Earnings Disappointment From Morgan Stanley, General Mills

Most companies this morning reported disappointing earnings, and a few highlighted the impact of inflation on their bottom line.

1) Morgan Stanley reported a loss of $3.61 vs. a consensus of a loss of $0.39. They are take write-downs totalling $9.4 billion. Last month they said they would take write-downs of $3.7 billion, but now they say they are taking an additional $5.7 b in write-downs. All that in one month. The big losses were in fixed income.

They also sold a $5 billion stake in convertibles to China Investment Corp. (which is owned by the government of China) to improve its capital position; that's a nearly 10 percent position in the company, though they will be a passive investor.

2) Restaurant owner Darden(Olive Garden) came in below expectations, and also talked about lower EPS growth. As we have heard many times, higher food costs were an issue. Down nearly 10% pre-open.

3) Home builder Hovnanian reported losses greater than expected. The contract cancellation rate was an abysmal 40%. Investors trying to buy homebuilders (again trying to pick a bottom--I think this is the fifth attempt since August) have to be disappointed to see that they are continuing to write down the value of their land and inventory. Down 6 percent pre-open.

4) CarMax earnings came in a bit light for the third quarter, and guided full year earnings below consensus ($0.87-$0.93, prior guidance $0.92-$0.98, Reuters estimate $0.95). The company noted that "consumers appeared to be more hesitant in committing to big ticket purchases." Down 5% pre-open.

5) General Mills came in in-line also said that food inflation was an issue and would be next year as well; they reaffirmed their 2008 guidance, thought that is a bit below expectations.

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