Goodyear shares soar as profit beats Street

Goodyear shares soar as profit beats Street

Stock Market Predictions

DETROIT (Global Markets) - Goodyear Tire & Rubber Co (GT.N) reported a profit more than four times as high as Wall Street had expected on strength in its home market of North America, and its shares jumped to a 19-month high.

Excluding one-time items, the Akron, Ohio-based tire maker earned 51 cents a share in the first quarter, easily topping analysts' average estimate of 12 cents, according to Thomson Global Markets I/B/E/S.

Goodyear's first-quarter sales of $5.4 billion were up 27 percent from a year earlier. Sales set quarterly records for each of the company's four global regions, including a 30-percent increase in its North American business to $2.3 billion.

Sales in its Europe region were up 28 percent to $2 billion.

Goodyear's shares rose as high as $18.68, up 15.3 percent, their highest level since September 2009. They pared gains and closed at $18.15. Goodyear's trading volume was more than triple its normal daily average on Thursday.

Earnings of two other major automotive suppliers, Lear Corp (LEA.N) and American Axle and Manufacturing Holding Inc (AXL.N), also blew past Wall Street's profit expectations on Friday, a sign that the auto industry recovery is gaining momentum globally, and particularly in North America.

"Nowhere is (Goodyear's) momentum clearer than in our North American business," said Goodyear Chief Executive Officer Richard Kramer on a conference call with analysts.

"North American profitability is essential to reaching our 2013 target" of $1.6 billion in global operating income in 2013, he said.

Operating income in 2010 was $917 million.

RAW MATERIALS COST RISING

Goodyear was able to offset higher raw materials costs, including natural rubber and carbon black, in the first quarter by selling its products for higher prices, such as a 15-percent increase in price per tire, Kramer said.

But the company will face stiffer challenges in meeting raw materials costs that will show "unprecedented" price spikes in the second half of the year, Chief Financial Officer Darren Wells said on the call.

Goodyear expects a 25- to 30-percent rise in raw material costs for the rest of 2011.

Wells said raw materials costs will produce more than $500 million in "headwinds" in the third quarter and again in the fourth quarter.

Kramer said that the company will over time make up for the lofty price spikes for natural rubber and carbon black and synthetic rubber later this year.

Goodyear said it was not greatly hurt by the earthquake in Japan. It has a plant that makes heavy machinery tires in southern Japan that was not damaged.

The main impact to Goodyear of the Japan crisis was a rise in commodity prices that hit every company with heavy reliance on those costs, Wells said.

Kramer also cautioned about pressure on company and overall auto industry financial performance later in the year.

"While we expect a strong year, we do not expect to see the same level of industry growth that we saw in the first quarter," Kramer told analysts.

Sales in the industry, including Goodyear's, were boosted in the first quarter, he said, as dealers made large purchases of tires ahead of announced price increases and as they perceived tightness of industry supply.

Wells said that Goodyear expects it can offset second-quarter raw materials price gains within that quarter.

The company's net income of $103 million, or 42 cents per share, compares with a year-earlier net loss of $47 million, or 19 cents per share.

Goodyear shares closed up 12 percent at $18.15 in trading on the New York Stock Exchange.

(Reporting by Bernie Woodall; Editing by Gerald E. McCormick, Lisa Von Ahn, Tim Dobbyn and Bernard Orr)

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Mitsubishi Estate to invest up to $2.47 billion in Tokyo

Mitsubishi Estate to invest up to $2.47 billion in Tokyo

Stock Market Predictions

(Global Markets) - Mitsubishi Estate Co (8802.T) will spend 150-200 billion yen ($1.85-$2.47 billion) to redevelop an area in Tokyo's Otemachi business district, the Nikkei business daily reported.

The developer plans to build skyscrapers on a plot adjacent to the Bank of Japan headquarters. It currently owns four of the five buildings that stand on the approximately 33,000 sq. meter plot, the newspaper said.

Mitsubishi Estate is likely to buy the remaining building and start work on the plot, which houses the headquarters of JX Holdings Inc (5020.T), in 2018, Nikkei reported.

The project will be central to the company's goal of expanding its area of office space for rent by 40 percent to about 2.15 million sq. meters by 2020, the paper said.

