24/7 Wall St. » F

Suddenly, China’s Car Market Falls Apart

247wallst — Thu, 09 Feb 2012 11:39:38 +0000

One reason investors like to own General Motors (NYSE: GM) stock is that that company is the leading car manufacturer in China, when its local partners’ sales results are added to its own. Chinese sales are a primary reason investors like Volkswagen. And investors carefully watch whether Ford (NYSE: F) and Toyota (NYSE: TM) can challenge the market share of the two incumbents.

The trouble with relying on China as the future of the global car industry is that the people in the People’s Republic have lost some of their voracious appetite for new vehicles. The China Association of Automobile Manufacturers reports that, in January, sales of cars and light vehicles dropped 23.8% year-over-year. Analysts blamed the lunar holiday. But sales rose only 5% in all of 2011. So, the market has softened considerably.

China may produce sales of 18 million vehicles per year, well above the 13 million or so in the U.S. But car companies realize that American car sales are rising rapidly, while Chinese sales are not. The U.S., just two years ago the black hole of car sales, has become a foundation for revenue of multinational manufacturers. China has become a market where large investments in factories and marketing is a problem, at least for awhile.

Another challenge for foreign car companies in China is that local companies have grown tired of watching manufactures from the U.S., Japan and Europe exploit their market. All of the large local firms have learned manufacturing from their joint venture partners like GM and VW. That gives them the ability to stand on their own, and that can only hurt the sales of outsiders.

China has lost some of its luster for foreign car companies — that is, sales there have faltered — for a a number of reasons. Among them is that China’s middle class faces the effects of an economic slowdown and an inflation rate that hit 4.5% last month. And many Chinese cars are still relatively new. The factor of the replacement of cars that are six years or older, which is the cause for much of the improvement in sales in the U.S., is not as large a factor in China. There, the really huge volume in annual sales only happened in the past several years. The Chinese may not be ready to trade their cars in yet.

China, once the biggest hope for sales by global car companies, cannot sustain the revenue increases that the industry hoped it would.

Douglas A. McIntyre

Filed under: 24/7 Wall St. Wire, Autos, China Tagged: F, GM, TM

What’s Important in the Financial World (2/7/2012) New Nokia Phone, Toyota Recovery

247wallst — Tue, 07 Feb 2012 11:49:58 +0000

Greece continues to demonstrate that it can teeter almost indefinitely between austerity and the grant of aid packages without a short-term resolution to its sovereign debt crisis. The latest development is that the ruling coalition has agreed to cut 15,000 public jobs. Greek Prime Minister Lucas Papademos has set yet another meeting to get the nation’s most powerful politicians to agree to new government cost reductions. The European Commission, European Central Bank and International Monetary Fund continue to say that time is up. But none of them, either individually or as a group, has taken any action to show the deadline for a Greek budget agreement has passed.

BP Fights On

The crisis at BP (NYSE: BP) due to the Deepwater Horizon disaster seems long gone. It is not. BP signaled an improvement of its financial health with a dividend increase. At almost the same time, the UK-based firm said it would “vigorously” contest suits against it because of the spill. That vigorous defense of actions will take years. The first major suits against it will be filed this month. Large liability cases brought by governments and private enterprises against major companies before indicate that the process of trial and settlement talks can drag on seemingly forever.

Toyota’s Recovery

Toyota (NYSE: TM) announced the start of an unexpectedly rapid comeback from recall problems and the shuttering of many of its plants due to the Japanese earthquake of last March and more recent interruptions of its supply lines due to floods in Thailand. Toyota made $1.1 billion in the quarter that ended in December. Toyota raised forecasts for net and operating profit. The company still has to regain market share in the U.S. and gain on Volkswagen and General Motors (NYSE: GM) in China, the world’s largest car market. Its market share in the U.S. reached almost 18% four years ago, and it briefly moved ahead of Ford (NYSE: F). Its portion of the market is down to about 12%, and its has competition from resurrected GM and Chrysler, as well has rapidly selling new cars and light trucks made by South Korean manufacturing behemoth Hyundai.

