So earnings season is underway, and the key test will be how the market responds to what is expected to be a concerted attempt to talk down expectations for the rest of the year.
The main story is not Alcoa, it is trucking giant Ryder: down 10 percent pre-open as they lowered first quarter forecast to $0.22 to $0.24, vs. $0.40 to $0.50:"the overall economic environment deteriorated throughout the first quarter beyond the company's original expectations..."
Not only is there reduced demand for truck leases, but customers are driving significantly fewer miles with their existing leases.
Like Emerson Electric, the company is seeking to take down expectations: "The Company anticipates the current worsened economic environment to continue throughout the remainder of 2009."
It is the ability of the markets to sustain this kind of commentary that will define April. A sideways move in the face of this kind of commentary, should it occur, will be a victory for the bulls.
Elsewhere, there are a few positive stories (Pulte/Centex, insurers) and a few negatives (lousy TALF participation)
1) Some insurers are up over 20 percent pre-open on a WSJ report that Treasury plans to extent TARP funds to life insurers who are bank holding companies or own a thrift. The Treasury is expected to make a formal announcement in the next few days.
2) Home builder Pulte is buying Centex, valued at about $10.50 a share, the 20 day weighted average of Centex' price.
This is good news, but don't kid yourself: this is not about a dramatic proactive power grab. It's about saving money.
Deutsche Bank expressed it best this morning: "the main benefit of the merger will be to enable the combined companies to better manage expenses as the downturn drags on."
How much savings? The combined companies have revenues of about $5.9 billion; they estimate combined savings of about $250 million, about 4 percent of revenues.
One other positive from the deal is that the companies are accelerating debt repayment.
3) Alcoa, which is notoriously laconic in its commentary and guidance (read: they don't say any more than they have to), reported a loss on continuing operations of $0.59 cents a share, about in line with a loss of $0.56 expected. Revenues of $4.1 billion was a tad better than expected.
This is a simple story: there is no aluminum company in the world that is profitable with aluminum at an average price of $0.71. In fact, most companies are probably not profitable at any point below $1.00 a pound.
They emphasized their stronger cash position (receving $500 million from Chalco for existing its stake in a joint venture) and raised $1.4 billion in cash through a common stock and convertible note offering a few weeks ago.
The company emphasized that it has become a cost-cutting monster: capital expenditures will be cut 50 percent by 2010.
3) Finally, some movement on mortgage applications: the MBA said applications to buy a home rose 11.1 percent to the highest level since mid-January.
4) Why doesn't anyone want to play with the TALF? Demand for the second round of asset-backed securities was lukewarm at best, with investors using only $1.7 billion in TALF loans out of about $3.3 billion in TALF-eligible bonds issued yesterday. In other words, many investors seem to be avoid using TALF if they can.
5) Bed Bath and Beyond is benefitting from Linens' N Things liquidiation: they reported earnings above expectations.
6) Americans are looking for bargains and they are finding them at Family Dollar, up 3 percent pre-open. The discounter reported net income for jumped 33 percent to 60 cents a share, in-line with guidance and Street estimates. More importantly, they are guiding higher than Street estimates for the rest of the year.
CORRECTION: An earlier posting mis-stated the quarter forecast from Ryder. This has been corrected.
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