($1 = 80.930 Japanese Yen)

(Reporting by Sruthi Ramakrishnan in Bangalore; Editing by Joyjeet Das)

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Fund View: Sprott says buy oil stocks, dump natgas and uranium

Fund View: Sprott says buy oil stocks, dump natgas and uranium

Stock Market Predictions

BANGALORE (Global Markets) - Buy oil stocks on high crude prices but sell uranium and natural gas, was the advise of a fund manager at Sprott Asset Management's energy fund, which invests in small and mid-sized Canadian companies.

Oil prices are trending higher on fundamentals and not on geopolitical upheavals alone, reckons Eric Nuttall, the lead portfolio manager of Canada's Sprott Energy Funds -- a $169 million natural resources-focused equity fund.

"Emerging economy demand (for oil) growth is outpacing the demand destruction that we are seeing in developed economies, namely United States," Nuttall told Global Markets in an interview.

His top 10 picks include Legacy Oil and Gas (LEG.TO), Westfire Energy Ltd (WFE.TO) and Bankers Petroleum Ltd (BNK.TO). By the end of 2010, his fund topped the wider Toronto Stock Exchange's S&P/TSX composite index .GSPTSE by more than 17 percent.

The fund is overseen by Toronto-based Sprott Asset Management, which is headed by Bay Street contrarian investor and Canadian investment guru Eric Sprott.

"In Canada we have more listed oil and gas companies than any other country in the world, so we have a tremendous amount of opportunity," said Nuttall, who joined the fund in 2003.

The average price of oil is likely to be in the range of $95-$100 a barrel this year, he said, adding that demand would strengthen in the second half as global economy gradually brightens.

Oil is currently trading at around $94 a barrel, while natural gas prices have slumped to trade just over $4 per million British thermal units (mmBtu) from its 2008 levels of $13 per mmBtu, and may fall further.

The fund manager said stubbornly low natural gas prices had not bottomed yet and the over supply condition would not cool any time soon.

"Looking until 2015, we are in a sub $5-ish world until North America becomes an exporter of natural gas ... the record price five years down the line should have been $7 per mmcf for a company to earn a decent rate of return," said Nuttall.

FUKUSHIMA WOES

Several countries were forced to cap or delay their nuclear energy aspirations after the meltdown at the Fukushima Daiichi plant in northeastern Japan, prompting strident anti-nuclear protests around the world.

"For uranium, I think the outlook is awful. We have many countries effectively deciding to shut down all of their nuclear reactors," said Nuttall, who is underweight on uranium stocks.

Countries like Germany and Italy are set to completely ban or lessen their dependence on nuclear energy, while developing countries are delaying their expansion plans under immense public pressure.

World's No. 2 uranium producer Cameco Corp's (CCO.TO) shares have lost over a third in value since Japan was hit by an earthquake and tsunami, while Uranium One Inc's (UUU.TO) market value has more than halved since then.

Although Nuttall questioned the feasibility of finding an alternative to nuclear energy for some of the countries, he asserted uranium would remain weak this year.

(Reporting by Aftab Ahmed in Bangalore; Editing by Saumyadeb Chakrabarty)

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Samsung, other Asian tech shares tumble on earnings worries

Samsung, other Asian tech shares tumble on earnings worries

Stock Market Predictions

SEOUL (Global Markets) - Samsung Electronics and other Asian technology stocks tumbled on Friday on fears the sputtering global economy will crimp demand for computers and TVs and hurt earnings at chip and panel makers for the rest of the year.

Investors, who had expected Japan's earthquake three months ago to lift prices of memory chips and flat screens, dumped shares of tech firms in South Korea, Taiwan and Japan.

The tech sector serves as the bellwether for global consumer demand and its outlook has been soured by the debt crisis in Europe and sluggish U.S. job and housing markets.

"The tech momentum appears to be dead," said Cha Kyung-jin, a fund manger at Golden Bridge Asset Management, which owns Samsung shares. "Expectations have been lowered on the global economy and tech earnings in the second half."

Shares in Samsung Electronics, the world's biggest technology firm by revenue, slid 3.4 percent in its biggest daily decline in three months.

Hynix Semiconductor, the world's No.2 memory chipmaker, skidded 6.1 percent, and LG Display, which vies for the world's top flat-screen maker title with Samsung, tumbled 6.8 percent, amid lowered earnings expectations.

In Japan, Elpida Memory lost 2.8 percent and Taiwan's Nanya Technology dropped 7 percent, while AU Optronics and Chimei Innolux lost 5.1 percent and 4.1 percent, respectively.

"There are concerns that tech firms may see little earnings recovery in the second half after posting poor second-quarter earnings. There is traditionally high demand in the second half, but seasonality may be weak this year because of macroeconomic difficulties," said Park Jong-min, a fund manager at ING Investment Management.

