August 8, 2009

Investors Await News from the Federal Reserve

The August 11 trading session started and ended the day in the red, as investors await news from the Federal Reserve, which commenced talks today that could lend some insight on how the overall economy is performing. The markets responded poorly to a handful of government reports that helped keep trading in negative territory.

Advancing at its fastest pace in more than six years, the Labor Department confirmed on August 11 that U.S. non-farm productivity increased at a 6.4% annual rate during the 2Q, as companies continued to reduce costs in order to maximize profits. The recent reading was the highest increase since a 9.7% gain in the 3Q of 2003. Analysts were anticipating a reading in productivity of a 5.3% gain.

Scott Brown, chief economist at Raymond James & Associates commented, "It's good because it helps keep inflation low; labor costs are pretty benign. On the other hand it means you can do more with fewer people."

In addition to productivity, the government agency also revealed that unit labor costs, a gauge of inflation and profits pressures closely monitored by the Fed, plunged 5.8% during the quarter, the largest such decline since a 7.7% drop in the 2Q of 2000.

For the 2Q, analysts were looking for labor costs to subside by 2.4%, following a 2.7% decline during the January-March period.

Looking further into the report, compensation per hour advanced 0.2%, although adjusted for inflation, was down 1.1%. Output, meanwhile, declined at a 1.7% clip during the quarter.

In a year-over-year comparison, productivity was up 1.8%, while unit labor costs slipped 0.6% from a year ago. However, compensation on a yearly basis jumped 1.3% from 2008 totals, and adjusted for inflation surged 2.2%.

The Commerce Department announced on Tuesday that businesses continued to cut inventories at the wholesale level for a record 10th consecutive month. Within the report, inventories plummeted 1.7% in June, which compounds the previous month’s reduction of 1.2% in May. Economists were expecting a much smaller decline in inventories of 0.9%.

Wholesale inventories, which are goods held by distributors who buy from manufacturers and sell to retailers, makes up nearly 25% of all business inventories.

Included in the wholesale’s report, sales at the wholesale level increased 0.4% in June, posting its first back-to-back increases in more than a year.

In corporate news, Fossil Inc. (FOSL), a designer, developer, marketer and distributor of fashion watches and other accessories, made it known before the opening bell on August 11 that the company’s profits slipped during the 2Q, but still beat market expectations. Results were greatly affected by the ongoing economic downturn and a stronger dollar, which hurt the bottom-line due to the unfavorable exchange rate.

For the 2Q, Fossil earned $16.6M, or $0.25 per share, in sharp contrast to the previous year’s earnings of $25.1M, or $0.36 per share, a decrease in net income year-over-year of nearly 34%. Sales during the period retreated as well, falling from $353.2M to $315.9M, a drop in revenues of almost 11%.

On average, analysts within the industry were looking for the watchmaker to record quarterly earnings of $0.20 per share with total sales coming in at $321M.

Looking ahead to the upcoming 3Q, the company expects quarterly earnings to range between $0.38 and $0.42 per share, while yearly projections has the company’s earnings ranging from $1.63 to $1.73 per share. Analysts, in the meantime, are looking for Fossil to record 3Q earnings of $0.46 per share and yearly numbers to be $1.61 per share.

At the sound of the closing bell, shares of FOSL plunged in trading, losing nearly 10%, or $2.65, to end the day at $25.07 per share. During the course of a year, shares of Fossil have traded as high as $32.96 and as low as $11.00 per share.

Engaged in the development and marketing of enterprise information technology modernization solutions worldwide, BluePhoenix Solutions Ltd. (BPHX) reported a smaller loss in the 2Q, while revenues came in ahead of market projections.

For the recent period, BluePhoenix booked a net loss of $1.91M, or $0.09, down from the previous year’s loss of $8.26M, or $0.39 per share, an improvement of nearly 77%. Revenues, meanwhile, slipped more than 17% year-over-year, dropping from $23.03M to $19.05M.

Analysts, on average, were looking for the Israel-based tech company to post a quarterly profit of $0.05 per share on overall revenues of $18.43M.

