Merck & Co. (NYSE: MRK) is set to report earnings Monday, July 21, ahead of the opening bell. According to First Call, analysts are looking for a profit of 83 cents on revenue of $6.05 billion, an improvement over the 82 cents per share it reported in the same quarter last year, but a decline over the $6.1 billion in sales. Last quarter, the company beat per-share earnings estimates, but disappointed in sales.
Merck has suffered some bad news this quarter:
The biggest blow was no doubt the FDA rejection of Merck's new cholesterol drug, Cordaptive. With so many drugs coming off patent, the drug company was relying on Cordaptive to contribute as much as $2 billion a year in sales.
Also, prescriptions for Vytorin, co-marketed with Schering-Plough (NYSE: SGP), kept falling. While this was to be expected following the January released study suggesting Vytorin and Zetia may not work well as older generic statins, the impact could be larger than expected.
As for its cervical-cancer vaccine Gardasil, recently an analyst report from UBS questioned whether sales of the vaccine have met Wall Street estimates for the second quarter. UBS has proceeded to downgrade Merck to Neutral from Buy.
Then, only Thursday, Merck announced a program to resolve and fund the $4.85 billion settlement stemming from the Vioxx 50,000 lawsuits. More than 97 percent of eligible claimants now have initiated enrollment in the program and will start receiving checks beginning late next month. In a way, though, this is a good news/bad news sort of thing. Investors like it when outstanding issues are resolved.
Rockwell Collins Incorporated (NYSE: COL) provides flight deck avionics, aircraft electronics, and aviation simulation equipment for commercial, government and regional aircraft. The company is currently flying high. Recently released 3Q earnings indicate net income increased 19% to $174 million. EPS gained 24% to $1.07, beating Wall Street estimates by $0.05. 3Q sales increased 7% to $1.2 billion, which translated into a $12 million increase in operating cash flow to $310 million.
While many economic sectors are facing a great deal of uncertainty, Rockwell Collins has locked in a number of government and commercial contracts that will translate into steady revenue growth well into the future. Defense spending increases annually and Rockwell Collins was recently awarded contracts by BOC to equip 47 new Airbus A320s, as well as another contract from Bombardier to supply avionics for its C series commercial aircraft.
Both the Commercial Systems and the Government Systems segments increased sales 7-8%. The company spent $81 million to buy back 1.4 million shares, with another quarter billion authorized for share repurchases. In view of all the contracts in the pipeline, the company has revised and improved its FY2008 guidance. FY2008 total sales are forecast at $4.75 billion, with FY EPS in the $4.05-$4.10 range. The stock is currently trading under $47, near its 52- week low of $44.53.
After hitting a one-year low of $18.18 in February, the stock hit a one-year high of $23.57 in June. ORCL opened this morning at $20.89. So far today the stock has hit a low of $20.65 and a high of $21.20. As of 1:15, ORCL is trading at $21.14, up 37 cents(1.8%). The chart for ORCL looks bearish and steady, while S&P gives the stock its highest 5 Stars (out of 5) strong buy rating.
For a bullish hedged play on this stock, I would consider a September bull-put credit spread below the $18 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 7.1% return in just two months as long as ORCL is above $18 at September expiration. Oracle would have to fall by more than 15% before we would start to lose money. Learn more about this type of trade here.
ORCL hasn't been below $18 at all in the past year and has shown support around $20 recently. This trade could be risky if the company's earnings (due out in mid September) come out before expiration and disappoint, but even if that happens, this position could be protected by the support the stock might find at its year low, which is just above $18.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent owns and controls positions in ORCL and IBM.
After hitting a one-year high of $26.12 last July, the stock hit a one-year low of $16.42 in January. MAT opened this morning at $20.42. So far today the stock has hit a low of $19.96 and a high of $21.18. As of 1:05, MAT is trading at $20.48, up $2.20 (12.0%). The chart for MAT looks bearish and steady, while S&P gives the stock a neutral 3 Stars (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider a January bull-put credit spread below the $15 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 13.6% return in just six months as long as MAT is above $15 at January expiration. Mattel would have to fall by more than 26% before we would start to lose money. Learn more about this type of trade here.
