Guidance Is Now A Tricky Business
Producer Prices were down 2.8 percent in October, the biggest decline on record month-over-month and far more than the expectations of down 1.9 percent. The headline number was depressed by a 24.9% decline in gasoline prices. To add to the confusion, core-PPI (ex-food and energy) rose 0.4 percent which was 0.3 points more than expected.
1) Hewlett Packard up 15 percent pre-open, reported fourth quarter earnings a few pennies above the $1.00 expected; more importantly guidance was surprisingly strong: $0.93-$0.95 for the first quarter vs. $0.93 estimate.
2009 guidance is also surprisingly high: $3.88-$4.03 vs. $3.85. They are emphasizing execution and the ability to increase market share. IBM ,Dell, and other techs have rallied on this guidance. Please note that last night Hewlett said they were extending a holiday shutdown on PC production from one week to 2 weeks.
2) Like many retailers, Home Depot beat earnings estimates. However, comparable store sales were down 7.1 percent. No guidance for the fourth quarter, but they do expect full year comp store sales down 8 percent, with EPS for the full year expected to decline by 24 percent, consistent with previous guidance.
3) Elsewhere, guidance is really becoming a tricky business.
a) Saks reported earnings below expectations (loss of $0.13 vs. loss of $0.03 expected), CEO Stephen Sadove said, "it is impossible to predict future performance with any degree of certainty," so they didn't give any guidance;
b) Corning and Host Hotels (which owns much of the Marriott hotels) withdrew their guidance;
c) Pepsi Bottling also lowered guidance and said it would cut 3,150 jobs in North America, Europe and Mexico;
4) As commodity prices have dropped, the attractiveness of mergers in that space have dropped as well. Two large companies in the steel space—Cliffs Natural Resources and Alpha Natural Resources—terminated their $10 billion merger, citing the economic environment. Cliffs up 6 percent pre-open.
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