We witnessed market resolve yesterday, and that’s news these days. Making yesterday’s session even more impressive is the drubbing Apple (AAPL) took in the aftermath of a terrible press conference by Steve Jobs last Friday. The guy strolled around stage with the air of a conquering warrior except this battle put a chink in the company’s armor, made worse by a standoffish and arrogant rant that apparently has done more harm than good. By saying the iPhone 4 had the same kinds of problems as other phones made it easier for other cell phone makers to say Apple removed the veil of superiority, something perhaps no billion dollar marketing campaign could have done. Apple is 24% of the NASDAQ, and if it was up 3% instead of down it would have been a magnificent session.
Apple can afford to be arrogant now, but I must say Jobs went from a sympatric American hero to just another self-absorbed billionaire bothered when little people make too much noise. I remember when the Toyota (TM) situation began we got that same kind of attitude. There was nothing contrite about their initial attempts at a legitimate mea culpa. Then there were early forays into public relations during the first couple of months of the BP oil spill. Granted BP was played by the government on things like the size of the gusher, which covered the Administration’s lack of rapid response, but make no mistake BP sucks when it comes to honesty. Heck, all Goldman (GS) had to do was use the word “mistake” to escape the clutches of a perennially embarrassed SEC. Apple is on top now, but it never hurts to be humble.
Speaking of being humbled, IBM missed the top line consensus last night, and it’s paying a heavy price for that despite solid, if not overly cautious, guidance. The company’s service contracts dipped 12% to $12.3 billion, while revenue of $23.7 billion missed the Street’s $24.2 billion estimate. Still, the company beat on the bottom line with earnings per share of $2.65, down from $3.10 a year ago, but still $0.07 better than consensus. Last year missing on the top line and beating on the bottom line was good enough…not this year. I remember when IBM hit ten bucks a share in 1993 and many people thought Big Blue was heading for the dust bin of corporate history. The company hired Louis Gerstner, whose resurrection put him up there with Thomas Watson Sr. in the annals of IBM and corporate leadership. The company has been a well-oiled machine since then.
Last night, IBM management pleaded with analysts to take into account a loss of $500.0 million on the top line from currency fluctuation, a figure not modeled for in the consensus number. The company has posted 30 consecutive quarters of year over year earnings increases. This is remarkable stuff, dating back to the Welch era at GE. Nonetheless, Big Blue will be black and blue today.
It’s not going to be any better for Texas Instruments (TXN) despite what I think is strong guidance. Revenue of $3.5 billion was a fraction below the $3.55 billion expected, while earnings of $0.62 per share were in line with estimates. Keep in mind revenues were up 42% year over year, but were not as robust as Intel’s (INTC) just last week. Third quarter guidance of $0.64 to $0.74 per share didn’t impress the Street, which has modeled for $0.64 per share. Management is cautious, and I think this is another reason for the adverse initial reaction.
Goldman Sachs (GS) couldn’t come to the rescue this morning even as earnings per share came in at $2.75, well above consensus of $2.08. Benefits and compensation for the first half of the year were 43% of revenue versus 49% in 2009.
Washington Spending and Spin
I actually like the idea of having a higher bar to cross with respect to moving the market, although I worry about what we saw from 1999 to 2009 when corporations made $10.0 trillion dollars only to see their share prices lower. Of course, there is something to be said about quality of earnings. It takes a fair amount of financial engineering to produce 30 consecutive quarters of year over year earnings increases. But, investors have to be buyers.
Today, unemployment benefits will more than likely be extended, although it will pile on the national debt. The idea any American doesn’t want to help another is ridiculous, but at what point are we not helping all Americans including our children by piling up debts that will eventually topple. I remember the opposition to welfare reform was fashioned as mean-spirited and racist. Getting people off of welfare is the best thing a nation could do for its fellow man, and providing a positive business atmosphere is a much better thing for a president than fighting for unpaid unemployment. But it is despicable this campaign to paint segments of the nation as cold hearted. We help, and we give, and then we give more. Last year, however, our giving declined 3.6% to $303.75 billion.
