April 7, 2009
The markets slipped after the first two trading sessions of the week, setting a sour tone for the week following a four-week rally in the major indices as the earnings season revs up. With 1st quarter performance reports set to begin on Tuesday, and intensifying by late next week, buyers remain on the sidelines with concerns over banks’ balance sheets affecting earnings next week. Expected to release their company’s data next week include Goldman Sachs (GS), JPMorgan Chase (JPM), BB&T Corp. (BBT) and Citigroup (C), not to mention Johnson & Johnson (JNJ), Google (GOOG) and General Electric (GE).
In a light docket of earnings before the opening bell on Tuesday, a leading marketer and manufacturer of a variety of branded consumer products, including over-the-counter health care, toiletries, and skin care products, Chattem Inc. (CHTT) confirmed an increase in the company’s 1Q profit, but lowered 2009 earnings guidance. For the period, CHTT booked net income of $19.6M, or $0.99 per share, versus the previous year’s earnings of $14.9M, or $0.75 per share, an increase in net income of nearly 32%. Revenues, meanwhile, dropped from $120.8M to $116.1M, a decline in sales of almost 4%. Analysts were looking for Chattem to post quarterly earnings of $1.13 per share on total sales of $126.2M. In lieu of the company lowering expected 2009 earnings figures, from $4.80 to $5.00 per share, down to a range of $4.80 to $4.90 per share, CHTT stock slipped marginally by the close, falling $0.38 to close at $52.42 per share.
The other company reporting before the opening of trading was International Speedway Corp. (ISCA), whose operations consist primarily of racing events at the company’s motor sports facilities. ISCA made it known early Tuesday that 1Q earnings slipped year-over-year as the prices of tickets were reduced in order to increase fan attendance. During the quarter, ISCA recorded earnings of $25.1M, or $0.52 per share, compared to last year’s tally of $36.2M, or $0.71 per share, a decrease in profits of nearly 31%. Overall sales for the period slipped as well, falling from $193.9M to $166.1M, a decline of more than 14%. On average, analysts were looking for ISCA to post quarterly earnings of $0.61 per share on revenues of $179.7M. At the conclusion of Tuesday’s trading, shares of ISCA were down more than 23%, plunging $5.75, to close at $18.68 per share.
According to a report from the International Monetary Fund (IMF), the organization forecasted that more than $4 trillion worth of bad assets was currently on banks’ balance sheets, further adding to the growing concern about the global financial situation.
Financial stock remain beaten during the first two trading sessions of the week, as investors were discouraged during Monday’s session on news that the Treasury Department delayed a program designed to assist banks in unloading toxic loans from their balance sheets, which in turn, could lead to greater-than-expected losses in upcoming earnings.
In more banking news, First Niagara Financial Group Inc. (FNFG) announced early Tuesday morning that the company would acquire $4.2B worth of deposits, along with 57 branches from National City Bank, a unit of PNC Financial Services Group Inc. (PNC) in western Pennsylvania. Looking to expand operations outside of New York, FNFG will also receive $3.2B in cash and $839M in consumer loans, in addition to the branches and deposits. The transaction will increase FNFG’s operations, which had $5.9B in deposits and $9.3B in assets at the end of 2008. FNFG will also be adding more than 400,000 new customers with the acquisition. Shares of First Niagara jumped more than 12% in trading on Tuesday, adding $1.39 to close at $12.58 per share.
Internationally, the European Union proclaimed Tuesday that an inquiry into Visa Europe regarding cross-border card purchasing fees might be in violation of EU rules. The EU sent a letter of objection to the company stating that the fees, which are imposed by Visa, “restrict competition” between competing banks, which in turn, could lead to higher costs for local shops and consumers. In response to the accusation, Visa can now submit in writing, or in a hearing under EU rules, answers to any and all charges brought against them before a final decision is made regarding the matter.
In other overseas news, Japan announced today that the nation’s banking system would continue to keep the key overnight call rate at 0.1%. With the interest rate remaining steady near zero, the Bank of Japan has very little room to help stimulate a monetary policy that is in dire need for reform. In efforts to jump start lending, the BOJ expanded the range of collateral it accepts in order to infuse more funds to commercial banks, thus increasing the access to funds that companies are seeking.
Within the commodity markets, the price of oil slipped along with the overall indices on Tuesday, as investors await company earnings before looking for the overall direction of the markets. By the close of trading today, the price of light, sweet crude for May delivery slipped $1.90 to settle at $49.15 per barrel.
In additional NYMEX trading, gasoline for May delivery dropped $0.0151 to $1.4604 a gallon. Heating oil fell $0.0288 at $1.3903 a gallon. Natural gas for May delivery also retreated, giving up $0.17 to $3.562 per 1,000 cubic feet.
Following today’s treasury auction of $28B worth of 4-week bills and $25B worth of 1-year bills, the bond markets saw a push higher, on the heels of Monday’s down day. By the end of trading, the benchmark 10-year note gained 1 16/32 to 100 with a yield of 2.75%, while the 30-year note advanced as well, adding 7/32 to 96 5/32 as its yield slipped from 3.74% to 3.71%. Finally, the 2-year note edged higher, increasing by 2/32 to 99 29/32 as its yield retreated to 0.91% from Monday’s 0.96%.
By the sound of the closing bell, the Dow Jones Industrial average lost more than 2.3% in value, giving up 186.29 points to conclude the session at 7,789.56, while the broader market indicators declined as well.
The S&P 500 index slipped nearly 2.4% by the close, losing 19.93 points to 815.55, while the tech-heavy NASDAQ composite index dropped by 45.10 points, or 2.8%, to finish the session at 1,561.61.
brought to you by