Reporting today are the agrichemicals firm Monsanto (NYSE: MON) -- AP Preview, and after the close, software giant Oracle (NASDAQ: ORCL) and Nike (NYSE: NKE).
Reported Tuesday:
Jabil Circuit (NYSE: JBL) shares are up nearly 11% in premarket trading after the company reported its profit soared as revenue grew and costs declined, topping third-quarter earnings estimates. Merrill Lynch upgraded Jabil from Neutral to Buy.
Red Lobster operator Darden Restaurants (NYSE: DRI) shares are up 1.9% in premarket trading after it also topped quarterly earnings estimates, postinga higher quarterly profit, boosted by the Olive Garden chain, and lower costs that helped raise operating profit at its Red Lobster chain.
Meanwhile Pier 1 Imports (NYSE: PIR) shares were also nearly 5% higher in after-hours trading Tuesday after the retailer said it abandoned plans to take over rival home furnishings retailer Cost Plus (NASDAQ: CPWM) for $88 million.
On Tuesday, both Kroger Co. (NYSE: KR), the nation's largest traditional grocer, and casual dining chain operator Darden Restaurants Inc. (NYSE: DRI) reported better-than-expected profit increases.
Cincinnati-based Kroger Co. said first-quarter profits rose 15% from the year-ago quarter to $386 million, or 58 cents per share, due in part to discounts on food, gas, and drugs that drew in budget-strapped consumers. For the quarter ended May 24, revenue climbed 12% to $23.11 billion.
Analysts polled by Thomson Financial had expected a earnings of 55 cents a share on revenue of $22.32 billion.
Kroger also reported that same-store sales rose 5.8%, excluding fuel, and 9.2% including fuel sales.
The company offered fiscal-year earnings guidance of $1.85 to $1.90 per share, compared to the analysts' forecast of $1.90 per share.
Kroger shares rose $1.82 Tuesday to $27.82, then fell in after-hours trading. The shares have risen 10.2% in the past three months.
Three types of raw tomatoes -- red plum, red Roma and round red tomatoes -- grown in 17 states are voluntarily being pulled of the shelves and menus of McDonald's (NYSE: MCD), Wal-Mart (NYSE: WMT), Burger King (NYSE: BKC), Kroger (NYSE: KR), Outback Steakhouse, Winn-Dixie (NYSE: WINN) and Taco Bell, among others. In fact, "McDonald's has stopped serving sliced tomatoes on its sandwiches as a precaution, but will continue serving grape tomatoes in its salads because no problems have been linked to that variety."
Similarly, Burger King, Yum Brands Inc. (NYSE: YUM) restaurants, Darden Restaurants (NYSE: DRI), and Chipotle Mexican Grill Inc. (NYSE: CMG) have also removed the contaminated brands from their menus across the U.S., and some, like Burger King, in Canada, Puerto Rico and some other Caribbean islands as well. Many left the non-contaminated brands on the menu.
The largest restaurant chain is expected to report profit of 70 cents per share on revenue of $5.4 billion, according to Thomson Financial. Their average price target for the company's stock is $62.64, above the $58.64 where it recently traded. Shares of the company are up about 20% as investors bet that the cost-conscious consumers would be attracted to cheap McDonald's food. Moreover, the company's cut rate, but delicious coffee continues to give Starbucks Corporation (NASDAQ: SBUX) nightmares. This seems to be a recipe for success boosting comparable same-store sales by 11.7% in February.
McDonald's earnings will be a clear sign of how the consumer is holding up. Many are cutting back on dining out as evidenced by the decline in same-store sales at restaurants at diverse as Ruth's Chris Steak House Inc. (NASDAQ: RUTH) to Darden Restaurants Inc's. (NYSE: DRI) Red Lobster.
But thankfully for shareholders, McDonald's isn't solely reliant on its U.S. business. During the fourth quarter, sales rose by double digits outside its home country. The company should see strong sales group in Europe and emerging markets, according to a Lehman Brothers note quoted by the Associated Press.
Darden Restaurants (NYSE: DRI) operates about 1,700 casual dining restaurants in the United States and Canada. Its Red Lobster (seafood), Olive Garden (Italian cuisine), LongHorn Steakhouse (steak), Bahama Breeze (Caribbean items) and Capital Grille (steak) chains cater to families, with mid-priced menu items and generally suburban locations. A small group of Seasons 52 restaurants feature a casual grill and wine bar concept. Brinker International (NYSE: EAT) and Chipotle Mexican Grill (NYSE: CMG) are competitors.
The company pleased investors last week, when it reported fiscal Q3 EPS of 85 cents and revenues of $1.81 billion. Analysts had been looking for 82 cents and $1.80 billion. Management also guided FY08 EPS to about $2.71-$2.76 ($2.72 consensus) and FY08 revenues to about $6.63-$6.68 billion ($6.64B consensus). Raymond James subsequently upgraded the shares to "strong buy".
