November 24, 2009

Major Indices Surged

Following a day in which the major indices surged more than 1.3% each, investors were taken back a bit during the November 24 session, as drab economic reports and missed earnings expectations pushed the markets into the red for the day.

In a report from the Standard & Poor's/Case-Shiller home price index, prices were shown to have advanced 0.3% in September to a seasonally adjusted reading of 144.96. The increase marks the fourth straight monthly advance, showing positive signs that the housing market recovery is strengthening. Nevertheless, prices remain 9.4% below last year’s levels in September.

David M. Blitzer, Chairman of the S&P index committee commented, "We have seen broad improvement in home prices for most of the past six months. However, the gains in the most recent month are more modest than during the seasonally strong summer months."

The Commerce Dept. announced early Tuesday morning that the economy expanded at a 2.8% pace during the 3Q in a preliminary reading. The expansion comes in below the 3.5% growth rate that economists were looking for back in October. The lower rate was attributed to the lack of consumer spending, weakened commercial construction and an increase in the nation’s trade deficit.

Looking further inside the GDP report, spending on residential construction surged at an annualized pace of 19.5% last quarter, just behind the 23.4% rate first estimated. Spending on durable goods jumped at a pace of 20.1%, down from 22.3%. Meanwhile, businesses reduced their inventories by $133.4B, just ahead of what was initially estimated. The trade deficit ended up taking 0.83 percentage point off GDP, which was more than anticipated.

For the current 4Q, most economists are looking for growth to slow to a 2.5% rate, while others are looking for GDP to expand at a 3% clip in the current quarter.

The Conference Board revealed mid-morning that consumer confidence in November improved marginally from October, despite the overall sentiment from shoppers remaining bleak heading into the holiday season. The index showed a reading of 49.5, up from a revised reading of 48.7 in the previous month. Economists were looking for a reading of 47.7.

The index also revealed that a measurement of consumers’ sentiment towards the current economic situation fell to a reading of 21, down from October’s reading of 21.1. Shoppers’ outlook for the next six months increased slightly, coming in at 68.5, up from 67 in October.

In corporate news, Dollar Tree Stores Inc. (DLTR), an operator of discount variety stores offering merchandise at a fixed price point of $1.00 or less, announced early Tuesday morning that the company’s profits during the 3Q came in above expectations. Net earnings were helped by price-conscience shoppers in search of everyday low prices.

For the period, DLTR recorded a profit of $68.2M, or $0.76 per share, versus net earnings of $43.1M, or $0.47 per share a year ago, an increase of more than 58%. Revenues, in the meantime, surged as well, advancing by more than 12% to come in at $1.25B. On average, analysts within the industry were looking for Dollar Tree to post a profit of $0.66 per share on $1.24B in total revenues.

Bob Sasser, President and CEO of Dollar Tree, commented, "Sales and earnings were above plan, operating margin improved significantly, we leveraged our SG&A expenses and we continued to expand our nation-wide store base. The sell-through on Halloween and fall seasonal products was excellent and our stores are now set with an exciting presentation of extreme-value merchandise for Thanksgiving and the Holiday season."

Looking forward, DLTR revised their full-year earnings expectations upwards and is now looking to post an annual profit between $3.34 and $3.43 per share. That is up from a previously stated range of $3.10 to $3.25 per share. The company also revised their sales projections as well, and is now looking for overall revenues for 2009 to be between $5.17B and $5.21B, up from $5.09B to $5.19B. Analysts are looking for a yearly profit of $3.29 per share on revenues of $5.20B from Dollar Tree.

With the day’s trading concluded, shares of DLTR were up more than 4%, adding $2.23 to end the session at $51.33 per share. Over the course of a year, the company’s stock has traded between $32.94 and $52.20 per share.

Conducting business as a specialty branded footwear retailer throughout the U.S., DSW Inc. (DSW) announced prior to the market’s opening that profits during the 3Q topped market expectations, leading DSW to raise their full-year outlook. The company managed higher income during the period as sales increased year-over-year and costs were reduced.

During the quarter, DSW posted a net profit of $26.6M, or $0.60 per share, more than doubling the previous year’s 3Q earnings of $13.2M, or $0.30 per share. Quarterly revenues were up nearly 14% year-over-year, climbing from $391.36M to $444.62M. Within the industry, analysts were looking for the footwear retailer to post a profit of $0.46 per share based on $424.58M in revenues.

