Micron Beats Expectation, Posting First Profit in 3 Years

Boise, Idaho chip company Micron Technology ($MU) reported a  quarterly profit of $204 million, or 23 cents a share, compared with a loss of $718 million, or 93 cents a share for the same quarter last year.

Revenue climbed 24 percent to $1.7 billion. up from $1.4 billion from the previous year’s quarter.

Analysts had consensus expectations of 6 cents earnings per share on revenue of $1.6 billion.

Micron stated that revenue from its DRAM products soared by 50 percent from the previous quarter. The company also said sales of NAND Flash products were higher by 21 percent due to improved sales volumes and higher sales prices.

DRAM chips are manufactured for use in personal computers. NAND Flash processors are used in for digital cameras and mp3 music players.

Chief Executive Officer Steve Appleton stated “…there are still challenges in the global economy” amid “improving market conditions.” Chip manufacturers have been hit especially hard during the recession.

This was Micron’s first reported profit in three years.

Shares of Micron reached a 52-week high today at $9.48 and closed at $9.41 a share. Micron shares were up about 3 percent in after-hours trading. Yesterday, Wedbush upgraded Micron from “Neutral” to “Outperform” and raised the price target to $13 a share.

GDP Revised Down to 2.2%, Economists Remain Concerned

U.S. third quarter gross domestic product (GDP) was revised downward today after initial estimates of 3.5 percent two months ago and 2.8 percent last month gave way to a final 2.2 percent annual economic growth rate. Economists had expected only a minor -0.1 percentage point change from the recent 2.8 percent estimate. The lower GDP number created concern among economists regarding the strength of the economy in the absence of extraordinary federal deficit spending.

Consumer spending rose at a 2.8 percent annual rate for the quarter, and contributed 2 percentage points to GDP, owing about 1.5 percentage points to the federal government’s “Cash for Clunkers” program.

Some items were bumped higher in the latest report. Personal spending increased 2.8 percent in the third quarter despite falling 0.9 percent in the second quarter.

Corporate profits, previously estimated at a 10.6 percent growth rate, were raised to 10.8 percent–the largest increase in over five years.

Productivity gains, largely due to lower overall labor costs, helped drive corporate earnings higher. U.S. labor costs were down 2.5 percent in the third quarter.

Exports of goods and services were also positive for the third quarter, increasing 17.8 percent compared to a 4.1 percent drop in the second quarter. The declining U.S. dollar made exports more competitive.

Government expenditures slowed to 8 percent growth for the third quarter, down somewhat from 11.4 percent.

Despite positive growth, economists remain concerned the economy is still overly dependent on federal deficit spending rather than on business investment and consumer expenditures. The federal “Cash for Clunkers” program expired during the third quarter.

Financials Face Headwinds, GS Downgrades Banks

Today, analysts at Goldman Sachs issued bearish comments on the banking sector, cutting earnings estimates for three of the largest U.S. banks. The analysts commented this morning on recent secondary issues from Bank of America ($BAC), and Wells Fargo ($WFC), Citigroup ($C). They cited recent equity raises were three of the five largest secondaries ever in the history of U.S. business. The total raised to date is $325 billion for the banks according to Goldman.

The biggest use of cash so far has been to pay down borrowing, which has declined by $500 billion, or 21 percent during the year for the banks.

Goldman analysts think the cash will eventually be used to make loans, citing data for the fourth quarter that lending is about even this quarter compared to a 4 percent decline for the third quarter. Commercial loan growth generally resumes one to three years after economic recessions hit bottom.

The firm’s analysts adjusted earnings estimates for the banks as follows:

• Bank of America 2010 earnings per share estimates raised 4 percent to $1.30, 2011 earnings per share dropped 10 percent to $2.25.

• Wells Fargo 2009 earnings estimates cut 21 percent to $1.66 per share, 2010 earnings increased 5 percent to $2.25 per share, and 2011 earnings flat at $3.00 per share.

• Citigroup 2010 earnings per share estimates dropped 3 percent to 20 cents, 2011 earnings reduced 13 percent to 35 cents per share.

