Earnings And The Swine Flu "Wild Card"

The swine flu epidemic remains a wild card, as no one is quite certain how far the epidemic will spread.

Let the fighting over the stress test begin. We knew there would be a one-week period when banks would know the results of the stress test and be able to dispute them, and we are in the middle of that period.

This is also the perfect moment to have leaks about those results, and indeed the WSJ reported that the Bank of Americaand Citigroup may have to raise more capital. Is anyone seriously surprised that either need to raise capital?

Deutsche Bank, in initiating coverage of the banks this morning, stressed the fundamentals: that credit continues to deteriorate, but that government actions should prevent stocks from hitting new lows.

The likely outcome of all this, DB says: banks stocks will "trade in a wide range (with current prices near the top end of this range) until we receive more clarity on credit."


1) Of the many earnings reports, building supplier Masco and steel giant U.S. Steelstand out. U.S. Steel, down 8 percent pre-open, reported earningswell below expectations (loss of $3.78 vs. expectations of a loss of $1.62, with topline of $2.75 billion also below expectations of $3.19 billlion). Dividend was cut to $0.05 from $0.30.

The problem was order rates below expectations and further downward pressure on steel prices.

Like Alcoa, they have initiated a pre-emptive capital raise, raising equity and convertible debt to pay down its term loans with strict covenants. The equity raise is about $800 million, about a quarter of U.S. Steel's current market capitalization.

No real guidance, other than the expectation of an earnings losss.

Masco (think KraftMaid cabinets, Delta faucets, Behr paints) reported operating earnings roughly in line with expectations. However, it appeared that the cabinet division underperformed, while paints did better than expected. This makes some sense: big-ticket items like cabinets suffer, but lower-ticket, high-impact items like paint do better. 2009 guidance was lowered slightly. Much of this depends on housing starts, which they are putting around 550,000.

2) Shares of Dow component Pfizer are up 1 percent after its Q1 earnings beat estimates. Revenues for the pharmaceutical giant fell8.3 percent, as a 13 percent drop in sales of cholesterol drug Lipitor and the impact of a stronger dollar hurt top line results. Pfizer reaffirms full-year guidance (excluding Wyeth merger costs).

3) Despite rising costs, Coventry Health Care'sQ1 earnings beat analyst expectationsby 5 cents. The health care provider also reported an 11 percent rise in membership and reaffirmed its outlook for the year.

4) Office supplies retailer Office Depotis trading up 6 percent pre-open after posting Q1 EPSof 10-cents - well above the 10-cent loss expected by the street. Sales continued to struggle though, falling 19 percent in the quarter as many consumers put off purchases of higher-priced furniture and computers.

5) Rockwell Collins'Q2 earnings beat estimates, but the aerospace company cut its outlookfor the second time. Hurt by slumping demand for its commercial airplane components, the company now expects 2009 earnings per share of $3.70-$3.90, down from $4.10-$4.30.




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