February 16, 2010

markets Resumed Their Upbeat Sentiment

Following a day off in observance of President’s Day, the markets resumed their upbeat sentiment, as investors were pleased with a couple of economic reports, as well as solid earnings reports from some well-known companies.

In a light day of economic news, the Federal Reserve Bank of New York announced early Tuesday morning that manufacturing within the region expanded at a much faster pace than anticipated. In February, the Empire Manufacturing index jumped to a reading of 24.9, higher than the 18 economists were looking for and well ahead of January’s reading of 15.9.

Included in the report, the New York Fed also revealed that the region’s employment index advanced from a reading of 4 last month to 5.6, while a measurement for a six-month outlook of new orders increased to 55.6 from 52 in January. The current reading marked the highest level since February 2006.

Furthermore, the Fed showed that a measure of sales in the region also increased to 55.6, the highest since January 2006, while the gauge of current shipments slipped from 21.1 to 15.1, while the new factory orders measure declined from 20.5 to 8.8. Lastly, a gauge of prices paid decreased to 31.9 from 32, while prices received increased from 2.7 to 4.2.

The other economic report released today was from the U.S. Department of Treasury, which revealed that the nation’s net long-term TIC flows in December slipped to $63.3B, down by almost half from January’s total of $126.4B.

Results came in better than expected, as economists were predicting that the TIC flow would slip even lower, to a reading of $50.3B. TIC stands for Treasury International Capital and is an economic measurement that shows in-and-out transactions of financial resources in the U.S.

In corporate news, Abercrombie & Fitch Co. (ANF) announced pre-market that the company’s earnings during the 4Q slipped, as consumers remain fickle about higher priced merchandise. Known primarily for higher prices and preppy fashions, ANF is engaged in the purchasing, distribution and sale of men's, women's and kids' casual apparel.

For the recent period, ANF posted net income of $47.5M, or $0.53 per share, compared to the previous year’s 4Q profit of $68.4M, or $0.78 per share, a decrease in net earnings of nearly 31%. Excluding a one-time charge related to store closings, Abercrombie & Fitch would have posted a net profit of $0.91 per share. However, quarterly sales for ANF slipped year-over-year, falling from $980.8M to $936M, a drop in overall revenues of almost 5%.

Analysts, on average, were looking for the clothing retailer to post a quarterly profit of $0.87 per share based on $953.7M in total sales.

For the year, ANF saw its annual earnings plunge from $272.3M, or $3.05 per share a year ago, down to $254K, or break-even, in 2009. Yearly revenues also succumbed to economic pressures, falling more than 16% to $2.93B.

Mike Jeffries, Chairman and CEO at Abercrombie & Fitch, commented on the company’s recent performance, "Having managed through a very difficult retail environment in 2009 with a long-term mindset of protecting our brands, we look forward to 2010 as we intend to grow the business internationally and improve the profitability of the domestic business."

As Tuesday’s trading ends, shares of ANF surged more than 4% by the close, adding $1.40 to conclude the day at $35.25 per share. Over the past year, the company’s stock has traded within a relatively broad range, with a high of $42.31 per share and a low of $16.95 per share.

Another retailer, Fossil Inc. (FOSL), reported before the opening bell that the company’s net earnings surpassed last year’s tally in the 4Q, as higher wholesale sales and an increase in exports helped the company’s bottom-line. Fossil designs, develops, markets and distributes fashion watches and other accessories principally under the company’s brand name.

For the recent period, Fossil recorded a net profit of $70M, or $1.03 per share, up from last year’s 4Q earnings of $46.3M, or $0.69 per share, an increase in net income of more than 51%. Overall sales increased as well for Fossil, as revenues jumped from $464.11M to $527.84M, an increase in sales of almost 14%.

On average, analysts within the industry were looking for the watchmaker to record a quarterly profit of $0.91 per share on $520.96M in total revenues.

Mike Kovar, Executive VP and CFO remarked, "We are pleased to report record Fourth Quarter net sales and earnings as well a record year for net income. Product innovation across our watch and accessories offerings, the successful execution of our key growth initiatives and the ongoing strength of our global operating footprint all contributed to an outstanding finish to a challenging year. Our global retail stores delivered comparable store growth of 12.1% during the holiday quarter, on top of a 3.2% increase in the prior year fourth quarter, and remain the primary platform for leveraging additional growth opportunities for our namesake Fossil brand through all distribution channels.”

