Daily Archives: February 5, 2008

Cramer Critical About NYSE (NYX, NDAQ)

On tonight’s MAD MONEY on CNBC, Jim Cramer was discussing the rhythm of the markets being short sharp rallies followed by sell-offs.  But he also had the CEO of NYSE Euronext, Inc. (NYSE: NYX) Duncan Niederauer on for a taped interview from earlier today. 

Shares of NYSE were hosed worse than a rented tuxedo at a pool party after its earnings today.  Shares fell 14% today to $71.03, and the 52-week trading range is $64.26 to $101.00.  This literally traded over $1 Billion worth of stock today.  As a reminder, this was Cramer’s #1 Growth Stock for 2007 that he actually updated in the first trading day of this year.  Here you can see where he said he thought it was having a great quarter and could be ridden higher, before today.

What is interesting is that Cramer already gave a video blurb on this today with a large disappointment.  Cramer was shocked that they did not have a blow-out quarter despite the huge market volatility and he’s shocked that it didn’t grow market share.  Cramer noted in the interview about negative operating leverage, meaning they lose more money on more volume.  Niederauer said there is a level he has to focus on, as the has gotten a lot done but has much more to do.  The 2007 story has a lot of room to improve and they have much to work out on technology savings.  After that they will look at being held to accountability.

As far as buying the American Stock Exchange, the NYSE wanted the ETF and for emerging companies stock listing platform.  Cramer even wondered if the NYSE was a burden on Euronext because of the negative dollar etc.  Cramer even noted that the Euronext was worth $23 Billion, and that would mean the NYSE is worth negative-$3 Billion.  As far as clearing, Cramer wonders why they are not in clearing yet.  Cramer even brought up the point that the actual NYSE stock is such a horrible stock to trade.  Niederauer hinted at a stock split here to narrow the bid-ask spread, and he even discussed the possibilities of a share buyback or dividend boost.  As far as China, the NYSE wants to do more and is focused there.  Lastly, Cramer asked if Niederauer was given a bad hand, but he did not throw John Thain under the bus.

Jon C. Ogg
February 5, 2008

Posted on: February 5, 2008 – 7:40 pm in Cramer, Exchange, ,

BHP Billiton (BHP) Raises Rio Tinto (RTP) Bid

BHP Billiton (NYSE: BHP) is doing the one thing good bargainers never do. It is negotiating against itself. Today, it raised its bid for fellow metals company Rio Tinto (NYSE: RTP) from three shares to Rio’s one to 3.4 shares. RTP never made a counter to the original offer. It simply said it was too low.

BHP management says it can get $3.4 billion in cost savings and revenue gains out of a business combination. “The synergy from the cost and revenue side would be enormous,” said Simon Bonouvrie at Platypus Asset Management according to Bloomberg.

In takeovers, the aggressive party seems to think that a higher price makes for a better deal. Otherwise, why up the ante? The BHP offer will likely turn into a disaster if it works out.

RTP shares are up over 100% during the last year. Alcoa’s (AA) are only up 5%. It would be hard to make the case that Rio Tinto is that much better off. RTP trades at almost 6x revenue.

Metals prices, which are the largest factor in an ongoing share price rally in stocks like Rio, are based to a very significant extent on global demand. That, in turn, is based on the health of global GDP. China, will, of course, probably underwrite the high cost of metals for its industries to keep its economy moving. No other large country can count on that.

In much less than four years, RTP’s share price has quadrupled. It is a very, very long bet that the price of metals can keep that kind of momentum going.

A Viking funeral for shareholders in both companies.

Douglas A. McIntyre

Posted on: February 5, 2008 – 7:16 pm in Mergers and Buy Outs, ,

Major Relief Rally in JDSU (JDSU)

If you have been following tech stocks for a decade or more, JDS Uniphase (NASDAQ: JDSU)  is one you will know quite well.  For almost the entire 2000’s, you probably wish you didn’t know it if you had not been short the stock.  We even noted this one recently as a turnaround that just hadn’t ever been turned.

Maybe that is changing.  Shares are surging in after-hours trading after the company blew the handle off of some estimates with its earnings report, despite earnings lower year over year.  Net revenues came in at $399.2 million and net income was $0.09 EPS or $21.2 million.  BUT… before items and charges, JDSU would have posted EPS at $0.22.   First Call had estimates pegged at $0.12 EPS on revenues of $386.39 million.

The optical components and fiber optic makers gave strong enough guidance as well.  JDSU said it now expects next quarter’s non-GAAP revenue to be $380 to $402 million and non-GAAP operating margin to be in the range of 4-7%.  First Call has estimates at $390+ million revenues.

