Trader Talk

Pisani: 'Sell on Earnings News' Redux

Predictably, HMOs are trading up slightly on the Scott Brown Republican victory in Massachusetts, but for the rest of the market its pretty much back to "sell on the earnings news": IBM is down nearly 2 percent despite a generally good report. This has been the pattern so far, whether it was a great report (Intel), fair (JPMorgan) or disappointing (Alcoa).


1) China stocks down 3 percent on concerns that Chinese officials are finally serious about cooling off the asset (commodity and real estate) bubble that has developed in China.

2) Bank of America reported a loss of $0.60 a bit larger than analyst consensus of a loss of $0.52. Revenues also a bit light at $25.08 billion vs. $27.04 billion expected.

Here's the traders’ bottom line on BofA:

a) expectations were very low;

b) the weaker revenues were driven by weak capital markets activity

c) credit is improving, non-performing asset growth has shown some encouraging signs, reserve building has appeared to slow and there has appeared to be some net charge-off improvement. The bad news is that this may be priced into the stock (and other bank stocks) already.

d) now its about delivering earnings which requires revenues—it requires credit improving

Having trouble reading bank earnings reports these days? Try writing headlines for them.

Here's the headline from Dow Jones (7:56 AM): "Bank of America 4Q Loss Narrows Amid Merrill Results."

Here's the headline at the same time from Reuters: "BofA posts wider loss on credit costs, TARP."

Which is it? A wider or a narrower loss?

Turns out both are right, they're just using different metrics.

BofA posted a loss of 60 cents a share, analysts had been expecting a consensus of a 52 cent loss. So the loss was indeed WIDER for the quarter in terms of analyst expectations. Reuters is right.

However, Dow Jones takes its cue from how BofA performed compared to the same period a year ago. The loss in the fourth quarter of 2009 was $194 million, compared to a loss of $1.78 billion for the fourth quarter of 2008. So Dow Jones is correct also, they are just using a different metric.

Bank of America, by the way, went from 5 billion shares in 2008 to 8.6 billion by the end of 2009.

3) Wells Fargo reported a profit of $0.08, versus expectations of a $0.01 loss. Loan losses nearly doubled over the prior year, but loan loss reserves were reduced.

Bottom line: the commercial real estate problems from Wachovia are really starting to show up.

4) IBM trading down despite a generally good earnings report and raising 2010 guidance to "at least $11" from $10-$11. Some were disappointed with services revenue declining 5 percent, about unchanged from the prior quarter. Kaufman Brothers said that this and other data "does not suggest to us that a meaningful recovery in overall IT services demand is taking root."

5) CSX slips 3 percent in pre-market trading as Q4 revenues and shipments remained poor. While the railroad's earnings beat estimates by a penny thanks to continued cost controls, revenues fell a greater-than-expected 13 percent as volumes dropped 7 percent.

A good sign: CSX saw growth in shipments intermodal and auto sectors; however, continued weakness in coal and merchandise shipments still weighed strongly on its results.

6) Brinker International jumps 8 percent pre-open after Q2 earnings handily beat expectations ($0.29 vs. $0.22 consensus) despite a 3.1 percent decline in comp-store sales. Although the casual dining restaurant saw weaker sales across its Chili's, On the Border, and Maggiano's brands, the declines were modestly less than the Street expected.

7) Coach falls 7 percent pre-open despite seeing its Q4 earnings top estimates ($0.75 vs. $0.72 consensus). However, shares tumbled after North American same-store sales rose a lower-than-expected 3.2 percent as the luxury goods retailer has introduced more products at lower price points.

Overseas sales were stronger, with Japan sales rising 7 percent (largely due to the stronger yen) while China sales grew at "a double-digit rate."

8) BHP Billiton falls 3 percent even after reporting record iron ore production, which rose 11 percent in its second quarter. Petroleum production was also strong jumping 16 percent. However these gains were tempered by a 12 percent reduction in copper output due to an outage at one of its mines and a 12 percent drop in coking coal production.

Still, the miner cautions that there may be "some degree of volatility in the short-term outlook for our commodities."

Other commodity stocks fall pre-open on weakness in commodity prices this morning as the dollar index jumps nearly 1 percent to a 3-week high.

CNBC Data Pages:



Questions?  Comments?