While less foot traffic and lower sales dragged down Staples Inc.'s (NASDAQ: SPLS) second-quarter profit, mining equipment maker Joy Global Inc.'s (NASDAQ: JOYG) fiscal third-quarter profit soared on strong demand for its products and services.
Staples, the world's largest office supply company, reported Wednesday that it earned $150.2 million, or 21 cents per share, down 16% from its year-ago profit. Sales jumped 18% to $5.07 billion, though same-store sales fell 7% in North America. Results were boosted by the acquisition of Dutch supply chain Corporate Express NV.
Analysts polled by Thomson Reuters had expected a profit of 21 cents per share on revenue of $4.69 billion.
Because of the slowing economy, the Framingham, Mass.-based company also forecast low single-digit earnings per share growth for the full year
Staples shares rose 41 cents, or 1.7%, Wednesday to $25.18. Shares are up 9.2% year to date.
You can rest easy knowing these companies will deliver consistent returns over the long haul. Among Kiplinger's picks are Procter & Gamble, Electronic Arts, First Solar, Gilead Sciences, Google, Monsanto, Norfolk Southern, T. Rowe Rrice, Schlumberger and Visa.
Stock futures were lower this morning as investors digested the decline in commodity prices and awaited a slew of economic readings. Data on employment, manufacturing and auto sales will be reported during the morning and throughout the day. At 2:00 p.m., the Federal Reserve's Beige Book, which gives an overall picture on the economy will be released.
Coca-Cola Co. (NYSE: KO) said it is offering $2.4 billion for China Huiyuan Juice Group Ltd., triple Huiyuan's market value. This is Coke's largest acquisition by value to date in China and gives the company a leg in the fast-growing and dynamic Chinese juice market. Coke also said that it expects to buy back a total of $1 billion of its stock for the full year. The Boeing Co.'s (NYSE: BA) workers are prepared to vote Wednesday. Union members are scheduled to cast two ballots: one regarding Boeing's latest offer, which union leaders are recommending to reject, and another on whether to begin a strike. Results of the vote are expected Wednesday night.
More information is coming out regarding Korea Development Bank interest in Lehman Brothers (NYSE: LEH). According to reports in The Chosun Ilbo, South Korea's largest mass-circulation daily, state-owned KDB has made a proposal to acquire 25% of U.S. Lehman for as much as 6 trillion won ($5.3 billion). HSBC Holdings (NYSE: HBC) and an unnamed Chinese bank are said to be vying with the KDB for the Lehman stake.
Today felt like a mini-me version of yesterday's 180-point DJIA sell-off. Again, thin volume persisted. Perhaps the oil traders got an upper hand on some weather forecasting models, putting Tropical Storm Fay back into the Gulf of Mexico with a very promising 25% chance of happening. This would put the oil infrastructure at risk. A super-high PPI report put wholesale inflation up 1.2% (double estimates) at the highest level since late 2006.
Below are the unofficial closing bell levels: DJIA 11,348.47 (-130.92) S&P500 1,266.86 (-11.74) NASDAQ 2,383.52 (-33.46) 10YR T-Note 3.842% (+0.026%) 52-WEEK LOWS Top Analyst Calls
Home Depot Inc. (NYSE: HD) showed a 24% decline in earnings with results at $0.71 EPS on a 5.4% drop in revenues to $21 billion. Estimates were $0.61 EPS and $20.6 billion. The home repair supplies and hardware retail beast shares were actually down almost 4% at $25.95 in today's final minutes after the sellers overpowered the bulls at the open.
Lehman Brothers Holdings Inc. (NYSE: LEH) felt the wrath of traders after reports that it would also sell a stake in its Neuberger Berman money management unit and on reports that CEO Dick Fuld was passing down some responsibilities to his #2. Shares were down 13% in today's final minutes.
U.S. stock futures were lower Tuesday morning, indicating stocks would likely start the same. Investors' concerns about the financial sector dampened sentiment, but oil prices continued to decline and could offset some of the negative mood. Still, housing and inflation data are on tap before the market opens today. And of course earnings with The Home Depot already beating investors' expectations this morning but with Staples issuing a warning.
A day after smaller Lowe's (NYSE: LOW) reported a profit drop, The Home Depot (NYSE: HD) followed suit, reporting a 24% profit decline for the second quarter. It held onto its earnings outlook as second-quarter net fell 24% to $1.2 billion, or 71 cents per share. Sales declined 5.4% to $21 billion. Analysts had projected earnings per share of 61 cents on revenue of $20.58 billion. Home Depot shares rose 2% in premarket trading.
