Daily Archives: July 22, 2007

American Express Earnings, Perhaps Immune From Credit Concerns (AXP, MA, DFS)

Monday will be an interesting day for American Express (NYSE:AXP), or so it would seem.  The solid banks, brokers, and credit issuers have all been revealing increases in defaults and in loan losses.  American Express has perhaps the highest credit quality in its client-base out of the entire lending and credit sector. First Call is looking for results to be $0.86 EPS and $7.49 Billion in revenues.  The actual numbers Monday should take the backseat to the general credit issues of its customer base.

If you believe in the perfect market theory or efficient market theory, the market has said that credit erosion or loan losses at Am-ex are not a problem.  Otherwise the stock wouldn’t be within 2% of an all-time high when every other lender has seen share prices come in from deteriorating credit conditions.  But it seems hard to imagine they would be immune.  The likely ‘tell’ on the situation is that the company will note a somewhat similar situation as all the other lenders but not enough to harm the company. If that is not the case, then it seems Goldman Sachs’ recent upgrade last week would have consequences.  Any unknown problems could also spill over into competitors MasterCard (NYSE:MA) and Discover (NYSE:DFS).

The average ‘buy’ price target from analysts is still north of $70.00, and as noted the shares are within 2% of highs.  The company rarely has any shocks during its earnings, so be sure to pay extra attention to its verbage on credit conditions for its customer base.  If the company is perceived to be entering the same round of credit quality concerns from its clients, the hurt might not just be limited to American Express.  Wealth doesn’t always trickle down when times are good for the wealthy, but if the rich are under pressure that will not bode well for everyone else.

American Express no longer has its conference call during the trading day, as it has now gone to an after-hours review, with official results shortly after the market close.  The company used to release earnings unofficially through media during the trading day around 1:00 PM EST.

Jon C. Ogg
July 22, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: July 22, 2007 – 2:41 pm in Banking, Earnings, Financial Stocks, , ,

Halliburton, Bracing For Earnings (HAL, BHI, SLB, KBR)

Halliburton (NYSE:HAL) plans to release its second quarter earnings on Monday morning, and as of the end of the week the First Call estimates are $0.56 EPS on nearly $3.5 Billion in revenues. The completion of HAL’s spin-off of KBR (NYSE:KBR) has already been priced in to the stock, of course, and HAL has already announced a dividend of $0.09/share for the third quarter and a very recent increase of $2 billion to the company’s stock buyback program.  The buyback plan has been helping shareholders over the last 90 days, with shares having risen from under $32.00 to over $36.00. Halliburton is also one of the few oil and gas services operators that has not seen a total break-out of its stock, as shares traded above $40.00 in early 2006.

In the first quarter, HAL’s largest division, Production & Optimization (P&O), took in $141 million more than it did in the same quarter of 2006, but its operating income dropped from year ago levels by $8 million. In the company’s 10-Q, HAL blamed North American repair and maintenance costs, lower natual gas prices, and the weather for the drop in income. The division rakes in nearly 40% of HAL’s revenue and more than 40% of its operating income, and North America contributes more than 50% of revenue and about 70% of operating income to the division.

The point is natural gas prices were still soft in the second quarter, repair and maintenance costs in North America didn’t get any cheaper, and the weather got warmer. None of that is going to help the P&O group’s business for the quarter and it’s doubtful that their drilling division, which grew its income by 43% in the first quarter, can keep that up. Rig counts for the US were up by more than 200 y-o-y in the first quarter of 2007, and down by more than 130 in Canada in the same period. That probably mitigates the softness in Canadian operations somewhat, but not enough to cover for the softness in P&O.

Baker Hughes (NYSE:BHI) took a nasty whack last week when it issued guidance lowering its earnings estimates, primarily because of problems in Canada. HAL has all the same problems in its largest division. Schlumberger (NYSE:SLB) avoided the Canadian malaise and reported big numbers today, more than a dime per share higher than expectations.

As a reminder, Halliburton is one of Jim Cramer’s "Top 9 for 2007," so he’ll be giving this one a lot of public attention this week one way or the other.

Paul Ausick
July 22, 2007

Posted on: July 22, 2007 – 12:36 pm in Earnings, Oil & Gas, , , ,

Dow Jones New Buy-Out Offer Lacks Management Skill

Brad Greenspan, a former shareholder of the company that owned MySpace has presented details of his bid to buy a large piece of Dow Jones (DJ), setting himself up as an alternative to Rupert Murdoch’s News Corp.

Greenspan’s fund would provide a $400-600 million loan to existing Bancroft family members so that those who want out at $60 a share could take their money. Then, sufficient debt would be taken on to enable the repurchase of 50% of all outstanding shares at $60.00 per share. Another $500 million would be borrowed to fund new TV and web-based initiatives. These new businesses would be successful enough to drive Dow Jones shares to over $100.

Mr. Greenspan’s program, outlined in a letter published in The Wall Street Journal, has two flaws. The first is based on the risk involved in creating a successful business new channel, an online financial video business, and a potential competitor to Yahoo! (YHOO) Finance. The second is that there is no one in Dow Jones senior management with the background to handle this kind of transformation of the company. The is no knock on the current senior officers. It is simply a fact based on their CVs.

Under his proposal, Greenspan would get two seats on the company’s board. That is not enough to dictate who will run the company. That means that current management is likely to remain.The skills needed to drive Greenspan’s vision would continue to be wanting.

In other words. the program would not work.

Douglas A. McIntyre

Posted on: July 22, 2007 – 7:31 am in Uncategorized, , ,

The Tribune’s (TRB) Default Risk: The Future Of Newspapers

Some newspaper companies simply have too much debt now. Journal Register (JRC) is an example. And, The Tribune Company (TRB) may be joining the list.

Accoding to Bloomberg, trading in credit-default swaps put the market’s guess that The Tribune may not be able to pay interest on some of its $13 billion debt at better than 50/50. Based on Bloomberg intelligence: "Tribune swaps prices imply investors consider the company the fourth-riskiest debt issuer among the almost 1,200 worldwide whose credit-default swaps were quoted this week by London-based CMA "

The data indicates the danger of newspaper buy-outs by private equity interests and may be why so few of the large paper chains have been approached in a buy-out crazy market. As cash flow falls, the ability to take on enough to debt cash-out public shareholders disappears.

Two newspaper companies appear to have a particularly high risk. One is Journal Register. The other is McClatchy (MNI).

An industry without private equity interest? How odd.

Douglas A. McIntyre

Posted on: July 22, 2007 – 7:15 am in Uncategorized, , ,