:
= WEC: Beat by +9c and raised '10 guidance by +5c, but weather-fueled beat have received little credit so far, doubt this one's any different; Also, silent on prior '11 guidance / '12 key drivers

CITI cuts WLP.  BCAP cuts CTV.  DBAB cuts ICE, LCAPA, LSTZA, TRV.  MSCO cuts CTAS.  BARD cuts CTV.  UBSS cuts EXPD. FT speculates FDP approached by KKR, $18.50/share.  ACPW beats by 2c.  ALV beats by 25c.  ARIA to offer 16M shares.  ARMH lower on earnings.  ATHR reports in-line.  CMI misses by 8c.  COH beats by 8c.  DRIV beats and guides higher.  JAKK beats by 16c.  JASO raises guidance.  LXK beats by 11c but misses on revenues.  NOV beats by 7c.  HBC rumored to be making bid for NTRS.  OLN beats by 4c.  PCL misses by 4c.  PLD beats and announces 80M share offering.  PLXT misses by 1c.  RF misses by 8c.  SHW misses by 7c.  TLAB beats but lowers guidance.  VDSI beats by 3c.  VECO beats by 20c.  VLTR misses by 8c.  X lower on earnings.  XRAN beats by 3c.  

S&P 500 PreMarket 8:30am (last/% change prior close/volume):  
Today’s Trivia: What waterway, opened on this date in 1825, was critical to the economic development of the Midwestern - and ultimately, Western - U.S.?
                                                                                                                                                                 
Yesterday’s Question: When facing forward on a ship, which way is starboard? 
Yesterday's Answer:  Starboard is to the right.   

Best Quotes:  From BofAMLCO…
…one doesn't need to look too far for a catalyst as 46 SPX names due to report today.  With regards to earnings, 40% of the SPX has reported so far this period with approximately 70% beating on the headline numbers and 62% beating on the revenue front.  On the economic front, consumer confidence and case-schiller data could wield some influence.  Let's keep an eye on volumes - coming off of Friday's low-water mark, volume rebounded by more than 30% but came in much lower than the levels we've grown used to over the last few weeks.  With the issuance calendar heating up (7 IPO's and 5 secondaries announced so far this week), it will be interesting to see if the secondary volumes can hold up.  Lately dips have been bought - will today follow that trend?  1200 is the key on the upside while the key support levels are down in the 1155 - 1150 area.