On Tuesday, microchip equipment maker Applied Materials Inc. (NASDAQ: AMAT) reported a drop in its fiscal second quarter earnings due in part to a glut of flash memory chips, and organic and natural food retailer Whole Foods Market Inc. (NASDAQ: WFMI) also said second quarter profits fell, due to integrating its Wild Oats acquisition.
Applied Materials posted earnings of $302.5 million, or 22 cents per share, for the quarter ended April 27, compared with a profit of $411.4 million or 29 cents per share in the same period a year ago. Its adjusted net income came to 24 cents per share, beating the average analyst forecast of 22 cents, according to Reuters estimates.
Second-quarter revenue fell to $2.15 billion from $2.53 billion in the previous year. Analysts on average had expected revenue of $2.13 billion.
Shares fell 1.3% after the news but rose 2.7% in after-hours trading to $20.40.
Whole Foods reported that sales surged 28% in the second quarter to $1.87 billion, from $1.4 billion in the previous year. But net income fell 13% to $40 million, or 29 cents per share, in the quarter ended April 13; the acquisition of rival Wild Oats cost it 6 cents per share.
Analysts polled by Thomson Financial had predicted a profit of 30 cents per share on revenue of $1.89 billion.
Shares of Whole Foods fell $2.94, or 8.7%, to $30.70 in after-hours trading.
In a sign that you can't keep a good man down, the SEC has dropped its investigation into message board postings by Whole Foods (NASDAQ: WFMI) CEO John Mackey.
Reuters writes that the agency as "concluded a probe into its chief executive's anonymous Web chat room messages about then-rival Wild Oats Markets and recommended no action be taken."
Mackey can now go back to posting on other subjects but will have to come up with a new name to disguise his real identify. The old one, Rahodeb, has already been taken.
Douglas A. McIntyre is an editor at 247wallst.com.
Although Whole Foods Market's (NASDAQ: WFMI) acquisition of Wild Oats has already been completed, the FTC is still trying to get in the way. The Commission is asking a Washington appellate court to overturn a federal district court's ruling [subscription required] that allowed the merger to proceed.
According to The Wall Street Journal, the FTC was split on whether to pursue the appeal, and it's considered a Hail Mary pass.
Regardless of whether you support or oppose the district court's ruling that allowed the deal to proceed -- and in spite of Mr. Mackey's crazy message board antics -- you have to wonder what the point of this appeal is. Are taxpayers really having their money spent wisely pursuing an appeal that has no chance?
I don't think so. Consumers would be better served if the FTC devoted some of this energy to cracking down on the numerous fraudulent multi-level marketing companies that continue to recruit distributors, uninhibited by anti-pyramid laws.
MOST NOTEWORTHY: Amazon.com (AMZN), Luminent Mortgage (LUM), Whole Foods (WFMI), Tenet Healthcare (THC) and Pediatrix Medical (PDX) were today's noteworthy upgrades:
Bernstein upgraded Amazon.com (NASDAQ: AMZN) to Outperform from Market Perform, citing margins on 3rd party transactions that are close to eBay's (EBAY) and that the overseas merchants initiative will increase 3rd party units to 25% of sales. The move is expected to increase operating margins to 6.2% by 2011, above the previously expected improvement of 4.6% by the same time.
JMP Securities said Luminent Mortgage's (NYSE: LUM) $64.9M emergency financing from Arco Capital may preserve some value for shareholders, and upgraded shares to Market Underperform from Sell.
JP Morgan added Whole Foods (NASDAQ: WFMI) to its Focus List, and expects the Wild Oats (NASDAQ: OATS) acquisition to be a catalyst for shares.
Things looked pretty rough for the Whole Foods Market (NASDAQ: WFMI) bid to merge with smaller rival Wild Oats (NASDAQ: OATS). In late July, the Whole Foods CEO got himself in trouble over online message board comments and that pushed the stock to a 52-week low of $36. Then the FTC tried to block the merger on the grounds that putting the two companies together would create an operation that would raise prices on organic food.
