Stock futures were trading down as Fannie Mae posted its fourth straight quarterly loss. Investors were awaiting word from a government report on worker productivity to see if there is any sign of an economic rebound. Those figures, though, proved disappointing.
Bloomberg News reported that worker productivity in the U.S. grew at a lower-than-expected rate in the second quarter as employers cut jobs to weather the jump in raw-material expenses. "Employers eliminated 165,000 jobs from April through June to shore up profits, and still managed to get more output with fewer workers," the news service says. "Gains in productivity help lower inflation and bolster the Federal Reserve's forecast that prices will moderate."
Fannie Mae (NYSE: FNM) posted its fourth straight quarterly loss and slashed its dividend. The second-quarter net loss was $2.3 billion, or $2.54 a share. Excluding one-time items, the loss was $2.51 a share, compared with the 72-cent average estimate of 10 analysts in a Bloomberg survey. Shares tumbled more than 12% in pre-market trading.
In a conversation with an attorney friend of mine, who happens to be a woman, she asked for some general financial guidance. During the course of the conversation it occurred to me that women need to save more than men. There are many reasons for this, here are a few:
The first and most obvious reason women need to save more than men is that they live longer -- often without the support of a significant other. Living longer and living alone cost more money.
Second of all, women still do not have complete earnings parity with men. Some of this has to do with job type and some with history. But nevertheless, we are not there yet. If there is a 15% disparity, then a woman is starting at a disadvantage whether saving for her retirement in the future or for buying a gallon of gas today. This can only be made up by saving more and investing more. This is a worthy goal except that with less resources the difficulty is exacerbated.
With a turn of the calendar page, we drift into the middle portion of the current quarter, but the earnings season rolls on. Among the many companies scheduled to report quarterly results this coming week are Time Warner Inc. (NYSE: TWX), Cisco Systems Inc. (NASDAQ: CSCO), News Corp. (NYSE: NWS), and Whole Foods Market International (NASDAQ: WFMI). Let's take a look at which companies Wall Street analysts are expecting to be among the top earnings gainers and decliners this week.
Analysts surveyed by Thomson Financial expect the following to report strong earnings growth when compared to the same period of the previous year.
At first glance, it looked like a fantastic quarter for the company, as profit rose by a remarkable 82%, but things start to look less than rosy once we take a closer look. Analysts had been expecting to see the company show earnings during the quarter of 24 cents a share, and were disappointed to see the company come in below this, with only 22 cents a share.
This is the second quarter in a row in which the company posted weaker than expected earnings, and is quickly erasing the progress that the stock has been making since the beginning of March.
MOST NOTEWORTHY: Priceline.com, Monster and Internap were today's noteworthy downgrades:
Susquehanna downgraded Priceline.com (NASDAQ: PCLN) to Neutral from Positive as they believe upside may be difficult given the macro environment, competition, and currency headwinds.
JP Morgan lowered Monster (NASDAQ: MNST) to Neutral from Overweight following the company's expectations for higher 1Q08 operating expenses.
Internap (NASDAQ: INAP) was downgraded by Merriman to Neutral from Buy as they believe upside will be limited until the company can complete its integration of the VitalStream CDN acquisition.
First oil. Then copper, then lumber, and coal. And now grain.
The solid economic growth in the world's emerging markets that's caused oil / coal and commodities prices to surge is now fully hitting the grain market.
So much so, that some food producers are calling on the U.S. government to restrict exports due to soaring prices for grains they use to make cereal and other foods. Meanwhile, some farmers are asking the U.S. Government to ease restrictions to enable farmers to plant more acres, The Wall Street Journal reported Thursday [Subscription required].
For food producers, the issue involves limiting a major operating cost. During the past year, spring wheat has risen to an astounding $17.63 per bushel, up from about $4.90 a year ago. Flour, which used to cost about $15 per 100 pounds, now sells for about $45-48 per 100 pounds. Food producers say prices are increasing so fast, they can't pass along price increases quick enough to keep up.
MOST NOTEWORTHY: Athenahealth, Marvell Technology, Broadcom and Nvidia were today's noteworthy initiations:
Athenahealth (NASDAQ: ATHN) was initiated with a Neutral rating at Goldman Sachs. Jefferies started shares of the stock with a Buy rating and $46 target, as they believe their estimates could prove conservative given potential upside from new and existing physicians adopting athenaClinicals.
Kaufman Bros initiated Marvell Technology (NASDAQ: MRVL) with a Hold rating and $18 target, as they believe near-term growth prospects remain uncertain and recommends waiting for more favorable entry points.