Before calling this a success in a turnaround, we would probably rather see another couple quarters of strong orders.  We’d also caution that this successful post-earnings trading is on the heels of a significant stock drop.  This one got low enough that we even got to review it for our "10 Stocks Under $10" subscriber letter. 

Shares closed down almost 3% at $10.16 in normal trading but shares are up about 18% to $12.05 in an after-hours relief rally.  JDSU’s 52-week trading range is $9.49 to $17.15 and shares were nearly $15 just 90-days ago.

Jon C. Ogg
February 5, 2008

Posted on: February 5, 2008 – 5:34 pm in Earnings, Technology Companies, ,

THQ, Not So Recession-Proof (THQI)

THQ inc. (NASDAQ: THQI) just posted earnings that it called in-line with previous guidance.  The video game maker just posted $0.24 non-GAAP EPS on $509.6 million in revenues.  First Call had estimates at $0.33 EPS on revenues of almost $503.3 million.  The results today include already-noted charges of approximately $27 million in non-cash chargesrelated to canceling certain projects and approximately $20 million inaccelerated amortization expense. 

The company is also guiding to -$0.06 EPS on a non-GAAP basis on sales of approximately $200 million.  First Call has Next quarter estimates at $0.01 EPS on $211.4 million.

The company already killed its stock in January when its business charges also gave a look into lower guidance than many bulls were hoping for. Video games might not be entirely recession-proof, but the tapering off of the results versus expectations was something that traders were hoping was farther off than it is proving to be.

Shares closed down some 0.5% a $19.50 today, and shares are down almost 3% to $18.95 in after-hours trading.  The 52-week trading range is $16.36 to $36.76.

Jon C. Ogg
February 5, 2008

Posted on: February 5, 2008 – 4:53 pm in Earnings, Entertainment, Video Games,

Disney’s Earnings Surge Propels Major Share Buybacks (DIS)

The Walt Disney Company (NYSE:DIS) has posted earnings of $0.63 EPS, although excluding  gains its EPS increased 29% to $0.63 for the quarter.  It also posted $10.452 Billion in quarterly revenues.  First Call had estimates at $0.52 EPS and $10.04 Billion in revenues.

Mickey Mouse and Hannah Montana also bought a more than a lot of Disney stock.  During the first quarter of fiscal 2008, it repurchased some 31 million shares for $1.0 billion.

Disney shares closed down 2.7% at $30.07 in regular trading, yet shares are up over 4% to $31.35.  Its 52-week trading range is $26.30 to $36.79.

Eiger just got signed to a new contract recently.  It looks like he deserves whatever they are paying him.

Jon C. Ogg
February 5, 2008

Posted on: February 5, 2008 – 4:24 pm in Earnings, Entertainment, , ,

Bankrate Shares Hit On Ad Cancels & 2 Acquisitions (RATE)

Bankrate Inc. (NASDAQ: RATE) has just posted earnings of $0.33 non-GAAP EPS on revenues of $25.3 million.  First Call has estimates at $0.39 EPS on revenues of $26.83 million.

The company also gave some raised guidance of $167 to $172 million for fiscal 2008 revenues, and fiscal 2008 and EBITDA of between $64 and $68 million.  First Call has a revenue target for 2008 of $142.75 million, although this guidance likely includes two new additions.  Bankrate has also announced that it has acquired and completed the acquired the assets of two companies in separate
transactions:

  • InsureMe, Inc. for $65 million
  • Lower Fees, Inc., operates feedisclosure, for some $2.85 million.

Thomas R. Evans, President & CEO: "It was an unusual quarter in that we had two record months followed by a soft December, when several display advertisers cancelled booked business in that month as a result of anxiety in the mortgage and financial sectors." 

It appears that this guidance may be including the gains from the extra acquisitions it simultaneously announced.  Shares closed down 5.5% at $53.68 in normal trading today, yet shares are down 8% in after-hours to $49.43.  The 52-week trading range is $32.70 to $57.32, and that high was just two days ago.

Jon C. Ogg
February 5, 2008

Posted on: February 5, 2008 – 4:15 pm in Earnings, Financial Stocks, Internet, Mergers and Buy Outs,

The 52-Week Low Club (SIRF)(RMKR)(WOOF)

Primus Guaranty (NYSE: PRS) Bad quarterly earnings. Shares drop to $3.64 from 52-week high of $12.96.