Lumia 900 Launch

Nokia’s (NYSE: NOK) Lumia 900, its new flagship product, is about to go on sale in the U.S. The launch carries with it the hopes of a comeback for the world’s largest handset maker and its software partner Microsoft (NASDAQ: MSFT). Microsoft has had terrible trouble as it struggled to sell its mobile OS against Apple’s (NASDAQ: AAPL), as well as smartphones that use the Google (NASDAQ: GOOG) Android platform. The recent history of smartphone launches shows that the fate of products usually is determined in the first few days they are available. Reports of strong sales bring new customers into stores. Reports of weak sales cause analysts and the press to label a new product DOA.

Douglas A. McIntyre

Filed under: 24/7 Wall St. Wire, Market Open Tagged: AAPL, BP, F, GM, GOOG, MSFT, NOK, TM

America’s Shrinking Corporate Giants

247wallst — Mon, 06 Feb 2012 11:48:06 +0000

It is rare for one of America’s largest companies to lose a third or more of its sales in a brief time. When it happens, it is usually either because of market or economic forces, or because of a designed refocusing. 24/7 Wall St. identified the eight largest American companies whose revenue fell the most in the past five years and analyzed the reasons behind the drops.

Read America’s Ten Shrinking Corporate Giants

Large companies can lose a significant amount of their revenues because they get into a great deal of financial trouble. A company may lose part of its customer base quickly because of economic forces, or it may be part of a financial catastrophe. As a result, the company’s revenue declines, and it begins to post large losses. In cases like these, companies often are forced to sell divisions to fund their survival. Alternatively, companies may close some of their operations that drain capital. General Motors and Citigroup are good examples of this category. Each moved from relative prosperity to difficulty in a very short period.

The other reason large companies shrink quickly is by design. The management of a corporation created by merger or acquisition activity may find that some of its pieces no longer fit together. One division may grow at a much higher or slower rate compared to others. Also, the way the stock market values one part of a large corporation may change because it is in a category Wall Street no longer favors. That, in turn, becomes a burden on the stock price of the entire enterprise. Telecom hardware company Motorola Solutions and media giant Time Warner fall into this category. Each is smaller than it was five years ago because it spun out a major business.

24/7 Wall St. used Capital IQ to screen the largest companies in America based on total revenue in 2006. We then screened for those that had the largest drops in total revenue between 2006 and 2010. Most of the eight companies on this list lost a third of their total revenue over the period, and some lost more than half. The list is ranked by total revenue loss from greatest to least.

This is 24/7 Wall St.’s list of America’s Shrinking Corporate Giants

Filed under: Special Report Tagged: AIG, AOL, BAC, F, GM, GOOG, GS, HD, KFT, MET, MMI, MSI, PM, PRU, TTM

What’s Important in the Financial World (2/6/2012) Greek Settlement, GM Profit Target

247wallst — Mon, 06 Feb 2012 11:44:41 +0000

Time has finally run out for Greece. The European Union, European Central Bank and International Monetary Fund have said they are tired of waiting to see if Greece can cut is budget again. Some members of Parliament in the southern European nation say the requested cuts are too great. Unions have staged powerful protests to show the government they will not give in to demands for wage cuts. “If we determine that it’s all going wrong in Greece, then there won’t be a new program — and that means in March you’ll have a declaration of bankruptcy,” Luxembourg’s Jean-Claude Juncker, who chairs euro finance meetings, told Der Spiegel magazine. It is unlikely that Juncker would make his opinion so public if the need for a deal was no more than a day or two away.

China’s GDP Growth

The IMF cut its forecast of China’s GDP growth this year. Given the uncertainties about the global financial markets and the GDPs of many nations, that move it not unusual. What is shocking is the size of the negative forecast — China’s GDP growth rate could drop 4% from the current estimate of 8.2%. And the 8.2% is a number reached by a downward revision by the IMF less than two months ago. It is hard to fathom that an economy that has grown at more than 10% a year for the past decade could face such a shock. It is the IMF’s acknowledgement that the entire world could teeter into recession, and that the problems in Europe could effect both China’s trade with that region, but also with the U.S. The latter will not avoid the slump either, the IMF must reason, despite recent, strongly positive signs.

