Trader Talk

Market Themes: Subprime And Overseas Growth


A flood of economics and earnings reports will quickly dominate the week; already there are a few companies sounding familiar themes.
1) Subprime bleeds into the current quarter for financials. UBS saying their third-quarter loss would be in line with the lowered guidance they gave earlier this month. They will record losses of roughly $500 m to $700 m due to large writedowns on their exposure in mortgage backed securities. But the more important news is they did warn they may record further write-downs in the future. They'll release their earnings tomorrow.

2) Kellogg is a microcosm of this quarter's two main earnings themes: a) U.S. weaker than international growth, and b) inflation an issue. They beat their earnings expectations and raised full year guidance by a penny. Once again, the bigger growth was overseas: North America reported net sales growth of 4%, International 12%. Kellogg also noted that commodity, fuel and benefit inflation was an issue, raising those costs to $0.32 per share, twice as much as they had originally expected. They also raised their buyback.

3) We beat, but sales are dropping. Radio Shack beat estimates handily, although comparable store sales were still down nearly 9% compared to the year before. Up 12% pre-open.

4) Don't delay earnings. Office Depot was supposed to report their earnings tomorrow, but they are delaying their third quarter earnings report, due to a review of its vendor program funds. No word on when earnings will be out. Credit Suisse and JP Morgan downgraded the company; the question is whether this will involve earnings restatements. Down 8% pre-open.

Questions?  Comments?