"Businesses are reluctant to build up inventory because of macroeconomic uncertainties and as they have already piled up components after the March 11 quake on fears of a parts shortage," he said. ING owns shares of Samsung and Hynix.

The regional MSCI technology index lost 1.8 percent on Friday. The U.S. Philadelphia Semiconductor Index shed 1.1 percent on Thursday, and has fallen 16.5 percent in four months.

LOWERED EARNINGS OUTLOOK

Global PC shipments, which in recent years grew by double digits annually barring 2009 and serve as a key growth driver of the memory chip industry, are set to grow by only 5 percent this year as consumers opt for popular tablets and smartphones.

Samsung, which is set to update the market with its second-quarter earnings estimates in the first week of July, declined to comment on the current quarter's results.

"Second-quarter is a typically weak season but the market condition was slightly worse than usual because tightness that many people had expected after the quake didn't really happen due to weak demand," said a senior executive at a major Korean electronics firm. The official declined to be named because he was not authorized to speak to the media.

Analysts' expectations for a recovery in the loss-making flat screen businesses of Samsung and LG Display have now been pushed back from the second quarter as TV sales remain weak.

Samsung' second-quarter operating profit is forecast to be around 4 trillion won ($3.66 billion), Thomson Global Markets I/B/E/S data showed, compared to 5 trillion won a year ago.

Earnings expectations were being downgraded further.

"We recently lowered our second-quarter operating profit forecast on Samsung Electronics to 3.6 trillion won," said Jin Seong-hye, an analyst at Hyundai Securities.

Hynix is seen posting a 553 billion won operating profit for the quarter ending in June, according to Thomson Global Markets I/B/E/S, compared with a 1 trillion won operating profit a year earlier.

"I cut my consensus forecast (for Hynix's second-quarter earnings) to 420 billion won, but I am also hearing talk in the market of 360 billion won," said James Song, an analyst at HI Investment & Securities.

(Editing by Jonathan Hopfner and Muralikumar Anantharaman)

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Toyota forecasts 35 percent profit slide after quake

Toyota forecasts 35 percent profit slide after quake

Stock Market Predictions

TOKYO (Global Markets) - Toyota Motor Corp forecast a larger-than-expected 35 percent fall in annual profit on Friday and warned that the strong yen was making it difficult to justify keeping production in Japan.

Toyota has struggled to restore output after a massive 9.0 earthquake in March rocked northeastern Japan and forced automakers to slash output. The ensuing nuclear disaster and power shortages have compounded their woes.

The production disruption will likely see Toyota lose its title as the world's largest automaker this year.

"This is probably another conservative estimate from Toyota, but it's predicting a loss in the fiscal first half so we can tell how serious the damage from the earthquake was," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments in Tokyo, adding that shares in the company may fall on Monday.

Toyota reiterated its plan to restore output to pre-quake levels by November, helped by a recovery in the supply chain for key parts, and expressed confidence it could claw back market share lost as a result of the quake.

In an encouraging sign for automakers, chipmaker Renesas Electronics Corp said on Friday it now expected to restore supply capacity lost due to quake damage by the end of September, one month earlier than previously planned.

Renesas, the world's biggest maker of microcontrollers, had become one of the biggest bottlenecks in the automotive supply chain that forced car firms to curb production.

"Once our product supply is back to normal, we can compete with no problem. We have the resources and are fully charged," Toyota Chief Financial Officer Satoshi Ozawa said at a briefing in Tokyo.

But Ozawa warned that Toyota was getting hammered by the strong yen and called on the Japanese government to take action to rein it in.

The Japanese currency hit a one-month high against the dollar this week and is now about 5 yen stronger than the 85 per dollar level that Toyota sees as the break-even point for profiting on production in Japan.

STRUCTURAL WEAKNESS

Toyota said it expects operating profit to fall 35 percent to 300 billion yen ($3.7 billion) in the financial year to March 2012, well short of the consensus for a 434 billion yen profit in a poll of 23 forecasts by Thomson Global Markets I/B/E/S.

The forecast, which the company would have announced in May along with its annual results if not for the earthquake, incorporates a 100 billion yen negative impact from the strong yen.

"Structural weakness remains for Toyota, as it has a higher portion of domestic production than Honda and Nissan, which makes it vulnerable to the yen's strength," said Park Sang-Won, an analyst at Eugene Investment & Securities in Seoul.