Since late July, however, Whole Food shares are up 25% while Wild Oats trades just below its 52-week high, at $18.46. In August, short sellers cut their position in Whole Foods by 9.3 million shares to 15.1 million. It was the largest single drop in shares sold short for any company traded on the Nasdaq.
The FTC went so far as to take the fate of the merger to federal court, but both a District and Appeals Court failed to halt the merger. The first case was filed in June and, according toMarketWatch, asked the judge "for a preliminary injunction blocking the deal, pending a full review."
A successful merger is likely to have quick benefits for Whole Foods. Last quarter the smaller Wild Oats made only $1.9 million on almost $312 million of revenue. The organic food retailers costs need to come down.
Cutting those costs is likely to be the first thing that Whole Foods does.
Wal-Mart (NYSE: WMT) has been buying retail chains and entering joint ventures all over the world to improve its international exposure. Now, with same-store sale in the U.S. in trouble, it is setting up a unit to look at acquisitions in the U.S. as well.
According to the Financial Times [subscription], with UK retailer Tesco moving into the U.S. with its "Fresh & Easy" small format neighborhood groceries, Wal-Mart may think that it cannot afford to ignore the success of niche stores.
Wal-Mart could certainly use something to jump start sales in its home market, and groceries may be a good place to start.
There are several retailer operators that could end up on Wal-Mart's radar. One is likely to be Whole Foods (NASDAQ: WFMI), which is about to merge with competing organic food chain Wild Oats (NASDAQ: OATS). At the larger end of the market are operators like Kroger (NYSE: KR), which has a market cap of over $19 billion but has about 3,500 stores and annual sales of over $66 billion. Wal-Mart's market cap is $179 billion.
Wal-Mart needs a lot of help in the U.S. -- it may just buy itself a turnaround.
The FTC's bid to block Whole Foods' (NASDAQ: WFMI) acquisition of Wild Oats (NASDAQ: OATS) has ended in failure. A three-judge panel of D.C.'s U.S. Court of Appeals rejected the government's appeal to have the merger blocked. The judges ruled that the FTC had failed to show that Judge Paul Friedman, who denied the government's motion a week ago today, had acted improperly. Last Thursday, the
Whole Foods says it will close the deal as soon as possible. CEO John Mackey likely remains on the hot-seat, and his anonymous message board ramblings are still the subject of an SEC investigation.
Now that the merger is done, investors can begin to discuss how the merger will impact Whole Foods as a stock. The FTC's effort to block it indicates that it should be very good indeed.
"Whole Foods Market (NASDAQ: WFMI) has rallied recently due to two main factors: a better-than-expected earnings report released in early August coupled with a breakthrough on WFMI's deal to acquire rival Wild Oats Markets," notes Paul Tracy.
The editor of StreetAuthority Market Advisor, plains, ""Whole Foods reported same-store sales growth of 7% in the second quarter. That's not quite as strong as the 9% reported a year ago, but it still represents solid growth and was above what analysts had expected."
He adds that wWhile earnings fell on a year-over-year basis, that was due mainly to costs associated with WFMI's new store openings. These costs, he suggests, represent an investment in future growth; analysts had already been expecting these higher start-up costs, and Whole Foods' earnings actually beat consensus estimates by two cents.
Antitrust is always tough to predict. The laws are sketchy -- and markets can change quickly. Besides, politics can play a big role.
That's why the Federal Trade Commission (FTC)'s antitrust lawsuit -- on the Whole Foods Market (NASDAQ: WFMI) and Wild Oats Markets (NASDAQ: OATS) linkup -- is so interesting.
The FTC believes that the transaction will reduce competition and, as a result, be harmful to consumers.
However, federal Judge Paul Friedman doesn't think so. In fact, yesterday we got his 93-page opinion on the matter (according to a report in Reuters).