Foreclosure Abuse Deal

State attorneys general and U.S. regulators are just a day from a settlement with Ally Financial, Bank of America (NYSE: BAC), Citigroup (NYSE: C), Wells Fargo (NYSE: WFC) and JPMorgan (NYSE: JPM) over mortgage foreclosure abuses. The settlement would help current homeowners. Some would be allowed to refinance current home loans. Others would get financial assistance. Even if the deal is closed, the implementation could take months. It will take at least that long to sift through which homeowners are worthy of aid, and then to process them to help those who deserve it. The entire face value of the settlement will be $25 billion.

GM Profit Forecast

General Motors (NYSE: GM) says it can make $10 billion a year for the next several years. That would mark a tremendous comeback from its 2009 Chapter 11 filing. It also would validate the decision of the U.S. government to bail out the car company. The challenge GM faces as it presses its goal is that the world’s largest car manufacturers, Volkswagen and Toyota (NYSE: TM), expect to do as well as GM. Toyota just raised its sales forecasts to levels that would take it to a record in units shipped next year, if it can reach the numbers. VW has attacked the U.S. market because it needs American sales to allow it to keep pace with its two major rivals. GM has momentum, but its profit forecasts are large enough to make an uphill battle.

Douglas A. McIntyre

Filed under: 24/7 Wall St. Wire, Market Open Tagged: BAC, C, F, GM, JPM, TM, WFC

Eight Brands That Wasted the Most on the Super Bowl

247wallst — Thu, 02 Feb 2012 04:29:27 +0000

A 30-second ad spot in this year’s Super Bowl costs an average of $3.5 million. That’s an 84% increase from 10 years ago and the highest amount advertisers have ever had to pay. While that is quite the price hike, it is in line with the growth in TV audience, which has just about doubled over the past decade. But despite spending this much to reach such a massive audience at once, the results are rarely impressive.

Read: The Eight Brands That Wasted the Most on the Super Bowl

Between 2002 and 2011, companies spent $2.5 billion on Super Bowl advertising, based on 24/7 Wall St.’s estimate. The top 10 spenders were responsible for more than one-third of that. And one company, Budweiser maker Anheuser-Busch, spent almost $250 million over the past 10 years on Super Bowl ads, or a whopping one-tenth of all Super Bowl ad spending.

24/7 Wall St. ranked total spending for all of the companies that advertised during the Super Bowl in the past decade. An analysis of the top spenders reflects how bad this investment can be. While some, such as Hyundai and Toyota have improved market share over that time, most have not. Based on total ad spending, product failures, change in market share, share price and sales, we identified the eight brands that wasted the most on the Super Bowl, including mega brands such as Coke, Budweiser, GM and Ford.

Based on 24/7 Wall St.’s analysis of Super Bowl ad spending, the top spenders fall into four major categories: automotive, film, food, including snacks and fast food, and beverages. Four of the top 10 Super Bowl advertisers are auto companies. Another four of the 10 are food and beverage manufacturers. Three movie studios are in the top 25.

Because Super Bowl ads are used by a small number of industries, many companies in those industries are forced to advertise just to keep up. Most of the top 10 spenders are perennial also-rans. Yum! Brands, owner of KFC, Taco Bell and Pizza Hut, spent $67 million over the past 10 years. Meanwhile, McDonald’s, the indisputable market leader, spent less than half that amount and is not a top 10 spender. Similarly, E*Trade, well-known for the talking baby campaign, spent more than any other online brokerage firm, yet remains fourth in the industry.

Also Read: AMR – Saving Corporate America one Bankruptcy at a Time

24/7 Wall St. tabulated all of the commercials from the past 10 Super Bowls, as archived by Adland, the “world’s largest archive of Super Bowl commercials.” Using that data, 24/7 calculated the number of commercials each company bought, as well as their length, including any available pregame, postgame and prime advertising commercials. To estimate the total amount each company spent on Super Bowl advertising in the past decade, we used the average costs of a 30-second commercial spot each year and the total number of minutes of advertising time recorded by Adland.

These are the eight brands that wasted the most on the Super Bowl.

