• Morning News: August 3, 2012
    Posted by on August 3rd, 2012 at 6:30 am

    Draghi Heads Toward Fed-Style QE Bond-Purchase Plan

    ECB-Politicians’ Anti-Crisis Bargain Starts to Emerge

    Plunge In New Orders Hits July Euro Zone Business

    RBS Loss Widens as Bank Braces for Libor-Related Suits

    IAG Plans for Spain’s Possible Euro Exit

    Post-Crisis Iceland Is Test Site for Too-Big-to-Fail Prevention

    Jobless Claims in U.S. Climbed Less Than Forecast Last Week

    Errant Trades Reveal a Risk Few Expected

    Kraft Profit Tops Estimate; Sets Spin-off For Oct 1

    Linkedin Is Not A Buy, But It Beats Facebook

    Toyota Posts Sharp Recovery

    GM Quarterly Profit Falls 38% as Europe Woes Seen Lasting

    Chrysler U.S. Sales Rise 13%; GM, Ford Deliveries Drop

    Sharp’s Freefall a Drag on Hon Hai

    Credit Writedowns: Fed, ECB Can Promise, But Can’t Deliver

    Cullen Roche: Goldman Sachs: 3 Reasons the ECB Decisions are Bullish for the Euro

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  • Nicholas Financial Earns 44 Cents Per Share
    Posted by on August 2nd, 2012 at 6:07 pm

    Earlier today, Nicholas Financial ($NICK) reported quarterly earnings of 44 cents per share. This is for the first quarter of their fiscal year. Honestly, I’m not too concerned about the exact per-share number of NICK’s earnings. They should continue to report earnings somewhere around the mid-40s. In my eyes, the most important thing is that NICK’s business continues to hum along, and it clearly is.

    The numbers bear this out. Reserves for credit losses are extremely low. Since the company has paid down some of its debt, interest costs have dropped to a rounding error (less than $1.2 million). Last quarter, the pre-tax earnings yield was 12.88%. Anything above 10% is good. NICK seems to be stepping up its contract purchases. I’d like to see more of that.

    In short, NICK’s business is almost like a bond that pays 7.5% or so interest, but the stock’s earnings yield is more like 14%. The stock is roughly where it was six years ago even though profits are much higher and the business outlook is far more secure. I expect NICK to earn somewhere between $1.80 and $1.90 per share for this fiscal year. Expect more quarters to look like this one. I think Wall Street views NICK as some shaky subprime stock. If anything, the portfolio has grown more conservative.

    I really don’t see why NICK can’t trade for 10 times earnings. That’s hardly extreme. Last August, the company announced that it would start paying a quarterly dividend of 10 cents per share. That’s barely a dent out of quarterly profits. I wouldn’t mind seeing a hefty dividend increase. NICK could go to 15 cents per share. Twenty cents would be great (and sustainable) although contract purchases would suffer. Still, there’s nothing wrong with owners getting their money.

    Here’s a spreadsheet of NICK’s quarterly results over the past few years.

  • Wright Express Drops After Lower Guidance
    Posted by on August 2nd, 2012 at 12:48 pm

    I nearly let Wright Express’ ($WXS) earnings report pass without comment. Yesterday, Wright reported Q2 earnings of $1.00 per share which was two cents above estimates. Interestingly, investors were upset in May when Wright gave guidance for Q2 of 92 to 98 cents per share. Now we know that the company was probably being conservative.

    “We are pleased with our second quarter results as steady execution against our multi-pronged growth strategy led to further expansion in our core fleet business and strong performance in our other payments segment,” commented Michael Dubyak, Chairman, President and Chief Executive Officer. “In our fleet business, we drove strong vehicle growth through the signing of new customers, in spite of the sluggish U.S. economy. We also made considerable progress towards diversifying our business as we penetrated new verticals with our single-use virtual card and continued to build out our geographic footprint with the acquisition of CorporatePay. While we foresee fuel prices becoming a headwind in the second half of the year, we remain confident in our long term prospects. Furthermore, we plan to continue to invest in our business as fundamentals remain strong and opportunities for growth persist.”

    The bad news, however, was poor guidance. For Q3, Wright sees earnings ranging between $1.08 and $1.15 per share. The Street had been expecting $1.18 per share. For the full year, Wright lowered its previous range of $4.10 – $4.30 per share, to a new range of $4.10 – $4.15 per share.

    In May, Wright had raised its revenue guidance for the year from $590 million – $610 million to a new range of $602 million – $617 million. Now Wright lowered it back down to $591 million – $601 million.

    The CFO said: “Our updated guidance for the full year of 2012 predominately reflects the impact of lower fuel prices, coupled with an adverse impact from foreign currency movements and slight dilution from the acquisition of CorporatePay. Given the economic environment, we are also anticipating softness in our same store sales to persist.”

  • DirecTV Earns $1.09 Per Share
    Posted by on August 2nd, 2012 at 10:00 am

    DirecTV ($DTV) reported second-quarter earnings this morning of $1.09 per share, four cents below Wall Street’s forecast:

    DirecTV Group second-quarter earnings edged up as the satellite-TV provider added a record number of net subscribers in its Latin America business, which saw double-digit revenue growth.

    Latin America has become DirecTV’s main source of growth as its U.S. markets attract fewer new customers. The company this year said it set a new plan that aims to double its Latin America subscribers to more than 16 million and annual revenue to more than $10 billion over the next five years. The company said business is driven by greater middle market demand in Brazil, Argentina, Colombia and Venezuela.

    Net subscriber losses in DirecTV’s larger U.S. business totaled 52,000, from the 26,000 subscribers added a year earlier. Total subscriber base stood at 19.9 million at the end of the quarter, up slightly from 19.4 million a year ago.

