Wall Street Index Continues to Be Strong

Posted on | July 23, 2009 |

Wall Street opened stronger today, as the majority of earnings released so far today topped consensus estimates.

The focus was on Ford Motors today, which delivered better-than-expected bottom line results, predominantly owing to the restructuring of its debt.

The only major US automaker to avoid government support today reported a second-quarter after-tax operating loss of $638 million (excluding special items). This is equivalent to a loss of 21 cents a share, which is substantially better than Bloomberg’s average estimate for a loss of 50 cents per share and the prior year’s loss of $1.4 billion.

Net income at Ford also surprised the market, coming in at $2.26 billion, equivalent to a profit of 69 cents a share, thanks to gains related to debt restructuring. Ford also managed to cut its debt to $26.1 billion from $32.1 billion a year ago and reduce it dependency on cash, using only $1 billion compared to $3.7 billion during the year before. Revenues were arguably in line with what the industry is currently experiencing, down 29% to $27.2 billion from $38.2 billion a year ago. The automaker also said that it had gained market share in all regions it operates in.

‘Ford delivered a very solid quarter, and our transformation plan remains well on track,’ said Lewis Booth, Ford’s executive vice president and chief financial officer in a statement today. ‘We strengthened our balance sheet, reduced cash outflows and improved our year-over-year financial results despite sharply lower industry volumes.’ [1] Shares in the US automaker were up by 7.8% to $6.88 a share so far today.

Online auctioneer eBay rallied 10% to $21.4 a share after unveiling second-quarter earnings that topped analyst projections and forecasting revenue in the next three months to come in between $2.05 billion and $2.15 billion, also ahead of expectations. Rival Amazon, which is scheduled to release its results later today, announced that it is close to a $928 million deal to acquire a privately-held online shoe retailer Zappos.com, meanwhile. Its share price climbed 5.5% to $93.67 this afternoon.

In the meantime, strong sales of Apple’s iPhone helped telecommunications firm AT&T beat second-quarter expectations as well. The company’s stock advanced 3.3% to $25.65.

Not all companies produced better-than-expected earnings today, however. McDonalds posted an 8.4% decline second-quarter net income, which came in at $1.09 billion, equivalent to 98 cents a share. Earnings excluding gains related to an asset sale were 94 cents a share, nevertheless, lower than the 97 cent a share median estimate forecast by Bloomberg. McDonalds blamed the drop in profits on currency fluctuations, which, it said, at around 9 cents off its earnings per share. Revenues at the fast food group were also disappointing, coming in 7% lower at $5.65 billion, trailing Bloomberg’s expectations of $5.69 billion.

Qualcomm, the world’s biggest maker of mobile-phone chips, was another casualty, sliding 4.7% to $46.17 after forecasting fourth-quarter sales that fell short of expectations. There was also other negative news weighing on the company today. It has emerged that South Korea’s antitrust regulator is planning hit the company with a record 260 billion won ($208 million) fine for breaching anti-competitive practices.

Lingering in corporate news was CIT Group, which plunged 16.6% to $0.726 a share this afternoon after unidentified sources told Bloomberg that advisers are urging its creditors to push the company into Chapter 11 bankruptcy following a debt swap next month.

US macroeconomic news was somewhat mixed today, with existing home sales surging 3.6% to an annual rate of 4.89 million in June, spurred by tax incentives and lower borrowing costs. Economists polled by Bloomberg were expecting the figures to rise to an annual rate of 4.84 million on average.

In the meantime, a separate report revealed that the number of Americans claiming first-time unemployment benefits (initial jobless claims) climbed 30,000 to 554,000 in the week ending July 18, roughly in line with Bloomberg’s expectations for a rise to 557,000. The four-week moving average for initial jobless claims, a less-volatile measure, declined 19,000 to 566,000, the lowest level since January.

The total number of Americans claiming unemployment benefits for more than a week (continuing jobless claims) decreased by 88,000 to 6.23 million in the week ending July 11, the lowest since April and the jobless rate among people eligible for benefits, which tends to track the unemployment rate, remained unchanged at 4.7%.

By 4pm (London time) the Dow Jones Industrial Average climbed 138.6 points (+1.56%) to 9019.86 while the broader S&P 500 jumped 16.1 points (+1.69%) to 970.17. The Nasdaq also put on decent gains, up 22.25 points (+1.42%) to 1587.25.

[1] Ford Motors website (23 July 2009)

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By Anthony Grech, Research Analyst, IG Index.

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