The firm also initiated Broadcom Corporation (NASDAQ: BRCM) with a Hold rating and $35 target, and believes the company's growth prospects are priced into shares following the recent rally, and started shares of Nvidia Corporation (NASDAQ: NVDA) with a Buy rating and $42 target, as they believe the company's growth opportunity and competitive strength remain intact and would be buyers at current levels.
OTHER INITIATIONS:
Goldman started shares of Sara Lee (NYSE: SLE) with a Neutral rating and $16 target.
UBS initiated US BioEnergy (NASDAQ: USBE) with a Neutral rating.
Bear Stearns inititated CarMax (NYSE: KMX) with an Underperform rating.
Update: Yesterday's (10-17-07) Wall Street Journal (subscription) article about this investigation began "Prominent American food companies are under scrutiny in a federal probe of possible fraud and corruption in the military's food-supply operations for the Iraq war", and went on to read "The inquiry is focused on whether the food companies set excessively high prices when they sold their goods to the Army's primary food contractor for the war zone." Today's (8-18-07) WSJ article about the investigation reported a very different slant to the story, suggesting that, rather than pursuing American producers, the government was investigating the wholesaler and companies involved in the Kuwait end. Given this change, I find the story I have written below no longer substantiated, and caution readers to wait along with me for more reliable information.
In accordance with our policy of owning up to what we have written, the post will remain.
A number of American food companies including Sara Lee (NYSE:SLE), ConAgra (NYSE: CAG) and Perdue Farms Inc. have come under suspicion of conspiring with Kuwait-based Agility Corp., a logistics supplier for the U.S. troops in Iraq, to inflate food supply costs. In June, Agility received a new, one-year, $2.8 billion contract to provide life support (billeting, motor pool, dining and medical support services) to troops in Iraq. Agility, until recently known as Public Warehousing, has enjoyed a series of support contracts throughout much of the Iraq conflict.
According to Reuters, the Defense and Justice Departments are investigating allegations that Agility may have taken kickbacks from its suppliers, as well as charging the U.S. military unreasonably high prices for provender.
Agility, founded in 1979, was taken public in 1997 and is traded on the Kuwait exchange. It employs over 20,000 people in over 100 countries, with an annual revenue of $4.5 billion. In June, it was also awarded a $43.6 million contract for base operations and maintenance services at U.S. Air Force bases in Spain.
Update: ConAgra has put out a press release claiming that the DOD is looking to them as witnesses, rather than perpetrators.
Branded food companies like Kraft (NYSE: KFT) and Sara Lee (NYSE: SLE) are facing competition from a source that has been an after-thought for years: private label products.
According (subscription required) to The Wall Street Journal, "Food retailers are growing more sophisticated about developing and branding their own products. They're even building brands that bear no resemblance to their store names, such as Target's Archer Farms line of gourmet oils, appetizers and frozen foods, and Safeway Inc. (NYSE: SWY) Eating Right line of frozen dinners, cereal and salad dressings."
Of course, grocers make more money selling products they make (or buy cheaply from a third-party manufacturer without the pricing power of a strong brand) and market themselves, rather than ones the buy from a large brand.
With American consumers not feeling quite as rich as they did during the days of the housing bubble and easy credit, private label brands should continue to gain market-share. Wal-Mart (NYSE: WMT) has reported that that is already happening, as a result of the cash-strapped consumer.
That could spell trouble for companies like Kraft and Sara Lee, and it could be great for grocery stores -- higher margins. Investors may want to pick their food-related investments accordingly.
The most recent quarter seemed to be a good one for Sara Lee Corp. (NYSE: SLE), with profits up quite a bit. The company is in the middle of a substantial restructuring effort, which has involved selling off its less profitable divisions like Branded Apparel, and SLE is now focusing more on its food divisions -- which is of course what everyone thinks of when they hear the name Sara Lee. Beyond the well known bakery goods, SLE also owns Hillshire Farm and Jimmy Dean, and a number of other everyday brands. By focusing on these divisions, the company expects profits to grow in coming years.
It's good to see these efforts starting to pay off, but as a BMO Capital Markets report noted, however, volume was actually down in the most recent quarter, and SLE exceeded expectations primarily because of a lower tax rate than was expected. Operating margins were up, but only to 5.7%, which is quite a long way from the double-digit margins SLE hopes to attain. It's possible the company will get to that level of profitability over time, but it's probably going to take a while. Meanwhile, it's not clear that there's a great deal of room for SLE's brands to deliver substantial growth given the stiff competition in its industry. The company also experienced its own recall scare back in July, although this apparently didn't have much of a negative impact on the stock.
