A Case of Strong Earnings vs Greece

Traders note it's another Macro vs. Micro day ... the juggernaut of strong earnings, especially Apple and the banks versus Greece. As the EU/IMF start negotiations with Greece, the 10 year Greek bond yields are at 8.3 percent, blowing out another roughly 40 basis points.


1) Bank earnings continue to come in, the trend is clear: credit trends are improving, and for the biggest banks trading profits (especially fixed income) are providing a significant boost to the bottom line.

a) Morgan Stanley , reported a profit of $0.99 ($1.03 on a continuing operations basis), well above consensus of $0.57. Like its peers, reported strong trading revenues--$4.1 billion, compared with $1.4 billion in the same period last year, two-thirds of it from fixed income, the remainder from equity trading.

b) Wells Fargo also beat estimates, though by a smaller amount: $0.45 vs. $0.42 consensus, topline was a tad below expectations ($21.45 b. vs. $21.71 consensus). They noted that credit as "turned the corner... Early-stage delinquencies improved across major consumer loan portfolios, including home equity, auto dealer services, credit card and Wells Fargo Financial consumer real estate and auto portfolios."

One issue: demand for new loans remains weak.

c) KeyCorp reported a smaller than expected loss of $0.11, better than the loss of $0.30 expected. Nonperforming loans again decreased, by $122 million to $2.07 billion. Not only is credit getting better, but the steeper yield curve is helping profits: net interest margin--the spread between borrowing short from depositors and lending long to borrowers--improved last quarter.

2) McDonald's reported Q1 earnings above estimates ($1.00 vs. $0.96 consensus) as global same-store sales rose 4.2 percent in the quarter - boosted by much stronger than expected sales in March.

The rise in Q1 sales was led by strong performance overseas, with comps in Europe up 5.2 percent and Asia/Middle East/Africa up 5.7 percent vs. a 1.5 percent gain in the U.S. However, sales in the U.S. showed some life last month, with comps rising 4.2 percent (outpacing Asia).

3) United Technologies beat estimates ($0.93 vs. $0.90 consensus) as margins improved due to continuing cost cuts. Revenues were still short of estimates, as organic sales fell 4 percent, but were largely offset by currency gains. Still, the company saw some encouraging sings in demand: orders of Otis equipment (elevators) were up 9 percent, while Transicold (transport refrigeration) orders were up 37 percent.

The company remains optimistic demand will improve more in the 2nd half of the year as it raises the low end of 2010 guidance. It now expects earnings of $4.50-$4.65 vs. $4.63 consensus).

4) Boeing Q1 earnings topped estimates ($0.70 vs. $0.64 consensus) helped by higher margins and strong sales of military aircraft (up 5.7 percent). However, the Dow component still saw its overall revenues fall 8 percent (inline with estimates) as its commercial aircraft and aerospace divisions saw double-digit declines in sales. Troublesome for the company - reduced Defense Department spending as well as fewer deliveries of commercial airplanes (down 11 percent).

Revenue guidance for the year remains inline with estimates ($64 billion-$66 billion vs. $65 billion consensus).

5) The International Air Transport Association (IATA) now estimates that the stoppage of air travel in Europe due to the Icelandic volcano will cost airlines at least $1.7 billion - a tremendous amount given it had previously expected airlines to lose $2.8 billion for the entire year.

6) Bulls still unbowed: the weekly Investors Intelligence report of financial newsletter writers showed bulls are not dropping: 53.3 percent are bullish (near the highest since December 2007), bears down to just 17.4 percent.

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