With the August 11 session concluded, shares of BPHX slipped nearly 8% by the close, losing $0.23 to finish the day at $2.67 per share. Over the past 52 week, shares of BluePhoenix have traded as high as $5.63 and as low as $1.35 per share.

Operating as a postsecondary education services that offers associate's, bachelor's, master's, and doctoral programs in the disciplines of business, education, psychology, social sciences, and health sciences, Bridgepoint Education Inc. (BPI) announced that the company’s profits decreased during the 2Q, while yearly expectations increased.

By the end of the recent quarter, Bridgepoint earned $1.3M, or $0.02 per share, versus the prior year’s profits of $8M, or $0.06 per share, a decrease in net income of nearly 84%. However, on an adjusted basis, excluding one-time charges, the company would have posted earnings of $20M, or $0.34 per share.

Meanwhile, overall sales during the period more than doubled, climbing from $49.9M to $110.9M. Analysts, within the industry, were looking for Bridgepoint to record quarterly earnings of $0.23 per share on total revenues of $99.24M.

Appearing as a positive quarter for the company, BPI revised their yearly outlook for earnings, and is now expecting annual profits to range from $58.1M to $59.2M, or $1.00 to $1.02 on a per share basis. Revenues for the year are projected to come in between $425M and $430M.

On a yearly basis, analysts are predicting Bridgepoint to book annual earnings of $0.87 per share with overall revenues totaling $406.53M.

With an upwardly adjusted earnings outlook, shares of BPI advanced by the close of the August 11 session, adding $0.87, or 4.5%, to end the day at $20.21 per share. During the past year, shares of BPI have ranged between $9.56 and $21.60 per share.

Having declined to just under $71 a barrel by the end of Monday’s trading, the price of crude continued its downward course to end the August 11 session lower than the previous day. At the close, the price for a barrel of light, sweet crude for September delivery slipped $1.15 to settle at $69.45 a barrel. The previous day’s contract slipped $0.30.

In additional NYMEX trading, gasoline for September delivery advanced $0.0138 to $2.9422 a gallon, while heating oil was lower by $0.0159 at $1.9117 a gallon. Natural gas for September delivery plunged $0.10 to $3.541 per 1,000 cubic feet.

In anticipation of a record $37B auction in 3-year notes, bond prices advanced on Tuesday, as the Treasury Department is set to kick off its first of three auctions this week totaling more than $75B. On August 12, $23B worth of 10-year notes will be auctioned, while the following day will see $15B worth of 30-year notes go on sale.

By the end of the day, the benchmark 10-year note advanced 27/32 to 95 17/32, while yielding 3.67%, down from the previous session’s rate of 3.77%. Additionally, the 30-year note increased as well, gaining 1 19/32 to 96 30/32, as its yield retreated to 4.43%. Finally, the 2-year note inched higher, posting a gain of 4/32 to 99 21/32 with a yield of 1.17%.

In the Forex markets, the U.S. Dollar retreated versus much of the world’s currencies, as the 16-nation Euro advanced in value against the greenback by late afternoon, buying $1.4157, up from the previous session’s price of $1.4139. Meanwhile, the Dollar lost ground against the British pound as well, as the Sterling bought $1.6506, up from $1.6498.

In additional currency trading, the greenback gained value against the Canadian dollar, buying 1.0995, up from 1.0878 the day before, yet slipped against the Swiss franc, falling from 1.0847 to 1.0823. Versus the Japanese yen, the Dollar bought 95.89, down from Monday’s price of 97.07.

Adding to Monday’s losses, the August 11 trading session ended with little fanfare, as the Dow Jones Industrial average retreated by 96.50 points, or 1.0%, to end the day at 9,241.45, while the broader market indicators concluded in the red as well.

The S&P 500 index slipped 12.75 points, or 1.3%, to close at 994.35, while the tech-heavy NASDAQ composite index dropped 22.51 points, or 1.1%, to finish the session at 1,969.73.

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