There is something rotten in Denmark, to quote from Hamlet, Act I, as well as in Las Vegas, Louisiana, Mississippi, Colorado, Iowa, and Florida. Gambling havens, once thought recession proof, are in trouble. Customer numbers are down, as are gambling, gift shop, hotel, and restaurant revenues. Casinos in Las Vegas have been hard hit, according to a recent article in the Wall Street Journal, because of billions of dollars of debt to finance overambitious expansion plans. Tropicana Entertainment filed for Chapter 11 in May, defaulting on $2.67 billion in bank and bond debt. But smaller casinos are also feeling the pain.
Isle of Capri Casinos Inc. (NASDAQ: ISLE) recently reported 4Q and FY2008 results. Snake eyes. Investors know they are not in for good news when the CEO spends the first few paragraphs of an earnings release discussing what a "transformational period" the last year has been. That's corporate-speak for "money losing," beginning with a $78.7 million write down in the value of some of the company's international assets and ending with a $51.3 million loss from continuing operations in 4Q 2008. All told, Isle of Capri Casinos lost $96.9 million from continuing operations in FY2008.The company cited increased competition in riverboat gambling in Biloxi, a smoking ban in casinos in Colorado, and a flood in Natchez as reasons for the lackluster performance. The company admits it needs to renovate 1,200 of its hotel rooms in order to attract customers back to the slots and tables.
The stock is currently trading at $4.23, near its 52-week low of $3.97.
Anybody who does much in the way of graphics or design knows Corel Corp. (NASDAQ: CREL) and its products -- Corel DRAW and Corel Paint Shop. No question they are good products. But that does not mask the fact that 2Q 2008 numbers do paint paint a pretty picture. Interim CEO Kris Hagerman states that "Corel performed well in the second quarter." Given that revenues were up less than 3% and GAAP net income, another word for earnings, dropped 60% to $930,000, what would qualify in Hagerman's book as a bad quarter? It isn't necessarily how much a company makes that is most important, it is how much of that amount it gets to keep.
EBITDA is heading south and Hagerman admits the company needs to pursue "opportunities in faster growing markets." The company issued 3Q 2008 guidance of GAAP earnings per share of zero to $0.06, in line with 2Q results. Time for senior management to paint a prettier picture.
Shares closed Thursday at $10.75. The stock is up about 4% year to date.
A lot of investors think that oil prices will determine what happens to the stock market over the next quarter, and for the most part, that is right.
The world's largest conglomerate will report earnings next week. It has operations in almost every country in the world. It has divisions in entertainment, infrastructure, medical devices, jet engines, plastics and financial services. And that is just a partial list.
If General Electric (NYSE:GE) posts poor numbers it will be hard for the market as a whole to believe that the economy is going anywhere but down. According to Reuters, "Aside from second-quarter results, investors are anxious to see the companies' forecasts for world economic growth and their own corporate sales prospects."
It is hard to imagine that one company could set the tone that would influence how stocks may trade for several weeks, but GE does a great deal of business in Asia. Growth in that region is viewed as a salvation for large American companies.
GE also has a huge financial services arm. If it takes large write-downs, it may well be a sign that the credit crisis is growing.
GE. GE. GE.
Douglas A. McIntyre is an editor at 247wallst.com.
Back in late March, Corel Corporation (NASDAQ: CREL), a provider of productivity software, received a buyout offer from its largest investor, Vector Capital, which owns 69%.
What has happened since then? Well, on Corel's Q2 conference call, the company talked about the outstanding offer. The board has formed a special committee and is evaluating matters. Unfortunately, there was no more information on the matter (and no indication when there might be some more details).
Yet, in the meantime, Corel continues to focus on the business. Revenues in the quarter increased from $65 million to $67 million. Net income was $930,000, or $0.04 per share. What's more, adjusted EBITDA was $14.9 million.
Corel has been successful with a variety of drivers. For example, the company has been savvy with its M&A, such as with its deals for JASC, WinZip and InterVideo. What's more, Corel is getting lots of traction in emerging markets. There is also growth in the company's new Blu-Ray graphics offerings.
As for fiscal 2008, Corel expects revenues of $263-$275 million, with net income of $8.5-$13.5 million.
On news of the quarterly results, there was a nice rally in the stock as it spiked 15% to $10.75.
According to a Billboard article published Wednesday, Neilsen Soundscan has reported an 11% decline in album sales during the first half of 2008, compared to the same period in 2007. Consumers purchased 204.6 million albums between January and June, over 25 million less than a year ago, but luckily not as sharp a decline as the 15.1% that occurred in the first half of 2007 as compared to 2006. Nielsen Soundscan told Billboard that the "drop is fueled largely by the 16.3% decrease in CD sales" despite digital album sales rising 34.4& to account for 15.4% of sales (31.6 million units).