Toyota forecast global sales would fall 1 percent to 7.24 million vehicles in the year to March. The figures include sales at truck maker Hino Motors Ltd and compact car maker Daihatsu Motor Co.

The drop is expected to place Toyota behind General Motors and possibly Volkswagen AG in the global vehicle sales rankings this year, and reflects a loss of share to smaller rivals such as South Korea's Hyundai Motor Co, which has been nipping at its heels for years.

Toyota played down the possibility.

"We don't see it as necessary to be the largest automaker in the world," Ozawa said. "The most important thing is creating a stable business base."

Toyota said on Friday it expects the dollar to average 82 yen in the current financial year to next March 31, against an average currency rate of 86 yen per dollar last year.

The yen's persistent strength has raised questions about the rationale of Toyota's commitment to producing at least 3 million cars in Japan each year.

Ozawa said it was possible that Toyota President Akio Toyoda was rethinking his position.

"We are in a situation where it's becoming impossible for Japan's manufacturing industry to do business," Ozawa said.

"Our president has been saying that he would never want to see Japan's manufacturing fading from view, but he also said recently that he was unable to respond when someone made the comment that Toyota's production should not be handled only in Japan."

Toyota's shares have fallen 7.5 percent since the disaster, underperforming the benchmark Nikkei 225 average, which has lost 6.5 percent. Its shares on Friday rose 0.9 percent to close at 3,300 yen before the company released the profit forecast.

(Editing by Matt Driskill and Edmund Klamann)

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Michael Kors makes a glitzy market debut

Michael Kors makes a glitzy market debut

Stock Market Predictions

(Global Markets) - Michael Kors Holdings Ltd (KORS.N) stood out in its market debut, keeping pace with star technology sector IPOs and showcasing the resilience of the luxury market even in a gloomy economy.

Shares of the luxury brand touched a high of $25.23, before ending the day at $24.20 -- up 21 percent -- valuing the company at about $4.62 billion.

A day earlier, the company raised the number of shares on offer by 13 percent to 47.2 million and priced its offering above its expected range, raising $944 million.

Michael Kors' offering follows a successful $2.1 billion IPO of Italian fashion house Prada SpA (1913.HK) in Hong Kong and a $487 million IPO of Italian luxury shoemaker Salvatore Ferragamo.

Strong fundamentals, a high growth rate and good brand value make the company a good buy, according to industry analysts.

"I think the company is doing extremely well," NPD Group's chief retail industry analyst Marshal Cohen said. "One of the few brands that is going to see a surge through the holiday season."

The company, which is known for its glitzy designs, has seen its net income grow by 85 percent to $72.5 million in fiscal 2011 and boasts a gross profit margin of 55.5 percent.

The luxury goods industry has rebounded strongly after the sharp downturn of 2009, and analysts see 2011 to be another record year, particularly for watchmakers, luxury hotels, fashion and leather goods groups.

As of October 1, Michael Kors Holdings -- which sells fashion accessories, footwear and apparel -- operated 169 retail stores in North America and 34 stores in Europe and Japan.

The company said it is looking to more than double its store count in North America, and have about 100 stores each in Europe and Japan.

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Founder and Chief Creative Officer Michael Kors, who is a judge on the "Project Runway" TV show, is selling 5.8 million shares and is likely to pocket around $116 million.

The company is not selling any shares in the offering, with the entire proceeds going to the selling shareholders.

Concerns regarding the company's ability to sustain its phenomenal growth rates and insiders selling a large stake are overblown, said Josef Schuster, founder of IPOX Schuster, a fund that specializes in investing in newly public companies.

"Michael Kors still has a lot of opportunities to expand in areas like merchandizing and new-store openings, and you will see the company maintain growth rates over time even if the economy is not doing well."

The company competes with retailers such as Coach (COH.N), Burberry (BRBY.L), Ralph Lauren (RL.N) and Hermes International (HRMS.PA).

Its biggest shareholder is investment firm Sportswear Holdings Ltd, which will cut its stake to 37.7 percent from 51.9 percent after the offering.

Sportswear Holdings is led by Silas Chou and Lawrence Stroll who have previously had a hand in developing other lifestyle brands including Tommy Hilfiger and Pepe Jeans.

Morgan Stanley, J.P. Morgan and Goldman Sachs were the lead underwriters on the offering.