SiRF Technology (NASD: SIRF) Big miss on earnings takes half of stock’s value in one day. Trades down to $6.97 from 52-week high of $34.15.

Rainmaker Systems (NASD: RMKR) Company loses biggest client and is downgraded. Drops to $2.81 from 52-week high of $11.08.

ARM Holdings (NASD: ARMHY) Weak quarterly numbers.Down to $5.57 from 52-week high of $10.07.

VCA Antech (NASD: WOOF) Quarterly guidance is off the mark. Falls to $31.40 from 52-week high of $46.23.

Douglas A. McIntyre:

Posted on: February 5, 2008 – 4:10 pm in HI/LOW, , , , ,

Multiple Downgrades Challenge Bankrate Ahead of Earnings (RATE)

Bankrate Inc. (NASDAQ: RATE) is set to report earnings after the close today.  What in interesting is that we have seen four downgrades in the recent trading days based on valuation, and this stock just put in another yearly high last Friday.

On January 31, Credit Suisse downgraded the stock to Neutral from Outperform.  Yesterday Citigroup downgraded it to Hold from Buy, and Merriman Curhan Ford downgraded it to Neutral from Buy.  Then this morning we saw a downgrade out of Jefferies to Hold from Buy.  Most of these downgrades are based upon valuation and stock performance rather than new competition.

We’d caution against using any consensus estimates as complete gospel right now because of all teh last minute changes, but First Call sows estimates now at $0.39 EPS on $26.83 million revenues.  On last look, next quarter estimates were $0.45 EPS o $33.36 million revenues and fiscal Dec-2008 estimates were $1.96 EPS on $142.75 million.

Regardless of these downgrades upon valuation, the stock is only down 1.5% today and only down about 2% from its all-time highs.  We do not have the end of January short interest yet, but the short interest has been growing as the stock has risen and the mid-January short interest was listed as 5.32 million shares.

With this stock being right up against its highs during a period of a crummy stock market, today’s post-report trading is going to probably be one of the more exciting stocks to watch.

Jon C. Ogg
February 5, 2008

Posted on: February 5, 2008 – 1:54 pm in Analyst Calls, Financial Stocks, Internet, ,

Potential S&P Downgrades Of MBIA (MBI) and Ambac (ABK) Hammer Bank Stocks

Citigroup (NYSE: C) is trading off over 5% today. Wachovia (NYSE: WB) and JP Morgan (NYSE: JPM) are down over 3%.

Is it any wonder? S&P today said that its potential downgrade of Ambac (NYSE: ABK) and MBIA (NYSE: MBI) may lead to rating cuts at big banks as well. Bloomberg writes "bond insurer downgrades also could affect banks directly by causing them to recognize more losses and reverse gains in securities they hold guaranteed by the bond insurers, S&P said."

More downgrades at banks should drive their stock prices much lower. Citi bottomed at $22.36. Another downgrade might take it back there.

Douglas A. McIntyre

Posted on: February 5, 2008 – 1:18 pm in Banking, , , , ,

CDO Markets Dead

Trading in CDOs is just not happening. According to Bloomberg "buying and selling of collateralized debt obligations based on mortgage bonds, high-yield loans or preferred shares has ground to a near-halt."

 

We have noted before how this CDO market started looking like a build-up to what may be yet another Resolution Trust Corp.

If the securities cannot be valued through pricing based on trading patterns, could banks have to take more write-off? Yes.

Douglas A. McIntyre

Posted on: February 5, 2008 – 12:50 pm in Financial Stocks

SPAC Goes Operational: Aldabra 2 To Become Boise (AII, BZ)

Aldabra 2 Acquisition Corp. (AMEX: AII, AII.U, AII.WS) has announced that its stockholders have approved the company’s plan to acquire Boise Cascade, LLC’s packaging and paper manufacturing businesses. The vote took place today at its special meeting of stockholders and the company anticipates this transaction to close during the last week of February 2008.

There will be some changes in the stock as a result.  For starters, Aldabra will change its name to Boise Inc.  It will also list its common stock and warrants for trading, but it will leave AMEX for an NYSE-listing under the new symbols BZ and BZ.WS. The acquisition is subject to customary closing conditions and the completion of Aldabra’s previously announced financing being arranged by Goldman Sachs Credit Partners LP and Lehman Brothers.

Aldabra shares are now up 1.6% today as it will move away from a SPAC to an operating company.  Since coming public this last summer has traded in a range of roughly $9.00 to $9.90.