Looking ahead to the upcoming 1Q of 2010, Fossil is looking to show an increase in net sales between 12% and 14%, with earnings ranging between $0.31 and $0.33 per share. Analysts are expecting the company to post a 1Q profit of $0.30 per share with revenues coming in at $344.71M.

For all of 2010, the company is looking to increase sales between 9% and 11% annually, with earnings ranging between $2.25 and $2.35 per share. Market analysts are predicting an annual profit of $2.21 per share with yearly sales totaling $1.65B for 2010.

By the sound of the closing bell on February 16, shares of FOSL were up nearly 7%, gaining $2.33 to conclude the session at $36.55 per share. Throughout the past year, the company’s stock has managed to trade as low as $11.22 per share, and as high as $37.06 per share, which was established in intraday trading.

Operating as the largest branded food and beverage company headquartered in the U.S. and the second largest in the world, Kraft Foods Inc. (KFT) made it known prior to the opening bell that the company’s profits during the 4Q more than tripled, mainly from restructuring operations and an increase in revenues from emerging markets.

During the quarter, Kraft managed to post a quarterly profit of $710M, or $0.48 per share, in contrast to the previous year’s net earnings of $178M, or $0.12 per share. Overall sales edged higher during the quarter as well, climbing from $10.68B to $11.03B, an increase in revenues of more than 3%.

Within the industry, analysts were looking for the company to record a quarterly profit of $0.45 per share based on $11.07B in overall revenues.

Irene Rosenfeld, Chairman and CEO at Kraft, commented, "2009 was a strong finish to our three-year turnaround and gave us excellent momentum heading into 2010. Despite the challenging economic environment, we generated exceptional profit and free cash flow. We continue to benefit from investments in our iconic brands. This is driving volume/mix gains and leveraging our cost structure to deliver sustainable, profitable growth. And our top line reflected our resolve to avoid chasing unsustainable, promoted volume."

For fiscal 2009, Kraft earned $3B, or $2.03 per share, compared to the prior year’s net earnings of $2.89B, or $1.90 per share, an increase in year-over-year profits of nearly 4%. However, annual sales slipped from 2008’s figures, falling from $41.93B to $40.39B, a drop in revenues of almost 4%.

With the February 16 session over, shares of Kraft Foods traded in the red throughout the day, falling $0.12, or 0.4%, to end the session at $28.97 per share. Throughout the past 52 weeks, the company’s stock has managed to trade as high as $30.10 per share, while dipping to an annual low of $20.81 per share.

Energy prices reversed their downward trend on Tuesday, due mainly to investors taking heed of economic data suggesting that demand for crude in the U.S. could be improving, and a weakening Dollar. By the close of trading, the price for a barrel of light, sweet crude for March delivery gained $2.88 to settle at $77.01. The current contract slipped $1.15 to settle at $74.13 a barrel last Friday.

In additional NYMEX trading, heating oil added $0.0774 at $1.9963 a gallon, while gasoline gained $0.0587 to $1.9882 a gallon. March natural gas futures slipped $0.158 to $5.310 per 1,000 cubic feet.

With a weakening Dollar, Treasury prices were higher Tuesday, as investors were certain as to where to place their capital. With the day’s trading complete, the benchmark 10-year note was higher, adding 7/32 to 99 21/32, with a yield of 3.66%, down 0.02% from the day before.

Meanwhile, the longer maturing 30-year note was up on the day as well, gaining 8/32 to 99 26/32, as its yield declined to 4.63%. Lastly, the shorter maturing 2-year note was marginally higher, adding 2/32 to 100 4/32, while its yield decreased by 0.03% to 0.80%.

The Forex markets saw the Dollar trade lower versus the majority of the world’s currencies, as the 16-nation Euro advanced against the greenback, buying $1.3770, up from the previous session’s price of $1.3665. The British pound also increased versus the Dollar, as the Sterling climbed from $1.5706 to $1.5791.

The Dollar did manage to increase in value against the Japanese yen, buying 90.10, up from Friday’s value of 90.03. In additional trading, the Dollar fell to 1.0659 Swiss francs from 1.0773 and slipped to 1.0438 Canadian dollars from 1.0487 Canadian dollars.

By the sound of the closing bell on February 16, the Dow Jones Industrial average gained 169.67 points, or 1.7%, to end the day at 10,268.81, while the broader market indicators concluded the session in the green as well.

The S&P 500 index was higher, adding 19.36 point, or 1.8%, to finish at 1,094.87, while the tech-heavy NASDAQ composite index advanced as well, climbing 30.66 points, or 1.4%, to 2,214.19.

2010 Better Trades Article

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BRIAN MULLIN