(Reporting by Tanya Agrawal and Brenton Cordeiro in Bangalore, additional reporting by Phil Wahba in New York; Editing by Anil D'Silva)

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Tiffany raises forecast as sales rise worldwide

Tiffany raises forecast as sales rise worldwide

Stock Market Predictions

NEW YORK (Global Markets) - Tiffany & Co (TIF.N) raised its full-year profit outlook as more shoppers worldwide bought its jewelry during the bridal season, helping it overcome rising gold and diamond costs and sending its shares up more than 5 percent.

Tiffany's sales gains were strong across the board during the quarter ended July 31, a period that includes the Mother's Day and bridal seasons, which are second in sales only to the end-of-year holidays for jewelers.

Chief Executive Stephen Kowalski said that sales so far in the current quarter are outpacing Tiffany's own forecasts despite continuing economic uncertainty.

The company said it expects sales to rise by a high teen percentage for the year ending in late January, up from a previous forecast of a mid-teen percentage increase.

At its flagship store on Manhattan's Fifth Avenue, where it gets about a tenth of its business, sales rose 41 percent, helped by international tourists.

In Asia, outside of Japan, revenue rose 45 percent excluding the effect of a weak dollar, thanks to the appetite of China's emerging middle class for Western luxury brands.

Sales also rose by double digits in Europe, where wealthy Russian and Chinese tourists account for as much as a quarter of total luxury spending by some estimates. Sales also rebounded in Japan, which is still recovering from the debilitating earthquake and tsunami in March.

Overall, Tiffany sales, excluding the effect of currency translations, rose 24 percent to $872.7 million in the second quarter, while sales at stores open at least one year rose 22 percent.

Tiffany said its gross margins rose 1.2 percentage points to 59 percent of sales, with revenue increasing enough for the retailer to absorb higher costs for gold, diamonds and silver.

Tiffany's price increases, which faced little consumer resistance, have "a recipe for success," Wall Street Strategies analyst Brian Sozzi said in a note.

Signet Jewelers Ltd (SIG.N) (SIG.L), operator of the Kay Jewelers and the more upscale Jared chains, on Thursday reported similarly strong sales and profit gains, saying it was able to raise prices. Signet's same-store sales rose 12.2 percent during its second quarter.

The price increases and strong sales helped Tiffany handily beat Wall Street's profit forecasts. It reported net income of $90 million, or 69 cents per share, for the quarter, up from $67.7 million, or 53 cents per share, a year earlier.

Excluding one-time items, such as the cost of relocating its New York staff to new offices, Tiffany earned 86 cents a share, far above the 70 cents Wall Street expected, according to Thomson Global Markets I/B/E/S.

Tiffany raised its full-year profit outlook range by 20 cents, to between $3.65 and $3.75 per share, above the $3.56 analysts were expecting.

Tiffany shares rose $3.39 to $66.50 in pre-market trading. Through Thursday's close, Tiffany shares had fallen 25.3 percent since hitting an all-time high on July 7, on concerns that market volatility might prompt luxury spenders to pull back.

(Editing by Derek Caney, John Wallace and Steve Orlofsky)

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Caterpillar profit misses

Caterpillar profit misses

Stock Market Predictions

NEW YORK (Global Markets) - Heavy machinery maker Caterpillar Inc disappointed Wall Street with a second-quarter earnings miss on Friday, hurt by higher costs, and its shares fell nearly 6 percent, dragging down the U.S. stock market.

The maker of equipment used in mining and construction also said economic growth in the United States and other developed economies was weaker than expected and reported signs of a slowdown in China.

Although Caterpillar raised its full-year sales and profit forecast, the midpoint of its new range was below analysts' average estimate. Shareholders also noted a more cautious tone in the company's economic commentary, closely watched by investors in economically sensitive manufacturing and transport stocks.

Caterpillar shares were down $6.65 to $104.95 in afternoon trading and most other industrial stocks were also lower, though off the day's worst levels.

Rising prices of commodities like steel and copper, as well as higher transportation and labor costs, hurt profit in a quarter with elevated expectations, said Andrew Meister, equity research analyst with Minneapolis-based Thrivent Financial, which holds almost 1 million Caterpillar shares.

"In a quarter where the price increases lag the increases in manufacturing costs, you have a miss like you have today," Meister said. "But what it says is, the long-term outlook for Cat's products appears robust."

Caterpillar's commentary was more subdued than in the past but its forecasts may eventually prove conservative, said Meister, who called Friday's stock sell-off an overreaction.

"I don't think there's anything wrong with Caterpillar," he said.