MAT hasn't been below $16.40 at all in the past year and has shown support around $17 recently. This trade could be risky if the damages turn out to be negligible, but even if that happens, this position could be protected by the support the stock might find around $16.50, where it has bottomed out twice in the past seven months.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in MAT.
Apple Inc. (NASDAQ: AAPL) is reporting its fiscal third quarter financial results Monday, July 21, after the close. The question is not only what Apple will report, but also how the Street will react, and most important, is it a buy ahead of earnings?
In terms of numbers, according to Thompson Financial's survey of analysts, Apple is expected to report net income of $972.6 million, or $1.08 per share, on sales of $7.4 billion. That's an 18.9% profit growth and a 37% sales growth.
Investors will be interested in the following:
iPhone sales numbers for Q3 may not interest investors that much, as the new 3G iPhone was released in fiscal Q4, and that is expected to be the main driver of iPhone sales going forward. The launch, despite its technical glitches was very successful, but investors might be concerned over Apple's ability to supply the demand. Already German and many U.S. stores have experienced shortages.
McDonald's (NYSE: MCD), whose competitors include Yum! Brands (NYSE: YUM), Burger King (NYSE: BKC), and Wendy's (NYSE: WEN), isn't known for being a part of a healthy diet, no matter how much branding it's done in that area. However, it is known for delivering good earnings. That's why investors probably aren't too worried when it comes to Wednesday, the day that the fast-food behemoth is set to hand off a sack of quarterly numbers at the earnings-report drive-thru.
According to AOL Finance, McDonald's beat the street by a wide margin in the first quarter. The call was for about 70 cents per share which Mickey Dee's beat by a whopping 11 cents. The previous quarters weren't as impressive, but they were solid enough. McDonald's seems to have the game of at least matching expectations down pat, so I am confident that come Wednesday, the company's bottom line will be close to the 86 cents per share that Wall Street is looking for in the second quarter, according to Earnings.com.
If McDonald's makes the number, then it will represent growth of over 20%. Double-digit appreciation is a valuable commodity in this time period. I can't say, though, that McDonald's won't have its challenges cut out for it. After all, inflation is affecting everyone, and fuel prices theoretically could hamper the popularity of the company's valuable drive-thru asset (I used one last evening myself). But McDonald's has that famous dollar menu going for it, so even in tough times, fans of fatty foodstuffs can still afford the oily, heart-clogging grub.
Altera Corporation (NASDAQ: ALTR) makes high-density programmable logic devices and associated development tools. PLDs are integrated circuits that clients can program themselves, using software that Altera also provides. This allows clients to provide their customers with special-purpose chips that cost less than equivalent custom-designed devices. Altera's circuits are used by thousands of customers in computing, telecommunications, industrial, and automotive applications. Clients include Honeywell (NYSE: HON), Johnson Controls (NYSE: JCI) and Motorola (NYSE: MOT).
Investors were pleased earlier in the week, when Altera reported Q2 EPS of 32 cents, revenues of $359.9 million and a gross margin rate of 67.1%. Analysts had been expecting 27 cents, $346.7 million and 65.01%. The company also guided Q3 revenues to about $349.1-$359.9 million ($350.51M consensus). Management noted a current book-to-bill ratio significantly above one and remarked that the firm had repurchased 526,000 shares so far in Q3. The board declared a five cent quarterly dividend.
At first glance, the numbers don't look too hot for Mattel. The company announced that profit was off by a pretty hefty 48% in the quarter, down to 3 cents per share on $11.8 million. This is down from $22.8 million, or 6 cents per share, for the same period last year. The company blamed most of the decline in weak demand for its Barbie dolls, and higher costs that it had to endure in the quarter.
From the above paragraph, you may be expecting to see the company being punished in the premarket, but in fact, shares of the stock are trading up a blazing 13.5% as I write this, and were up over 18% as of about 5 minutes ago. Why? Simple, in Wall Street it is all about expectations, and the company was able to outperform analysts estimates for the quarter, which were looking to see only a 2 cent per share report.
In the expectations game, Citigroup (NYSE: C) $2.5 billion loss is great news for Wall Street. Bloomberg News reports that the analysts it surveyed expected a $3.67 billion loss, or 54 cents a share -- so Citi's results were $1.2 billion better than expected. But there were wide variations on what analysts expected Citi to lose -- from 51 cents to 67 cents.