Jon C. Ogg
February 5, 2008

Posted on: February 5, 2008 – 11:49 am in IPOs, Mergers and Buy Outs, ,

Could Qimonda Be Acquired? (QI, MU, RMBS)

There is an interesting research note out of American Technology Research that questions whether or not Qimonda AG (NYSE: QI) could be a takeover candidate.  Since its first quarter earnings, shares are up some 50%, and AmTech believes shares have rallied on speculation the company will be acquired by a competitor.  At current prices it trades at 0.88-times book value and 1.4-times AmTech’s end of year book value estimate. 

This notes that out of the DRAM manufacturers, Micron (NYSE: MU) is the only company that would consider acquiring it.  This also notes that a non-US company would face ‘tremendous’ scrutiny from our government.  AmTech notes that this would also potentially free up Micron from its Rambus (NASDAQ: RMBS) battle over intellectual property as Qimonda has an existing license agreement with Rambus.  Another point is that would allow Micron to build market share, remove a competitor, and have scaling advantages in a DRAM upswing.  Its specialty segment commands a leading market share that would allow Micron to market itself and offset margin declines in commodity DRAM.

AmTech notes that it does not have any specific information on any transaction.  But it also notes that Qimonda likely can’t raise funds without massive dilution. 

  • AmTech noted: "We believe both companies have chatted in the past about a possible deal and that Micron has scrubbed the deal as well as other memory manufacturers given its positive cash balance and need to get bigger to scale its above industry expense ratios."

AmTech noted that Qimonda’s financial situation will continue to deteriorate with cash burn rates being a key concern.  AmTech maintains its NEUTRAL rating as absent a takeover bid.  Its target price is raised to $6.00 from $5.00.  Shares of Qimonda closed at $7.34 yesterday and are down almost 3% right after the open this morning.  Its 52-week trading range is $3.51 to $17.29, and it traded even higher than that in 2006 after coming public.

247WallSt.com hasn’t pondered a deal of this magnitude.  Micron has many of its own issues to fix.  With a market cap of almost $2.5 Billion, a deal of this size might take up most of the liquidity that Micron needs to survive on its current path.  We have noted on our own how the turnaround at Micron seems like it just won’t turn. We have also noted on our own how Micron needs to explore its own initiatives, or at least for units.

Jon C. Ogg
February 5, 2008

Posted on: February 5, 2008 – 9:58 am in Analyst Calls, Mergers and Buy Outs, Semiconductor, , ,

Fuel Hedges Aren’t Helping Southwest Shares (LUV, AMR, CAL, AAI, JBLU)

Southwest Airlines Co. (NYSE: LUV) has not been doing well as a stock.  Over the last two years its stock has lost nearly one-third of its value.  Even over the last 5-year period, its stock has recently put in new lows.  In the past we noted how many of the issues in the sector were out of context relative to other airlines.  But in today’s environment the situation looks like it has reversed.  If passengers think they are unhappy with major airlines now, wait until they get to deal with all the problems when two majors merge into one structure.

If you believe that oil is the largest wild card for airlines, you’ll scratch your head when you consider that Southwest had the best fuel cost structure of any large airline operator out there.  The company decided to enter major counterparty fuel hedge transactions back when oil prices were so low that oil was cheaper than water.  That strategy worked as the uncertainty was making the entire sector look at risk of failure and when all of the others had to get a government handout.

If you look at the hedging strategy below you might determine that fuel hedging acts a de-leveraging mechanism that investors don’t prefer.  If you compare the hedging structure from this year to last year, you will see some slight differences.  Here is the hedge structure noted in their annual report:

  • 2008 over 70% at $51 per barrel;
  • 2009 55% at $51 per barrel;
  • 2010 30% at $63 per barrel;
  • 2011 over 15% at $64 per barrel;
  • 2012 over 15% at $63 per barrel.

If you will take note, this is slightly different than the fuel hedges we noted from the same period last year.  If you wanted to draw a parallel it would probably be assumed that as the fuel gets used and as the capacity rises slightly the cost basis ends up being higher because of the current oil/barrel prices.  Here were the prices noted in early 2007 for the forward years:

  • 2007 was 95% hedged at $50/barrel;
  • 2008 was 65% hedged at $49/barrel;
  • 2009 was over 50% hedged at $51/barrel;
  • 2010 was over 25% hedged at $63/barrel;
  • 2011 was over is 15% hedged at $64/barrel;
  • 2012 was 15% hedged at $63/barrel.