Goldman maintains “Buy” ratings on Bank of America and Wells Fargo. Citigroup is Not Rated.

Remaining bank failures could be about 3 percent of the banking system’s total assets, according to the Goldman’s analysts. They base this on historical benchmarks during 1988-1995 regional economic downturns.

These downgrades in the banking sector come on the heels of the Meredith Whitney Advisory Group reducing earnings estimates for investment banks Morgan Stanley ($MS) and Goldman Sachs ($GS) last week. The Group cut fourth-quarter profits expectations for Goldman from $6.38 to $6.00 a share. Goldman’s  2010 earnings were reduced from $21.73 to $19.65 a share and 2011 was cut from $24.04 to $20.60 a share. The Morgan Stanley 2010 estimate was cut from $2.63 to $2.60  a share, while the 2011 forecast of profits was reduced from $3.28 to $2.75 per share.

With the House of Representatives approving a financial system reform bill on December 11 and the Senate poised to take up the issue early in 2010, the broad outlines of what is on the plate for banks is evident. The House bill is nearly 1,300 pages long and represents a stringing together of several bills introduced earlier. It addresses a large spectrum of regulation, from oversight by the Securities and Exchange Commission, shareholder rights, Sarbanes-Oxley compliance, Financial Accounting Standards Board governance, “too big to fail” banks, and other provisions. Banks could find their missions and organization much changed when the final version of this bill reaches the President’s desk for signature.

In related news today, New York Times columnist Andrew Ross Sorkin has noted that leading banks were paying themselves significant fees (roughly 2.5 percent of the offering price) to pay off TARP obligations. Bank of America’s $19 billion offering resulted in $482 million, Citigroup’s $17 billion offering raised $425 million, and Wells Fargo’s $12 billion offering added $276 million in fees.

The bottom line is that the financial sector is facing substantial political and economic headwinds that could lead to lower share prices as we enter the new year. Cautious investors may find it prudent to lighten up on company stock in the financial sector in light of all this negative sentiment.

Walgreen Boosts Profits 20%, Citi Downgrades

America’s largest drug store chain, Walgreen Co, ($WAG) posted a 19.5 percent gain in quarterly profits, based largely on increases in prescription drug sales and flu shots.

First-quarter net income was $489 million, or 49 cents a share, versus $408 million, or 41 cents a share in the same period one year ago. The Deerfield, Illinois retailer earned 52 cents per share, excluding special items. Analysts were expecting Walgreen’s to earn 48 cents a share on revenue of $16.24 billion. Revenue was higher by $1.41 billion to hit $16.36 billion from $14.95 billion in the same year-ago period.

Walgreen and its Take Care in-store clinics have sold 5.4 million flu shots compared to 1.2 million for the entire flu season last year.

Despite the positive earnings results, analysts at Citi ($C) issued a “sell” recommendation and price target of $31 for Walgreen, an 18 percent fallback from the current share price of $36.69.  Citi’s  negative outlook is based on the slower square foot growth, higher expenses, and greater competition. These factors are expected to lower earnings growth going forward.

Walgreen operates over 7,140 drugstores, and plans to add wine and beer sales to many of its stores. The company pays a 1.5 percent annualized dividend.

Navistar Beats Consensus, Rallies 7%

Navistar International Corp. ($NAV) reported a fourth-quarter adjusted profit of $128 million, or $1.77 a share on Monday giving a strong boost to the share price this morning.  Analysts were expecting a profit of $1.53 a share on sales of $3.08 billion.

Unadjusted profits for the fourth-quarter were $86 million, or $1.19 a share, compared to a loss of $343 million, or $4.81 a share for the same period one year ago.

According to the commercial truck and engine manufacturing company, fourth quarter sales were higher than last year. Customers were purchasing more trucks in anticipation of higher prices next year resulting from stricter pollution standards on diesel exhaust.

Industry-wide retail sales of medium and heavy-duty trucks are expected to remain at low levels for next year, ranging from 175,000 to 215,000 trucks according to Navistar, reflecting the most unfavorable climate for truck purchases since the 1960s. Truck sales aren’t expected to increase significantly until 2011 due to the recent global financial crisis.