This reminds me of the story of the boy who comes home from school to tell his mother about a grade he got on a test. Rather than bow his head in shame, he walks into the kitchen with head held high and a big smile on his face. And he announces: "Great news mom! I got a 70!"
The key reason for Citi's loss is the $7 billion in credit-related write-downs it took. These included reductions in the stated value of its subprime mortgage exposure and its investments in monoline insurance companies including Ambac Financial Group Inc. (NYSE: ABK) after they lost their AAA credit ratings. Analysts expected write-downs as high as $12 billion.
Advanced Micro Devices (NYSE: AMD) stock is down 6.6% in premarket trading after the company posted its seventh consecutive quarterly loss of $1.19 billion, or $1.96 per share, missing Wall Street estimates. The operating loss would have been 60 cents a share, heftier than the loss of 52 cents a share from analysts polled by Reuters Estimates. Following the report, AMD also announced that CEO Hector Ruiz would be replaced by COO Dirk Meyer. Ruiz will stay on as executive chairman.
The Wall Street Journal reports that Freddie Mac (NYSE: FRE) is considering raising capital by selling as much as $10 billion in new shares to investors. FRE stock is down again this morning after the recent wild swings in share price. This morning FRE shares are trading over 5.7% lower in premarket action.
Mattel Inc. (NYSE: MAT) shares rose nearly 4% in after-hours trading following second-quarter financial results. The toy maker's profit fell by nearly half, but results still beat Wall Street expectations. Global Barbie sales dropped off 6%.
U.S. stock futures turned higher Friday morning after earnings from Citigroup that beat expectations offset disappointment from Merrill, Google and Microsoft. There was also some pressure from oil as prices rebounded to above $131 a barrel, following Nigeria cutting output.
Many on Thursday started wondering if we have seen the bottom. Stocks rallied for a second straight session as oil continued its price drop. Better -than-expected earnings for JPMorgan Chase (NYSE: JPM) again lifted banks. The Dow Jones Industrial Average gained 207.38 points, or 1.9%, the S&P 500 index rose 15.7 points, or 1.2%, and the Nasdaq Composite Index gained 27.45 points, or 1.2%.
Without any economic releases today, the market will continue to focus on earnings, and investors have a lot to mull, especially after Thursday's wave of financial results releases after the close, and with financials and techs being in the center of attention.
After JPMorgan Chase brought on some optimism with its results Thursday morning, Merrill Lynch (NYSE: MER) reported after the close a wider-than-expected loss of $4.65 billion, or $4.9 a share, on $9.7 billion of credit-market writedowns. The loss per share was larger than any analyst had expected according to Bloomberg survey. MER shares are declining over 4.8% in premarket trading.
Hector Ruiz, the CEO who almost ruined AMD (NYSE: AMD), is gone, moved up to the chairman's role. and replaced by the company's COO Dirk Meyer. According toThe New York Times, "Mr. Meyer, president and chief operating officer, is widely respected and admired by other A.M.D. technical employees and also has the confidence of Wall Street analysts." AMD lost another $1.2 billion in the latest quarter making the move almost essential to the firm's survival.
During the time Ruiz has been CEO, AMD has fallen behind Intel (NASDAQ: INTC) in the power and efficiency of its chips. While Intel made it to market with dual and quad-core processors, the AMD "Barcelona", meant to be their dog in the fight, was delayed.
Ruiz's colossal mistake was buying graphics chip company ATI and pushing his company's debt up to $5 billion. AMD now struggles to make its debt service.
Shareholders have been calling for Ruiz to step down for over a year. The AMD share price was above $40 just over two years ago. Now, it often trades below $7.
Ruiz will be remembered as a poor strategist who pulled his company into a precarious position. He is best gone. And, wont be missed.
Douglas A. McIntyre is an editor at 247wallst.com.
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McDonald's
Shares of toy maker 
In the expectations game, 
U.S. stock futures turned higher Friday morning after earnings from Citigroup that beat expectations offset disappointment from Merrill, Google and Microsoft. There was also some pressure from oil as prices rebounded to above $131 a barrel, following 
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