This is more than surprising when you consider the cost structure of the other airlines. Over the last 5-years Southwest as a stock has underperformed the major airlines that didn’t file for credit protection.  It looks like Continental (NYSE: CAL) is up some 200% and AMR (NYSE: AMR) is up much more than that.  On the discount side, Airtran (NYSE: AAI) has outperformed as a stock, but JetBlue (NASDAQ: JBLU) lost its way and is down sharply. It is also the belief of Wall Street that as the top 5 or 6 airlines merge into perhaps the top 2 or 3, Southwest will remain an independent carrier in the mix.  We had noted how the discount airline wasn’t such a discount to other carriers anymore, yet that may actually be a good thing in today’s airline environment.

Can we determine that Wall Street is discounting the results two years out as the fuel hedges dwindle?  That is nonsense.  If you have watched housing or financial stocks over the last six months you will know that Wall Street has lost its ability to price in any forward events and that traders are only reacting to each new round of news headlines.  It’s almost amazing how the airline with the best cost structure, the smartest in foreseeing fuel price escalation,  perhaps the best employee relations in the sector, the safest track record, and one of the best brand loyalties hasn’t translated into a win for investors compared to other airlines.  It seems that no good deed goes unpunished.

Jon C. Ogg
February 5, 2008

Posted on: February 5, 2008 – 8:39 am in Airlines, , , , ,

Homebuilder & Housing Analyst Upgrades (KBH, MDC, PHM, TOL)

This morning, Banc of America has actually upgraded the homebuilder sector.  This may be the first such round of upgrades from a brokerage firm across the board in what seems like forever.  The price targets haven’t been seen yet, but here are some of the summary notes:

  • KB Home (NYSE: KBH), MDC Holdings (NYSE: MDC), Pulte Homes (NYSE: PHM) raised to Buy.
  • Toll Brothers (NYSE: TOL) raised to Neutral from Sell.

Homebuilder stocks were hit hard yesterday, but last week we noted how the strong rally had taken some of the homebuilder stocks up more than 100% from their lows, and some were even up 200%.

When was the last time you saw ANY good news in this sector?

Jon C. Ogg
February 5, 2008

Posted on: February 5, 2008 – 7:48 am in Analyst Calls, Housing, , , ,

Top 10 Pre-Market Analyst Calls (ACI, RATE, BKS, GS, HAS, MOS, OXPS, POT, SIRF, YHOO)

These are not the only analyst calls impacting stocks this morning, but these are the key calls that 247WallSt.com is focusing on this morning:

  • Arch Coal (NYSE: ACI) raised to Overweight at JPMorgan.
  • Bankrate (NASDAQ: RATE) downgraded to Hold at Jefferies.
  • Barnes & Noble (NYSE: BKS) downgraded to Neutral at JPMorgan.
  • Goldman Sachs (NYSE: GS) downgraded to Market Perform at Oppenheimer.
  • Hasbro (NYSE: HAS) raised to Buy at Banc of America.
  • Mosaic (NYSE: MOS) raised to Buy at Citigroup.
  • OptionsXpress (NASDAQ: OXPS) started as Sell at Merriman Curhan Ford.
  • Potash (NYSE: POT) raised to Buy at Citigroup
  • SiRF Tech (NASDAQ: SIRF) downgraded across the board: Jefferies, Lehman, Oppenheimer.
  • Yahoo! (NASDAQ: YHOO) raised to Buy at Canaccord Adams; downgraded to Neutral at Banc of America.

Jon C. Ogg
February 5, 2008

Posted on: February 5, 2008 – 7:24 am in Analyst Calls, , , , , , , , , ,

Europe Markets 2/5/2007 (BCS)(BP)(SI)

Markets in Europe were lower at 6.50 AM New York time.

The FTSE was off .5% to 5,996. Barclays (BCS) was off 2.6% to 469. BP (BP) was up 2.3% to 554.5.

The DAXX fell .5% to 6,963. Man AG was down 3.1% to 85.87. Siemens (SI) was off 1.3% to 89.65.

The CAC 40 sold off .7% to 4,937. AXA (AXA) was down 2% to 23.14. Cap Gemini was off 2.5% to 37.45.

Data from Reuters

Douglas A. McIntre

Posted on: February 5, 2008 – 6:55 am in International Markets, , , ,

Corporate Insiders Start To Buy Their Own Shares

In January, for the first time in 13 years, corporate insiders bought more of their own shares than they sold.

According to the FT "in the past, periods of net buying by company executives and directors have been a signal that the market will rise sharply in the ensuing 12 months."