    In Latin America, however, the company added a record 645,000 net subscribers in the latest quarter, up from 472,000 subscribers tacked on a year earlier. The company had a total of 9.1 million subscribers in the region by the end of the quarter, a 36% jump from the year earlier.

    DirecTV reported a profit of $711 million, or $1.09 a share, up from year-earlier profit of $701 million, or 91 cents a share. The latest quarter included a $43 million pre-tax non-cash loss from the revaluation of the U.S. dollar denominated liabilities in Brazil.

    Revenue increased 9.5% to $7.22 billion, driven by a roughly 20% revenue growth in Latin America. Analysts were looking for earnings of $1.14 a share on $7.21 billion in revenue, according to a poll conducted by Thomson Reuters.

    Operating margin widened to 19.5% from 18.6%.

    After gapping down this morning, the shares are currently down by a little over one percent.

  • Morning News: August 2, 2012
    Posted by on August 2nd, 2012 at 6:26 am

    Draghi Risks Market Wrath as Pressure for ECB Action Grows

    Losing 500,000 Jobs Seen New Reality of Europe Crisis

    China Slowdown Forcing Discounting From Gome to McDonald’s

    Strong Yen Is Dividing Generations in Japan

    Flood of Errant Trades Is a Black Eye for Wall Street

    Six-Week Stimulus Watch For Bernanke And Fed

    U.S. Companies Add 163,000 Jobs, But Manufacturing Falters

    AIG looking to buy back large chunk of shares from U.S. government: WSJ

    Honda Leads U.S. Auto Sales Gains as Toyota Extends Rebound

    Sony’s Loss Grows, Cuts Earnings Forecast

    Facebook Stock Falls 45% Since Debut, But Potential Stays Strong

    Olympics Boost Adidas Earnings

    Hutchison Profit Beats Estimates on U.K., China Earnings

    Joshua Brown: Tactical is Hard and Smart Doesn’t Mean Good

    Jeff Carter: The Federal Reserve Action-QE3 Speculation Still on the Table

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  • More on Earnings
    Posted by on August 1st, 2012 at 4:45 pm

    Here’s another earnings update from Wendy Soong at Bloomberg. Of the 500 companies in the S&P 500, 351 stocks have reported so far. A total of 235 (or 67%) have beaten expectations, 39 (11.1%) matched and 77 (21.9%) came in below expectations.

    Earnings are tracking for a decline of 0.6%. When you take out financials, earnings are down 1.4%. Earnings are now expected to decline by 1.1% in Q3, then rise by 10% in Q4.

  • Today’s FOMC Policy Statement
    Posted by on August 1st, 2012 at 2:14 pm

    Here it is:

    Information received since the Federal Open Market Committee met in June suggests that economic activity decelerated somewhat over the first half of this year. Growth in employment has been slow in recent months, and the unemployment rate remains elevated. Business fixed investment has continued to advance. Household spending has been rising at a somewhat slower pace than earlier in the year. Despite some further signs of improvement, the housing sector remains depressed. (I think that’s a bit strong. Housing has gotten much better – Eddy.) Inflation has declined since earlier this year, mainly reflecting lower prices of crude oil and gasoline, and longer-term inflation expectations have remained stable.

    Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth to remain moderate over coming quarters and then to pick up very gradually. Consequently, the Committee anticipates that the unemployment rate will decline only slowly toward levels that it judges to be consistent with its dual mandate. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee anticipates that inflation over the medium term will run at or below the rate that it judges most consistent with its dual mandate.

    To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.

    The Committee also decided to continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. The Committee will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.

    Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who preferred to omit the description of the time period over which economic conditions are likely to warrant an exceptionally low level of the federal funds rate.

    The condensed version: We aren’t doing anything. BTW, did you know an election is three months away?

  • S&P 500 Total Return Index
    Posted by on August 1st, 2012 at 11:23 am

    Through July, the S&P 500 is up 11% with dividends included. Over the last 12 years, the S&P 500 is up 21% including dividends. Annualized, that’s 1.6% a year.

  • The Treasury Is Considering Floating Rates
    Posted by on August 1st, 2012 at 11:01 am

    There’s an interesting story out today that the Treasury Department is considering floating rate securities to finance the government’s debt. This could happen within the next year.

    The idea is that it works just like a regular bond but the interest rate would be tied to a short-term rate. For example, the Treasury may auction off a 10-year bond that offers a coupon of the current 90-day yield plus, say, 75 basis points. That coupon would then reset every few months.

    Obviously, Uncle Sam has had to borrow a lot of money over the past four years, and with rates so low at the short-end, this may be a way to take advantage of lower borrowing costs. I think this is a good idea and it will give investors more options for investing in debt.

  • July ISM = 49.8
    Posted by on August 1st, 2012 at 10:27 am

    The latest ISM number came out this morning and it was 49.8. A reading of greater than 50 means the economy is growing. Less than 50 signals a contraction.

    This is the second month in a row that ISM has come in below 50. But this comes after a run of 33 months in a row when ISM had topped 50.

    Bear in mind that historically, we’re still well above the danger zone. Recessions usually kick in when the ISM is below 45 or so.

    The big news this week is still the jobs report. We got a sneak preview this morning when ADP, the private payrolls folks, said that 163,000 new jobs were added last month. That’s 43,000 more than Wall Street had been expecting. The government reports its jobs numbers on Friday.

    So far, Wall Street is in a good mood. The S&P 500 is up a little, but we’re waiting for what the Federal Reserve has to say when their policy statement is released later today. That should come out at 2:15 pm ET.