Navistar Inc. also announced yesterday that it has signed an agreement to acquire an interest in Danish technology company Amminex.

The Amminex technology is a customer-friendly metal ammine-based NOx reductant delivery system, and is a tool which Navistar engineers will use to explore exhaust gas NOx reduction for specific applications.

Daniel C. Ustian, Navistar chairman, president and chief executive officer stated. “By leveraging our assets and those of Amminex, this agreement supports Navistar’s three-pillar strategy of product leadership, competitive cost structure and profitable growth. Amminex offers another tool for Navistar to explore cost-effective, customer-friendly technologies that fit our MaxxForce Advanced EGR platform, meeting emissions requirements while removing the burden liquid urea places on the industry.“

Navistar shares were trading around $38 a share mid-morning today, a 7 percent gain from the previous day’s closing price.

ConAgra Beats the Street, Gets UBS Upgrade

Yesterday, ConAgra Foods Inc. ($CAG) posted earnings of $239 million, or 54 cents a share compared to the year-ago period with profits of $168.5 million, or 37 cents a share. This represents a 43 percent gain due largely to lower commodities costs and increased market share across all of its consumer foods businesses. ConAgra manufactures Chef Boyardee pasta, Hunt’s tomato-based products, Peter Pan peanut butter, Slim Jim meat sticks, and Wesson oils.

Analysts were expecting 47 cents per share in profits.

The company also lifted its full-year outlook to $1.73 a share from $1.70.

Revenue declined by 2.4 percent to $3.17 billion, due largely to an 11 percent fall in the sale of commercial-foods. ConAgra’s consumer segment revenue rose 3 percent to $2.1 billion for the quarter.

ConAgra and other packaged food makers have benefited from consumers preferences for eating at home during the economic downturn.

Chief Executive Gary Rodkin stated in the earnings release, “Success with innovation and marketing drove significantly improved market shares and top-line progress in the consumer foods segment for the quarter, while a more favorable input cost environment and strong cost savings substantially contributed to profit growth.“

Today, analysts at UBS raised its earnings estimates for ConAgra through 2011, citing strong frozen food sales and increased production of Slim Jim snacks on the heels of a plant closure this year. UBS rates ConAgra as a “Buy” and upped the price target to $26 per share.

Conagra is a solid dividend payer as well. The company pays a 3.6 percent annualized dividend.

Why Did Oil Surge Higher This Week?

Crude oil futures prices surged higher this week on supply concerns due to rising tensions in the Middle East, colder weather forecasts, and improved global economic growth prospects. A stronger U.S. dollar acted to temper the gains.

Middle East Tensions

Late Friday, Iraq said there was an Iranian incursion into an Iraqi oil field 280 miles south of Baghdad, elevating geo-political tensions and driving spot crude prices just above $74 a barrel. Iraq’s National Security Council asked Iran to withdraw its forces from the region.

Earlier in the week, Iran also successfully tested a long-range missile, receiving rebukes from the U.S. and and the United Kingdom. U.K. Prime Minister Gordon Brown also threatened sanctions.

Iraq is the third largest oil producer in the Middle East and Iran is the second largest.

Colder Weather Forecast

Between January and March, below-normal temperatures are expected from the U.S. Gulf Coast to the mid-Atlantic region, the National Oceanic and Atmospheric Administration said Thursday. Meteorologists are also anticipating colder weather in the eastern U.S. until the end of December.

Signals of a Stronger U.S. and Global Economy

On Wednesday, Federal Reserve officials declared that financial markets were healthy enough to remove emergency monetary supports. This was interpreted by oil traders that the U.S. economy may have turned the corner and be able to continue with positive growth, another bullish signal for increased oil consumption.

The Energy Department also said on Wednesday of this week that U.S. crude oil inventories declined to the lowest level since Jan. 9. Distillates inventories also fell 2.95 million barrels to 164.4 million barrels.