When corporate insides sell investors become concerned that they know something about a company’s future prospects. In a bull market, the sin of selling your own shares can be forgiven. Most executives say that they want to "diversify their portfolios." That seems like a good excuse. At least few investors care if a stock has doubled.

The buying of securities by executives may have absolutely nothing to do with a view that their prospects may improve. In a bear market, insider sales are the most clear benchmark available that a company has trouble. Insider sales tend to push share prices down even further. What management sells when a stock is going down? At least small purchases show shareholders that executives are not bailing out.

There is tremendous pressure on corporate officers to hold their shares now. Selling just looks so damn bad. Even if the next year or two look bleak, insiders do not want to signal a loss of faith.

It is not so much that the buying of shares shows the market is moving up. Insiders won’t sell and push their stocks even lower.

Douglas A. McIntyre

Posted on: February 5, 2008 – 6:24 am in Shareholder Issues

Moody’s (MCO) New Ratings System Is A Sham

Moody’s (MCO) wants to replace its old ratings system, which used letter grades, with a new one which will use numbers. It also wants to put "warning labels" on securities like CDOs because they are complex and hard to rate

According to The Wall Street Journal "more broadly, the ratings firm is trying to decide whether to add warning labels that essentially acknowledge the limitations of its ratings."

Please pardon those who think that the new "system" comes a little late. Tens of billion of dollars of mortgage-related securities have been written off by banks and investment houses. Many of those had an "AAA" rating and none of them were rated "junk".

The move is window dressing of the worst sort. The entire purpose behind Moody’s, S&P, and Fitch is that they have the skills to assess risk in advance, or, at the very least, will not give strong ratings to debt which is likely to be inherently volatile. Baskets of securities are bound to be more difficult to understand than straight government or corporate debt. Moody’s did not acknowledge that until so much money was lost that they had to.

Moody’s actions with regard to CDOs and other bundles of securities went beyond poor judgment to the brink of recklessness. Institutions which have the sole purpose of safe-guarding money and fail catastrophically should be replaced by more efficient services.

A cosmetic change does not do that.

Douglas A. McIntyre

Posted on: February 5, 2008 – 6:11 am in Financial Stocks,

Social Networks And Video-Sharing Sites Losing Their Promise

A look at News Corp (NWS) earnings shows that the "other" revenue and profit line, which is mostly its online service MySpace, only had an operating profit of $23 million. MySpace is one of the largest websites in the world. That can’t be good for the value of social networks. So far, there is not a lot of evidence that the universe’s largest video-sharing site, YouTube, is bringing in much money for Google (GOOG).

According to The Wall Street Journal an "issue is advertiser comfort with having their ads displayed alongside less-predictable content."

Predictability is not the entire problem. Social networks and video-sharing sites are a maze of unrelated content of questionable quality. Sites like MySpace have a large portion of their members who are weirdos and agoraphobics. Advertisers who spend any times on these sites know that.

Video sharing sites tend to have very poor picture resolution. Among the most popular videos on YouTube this week is one of a man on foot racing an Aston Martin. Heady stuff.

Part of the reason that AOL, Yahoo! (YHOO), and MSN have some value is that Web 2.0 has much less value than the markets wanted to believe. At least at portals, the content is categorized.

Web 2.0 content is a bust. But, no one wants to admit it.

Douglas A. McIntyre

Posted on: February 5, 2008 – 5:50 am in Uncategorized, , ,

In Toyota’s (TM) Earnings, A Warning For Multinationals

Toyota (TM) reported a 7.5% increase in profits for the last quarter of 2007. By itself that is an achievement for any car company. The big Japanese firm did indicate that the current quarter might not be as good because of a slowing US economy.

Toyota did point to emerging markets like China and India as much of the reason behind its strong results. But, the good news ends there.

Toyota’s forecast should be a warning to the Wal-Marts (WMT), GEs (GE), and GMs (GM) of the world. A bad economy in the US may not necessarily be offset by improving results in fast-growing markets.

The hope that places like India will bail-out multinationals has two flaws. The first is that the US economy is still big enough that a slowdown here cannot be offset by sales outside America. That may change over time, but it has not changed yet

The other piece of news which may have been lost on Wall St. is that companies like Shanghai Automotive and Tata Motors (TTM) are not going to simply roll over and let big foreign companies take there markets. The current picture of corporations in emerging markets is that they are too small and too unsophisticated to stand up to a withering assault from large multinationals. That may be the conventional wisdom, but that does not make it true.

Douglas A. McIntyre

Posted on: February 5, 2008 – 5:32 am in International Markets, , , , ,