Tuesday, July 15, 2014

Lower markets on earnings concerns

Dow eked a gain of 5 (not good enough for a new record), decliners ahead of advancers 2-1 & NAZ sold off 24.  The MLP index was up fractionally to the 516s, just off its record highs in the 520s last week, & the REIT index was pennies in the 306s.  Junk bond funds drifted lower & Treasuries were flat.  Oil fell below $100 as supply-disruption concerns eased with Libyan output gains & Iraqi shipments were unaffected by an insurgency.  Gold saw more selling, going below 1300.

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Johnson & Johnson, a Dow stock & Dividend Aristocrat, new hepatitis C drug Olysio is on the way to blockbuster sales in its first year, helping the drugmaker raise 2014 earnings forecast for the 2nd qtr in a row.  Olysio was approved in Nov & generated sales of $831M in Q2.  The pill led a 21% growth in its drug business, which has now become its biggest unit of JNJ.  Adjusted EPS guidance was raised for the year to $5.85-$5.92, up from $5.85-$5.90 previously.   EPS was $1.51, up from $1.33 a year earlier.  EPS excluding one-time items of $1.66 a share beat the $1.55 estimate.  Joaquin Duato, head of JNJ's drug business, credited the company’s long-term investments.  “Is this just a lucky run, or is there something more to it?” Duato said.  “After facing significant challenges in the early 2000s, we made a number of changes to our business,” he said, including increasing their focus on drug development.  “These changes are directly responsible for the success we are seeing now,” he said.  Revenue was $19.5B, up 9% from a year before.  After losing patent protection on drugs with $8B a year in sales since the early 2000s, JNJ has launched 14 new compounds since 2009, making it the fastest growing of the 10 biggest pharmaceutical companies, CEO Alex Gorsky said.  Consumer products & medical devices are also starting to expand again after quality problems & recalls.  Sales of consumer goods & over-the-counter medicines, including Tylenol & Motrin, returned to growth, rising 2.4% to $3.74B from a year before.  The medical device unit, now the company’s 2nd-biggest division behind pharmaceuticals, had the weakest growth with sales rising less than 1%, to $7.24B.  The stock fell 2.10 on disappointment on that the EPS revision wasn't bigger.  If you would like to learn more about JNJ, click on this link:

Johnson & Johnson Rides Blockbuster Hepatitis C Pill to Top Profit Outlook

Johnson & Johnson (JNJ)

German investor confidence declined for a 7th month in Jul as slower growth & geopolitical risks weighed on the outlook for Europe's largest economy.  The ZEW Center for European Economic Research index of investor & analyst expectations, which aims to predict economic developments 6 months in advance, dropped to 27.1 from 29.8 in Jun.  The forecast called for a decrease to 28.2.  The gauge has dropped every month since reaching a 7-year high in Dec.  Industrial production fell for a 3rd month in May & factory orders slid more than expected, in a sign that growth slowed in the 3 months thru Jun.  While the Bundesbank predicts a stronger expansion in Q3, political tensions in the Middle East & Ukraine pose downside risks to the global economy Germany relies on as an export nation.  ZEW’s measure for current conditions fell to 61.8 in Jul from 67.7.  "Germany has experienced a slight dent in economic activity recently," said ZEW President Clemens Fuest.  "The current decrease of the ZEW indicator of economic sentiment reflects this sobering development. On a general note, however, the medium-term economic outlook remains favorable."  At 0.8%, growth in Q1 was the strongest in 3 years, & Market Economics has said that its gauges of manufacturing & services activity point to an economic expansion of as much as 0.7% in the previous period.

German ZEW Investor Confidence Drops for Seventh Month

The PC industry showed signs of improvement last quarter as businesses bought enough machines to revive sales growth at Microsoft & Intel (INTC), both Dow stocks, biggest revenue gain in more than 2 years.  Intel’s sales are forecasted to increased 7% in Q2 & MSFT is likely to report that revenue rose 10% after stagnating the previous period.  The software maker may also announce job cuts related to the acquisition of Nokia Oyj’s handset unit.  Corps are replacing older computers at a faster clip, spurring a 6.9% increase in US PC unit sales in Q2, according to researcher IDC.  While PC shipments declined in 2012 & 2013, some markets, such as the US, are seeing growth again as companies upgrade INTC-based PCs to get newer versions of Windows.  INTC raised its forecast for Q2 sales last month on improving business demand for PCs, to $13.7B, plus or minus $300M.  MSFT is projected to post sales of $22B for its fiscal Q4, which ended in Jun.  The software maker in recent qtrs has been benefiting from increasing sales in its newer internet-based programs for the cloud.  Since much of Windows & Office software is used on desktop computers, a recovery in those products could bolster MSFT results.  MSFT is planning its biggest round of job cuts in 5 years, in divisions such as engineering & marketing, as well as areas of overlap with Nokia Oyj’s handset business, which it acquired this year.  The restructuring, which may be announced as soon as this week, may end up being the biggest in MSFT history, topping the 5.8K jobs cut in 2009.  MSFT stock went up 31¢.  If you would like to learn  more about MSFT, click on this link:

Microsoft (MSFT)

Yesterday's enthusiasm in the stock market did not last.  Maybe JNJ results are telling, good may not be good enough.  Revenue was higher, but that was thanks to a new drug.  Ongoing business only had modest revenue gains with the consumer business coming off weak time in recent years.  MLPS have been red hot for most of this year, but have cooled in the last week & the REIT index has been looking toppy after going over 300.  Dow has been struggling to get over 17K for a month with only minimal success.  Impressive earnings reports to fuel more stock buying look to be iffy.  And ugly intl situations add to uncertainty about the future of the stock market.

Dow Jones Industrials

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