Other retailers scheduled to release earnings include discounter Target (NYSE: TGT) -- could it follow Wal-Mart's results? -- while Hewlett-Packard (NYSE: HPQ) is to report after the close -- AP preview.
Meanwhile, Staples, Inc. (NASDAQ: SPLS) issued a profit warning, saying that "Challenging market conditions continued during the company's second quarter, resulting in weaker than anticipated results in Staples' pre-acquisition business." Staples said sales increased approximately 3% and earnings per share decreased approximately 15% yoy. Shares of Staples declined nearly 6.5% in premarket trading.
"I've always been a big fan of putting into the market on a regular basis regardless of what is happening in the overall market," explains Chuck Carlson, long considered one of the advisory industry's leading experts on dividend reinvestment plans.
Here, the editor of The DRIP Investor offers a 10-stock "autopilot" portfolio that is diversified among 10 high quality dividend-paying stocks and requiring a monthly investment of under $500.
Carlson says, "If I've learned anything in the more than a quarter of a century of following the markets, it is this fact - buying stocks when you know you should (i.e. during sharp down moves) is really difficult. Our heads says we should; after all, substantial market downturns create the best values.
"But our emotions usually take control, thus making it very difficult to pull the trigger and put money into the market when stocks are falling.
"That's why I've always been a big fan of 401(k) plans. With these investment vehicles, investment programs are put on 'autopilot,' with dollars being put into the market on a regular basis (usually each paycheck) regardless of what is happening in the overall market.
"Fortunately, investors can duplicate the autopilot feature of 401(k) plans with their DRIP investments by taking advantage of automatic monthly investment features provided by most DRIPs.
MOST NOTEWORTHY: Solarfun Power, BioMarin Pharmaceutical and Genentech were today's noteworthy initiations:
Jefferies initiated Solarfun Power (NASDAQ:SOLF) with a Buy rating and $18 target. The firm believes the one-third stake purchased by Good Energies and new management hires could generate operational momentum and that declining silicon costs may help margins.
BioMarin Pharmaceutical (NASDAQ:BMRN) was started at Oppenheimer with a Perform rating. The firm recommends waiting for Street estimates on Kuvan sales to moderate and for positive pipeline signals before adding to positions.
Genentech (NYSE:DNA) was initiated at Citigroup with a Buy rating and $91 target. The firm believes several studies could lead to robust growth and points out the company's Q2 results showed Avastin reaccelerating due to growth in breast cancer.
OTHER INITIATIONS:
Goldman reinstated Staples (NASDAQ:SPLS) with a Neutral rating.
Zebra Tech (NASDAQ:ZBRA) was initiated with a Hold rating at KeyBanc.
Rodman & Renshaw assumed coverage of Corcept Therapeutics (NASDAQ:CORT) with an Outperform rating and $8 target.
AuthenTec (NASDAQ:AUTH) was initiated at JP Morgan with an Overweight rating and at Canaccord Adams with a Hold rating and $10 target.
They say it's never too early to start getting ready for the upcoming school year, and Tuesday, Staples Inc. (NASDAQ: SPLS) announced it was officially kicking off the back-to-school shopping season. This came as a reaction to a survey showing that parents would indeed like to know when they could start finding school supplies on store shelves.
And what can be easier than establishing an official start to the back-to-school shopping season? Based on the example of Black Friday, which announces the start of the winter holiday shopping season, Staples followed the same logic and decided to declare July 8 as the official opening day of the 2008 back-to-school shopping season. Staples is serious about setting an official precedent, and celebrated it by ringing the bell to open the NASDAQ Tuesday.
"Staples is giving parents a clear road map of where and when to the find the best products and deals this season," the company stated. But the more apparent reality is that the current economic environment has consumers more closely watching their spending, while at the same time stores are trying to do anything they can to get shoppers through the doors.
Amazon.com (NASDAQ: AMZN) shares are falling today after the company announced this morning that it has opened an office supplies division designed to compete with Staples Inc. (NASDAQ: SPLS) and the like. Evidently, investors aren't too excited by the Amazon's entry into this already struggling portion of the retail sector. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on AMZN.
