October 13, 2009

Pharmaceutical Companies Face Competition

The October 13 session concluded with little fanfare, as investors linger before a slew of corporate earnings reports due out during the remainder of the week. Companies such as IBM, GE, and banking giants JPMorgan, Goldman Sachs, Citigroup and Bank of America are due out by the end of the week.

Prior to the week’s influx of company earnings, one of the nation’s largest heath care product manufacturers, Johnson & Johnson (JNJ), announced before the opening bell that the company’s profits during the 3Q marginally moved higher over last year’s results, but came in below expectations. The company attributes the below expectations’ reading to stiffer generic competition of its top drugs, while sales were lower due to weakened consumer demand.

For the recent period, JNJ recorded a net profit of $3.35B, or $1.20 per share, compared to last year’s net income of $3.31B, or $1.17 per share, an increase of only 1.2%. Revenues, meanwhile, slipped year-over-year, falling from $15.9B to $15.1B, a 5% drop in overall sales.

Analysts, on average, were looking for the diversified health care giant to post a quarterly profit of $1.13 per share on total revenues of $15.22B.

"We continue to successfully manage our broad base of businesses and deliver solid earnings despite the impact of patent expirations and the challenges posed by the current economic environment. We completed multiple acquisitions and strategic collaborations and receive several new product approvals in the quarter that will benefit patients worldwide and drive future growth," remarked William Weldon, Chairman and CEO at Johnson & Johnson.

Nevertheless, JNJ did raise their earnings outlook for 2009, revising upwards to a range of $4.54 to $4.59 per share, which is up from the previously stated range between $4.45 and $4.55 per share. Analysts are anticipating an annual profit from JNJ of $4.52 per share.

Shares of Johnson & Johnson, which have been trading between $46.25 and $67.48 over the past year, ended the October 13 session down more than 2%, losing $1.52 to conclude the day at $61.01 per share.

The only other widely recognizable company that reported earnings before the markets opened was pizza delivery chain operator Domino’s Pizza Inc. (DPZ). The company made it known that profits during the 3Q advanced over last year’s tally, due in large part to an effective cost-cutting program and a tax benefit that helped offset a decrease in overall sales.

During the quarter, Domino’s posted net earnings of $17.8M, or $0.31 per share, up a whopping 76% from the previous year’s profit of $10.1M, or $0.17 per share. Domino’s benefited from gains relating to debt write-offs of $0.15 per share and a deferred financing fee write-off of $0.01 per share.

Revenues for the period came in at $302.71M, down from last year’s total of $323.59M, a decrease in sales year-over-year of more than 6%. The company witnessed a 6.5% drop in sales from company-owned stores, as well as a marginal decrease in revenues generated from domestic franchise sales.

On average, analysts within the industry were looking for the pizza delivery company to post net earnings of $0.15 per share on overall sales of $308.92M.

David Brandon, CEO at Domino’s, commented on the company’s results, "We have been intensely focused on controlled overhead spending throughout the past three years."

At the close of the day’s trading session, shares of DPZ slipped 10%, falling $0.94, to conclude the day at $8.43 per share. Over the past 52 week, the company’s stock price has traded as high as $10.08 per share and as low as $2.61 per share.

With the overall markets posting gains over the past week or so, the price of crude has followed right along. During the past month, the price of oil has ranged between $65 and $75 a barrel, as investors continue to struggle with uneven economic news.

As the October 13 session concludes, the price of oil for November delivery added $0.88 to settle at $74.15 a barrel. In additional NYMEX trading, heating oil gained $0.03 to $1.9234 a gallon, while gasoline advanced $0.033 to $1.8318 a gallon. Natural gas for November delivery slipped $0.292 to $4.588 per 1,000 cubic feet.

In a report from OPEC, the Organization of Petroleum Exporting Countries, the group foresees demand for oil recovering in 2010, as global economies emerge from the recession that has put a stranglehold on the world’s commerce. The 12-nation group, which supplies more than 35% of the world’s crude oil, expects daily demand to increase by 700,000 barrels to 84.9 million barrels a day next year.

"Given the recent improvement in the economic performance of OECD and China, oil demand is expected to be better than earlier forecast. The bulk of the growth in next year's oil demand will take place in non-OECD, mainly China, the Middle East, India and Latin America," revealed OPEC.

Inside the Forex markets, the U.S. Dollar retreated in value against the world’s major currencies, as traders are reluctant to fully back America’s economic recovery progress. Heading into the evening hours, the 16-nation Euro increased in value versus the greenback, buying $1.4824, well above the previous day’s price of $1.4776.

In additional monies trading, the British pound gained on the Dollar as well, as the Sterling was priced at $1.5892, up from yesterday’s $1.5786. Lastly, the greenback receded in priced against the Japanese yen as well, falling from 89.84 to 89.72.

Trading opposite of what the equity markets are doing, the bond markets advanced in trading as the major indices traded the entire day in the red. With trading completed throughout the October 13 session, the need for safer, government-back securities increased.

By the end of the day, the benchmark 10-year note was higher by 17/32 to 102 16/32, while yielding 3.32%, down from Monday’s value of 3.38%. Meanwhile, the much longer maturing 30-year note was higher as well, gaining 1 1/32 to 105 21/32, as its yield slipped to 4.16%, down 0.06% from the previous day. Lastly, the shorter 2-year note was marginally higher, adding 6/32 to 100 7/32, while yielding 0.88%, down from 0.97%.

At the closing bell, the Dow Jones industrial average slipped 14.74 points, or 0.1%, to finish the day at 9,871.06, while the broader market indicators concluded the session mixed.

The S&P 500 index retreated by 3.01 points, or 0.3%, to end the session at 1,073.18, while the tech-heavy NASDAQ composite index added 0.75 point at 2,135.59.

2009 Better Trades Article

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BRIAN MULLIN