Filed under: Special Report Tagged: BUD, ETFC, F, GM, KO, PEP, TM, TWX, YUM

24/7 Wall St. Closing Bell (BBY, SD, ALL, JCP, KIM, AEP, CVX, D, F, HON, PG, SOA, CPHD, INFI, NRGY, RVBD)

Paul Ausick — Fri, 27 Jan 2012 21:07:13 +0000

All three major US indexes opened lower this morning following the report that US GDP grew by 2.8% in the fourth quarter. A rise of 3% was expected. Combined with the lack of a solution the Greek debt swap and lackluster earnings from several major US companies, the DJIA has remained down all day though the Nasdaq Composite and the S&P 500 have turned positive (barely). There’s still about half an hour to go before the close, so there’s still some hope that all the indexes will finish the week on an uptick, no matter how small. WTI crude oil is down -0.13% at $99.57/barrel and Brent crude is up 0.55% at $111.40/barrel. Gold is higher by 0.50% at $1,738.50.

The unofficial closing bells put the DJIA down about 74 points to 12,660.61 (-0.58%), the NASDAQ rose more than 11 points (0.40%) to 2,816.55, and the S&P 500 fell -0.16% or about 2 points to 1,316.33.

There were several analyst upgrades and downgrades today, including Best Buy Co. Inc. (NYSE: BBY) started as ‘outperform’ with a $32 target price at Credit Suisse; Sandridge Energy Inc. (NYSE: SD) started as ‘buy’ at Canaccord Genuity; The Allstate Corp. (NYSE: ALL) started as ‘outperform’ at William Blair; J.C. Penney Co. Inc. (NYSE: JCP) raised to ‘overweight’ at Piper Jaffray and maintained as ‘buy’ with target price raised to $49 at Argus; and Kimco Realty Crop. (NYSE: KIM) cut to ‘neutral’ at Citigroup.

Earnings reports since markets closed on last night have led to some price changes as of the last half hour of trading today: American Electric Power Co. Inc. (NYSE: AEP) is down -2.62% at $40.20; Chevron Corp. (NYSE: CVX) is down -2.10% at $104.35; Dominion Resources Inc. (NYSE: D) is down -1.91% at $49.88; Ford Motor Co. (NYSE: F) is down -3.69% at $12.27; Honeywell International Inc. (NYSE: HON) is up 1.31% at $58.59; and Proctor & Gamble Co. (NYSE: PG) is down -0.51% at $64.47.

Other standouts from today include the following stocks:

Solutia Inc. (NYSE: SOA) is up more than 40% at $27.35, after posting a new 52-week high of $27.85 earlier today. The specialty chemicals company has agreed to be acquired by Eastman Chemical Co. (NYSE: EMN) for $3.4 billion in cash and stock.

Cepheid (NASDAQ: CPHD) is up more than 25% at $42.98 after posting new 52-week high of $43.03 earlier today. The medical diagnostics equipment maker has boosted its sales outlook and is enjoying a halo effect from the hostile takeover bid for Illumina Inc. (NASDAQ: ILMN).

Infinity Pharmaceuticals Inc. (NASDAQ: INFI) is down -40% at $5.97. The drug maker has cancelled further trials of a pancreatic cancer drug that does not perform better than placebo.

Inergy L.P. (NYSE: NRGY) is down nearly -24% at $17.31 after posting a new 52-week low of $17.23 earlier today. The natural gas distribution company is cutting payouts to its unitholders.

Riverbed Technology Inc. (NASDAQ: RVBD) is down nearly -19% at $24.38. The networking technology company warned this morning that first-quarter sales growth would not meet previous expectations.

Stay tuned for Monday. We have noted the following events on the schedule (all times Eastern):

8:30 a.m. – Personal income and outlays
11:30 a.m. – 3- and 6-month Treasury bill auctions

Have a great weekend.

Paul Ausick

Filed under: 24/7 Wall St. Wire, HI/LOW, Market Close, The Day Tagged: AEP, ALL, BBY, CPHD, CVX, D, F, HON, INFI, JCP, KIM, NRGY, PG, RVBD, SD, SOA

Dividend & Replacement Cycle, Discounting Ford’s Poor Earnings (F, GM)

Administrator — Fri, 27 Jan 2012 17:53:52 +0000

Ford Motor Company (NYSE: F) is getting clocked today after earnings. Some of the news should have been anticipated that Thai floods affected its supply chain in Asia because the company already telegraphed that. After taking a look at the start of the dividend and the trends in America and Asia, today may be a gift for the investors who are patient and who have wanted to own Ford.

