July 21, 2009

The Markets Traded Higher

The markets traded higher on a heavy day of earnings, as the major indices managed to remain in the green by the closing bell. Amidst solid earnings and positive outlooks, investors renewed their optimism, which helped push the markets higher.

Due to the current economic situation, companies have greatly exceeded expectation as analysts have posted lowered projection, which has caused newfound hopefulness within the marketplace.

The July 21 trading session was propelled solely on the strength of company earnings, as there were no economic reports released to influence traders.

Announcing before the opening bell, the world’s largest maker of construction and mining equipment, Caterpillar Inc. (CAT) confirmed that profits for the 2Q plummeted, but raised their yearly outlook based on signs of a stabilizing global economy.

For the recent period, CAT recorded net income of $371M, or $0.60 per share, in contrast to the previous year’s earnings of $1.11B, or $1.74 per share, a decrease in net income of more than 65%.

Revenues for the quarter receded as well, falling from $13.62B to $7.98B, a decrease in sales of more than 41%. On average, analysts within the industry were looking for the bellwether company to post quarterly earnings of $0.22 per share on overall revenues of $8.86B.

Despite the lowered quarterly results, Caterpillar increased their 2009 earnings expectations from a previously stated $1.25 per share, to a range between $1.15 and $2.25 per share. Analysts are looking for yearly earnings from the equipment manufacturer of $1.01 per share.

In order to maximize profits and revenues, Caterpillar has instituted drastic cost-cutting measures, which include reducing their workforce by more than 22,000 positions in the past year, with more than 17,000 of those cuts coming by the end of 2008.

At the end of the trading session, shares of CAT had surged more than 7%, adding $2.81 to close out at $39.46 per share. Over the past year, the company’s stock has traded as high as $75.87 per share and as low as $21.71 per share.

Healthcare giant Merck & Co. (MRK) reported before the markets’ opening that profits for the 2Q came in lower than the prior year, yet still managed to come in ahead of market expectations. Quarterly results were affected by lower sales totals, as well as costs from a merger and restructuring costs.

For the quarter, Merck booked net earnings of $1.56B, or $0.74 per share, compared to last year’s results of $1.77B, or $0.82 per share, a decrease in net income of nearly 12%. Merck incurred restructuring charges and expenses of $0.09 per share that were in conjunction with the potential purchase of Schering-Plough Corp. Merck is in the process of acquiring the aforementioned company for $41.1B, which is set to close in the 4Q.

Excluding these charges, earnings would have come in at $0.83 per share.

Overall revenues for the period slipped as well, declining from $6.05B to $5.9B, a drop in sales of a little more than 2%. Gross sales were affected substantially by the overall strength of the Dollar, which reduced revenues by nearly 6%.

Through the first six months of the year, Merck posted net income of $2.98B, or $1.41 per share, which came in 41% lower than in the previous year. Last year’s tally for the first six months of 2008 came in at $5.07B, or $2.34 per share. It was noted that this year’s first half was affected by $0.16 worth of charges.

Looking ahead, the drug maker is looking to post annual earnings between $2.84 and $3.09 per share, with yearly sales ranging from $23.2B to $23.7B. Analysts, on average, are anticipating earnings for the year of $3.20 per share on total sales of $23.34B.

With the day’s trading concluded, shares of MRK posted solid gains, adding $1.71, or 6.1%, to finish at $29.65 per share. During the past year, Merck stock has ranged between $20.05 and $38.34 per share.

The world’s leading producer of fighter jets, Lockheed Martin Corp. (LMT), made it known early Tuesday morning that the company’s profits for the 2Q dipped over last year’s results, due in large part to an increase in pension expenses.

Lockheed, along with other defense industry companies, has taken the brunt of the actions by the Pentagon, which has reduced their spending amidst the financial crunch.

For the quarter, Lockheed posted net earnings of $734M, or $1.88 per share, versus a profit of $882M, or $2.15 per share from a year ago, a decrease in net income of nearly 17% year-over-year. Revenues, meanwhile, advanced from $11.04B to $11.24B, an increase in sales of almost 2%.

The biggest contributing factor to the company’s bottom-line came from their pension expenses, which topped $115M. The increase affected earnings by $75M, or $0.19 per share. Lockheed announced in early January that pension expenses would increase quarterly due to the decline in the retirement fund’s value.

Analysts within the industry, on average, were looking for the maker of the F-22 Raptor and other military hardware to post quarterly earnings of $1.81 per share on total sales of $11.14B.

''Our second quarter results reflect recent changes in program priorities undertaken by our U.S. Government customers as well as performance challenges in our IS&GS business segment. While the operational strength demonstrated in Aeronautics, Electronic Systems, and Space Systems was not matched by Information Systems &Global Services, we remain committed to setting and achieving high standards of operational excellence. We are applying additional resources to improve execution in this important business area,'' commented Bob Stevens, Chairman, President and CEO of the company.

Lockheed reiterated their forecast for 2009 with full-year earnings to range between $7.15 and $7.35 per share, and for annual revenues to come in from $44.7B to $45.7B. Wall Street is looking for yearly earnings to be $7.41 per share on total sales of $45.36B.

By the sound of the closing bell, shares of LMT plunged more than 8%, losing $6.98 to end the session at $75.13 per share. Throughout the course of a year, Lockheed has seen their stock price range from $57.41 to $120.30 per share.

The price of oil tested the $65 a barrel mark during the July 21 session, as investors assessed improved earnings to the lack of demand within the crude markets. By the end of trading, the price for a barrel of light, sweet crude for August delivery jumped $0.74 to settle at $64.72 a barrel. Monday’s trading saw the contract slip $0.42 to settle at $63.98.

In additional NYMEX trading, gasoline for August delivery added $0.0226 to $1.812 a gallon, while heating oil gained $0.006 to $1.6984. Natural gas for August delivery gained $0.009 to $3.846 per 1,000 cubic feet.

In the Forex markets, the U.S. Dollar traded higher against the European currencies and lower versus the rest of the world’s paper. By late afternoon, the 16-nation Euro traded lower, buying $1.4202, down from the previous day’s price of $1.4221, while the British pound was lower as well, buying $1.6443, down from yesterday’s value of $1.6533.

Elsewhere, the Dollar was down against the Japanese yen, purchasing 93.73, down from 94.23. Versus the Swiss franc, the greenback bought 1.0674, down from 1.0693, and against the Canadian dollar, the U.S. paper traded at 1.1055, lower than the prior day’s price of 1.1070.

Following a reversal in the markets trading mid-morning, the bond markets went from losses to gains in a short period of time. By the end of trading, the benchmark 10-year note was higher by 1 4/32 to 97 3/32, while yielding 3.47% down from the previous day’s rate of 3.61%.

Meanwhile, the 30-year note surged in trading, gaining 2 2/32 to 97 22/32, while yielding 4.38%, lower than Monday’s rate of 4.54%. Lastly, the 2-year note was up 4/32 to 100 13/32 with a yield of 0.91%, down from yesterday’s 0.97%.

At the sound of the closing bell, the Dow Jones Industrial average traded higher, gaining 67.79 points, or 0.8%, to end the day at 8,915.94, while the broader market indicators concluded the session in the red as well.

The S&P 500 index finished the July 21 session up 3.45 points, or 0.4%, at 954.60, while the tech-heavy NASDAQ composite index was higher by 6.91 points, or 0.4%, at 1,916.20.

2009 Better Trades Article

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BRIAN MULLIN