For fiscal 2009, DSW raised their earnings outlook to a range between $0.90 and $1.00 per share, up from a previous range of $0.70 and $0.80 per share. Although the company did not state their expected range of overall sales for the year, DSW does expect to see same store sales increase 1% over last year’s results. Analysts are currently looking for the company to post an annual profit of $0.78 per share on $1.55B in total sales.

By the end of today’s trading, shares of DSW were up nearly 11%, gaining $2.17 to end the session at $22.71 per share. During the past years, the company’s stock has traded as low as $6.66 per share, while reaching a yearly high of $23.00 per share.

Engaged in the manufacturing and marketing of an extensive line of processed food products throughout the world, H.J. Heinz Co. (HNZ) reported before the opening bell that the company’s profit during the 2Q declined over last year’s results, despite sales increasing as consumers are eating at home more frequently during the recession.

Posting for the 2Q, Heinz recorded net income of $231.4M, or $0.73 per share, in contrast to last year’s earnings of $276.7M, or $0.87 per share, a decrease in net profits of more than 16%. Revenues came in higher year-over-year, as sales jumped from $2.61B to $2.67B, an increase of 2.3%. Analysts, on average, were looking for the makers of ketchup and Ore-Ida French fries to record a quarterly profit of $0.70 per share on $2.63B in sales.

William Johnson, Chairman, President and CEO of Heinz remarked on the company’s recent performance, "Heinz delivered a strong financial performance in an adverse economic climate, led by our growing strength in Emerging Markets. Looking forward, the Company is raising its full-year outlook for earnings and cash flow and we expect increased top-line momentum in the second half of the fiscal year."

For 2010, Heinz increased their earnings outlook and is now anticipating earnings from continuing operations to come in between $2.72 and $2.82 per share, up from a previously stated range of $2.60 to $2.70 per share. Analysts are looking for a yearly profit of $2.75 per share.

After trading in the red for much of the morning session, shares of HNZ managed to end the day in the green, adding $0.06, or 0.1%, to finish at $43.23 per share. Over the past 52 weeks, the company’s stock price has dipped as low as $30.51, while trading as high as $43.70 per share.

Following economic data that showed that consumer confidence was down in the previous month and another day of gains for the U.S. Dollar, investors shied away from oil as the price for a barrel of light, sweet crude for December delivery dropped $1.54 to settle at $76.02 a barrel. Also contributing to the decline in oil prices was the increase in storage of crude supplies, which are expected to increase again this week.

In additional NYMEX trading, heating oil slipped $0.005 to $1.9497 a gallon, while gasoline for December delivery dropped $0.0404 to $1.939 a gallon. Natural gas for December added $0.013 to $4.486 per 1,000 cubic feet.

Inside the Forex markets, the Dollar traded higher versus many of the world’s currencies by late afternoon, following the less-than-stellar economic reports released earlier. Heading into the evening hours, the 16-nation Euro fell to $1.4960 from Monday’s price of $1.4973. The previous session witnessed the Euro hit $1.5001, its highest mark since November 16.

Meanwhile, the British pound slipped against the greenback as well, falling from $1.6637 to $1.6577, while the Dollar lost ground versus the Japanese yen, slipping from 89.02 to 88.55. In additional currency trading, the Dollar inched higher to 1.0098 Swiss francs from 1.0093 late Monday, and climbed to 1.0595 Canadian dollars from 1.0553.

As weakness in the equity markets persisted throughout the November 24 session, investors were quick to jump into the safe haven of lower risk government-backed securities, pushing Treasury prices higher by the close. At the conclusion of trading, the benchmark 10-year note was up marginally, gaining 11/32 to 100 17/32 while yielding 3.30%, down 0.05% from the previous session.

In other trading, the longer maturing 30-year note was higher as well, adding 13/32 to 102 1/32 as its yield slipped 0.02% at 4.25%. Lastly, the shorter maturing 2-year note was down substantially, plunging 15/32 to 100 1/32 with its yield remained unchanged at 0.73%.

With the markets closed, the major exchanges all managed to end in negative ground heading into the mid-week trading session. By the sound of the closing bell, the Dow Jones Industrial average slipped 17.24 points, or 0.2%, to end the day at 10,433.71, while the broader market indicators were in negative ground as well.

The S&P 500 index was lower by 0.60 point, or 0.1%, to conclude the November 24 session at 1,105.65, while the tech-heavy NASDAQ composite index slipped 6.83 points, or 0.3%, to conclude the day at 2,169.18.

2009 Better Trades Article

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BRIAN MULLIN