I'd keep an eye on this one, and watch to see where the restructuring takes the company over the next year. I'd hold off buying for now.
Type of Stock: A large and well-known food manufacturer in the process of remaking itself.
Price Target: SLE's stock has been in the teens for almost two years, and it's hard to see it gaining much ground in the near future. But it's one to watch; a few more good quarters and we could see some growth over the next two years or so.
Hilary Kramer is a financial editor and money coach for AOL and an authority on investing. Visit her at www.hilarykramer.com.
So far this week, the Dow has dropped 211 points despite advancing futures both Monday and Tuesday. Brace for today, as futures headed south on increasingly dire credit concerns.
Among the latest chapters in the subprime-mortgage fallout, cash manager Sentinel Management Group Inc. yesterday aired its fears of forced liquidation, telling clients that it's seeking to stop withdrawals, although regulators deny such a request has been made.
Loads of government data being released today, beginning with the Labor Department's Consumer Price Index for July at 8:30. CPI is expected to rise, though lower gas prices likely tapered any increase.
Later this morning, the Fed will release the July numbers on Industrial Production, measuring the output of factories, mines, and utilities. The DOE's weekly crude inventories report will be released at 10:30.
Food giant Nestle SA (NYSE: NSRGY) reported an 18% improvement in first-half profits, boosting its shares overseas as well as competitors, including Unilever (NYSE: UN).
In a sign that the company recognizes the need for change, Wal-Mart (NYSE: WMT) has brought in former Kraft (NYSE: KFT) executive Linda Hefner to try to turnaround its home decor business, which has been sputtering for awhile now. According to Ms. Hefner's biography on the Kraft Foods website, she led "the development of Kraft's corporate business strategy including merger and acquisition activities around the world" and was CEO of Sara Lee's (NYSE: SLE) Underwear, Socks and Latin America Group.
While her track record looks impressive, I have to wonder if this hiring is more of the same that hasn't worked. Rather than bringing in an expert in the home decor business, Wal-Mart has brought in someone with an extensive background in retail but no experience, as far I can tell, in home decor.
Last week, I wondered whether Wal-Mart should try to team up with Pier 1 Imports. While that might not be realistic, the company's solution to its home decor woes probably doesn't involve an executive with experience selling underwear.
Yesterday Zac Bissonnette reported that Wells Fargo (NYSE:WFC) employs a historian to create genealogies for their wealthiest customers, and wealthy non-customers they wish to cultivate. This caused me to wonder if this stroke of genius might not be transferable to other markets. In this age when every business is identifying their best customers, might they not reward their customers with the services of a professional? For example:
Wal-Mart's (NYSE: WMT) Sam's Club customers would love their own stevedore.
For Anheuser-Busch's (NYSE: BUD) biggest spenders -- a chauffeur, or a bail bondsman. Either would be useful.
It's pretty rare that you see analysts or shareholders (or anyone other than management) calling for stronger anti-takeover provisions at a company, but that's exactly what is happening at Sara Lee Corp. (NYSE: SLE). Chairman and CEO Brenda Barnes told analysts on the call that the company has "nothing structurally built in [to the company] that would prevent someone from coming in and offering a good price for the company" after shareholders voted to terminate the company's poison pill last year.
The company's turnaround efforts have been going well, and it's nice to see that Ms. Barnes is focused on building the company (and buying back shares as appropriate) rather than concocting plans to ward off a potential buyout.
I've never understood the need for takeover defenses. Here's the only takeover defense a company needs: If shareholders don't like the deal, they can vote against it. Artificial barriers (poison pills, blank-check preferred stock, shark repellent, etc.) to takeovers can do little other than discourage a potential buyer who might provide shareholders with a compelling offer.
Stock futures were trading down as Fannie Mae posted its fourth straight quarterly loss. Investors were awaiting word from a government report on worker productivity to see if there is any sign of an economic rebound. Those figures, though, proved disappointing.
In a conversation with an attorney friend of mine, who happens to be a woman, she asked for some general financial guidance. During the course of the conversation it occurred to me that women need to save more than men. There are many reasons for this, here are a few:
With a turn of the calendar page, we drift into the middle portion of the current quarter, but the earnings season rolls on. Among the many companies scheduled to report quarterly results this coming week are 
.gif){kind=logo}
First oil. Then copper, then lumber, and coal. And now grain. .gif){kind=logo}
Update: 
Branded food companies like 
The most recent quarter seemed to be a good one for 
Should you sell into today's rally? Yes, if you think there are more surprises to come (I do)
The week in preview: Mulling over techs, financials
'Crash-and-burn economy?' 'Bailout beer bust?' What should we call America's economic disaster?