On Tuesday, OPEC also bumped its 2010 forecast for global oil demand slightly higher. OPEC said in its December Monthly Oil Market Report that demand for OPEC crude was expected to increase 100,000 barrels per day, or 30,000 barrels a day more than its previous month’s forecast on a baseline of 26,610,000 barrels per day in November..

A Stronger Dollar Tempers the Price of Oil

Oil prices backed off at the end of the day as the greenback advanced for a fourth straight day against a basket of six major currencies. Light, sweet crude January future price climbed $3.34 from last Friday’s closing price of $69.62 to close today at $72.96 per barrel.

The U.S. Dollar Index strengthened 1.7 percent for the week rising to 77.35 at 2:30 p.m. in New York, compared with 76.38 on Monday. Earlier, the greenback touched 78.14, the highest level since early September.

The U.S. Dollar Index measures the performance of the U.S. dollar against a basket of currencies including the Euro, Japanese Yen, British Pound, Canadian Dollar, Swiss Franc, and Swedish Krona. Initiated at a 100 value, it was created in March 1973 soon after the Bretton Woods system was dismantled. It has traded as high as the mid-160s and as low as 70.70 on March 16, 2008.

Rising geo-political tensions in the Middle East combined with ongoing worries about sovereign debt problems in Greece potentially impacting the Euro caught the attention of currency traders . As a result, traders were quick to reverse short trades betting that the greenback would fall further in value. A stronger dollar is generally associated with falling commodity prices, including oil.

Gasoline prices

For the tenth consecutive day, prices at the pump declined. The national average price of unleaded gasoline dropped slightly to $2.589 per gallon from Thursday’s $2.59 per gallon according to motorist advocate AAA.

ETF Market Action

The United States Oil Fund, an exchange traded fund (ETF) designed to track the movements of light, sweet crude oil ($USO) rose from $35.62 on the Monday morning open to close at $36.66 on Friday. In Friday trading, the price of the ProShares Ultra Crude Oil ETF ($UCO)  jumped higher by 1.7 percent from $10.96 to $11.15.

Nike Beats Consensus Earnings Forecast

Late Thursday, athletic footwear and apparel maker Nike, Inc. ($NKE) posted fiscal second quarter profits  of $375 million, or 76 cents per share, beating consensus estimates by 5 cents. This compares to $391 million, or 80 cents per share, in the same quarter last year. Sales fell 4 percent from last year to $4.41 billion.

Nike indicated worldwide future orders were higher by 4 percent from last year. The Beaverton, Oregon based company also stated it expects revenue to rise in the mid-single digits over the next two quarters. The company reiterated it expects a moderate decline in sales for the full year.

Nike pays an annual dividend yield of 1.71 percent, based on last night’s closing stock price of $63.25.

Nike shares were up $1.25, or 1.98 percent in pre-market trading this morning.

Weekly Economic and Earnings Preview — Week of December 14

Recession continued to give way to forecasts favoring recovery last week, but investors remain cautious of Wall Street’s mounting confidence that fourth-quarter growth will be better than previously expected.  Investors are conflicted between two contrary ideas. They are thinking the economy and earnings have turned a corner, a good thing for the markets—or the economy still has significant challenges ahead and there is a need to be cautious.  The tension between the two futures has kept stocks churning this month with little gains to report amid low trading volume for this time of the year.

Stock futures in the U.S. point to a higher open as stocks around the world jumped after Abu Dhabi announced it was providing $10 billion to Dubai to help with debt repayments, including those of troubled wealth fund Dubai World. As a result, the S&P 500 index is set for a fourth day of gains.  U.S. equity futures are up about half a percent in pre-market action.

In overseas equity markets this morning, markets were mostly higher. Japan’s Nikkei 225 index ended essentially flat (-0.2%) on Monday. China’s Shanghai Shenzen index jumped 1.1 percent and Hong Kong’s Hang Seng climbed 0.8 percent.

The German DAX index was up 0.8 percent and Britain’s Footsie 100 index was higher by 1 percent on Monday.