Digital growth is still a productive and lucrative spot for the music industry, with single track downloads growing 30% to 532.7 million units in the first half of the year over first half sales in 2007 of 417.3 million units. Universal Music Group is still the most dominating music company, despite dropping .3% to 31.2% in sales. Sony BMG Music Entertainment and EMI Group also fell, with Sony BMG dropping .5% to 24.8% and EMI dropping 1% to 9.4%. The only major music company to gain any ground was Warner Music Group Corp. (NYSE: WMG), rising .8% to 20.8%. Independent music companies also rose in the first six months of 2008, capturing 13.9% of the market -- up 1%.
Declines in album sales are a constant trend in the music industry, so an 11% drop is no real surprise but the lowered decline over one year ago should cause some relaxation. The only problem with the drop in decline is that album sales are still falling off. Even though Nielsen Soundscan and Billboard both commented on the hope provided by single track downloads, the industry still looks to album sales to justify the recording and marketing of music. If that trend would change, single track downloads would make an obvious market to rely on. Instead, reports about declining album sales will still continue while single track downloads continue to grow.
San Francisco Fed Reserve Bank President Yellen to speak about the U.S. economic outlook at the University of California/San Diego with a Q&A session.
Aracruz Cellulose (NYSE: ARA) to report Q2 earnings; conference call at 11:00am.
Tuesday, July 8
Richmond Fed Reserve Bank President Lacker to speak about U.S. economic outlook to the National Economists Club in Washington with a Q&A session expected.
With the 4th of July approaching, it's always a good time to get a bit of perspective and take a look at what may happen in the second half of the year. As with predictions they generally tend to never come true, but here are 3 market predictions for the 2nd half of the year.
1- Crude oil will trade down under $100/barrel. As global growth continues to slow, especially in overheated emerging markets, some of the the speculative froth will leave the market and the price will start heading down to a point more in line with fundamentals.
2- The US Dollar will rally against the Euro, and reach a level of 1.42 by the end of December, down from the 1.58 current levels. With European growth expected to potentially contract by more than 1% in the coming quarters, and the US staying out of recession, the market will re-focus on growth differentials in the for-ex markets, providing some much needed strength for the greenback.
The lubricant with thousands of uses, WD-40 is found in just about every toolbox in the nation. WD-40 Company (NASDAQ: WDFC) released 3Q 2008 results that show solid sales figure increases in all divisions around the globe. Net sales for the quarter increased 5.8% to $82 million. Net income was up by the same amount to $8 million. EPS increased 10% to $0.49. The story is much the same for YTD figures. WD-40 posted these numbers despite a tremendous run-up in the prices of raw materials. Senior management is being conservative and has, therefore, reduced FY2008 guidance. The company now expects net sales to increase 4-8% to $320-$332 million. Net income will be in the $30 to $31 million range and EPS in the $1.78-$1.85 range.
The company is rolling out its Smart Straw initiative globally. No more looking for the stupid little red straw that always got separated from the spray can. Now all aerosol cans of WD-40 have a built-in applicator. What a relief.
WD-40 also owns 3-in1 oil, Lava soap, X-14 and Carpet Fresh. None of these products are environmentally friendly by any stretch of the imagination. To counteract the perception that its products are not environmentally sensitive, WD-40 has launched a new product line, Spot Shot, comprised of an environmentally safe carpet stain remover and pet odor remover.
The stock is trading at just over $27, near its 52-week low of $26.50, and pays $0.25 in quarterly dividend.
Bad news in the market means good news for Constellation Brands Inc. (NYSE: STZ) which manufactures and markets spirits, wines and beers under a variety of labels. Brands include Robert Mondavi wines, Corona beer and Black Velvet whiskey. When the economy is good, folks drink to celebrate. When the economy starts to tank, people drink to commiserate. Constellation benefits either way. The company just released 1Q 2009 results. Profits jumped 50%! Diluted (no pun intended) EPS was $0.20, up from $0.13 in 1Q 2008. Consoldiated net sales increased 3%, with wine sales up 15% and spirit sales, led by vodka, up 9%. Constellation offloaded several lower profit margin lines including Almaden and Inglenook wines, and added higher product margin line wines Clos du Bois and Wild Horse.
Investors, whether drinkers or tea-totalers, like the numbers. The stock is up over 5% in the last two days, closing on July 2nd at $21.22
Constellation Brands (NYSE: STZ) produces and markets more than 250 brands of wine, spirits and beer, in about 150 countries. The Wines division, the largest maker of wine by volume in the world, is responsible for such brands as Robert Mondavi, Inniskillin, Simi, Arbor Mist and Blackthorn (cider). The Spirits division distills such brands as Black Velvet, Chi-Chi's, Fleischmann's, Canadian LTD and Mr. Boston. The Imports division has the right to import, market, and sell Corona Extra, Corona Light, Tsingtao, Modelo Especial, Pacifico and St. Pauli Girl. The firm distributes its products through wholesalers, government beverage control agencies and various retailers. Diageo (NYSE: DEO) and Fortune Brands (NYSE: FO) are major competitors.
