Trader Talk

A Higher Start


Ah, we're back to the Good Old Days...of last week. Stock futures have been higher all night...the dollar is down after a two-day rally, the Shanghai Composite Index has rallied 1.7 percent after dropping 5 percent yesterday after the People's Bank of China assured investors that they would keep a relatively loose monetary policy, commodities are rallying...initial jobless claims were about inline with expectations.

Now if we can get through the 7-year auction note...


1) Oil companies are having a tough time of it, and judging by the comments they are not optimistic earnings or volumes will return to earlier levels any time soon.

a) ExxonMobil (XOM) reported net income of $3.95 billion (net income was $11.7 billion for the same period last year), earnings of $0.84 (ex-items), below consensus estimates of $1.02.

There were two major issues: 1) volumes were lower due to weaker demand, and 2) refining margins appear to be much weaker, which would track earlier results from smaller refiners like Valero.

b) Royal Dutch , which is the second largest oil company in the world after Exxon, reported net income that was well above expectations. But those earnings were nearly 70 percent below that of last year ($3.8 billion vs. $11.6 billion).

CEO Peter Voser gave a rather conservative (i.e. downbeat) read on demand and oil prices. Bottom line: capital expenditures are going down about 10 percent, they are still laying off employees, and Voser said "we are not banking on a quick recovery."

Rival BP also said they expect the recovery to take longer than most expect.

2) Our parent company, General Electric , up 7 percent pre-open, upgraded to buy at Goldman Sachs: "comments reported after the close by US House Financial Services Chairman Barney Frank suggest broadening support for regulatory reform that would not mandate the separation of GE Capital."

3) Home builder Ryland reported a greater earnings loss than expected; revenues were also below expectations. They are still reporting high inventory impairment charges (writing down value of land and homes built), and gross margins of 7.8 percent are fairly poor.

4) Dow Chemical is down about 1 percent pre-open after beating Q2 earnings estimates ($0.05 profit, ex-charges vs. a loss of $0.09 expected). Sales disappointed however, falling 31 percent from a year ago and missing estimates by nearly $2 billion.

The chemical maker faced a double whammy: it was hurt by both weak volumes and declining prices, which plunged 20 percent each from the prior year. Conditions were better on a sequential basis though, as Q2 volumes increased 5 percent and prices remained flat from the first quarter.

No guidance was given, but CEO Andrew Liveris said, "The United States economy has found bottom, but will be slow in recovering."

5) Shares of Sony rise 7 percent pre-open after reporting a smaller-than-expected Q1 loss. Sales were weak, falling 19 percent from a year ago as PlayStation and TV business garnered little momentum. More red ink is expected for the full year though, as the electronics maker now expects its loss to swell to 120 billion yen - greater than last year's 99 billion yen loss.

6) Weak tire demand (and the stronger dollar caused Goodyear Tire's revenues to skid off 25% in the second quarter. Results, however, still managed to beat estimates as higher prices and cost cuts helped the tire maker's bottom line (-37 cents vs. -70 cents est.). Although the company continued to gain market share, tire volumes fell 17 percent in the quarter.

7) Motorola shares pop 7 percent pre-open after posting a narrower-than-expected loss (down $0.01, ex-items vs. down $0.04 est.). Cost cuts helped offset revenues (down 32 percent YOY!) that fell a tad short of estimates ($5.5 billion vs. $5.6 billion). Handset shipments were almost half of last year's levels, but managed to come in ahead of analysts forecasts (14.8 million phones vs. 14.1 million phones est.).

Looking ahead, the company projects Q3 results anywhere between a 1 cent loss and a 1 cent profit - mostly above the 1 penny loss expected by analysts.

8) An IPO: globe Special Metals sold 14 million shares at $7 (the low end of expectations of $7 to $9), and will begin trading today on the NASDAQ.



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