Reuters has written that the progress in the Whole Foods (NASDAQ: WFMI) merger with Wild Oats (NASDAQ: OATS) may be a sign that other mergers being scrutinized by the US government may have an easier time of getting approval. Not likely.
The FTC has tried to block the Whole Foods deal because it may raised the amount that consumers have to pay for organic food. Of course, other food retailers offer these products, so the government's position was probably always a bit thin. The agency went to federal court to try to block the marriage, but was unsuccessful.
Now Reuters is floating the theory that the apparent success of the grocery store merger may make it easier for Sirius (NASDAQ: SIRI) to merge with rival satellite company XM (NASDAQ: XMSR).
The concept is full of holes. Sirius and XM are a de facto duopoly and, merged, would be a monopoly. Their ability to send satellite signals with radio content to receivers is not a business that any other company can enter. That is not really a bit like the Whole Foods situation.
The SIRI/XMSR merger is also a deal that faces opposition in Congress. Legislators want to know why they should countenance a business combination that not only lacks any competing technology but is also one that may use its position to raise rates over time.
The news about the Whole Foods merger may be good for it, but the deal has nothing to do with satellite radio.
In spite of John Mackey's most self-destructive efforts at getting the merger he wanted so badly blocked,. it appears that it will go through. Although the FTC says it will appeal, Whole Foods Market (NASDAQ: WFMI) appears poised to acquire rival Wild Oats (NASDAQ: OATS). Shares of Whole Foods are up 6.3% on the news after-hours. Wild Oats, the buyout target, is seeing its stock soar almost 20%.
According to the Associated Press,U.S. District Judge Paul L. Friedman's filed a 93-page document (sealed because if contains trade secrets) denying the FTC's plea to block the deal. The FTC argued that the merger would lead to higher prices for consumers, and appeared to have compelling evidence based on internal documents from the company. The deal was referred to as "Operation Goldmine" at Whole Foods, and the company planned to shutter more than 25% of Wild Oats stores. Emails from Mackey to the company's directors referred to the acquisition as a way to "eliminate a threat" and avoid "price wars".
Mackey has got to be thrilled that the deal is going through. Aside from the obvious strategic benefits to his company, the failure of the deal would likely have been pinned on him. He would have become known as "Motor Mouth Mackey": The man who helped the FTC block an important acquisition because he couldn't shut his trap.
Given Whole Foods Market (NASDAQ: WFMI) CEO John Mackey's penchant for posting too much information on his blog/anonymous message boards, it might seem ironic that the company is considering suing the FTC for inadvertently posting the company's trade secrets on the internet.
On Tuesday, the FTC failed to completely redact Whole Foods' trade secrets from a court filing that was posted on an online database. Reporters caught the glitch, and information was leaked.
Some of the information that should have been redacted included an assertion that Whole Foods prevents its suppliers from selling directly to Wal-Mart (NYSE: WMT) in an effort to raise the retailer's costs.
Both Whole Foods and Wild Oats (NASDAQ: OATS) have an option to terminate the merger agreement if it does not gain regulatory approval by the end of the month.
Shares of Wild Oats continue to languish more than 20% below the agreed upon price, indicating investor skepticism about the deal's prospects.
One expert argued that the two chains compete in a much broader market -- grocery stores -- with much bigger chains like Safeway and Kroger also in the space. But another expert discussed research suggesting that markets containing a Whole Foods and a Wild Oats store tend to have lower prices, which would suggest that they are in fact competing.
The U.S. District court is expected to issue a decision on the FTC's preliminary injunction seeking to block the merger some time in the next few weeks.
Given that this doesn't appear to be a black and white issue, as evidenced by disagreement among the experts, CEO John Mackey's "macho posturing" emails could end up looming large, as they seem to suggest that the merger is motivated by a desire to eliminate competition. Not only has he embarrassed himself and run into trouble with the SEC for his message board post, but he may also have harmed his company's growth prospects with his overactive typing fingers.
Although 
Antitrust is always tough to predict. The laws are sketchy -- and markets can change quickly. Besides, politics can play a big role.
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