The company pleased investors earlier in the week, when it reported fiscal Q1 EPS of 34 cents and revenues of $931.8 million. Analysts had been looking for 31 cents and $906.1 million. The highlight of the quarter was a 24% year over year rise in branded wine net sales. Management also guided FY09 EPS to $1.68-$1.76, versus consensus of $1.70.
Robbins & Myers (NYSE: RBN) provides equipment used for the industrial processing and management of fluids. Its Fluid Management segment offers hydraulic drilling equipment, slurry grinders and wellhead systems used by oil and gas, specialty chemical and wastewater treatment firms. The Process Solutions unit makes glass-lined reactors, storage vessels and mixing/agitation devices for the pharmaceutical and fine chemical markets. The Romaco segment provides equipment for the dosing, filling and sealing of vials, capsules, tubes and bottles.
Investors were pleased earlier in the week, when the firm reported fiscal Q3 EPS of 62 cents and revenues of $200.9 million. The Street had been looking for 58 cents and $190.2 million. Management also guided Q4 EPS to 62-67 cents (60 cent consensus) and FY08 EPS to $2.10-$2.15 ($2.05 consensus).
Nvidia (NASDAQ: NVDA), the big graphics chip maker, warned on profits. It was an inauspicious beginning to the earnings season for tech stocks. Many of the world's PCs use Nvidia chips. One of the reasons the company gave for its trouble is slowing demand combined with lower prices. The news was considered so bad that NVDA shares fell over 20% after hours.
According toMarketWatch,the company "expects its second-quarter revenue and gross margin to be lower than its previously announced forecast. The company now expects revenue from $875 million to $950 million." The consensus among analysts was that the company would have revenue of $1.1 billion.
Because the firm's products are so closely associated with PC sales, shares in other chip companies like Intel (NASDAQ: INTC) and computer makers like Dell (NASDAQ: DELL) are almost certain to be viewed as candidates for earnings downgrades of their own.
Nvidia's forecast could be the start of a very hard quarter for tech companies. And they may have been Wall Street's last significant hope.
Douglas A. McIntyre is an editor at 247wallst.com.
Stock futures were mixed early Thursday morning, the last and shortened day of trading this week -- markets will close at 1 p.m. EDT. Oil, again, has reached new highs as investors awaited the ECB decision on interest rate. Wall Street is also anxious about the upcoming jobs report, especially after Wednesday the ADP employment figures were worse than expected. Today's session will likely be choppy.
Despite starting the day on a positive note Wednesday, U.S. stocks ended sharply lower after the ADP employment figures damped mood on the Street. Also, crude oil prices rose sharply and an analyst warned that General Motors (NYSE: GM) may have to consider bankruptcy at some point; GM stock closed below $10 a share. The Dow industrials tumbled 166 points, or 1.46%, entering bear territory -- down over 20%, the Nasdaq Composite lost 53 points, or 2.32%, and the S&P 500, fell 23 points, or 1.82% - the only major index still not in bear territory.
Soon, at 7:45 a.m. EDT, the European Central Bank will announce its decision on interest rates. The ECB is widely expected to increase rates, which in turn could further weaken the dollar, driving oil prices higher.
Then, at 8:30 a.m., the Labor Department will release the June payroll figures. Economists expect the unemployment rate to fall to 5.4% from 5.5% last month, but job losses are expected to rise to 60,000 positions, up from 49,000 in May, according to Briefing.com.
At 10:00 a.m., the June ISM services index will be released, and another decline is expected.
AeroVironment (NASDAQ: AVAV) is engaged in the design, development and production of unmanned aircraft systems and electric energy technologies for various industries and governmental agencies. The company's small aircraft are used by U.S. Department of Defense customers to deliver real-time reconnaissance, surveillance, and target acquisition to tactical operating units. Its electrical products include recharge systems for industrial vehicle batteries and power processing test equipment. Ford Motor (NYSE: F) and Delta Air Lines (NYSE: DAL) are on the company's commercial customer list. Lockheed Martin (NYSE: LMT) is a major competitor.
The firm pleased investors last week, when it reported fiscal Q4 EPS of 30 cents and revenues of $64.3 million. Analysts had been expecting 27 cents and $59.3 billion. In discussing the successful quarter, the CEO pointed to strength in demand for unmanned aircraft and related support services. Management also guided FY09 revenues to about $258.9-$269.7 million, versus Street consensus of $259.44 million. Funded backlog at the end of Q4 was up 35% from the same point last year.
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Stock futures were mixed early Thursday morning, the last and shortened day of trading this week -- markets will close at 1 p.m. EDT. Oil, again, has reached new highs as investors awaited the ECB decision on interest rate. Wall Street is also anxious about the upcoming jobs report, especially after Wednesday the ADP employment figures were worse than expected. Today's session will likely be choppy.
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