Thursday, October 18, 2012

Mixed markets after a big disappointment by Google

Dow slipped 8, decliners slightly ahead of advancers & NAZ sank 31, led lower by Google (GOOG).  The Financial Index was up a fraction in the 219s, its' yearly high.  The MLP index dropped 2+ to the 412s (from yesterday's record) & the REIT Index rose 2+ to the 267s.  Junk bond funds eased back & Treasuries were flattish.  Oil was fractionally lower & gold lost $9.

AMJ (Alerian MLP Index Tracking fund)

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Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


LX12.NYM...Crude Oil Nov 12...92.13 ...Up 0.01 (0.0%)

Live 24 hours gold chart [Kitco Inc.]

Google Reports Profit, Sales That Miss Analysts’ Estimates

Photo:   Bloomberg

Google stock plunged suddenly after a contractor prematurely released the company's Q3 earnings report as the company's performance fell well short of estimates.  The report had been slated for release after the close of regular trading.  The sell-off reflects a reversal of the optimistic sentiment that had propelled GOOG stock to a new all-time high earlier this year.  The stock had surged 27% in the 3 months before the unwelcome surprise.  EPS was $6.53, during the qtr ending in Sep, sharply below $8.33 last year.  EPS would have been $9.03, if not for the accounting costs for employee stock compensation & restructuring charges related to the acquisition of Motorola.  Analysts were expecting $10.63 per share.  Revenue climbed 45% from last year to $14.1B.  Excluding compensation for websites that generate traffic for GOOG ads, revenue was $11.33B & analysts were expecting $11.86B.  Excluding this summer's acquisition of cellphone maker Motorola Mobility, revenue rose 18%.  Motorola Mobility, acquired for $12.4B in May, played a major role in the Q3 letdown.  The device maker suffered an operating loss of $527M, more than tripling from the same time last year when it was still an independent company.  GOOG is trying to improve Motorola Mobility's performance by laying off 20% of its workforce & closing 1/3 of its 90 plants & offices, resulting in $349M in charges in Q3.  The stock sank $59, to below $700.

Google (GOOG)

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Abbott Labs & its development partner ended a trial of one of their top drug candidates, citing complications & death, causing its stock to plunge.  ABT & partner Reata Pharmaceuticals were testing the drug, bardoxolone methyl, for use in chronic kidney disease. The study was in the third of 3 stages of clinical tests usually required before US marketing clearance.  Patients in the trial had “excess serious adverse events and mortality in the bardoxolone methyl arm” & ABT announced the end of the trial.  Combined with an earnings release that led the shares to fall yesterday, its market cap has dropped about $10B in 2 days.  Closely held Reata owns rights to the treatment in the US & Asia.  ABT paid Reata $450M in 2010 to acquire the rest of the worldwide rights.  The stock sank $2.41 to $66.63 today after falling $3 yesterday.

Abbott (ABT)

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Spain Banks Face More Pain as Worst-Case Scenario Turns Real

Photo:   Bloomberg

Banks in Spain face more loan losses as the pace of an economic slump risks turning a worst-case scenario dismissed in stress tests into reality.  Bad loans as a proportion of total lending jumped to a record 10.5% in Aug from a restated 10.1% in Jul as €9.3B ($12.2B) of loans were newly classified as being in default, according to the Bank of Spain.  The ratio has climbed for 17 straight months from 0.72% in Dec 2006, before Spain’s property boom turned to bust.  Spanish bank stress tests have factored in an economic contraction totaling 6.5% from 2012-2014 in an adverse scenario that the gov & Bank of Spain said has a probability of about 1%.  Lending in Spain’s banking system fell 1.1% in Aug from Jul & 5% from the same month a year earlier.  Deposits dropped 1.1% in the month & 8.7% from a year ago.  More economic contraction is expected in the next 3 years making the need for a bailout more likely.

Members of the EU are squabbling about the next step in creating a bank union.  They have a big meeting this week & chances are nothing will be accomplished.  Meanwhile, weak members are struggling.  In the US, the effects of going over the fiscal cliff are getting more discussion (but not in DC).  Defense contractors may be required to notify employees in a couple of weeks that their jobs will be at risk if the defense budget is cut.  Earnings reports continue to get mixed reviews, if that   But Dow refuses to give ground.  

Dow Jones Industrials

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