February crude oil futures are down almost 2 percent overnight, trading around $69 a barrel just before the market opens today. Traders continue to have concerns about persistently weak demand and large inventories.

Gold futures moved higher Monday morning ($1,122.90, Feb. 2010), rising off of a one-month low. The U.S. dollar fell overnight on the heels of the Abu Dhabi pledge to bail out Dubai, boosting gold’s investment appeal. The price of gold rose half a percent since the Friday close with spot prices at $1,121 an ounce this morning.

Silver, platinum, and palladium were also up about 1 percent each this morning. Copper gained 0.5 percent.

On the economic front, recent positive reports for retail sales, housing, and the labor market  suggest the first credit cycle recession since the 1930s may be turning the corner. The question on investor’s minds is when will the Federal Reserve begin to remove some the monetary accellerant it has rained on the economy and the markets  this year.

The pace of unemployment appears to have stabilized and that has given equity markets a boost, providing ballast to consumer spending and retail sales in November. But the  the unemployment rate remains at 10 percent, near a 26-year high and that means  the Federal Reserve is unlikely to act anytime soon. Still, all eyes will be on the Federal Reserve this week.

The Fed’s rate policy meeting will conclude on Wednesday. The Fed is widely expected to hold the federal funds rate flat near zero percent.  Analysts will be parsing the Fed statement on the economy beyond the regular mantra of, “we continue to expect rates to stay at exceptionally low levels for an extended period“.  If there is new language in the Fed statement, investors will be keen to re-interpret when the Fed might begin to raise interest rates.

The Producer Price index (PPI), a measure of wholesale inflation, will be reported on Tuesday morning. PPI is expected to have risen 0.9 percent in November after rising 0.3 percent in October.

Also on Tuesday morning, the Federal Reserve will report on manufacturing activity. November industrial production is expected to have risen 0.6 percent after rising 0.1 percent in October.

Also on Wednesday, the Consumer Price Index (CPI), a measure of consumer inflation, will be released at 8:30AM from the Commerce Department.  The November CPI is expected to gain 0.4 percent after rising 0.3 percent in October. Core CPI is expected to have risen 0.1 percent in November after rising 0.2 percent the previous month.

The Department of Commerce will release housing related data on Wednesday.  Housing starts are expected to gain at a rate of 575,000 annual units in November, up from a 529,000 unit annual rate in October.

On Thursday, the November index of leading economic indicators from the Conference Board is expected to have risen 0.7 percent after rising 0.3 percent in October.

Traders are expecting increased volatility this week due to quadruple options expiration day on Friday, a quarterly event in which stock index futures and options, and individual stock futures and options all expire on the same day.

It will be a mostly quiet week on the earnings front, with just 9 S&P companies reporting.

Best Buy ($BBY) will report quarterly earnings before the start of trading on Tuesday.  The electronics retailer is expected to report 42 cents per share in profits versus 35 cents a year earlier.

On Wednesday, mining equipment manufacturer Joy Global ($JOYG), is expected to report earnings per share of $1.01, down from $1.23 per share last year.

Thursday will be busy on the earnings front with package-delivery firm FedEx ($FDX) reporting its financial results before the market opens. FedEx is expected to have earnings per share of $1.04 compared to $1.58 a year ago in the same quarter.

Also on Thursday, wireless company Research in Motion ($RIMM) will be reporting profits with consensus expectations of $1.04 per share. Last year’s earnings were $1.03 per share.

General Mills ($GIS) is expected to report profits per share of $1.45 versus $1.36 a share in the same quarter from a year ago.

After the close Thursday, Oracle ($ORCL) is expected to report a profit of 36 cents per share versus 34 cents a year ago.

Other companies expected to report earnings growth this week include, Adobe Systems ($ADBE), Carnival Corp. ($CCL), Darden Restaurants ($DRI), Discover Financial ($DFS), Hovnanian Enterprises ($HOV), Nike ($NKE), Palm ($PALM), Rite Aid ($RAD), Scholastic ($SCHL) Take-Two Interactive Software ($TTWO), Pier 1 Imports ($PIR), and Winnebago Industries ($WGO).