Four well known CEOs weighed in on CNBC's Squawk Box, giving their particular insight on economic conditions one day after the Federal Reserve made yet another basis rate cut. Each of the four Chief Executives acknowledged the tough going in the economy, yet each also sought to inject a thread of optimistic patience into their commentary.
Mike Jackson, CEO, Auto Nation Inc. (NYSE: AN), came to the defense of Reserve Board Chair Ben Bernanke. While admitting that the chairman may have crawled blindly into what is now mostly economic turmoil, Jackson stated: "...I think he absolutely has it right now. He's got to be on full flight recession mode, and we'll worry about the dollar, and commodities and inflation later." Personally, I think Benanke should be making moves to protect the consumers and their dollars first, and let inflation take care of itself until the consumer sector is back up to speed.
Wilbur Ross, CEO, W L Ross & Co. Played the most obtuse card stating: "My own opinion is that it's just more of the same volatility." More of the same volatility? Yeah the economy is volatile ... DUH!
MOST NOTEWORTHY: The Restaurant Sector, Blockbuster and Plexus were today's noteworthy upgrades:
Bear Stearns upgraded the Restaurant Sector to Market Weight from Underweight citing better investor sentiment following Fed rate cuts and the economic stimulus plan; upgraded shares include Brinker International (NYSE: EAT), Cheesecake Factory (NASDAQ: CAKE) and Darden Restaurants (NYSE: DRI).
JP Morgan upgraded shares of Blockbuster (NYSE: BBI) to Overweight from Neutral ahead of the company's Q4 results on March 6, as they believe the quarter will be at least in-line and 2008 guidance will be above Street expectations.
Plexus (NASDAQ: PLXS) was raised to Outperform from Neutral at Credit Suisse as they believe current quarter sales and bookings are tracking ahead.
OTHER UPGRADES:
Maxwell Technologies (NASDAQ: MXWL) was upgraded to Market Perform from Market Underperform at JMP Securities.
The firm also raised Sotheby's (NYSE: BID) to Market Outperform from Market Perform.
Goldman Sachs added Allianz AG (NYSE: AZ) to its Conviction Buy List.
Darden Restaurants (NYSE: DRI) operates about 1,700 casual dining restaurants in the United States and Canada. Its Red Lobster (seafood), Olive Garden (Italian cuisine), LongHorn Steakhouse (steak), Bahama Breeze (Caribbean items) and Capital Grille (steak) chains cater to families, with mid-priced menu items and generally suburban locations. A small group of Seasons 52 restaurants feature a casual grill and wine bar concept. Brinker International (NYSE: EAT) and Chipotle Mexican Grill (NYSE: CMG) are competitors.
The company pleased investors last week, when it guided fiscal Q3 EPS to 83-85 cents. Analysts had been looking for 77 cents. Management also said it expected Y08 EPS of about $2.71-$2.76 ($2.66 consensus).
TheStreet.com's Jim Cramer says that next to the consumer, this is the biggest problem facing the otherwise strong companies in this sector.
Doesn't it seem like another day where it is impossible to make money? We have earnings season without any sense that anybody's numbers can be raised. We have an ennui that comes from months of pounding and indecision, and we have stocks that can't seem to go up to save their lives.
Darden Restaurants Inc. (NYSE: DRI) stock has fallen sharply this morning after Tuesday afternoon's announcement that net income for the second quarter fell to $43.5 million, or 30 cents a share, down from $61.7 million, or 41 cents, earned a year ago. The restaurant operator blamed the acquisition of RARE Hospitality and a "difficult consumer environment" for the drop. Analysts had expected DRI to earn 50 cents a share on revenue of $1.54 billion. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on DRI.
After hitting a one-year high of $47.60 in June, the stock hit a one-year low of $35.31 yesterday, which it has broken by a good measure this morning. Today, DRI opened at $31.72. So far today the stock has hit a low of $29.80 and a high of $31.85. As of 10:50, DRI is trading at $30.21, down 6.13 (-16.9%). The chart for DRI looks bearish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bearish hedged play on this stock, I would consider a July bear-call credit spread above the $40 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 6.3% return in 7 months as long as DRI is below $40 at July expiration. Darden would have to rise by more than 32% before we would start to lose money.
Darden Restaurants Inc. (NYSE: DRI), the parent company of Red Lobster and Olive Garden, announced DRI reported total second quarter sales of $1.52 billion, up 17% from the prior year. CIBC says, "DRI's F2Q were disappointing, reporting operating EPS of $0.42 versus our $0.50 estimate and $0.45 last year." DRI December 35 straddle went out at $2.80. DRI over all option implied volatility of 45 is above its 26-week average of 32 according to Track Data, suggesting larger price risks.
Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
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TheStreet.com's Jim Cramer says that next to the consumer, this is the biggest problem facing the otherwise strong companies in this sector.
Darden Restaurants Inc.
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