After hitting a one-year high of $101.09 in October, the stock hit a one-year low of $61.20 in March. This morning, AMZN opened at $79.55. So far today the stock has hit a low of $77.63 and a high of $80.08. As of 12:30, AMZN is trading at $80.04, down $0.64 (-0.7%). The chart for AMZN looks bullish and steady, while S&P gives the stock a neutral 3 Stars (out of 5) Hold rating.
For a bearish hedged play on this stock, I would consider an August bear-call credit spread above the $105 range. A bear-call credit spread is an options position that combines the purchase and sale of call 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 5.3% return in two months as long as AMZN is below $105 at August expiration. AMZN would have to rise by more than 30% before we would start to lose money. Learn more about this type of trade here.
After hitting a one-year low of $19.69 in November, the stock hit a one-year high of $25.85 on Monday. This morning, SPLS opened at $24.76. So far today the stock has hit a low of $24.44 and a high of $24.98. As of 11:00, SPLS is trading at $24.54, down $0.57 (-2.3%). The chart for SPLS looks bullish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bearish hedged play on this stock, I would consider a September bear-call credit spread above the $27.50 range. A bear-call credit spread is an options position that combines the purchase and sale of call 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 16.3% return in three months as long as SPLS is below $27.50 at September expiration. Staples would have to rise by more than 11% before we would start to lose money. Learn more about this type of trade here.
MOST NOTEWORTHY: Allied Capital, ZIX Corp and Staples were today's noteworthy initiations:
Oppenheimer believes Allied Capital's (NYSE:ALD) dividend is sustainable and that the equity portion of its portfolio will drive outsized returns once market conditions return to normalcy. Shares were initiated with a Perform rating.
ThinkPanmure believes ZIX Corp (NASDAQ:ZIXI) has a large opportunity in e-prescribing encryption market, with a potential catalyst being the E-MEDS bill. The firm started shares with a Buy rating and $4.50 target.
Banc of America reinstated its Buy rating on Staples (NASDAQ:SPLS) following the Corporate Express (NYSE:CXP) deal, which it views as a positive catalyst for the stock. The firm has a $29 target on the stock.
OTHER INITIATIONS:
Newmont Mining (NYSE:NEM) was initiated at Thomas Weisel with an Overweight rating and $62 target.
Stephens assumed Wabash (NYSE:WNC) with an Equal Weight rating and $10 target.
After some tough fighting, Staples, Inc. (NASDAQ: SPLS) has won its bid for Corporate Express N.V., one of the world's largest suppliers of office products to businesses and institutions. The deal comes to about $2.6 billion in an all cash transaction. What's more, Corporate Express has agreed to abandon its purchase of rival Lyreco (which was really a defensive ploy anyway).
To get to this point, Staples had to increase its bid several times, from 7.25 euros to 9.25 euros. But, it was probably worth it. After all, the core retail business is lagging.
Basically, Corporate Express will provide a strong distribution platform in North America, Canada and Europe. Moreover, the business is growing and there should be some cost savings because of overlap and economies of scale, although these haven't been estimated yet.
U.S. stock futures were higher early Wednesday ahead of the release of the Beige Book on economic conditions and the release of weekly oil inventory supplies that could move oil prices again.
U.S. stocks ended mixed but unchanged much Tuesday following the release of April trade deficit, which widened further and despite crude-oil prices edged lower. Comments from Bernanke on inflation concerned investors. The Dow industrials rose 9 points, or 0.08%, while the S&P 500 fell 3.3 points, or 0.24%, and the Nasdaq Composite declined 10 points, or 0.43%.
Today, the Federal Reserve is scheduled to issue its Beige Book - a survey of regional economic performance - at 2 p.m EDT. At 10:30 a.m., weekly crude inventories are due out. Oil prices rebounded in electronic trading Wednesday back above $133 a barrel ahead of the report as traders speculate inventories declined and as the dollar weakened.
Stock futures were lower this morning as investors digested the decline in commodity prices and awaited a slew of economic readings. Data on employment, manufacturing and auto sales will be reported during the morning and throughout the day. At 2:00 p.m., the Federal Reserve's Beige Book, which gives an overall picture on the economy will be released.
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They say it's never too early to start getting ready for the upcoming school year, and Tuesday, 
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After some tough fighting, 
U.S. stock futures were higher early Wednesday ahead of the release of the Beige Book on economic conditions and the release of weekly oil inventory supplies that could move oil prices again.
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