As we noted this morning, “The company said that fourth quarter pre-tax operating profit was $1.1 billion, or 20 cents per share, a decrease of $189 million from fourth quarter 2010. Ford has posted a pre-tax operating profit for 10 consecutive quarters. Revenue for the period was $34.6 billion up $2.1 from the year before’s quarter.”

Asia seems like a spot where Ford should not be weak on the surface, but again that was explained a in recent weeks (when CNBC accidentally called for a loss at Ford rather than a loss in operations in much of Asia due to the ongoing Thai flood issues).

Our question is simple. Can the dividend save Ford? Ford was originally expected to reinstate its dividend at some point this year or even in 2013. Unlike General Motors Co. (NYSE: GM), Ford is not under government restriction and it does not owe any bailout funds back to Uncle Sam.

New investors entering today will get a dividend yield of 1.5% now that shares are down 3.5% at $12.30. Shares are still up handily in 2012 after closing at $10.76 on December 30.

The next boost is the coming replacement cycle here in the United States. Maybe this is not as large of a growth market as Asia and Latin America, but the drastic age of the U.S. car fleet owned by Joe Public is the oldest it has been in our lives. People can keep pouring a few hundred dollars here and a few hundred dollars there every few months to keep a clunker from clunking out, but eventually it is just cheaper to buy a new a car.

As long as the economy doesn’t fall apart rapidly, Ford’s dividend, the recovery after the Thai flooding, and the U.S. replacement cycle should all help Ford shareholders.

JON C. OGG

Filed under: 24/7 Wall St. Wire, Autos, Currency, Dividend, Earnings, Emerging Markets Tagged: F, GM

Morning Movers (INFI, RVBD, SOA, INFA, F)

Paul Ausick — Fri, 27 Jan 2012 15:06:27 +0000

There are several stocks trading more heavily than usual this morning, and also experiencing large gains or drops in share prices. These include Infinity Pharmaceuticals Inc. (NASDAQ: INFI), Riverbed Technology Inc. (NASDAQ: RVBD), Solutia Inc. (NYSE: SOA), Informatica Corp. (NASDAQ: INFA), and Ford Motor Co. (NYSE: F).

After the first half-hour of trading, Infinity Pharmaceuticals is down more than -31% at $6.81. Volume is nearly 4x the daily average of about 64,000 shares traded. The drug maker has cancelled further trials of a pancreatic cancer drug that does not perform better than placebo.

Riverbed is down nearly -21% at $23.66. Volume is already nearly 3x the daily average of about 3.1 million shares traded. The networking technology company warned this morning that first-quarter sales growth would not meet previous expectations.

Solutia is up more than 41% at $27.56 after posting a new 52-week high of $57.85 earlier. Volume is already 12x the daily average of about 1.3 million shares traded. The specialty chemicals company has agreed to be acquired by Eastman Chemical Co. (NYSE: EMN) for $3.4 billion in cash and stock.

Informatica is up nearly 15% at $44.00. Volume has already exceeded the daily average of 1.7 million shares traded. The business software and services company has raised its outlook for the first quarter.

Ford is down more than -4% at $12.18. Volume is already about 80% of the daily average of about 54 million shares traded. The automaker missed earnings estimates this morning.

Paul Ausick

Filed under: 24/7 Wall St. Wire, HI/LOW, Market Roundups, The Day Tagged: F, INFA, INFI, RVBD, SOA

Ford Posts Mediocre Earnings, And Investors Pay

247wallst — Fri, 27 Jan 2012 12:25:13 +0000

Ford’s (NYSE: F) earnings were disappointing, and investors paid with a 4% drop in shares in the pre-market. Although US sales were good last year, compensation costs helped keep margins down. Asia-Pacific and Europe sales were weak. Europe is to be expected. Ford should not be lagging in the hot markets in Asia

The company said that fourth quarter pre-tax operating profit was $1.1 billion, or 20 cents per share, a decrease of $189 million from fourth quarter 2010. Ford has posted a pre-tax operating profit for 10 consecutive quarters. Revenue for the period was $34.6 billion up $2.1 from the year before’s quarter

Ford reported fourth quarter net income of $13.6 billion, or $3.40 per share, an increase of $13.4 billion, or $3.35 per share, from the fourth quarter of 2010. This includes the favorable impact related to releasing $12.4 billion of the valuation allowance. Ford began to record a valuation allowance against net deferred tax assets in the third quarter of 2006, reflecting large cumulative losses incurred, as well as its financial outlook at the time. Consistent delivery over the past few years of strong improvement in the company’s business results now supports the release of almost all of the valuation allowance.