According to Indiana University Center on Philanthropy, and the Giving USA Foundation, it was the first time charitable giving decreased year over year since 1987. Still, the numbers are impressive. Despite the chiding from former President Clinton that Americans aren’t giving enough and ignoring places like Haiti, international giving spiked 6.2%.
I hope the 27 million Americans unemployed or underemployed find work soon. I fear we are going to be hearing about those mean Republicans six months from now, instead of meaningful and sustained job creation sparked in part by government policies like tax breaks instead of tax hikes.
The Market
The market is going to be under considerable pressure in part to those earnings results mentioned above, and in part to a setback in the Gulf and that oil-well cap. Just as the market was falling through a trap door after all of the aforementioned earnings reports, and a disappointing release from Johnson and Johnson (JNJ) in particular, the market has (temporarily) put on the brakes with a sliver of good news in the form of better than expected housing permits. Although starts were down 5% to an annual rate of 549,000 (consensus was 575,000), permits edged up 2% to 586,000.
Whirlpool Reports a Clean Quarter, Soft of
By: Brian Sozzi, Equity Research Analyst
Today, appliance king Whirlpool Corp. (WHR) reported its 2Q10 operating results, providing a first glimpse into how the U.S. consumer responded to appliance/housing stimulus measures and how the international consumer mentally handled the near collapse of the EU. The verdict is mixed believe it or not, even though the company managed to surpass consensus revenues (by $500 million) and EPS (by $0.69 applying adjusted number). Reasons to be slightly guarded on this morning’s report are detailed below.
Whirlpool announced net sales of $4.53 billion, +8.8% y/y, or +6.0% excluding the benefit of currency translation. The star of the quarter was Mr. Gross Margin, which came in at 16.78% compared to the 14.50% consensus forecast (we modeled for 15.00%). Productivity measures and increased utilization at Whirlpool manufacturing facilities to satisfy demand offset higher raw material prices and price/mix that continues to be unfavorable (we believe it’s a combination of Whirlpool giving concessions to home centers/mass merchants to move volume and consumers scaling back on over the top appliance purchases). Elsewhere, Whirlpool appears to have managed rather well, continuing to control operating expenses and improving operating cash generating levers. All business segments notched y/y operating profit growth; though we are cautious as to the amount of tax credit monetization that impacted Latin America, where operating profit rose 120% y/y. Prior to 2Q10, Whirlpool had $645.0 million in BEFIEX tax credits remaining.
Guidance was raised to $9.00 to $9.50 per share from $8.00 to $8.50 per share (consensus: $8.67 per share), in spite of unit shipment totals for Latin America, Asia, and Europe being held consistent to the comments expressed on the 1Q10 call. We were modeling for FY10 EPS of $9.17. Our inclination is to appreciate the strong quarter from Whirlpool, especially in light of a string of softer than expected economic data on a global scale. That said, we are becoming mindful of the company’s tougher profit growth comparisons in 2H10 and a demand picture in Europe that may weaken further from simply bumping along the bottom as it has to start 2010.
Areas of Concern
* Revenue growth slower q/q in all segments.
* Operating profit gains are slowing (bounced hard in 1Q09 as some of the company’s productivity initiatives kicked in).
* Company did not raise unit shipment outlooks for Europe, Asia, or Latin America; they took their outlook to 5% growth in North America from 3% to 5%.
* Guidance was raised by $1.00 to $1.50 from previous range, and at $9.00 to $9.50, was well ahead of the $8.67 consensus. However, using the adjusted EPS number for 2Q10, which would suggest a beat to consensus of $0.69 instead of the $0.51 being reported, the raise could be viewed as a slight disappointment when matched up to the maintained outlooks for unit shipments internationally.
Charles Payne is the CEO and Principal Analyst of Wall Street Strategies . This post was republished, with permission, from his company’s column, WStreet Market Commentary.