Total Automotive pre-tax operating profit in the fourth quarter was $586 million, a decrease of $155 million from fourth quarter 2010. The decrease is explained by higher costs, including higher commodity costs, higher compensation costs in North America related to the new UAW agreement (including the one-time ratification bonus), and unfavorable exchange rates. This was offset partially by favorable net pricing and volume and mix.

To be fully successful with numbers like this:

In the fourth quarter, Asia Pacific Africa reported a pre-tax operating loss of $83 million, compared with a profit of $23 million a year ago.

Douglas A. McIntyre

Filed under: 24/7 Wall St. Wire, Autos, Earnings Tagged: F

Media Digest (1/27/2012) Reuters, WSJ, NYT, FT, Bloomberg

247wallst — Fri, 27 Jan 2012 11:36:39 +0000

Greece and its creditors are close to a deal on the nation’s debt swap. (Reuters)

A judge rules that some of the Gulf spill costs to be covered by Transocean (NYSE: RIG) will be covered by BP (NYSE: BP) instead. (Reuters)

Samsung had record profits on smartphone sales and will increase capex by $22 billion. (Reuters)

An accounting change at Ford (NYSE: F) will change its profits. (Reuters)

Apple (NASDAQ: AAPL) overtook Samsung as the largest smartphone company in the world. (Reuters)

Wellpoint (NYSE: WLP) will change how it pays primary doctors on the theory that early care will prevent expensive diseases. (WSJ)

Executives at bankrupt firms continue to get large bonuses. (WSJ)

European officials say adoption of the Volcker Rule will keep banks from buying sovereign debt. (WSJ)

Investors move out of cotton, copper and crude oil. (WSJ)

Twitter will use the ability to censor tweets to move into some countries where it is blocked. (WSJ)

AT&T (NYSE: T) has fallen behind Verizon (NYSE: VZ) in cellphone sales. (WSJ)

EU leaders expect the size of a bailout fund to rise. (WSJ)

Nokia (NYSE: NOK) says its new smartphones are selling well. (WSJ)

Businesses increase spending as they move into 2012. (WSJ)

Large central banks will continue to use their balance sheets to help national economies. (WSJ)

Starbucks (NASDAQ: SBUX) earnings move higher. (WSJ)

A WPP Group survey shows that consumers rank the performance of global brands higher than they do the moral qualities of the companies that own them. (WSJ)

EU banks that have taken money from the European Central Bank can either keep the money to help their balance sheets or use it to buy risky sovereign debt as a way to stabilize the financials of the region. (WSJ)

IMF studies of the Greek economy show that it is falling apart rapidly. (NYT)

Washington support for wind and solar energy is dropping. (NYT)

The largest hedge fund, Bridgewater Associates, once again turns in strong gains. (NYT)

The Defense Department to cut $485 billion over the next 10 years. (FT)

Large U.S. industrial firms expect sharp growth. (FT)

JP Morgan Chase (NYSE: JPM), which considered leaving the most economically damaged markets in Europe, decides to stay, to some extent, for social reasons. (FT)

BNP Paribas will sell its $11 billion energy loan portfolio. (FT)

Investors continue to pressure Apple to begin to pay a dividend out of its $100 billion in cash. (FT)

CDS numbers show increases in the risk of corporate and sovereign paper. (Bloomberg)

Spain’s unemployment reaches 22.9%. (Bloomberg)

As the economy worsens in Europe, General Motors (NYSE: GM) steps up its attempts to restructure Opel. (Bloomberg)

Douglas A. McIntyre

Filed under: 24/7 Wall St. Wire, Press Digest Tagged: AAPL, BP, F, GM, JPM, NOK, RIG, SBUX, T, VZ, WLP