Caterpillar finance chief Ed Rapp said raw material inflation was roughly in line with what the company expected when it laid out its 2011 forecasts.

Longer-term, higher commodity prices are a "net positive" for the company, he said in an interview. They drive investment by producers, which in turn boosts demand for infrastructure.

3-CENT MISS

Net earnings rose 44 percent to $1.02 billion, or $1.52 per share, in the second quarter, from $707 million or $1.09 per share a year earlier.

Excluding acquisition costs, Caterpillar earned $1.72 per share, 3 cents short of analysts' average forecast, according to Thomson Global Markets I/B/E/S.

Sales rose 37 percent to a record $14.23 billion.

"The bottom line disappointed," said Oliver Pursche, Co-Portfolio Manager of the GMG Defensive Beta Fund that holds Caterpillar shares. "Caterpillar tends to be very sensitive to macro issues."

The company faced headwinds from China and Japan, he said, but did a good job lifting sales to a record and has been especially successful expanding in Latin America.

The company said the March earthquake in Japan reduced its operating profit by $60 million by boosting costs, but the negative impact from Japan is now past.

Caterpillar said it expects its recently-closed $7.6 billion acquisition of mining equipment maker Bucyrus to add $2 billion to its sales this year and to add to earnings after this year. It now expects 2011 profit of $6.75 to $7.25 per share, excluding Bucyrus, raising its range by 50 cents on either end. Analysts expect $7.08.

"The forward guidance is a little bit disappointing," said Eric Marshall, director of research for Hodges Capital Management, which recently sold its Caterpillar holdings.

"The dealer statistics were so strong throughout the quarter, it built in a lot of pretty high expectations," he said. "People expected a little bit more."

Asked about the company's initial 2012 estimate for earnings of $8 to $10 a per share, before acquisitions, CFO Rapp said, "We're still very comfortable with that range."

Analysts' 2012 estimates currently average $9.12 per share but vary widely, from $7.54 to $9.90.

SLOWER GROWTH

Caterpillar forecast slower global economic growth this year than in 2010, and said U.S. growth was being curtailed by "a lack of confidence in the business climate."

Like many U.S. multinationals, Caterpillar has been able to increase profits, despite a slow economic recovery in its domestic market, thanks to rapid expansion in other economies, including Brazil, Russia, India and China. Caterpillar derives more than a third of sales from such emerging markets.

China, however, has taken steps to cool its economy and tame inflation. Higher interest rates and other policy moves have raised concerns among investors that China's growth could slow abruptly.

"We've seen some softening of growth in China," Caterpillar Chief Executive Doug Oberhelman said in a statement, but he added that expectations remain positive. China is doing a good job of balancing growth and inflation, Oberhelman said. Overall, emerging markets remain robust.

Fellow industrials General Electric Co and Honeywell International Inc also reported quarterly results on Friday.

GE shares were little changed after its profit beat forecasts, helped by emerging market demand for equipment used in energy production. Honeywell fell 2.5 percent despite higher earnings and an improved full-year forecast.

(For a Global Markets Insider view on Caterpillar vs GE, see link.reuters.com/zur72s.)

Caterpillar's tumble, its steepest since May, was enough to keep the Dow Jones industrial average in negative territory, even as the S&P 500 index turned positive.

(Reporting by Nick Zieminski in New York and Scott Malone in Boston; Editing by Derek Caney, Matthew Lewis and John Wallace)

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Good times roll for auto suppliers

Good times roll for auto suppliers

Stock Market Predictions

DETROIT (Global Markets) - Major auto suppliers blew past profit expectations on Friday, suggesting the recovery in the global auto market remains strong despite rising oil prices and the disaster in Japan.

Goodyear Tire & Rubber Co (GT.N), powertrain maker American Axle and Manufacturing Holding Inc (AXL.N) and Lear Corp (LEA.N), which makes seating and electrical power management systems, posted first-quarter earnings that easily exceeded Wall Street estimates on improving global demand.

"What we're seeing from these results is the volumes are significantly higher and therefore the recovery in the auto industry is gaining momentum," said Tim Ghriskey, chief investment officer with Solaris Asset Management.

"Clearly, the sales are doing well and the consumer is replacing older vehicles," added Ghriskey, who has owned auto stocks in the past and still follows the sector closely.

Shares of Goodyear, American Axle and Lear were up 10.9 percent, 3.3 percent and 2.5 percent, respectively, in morning trading.

Lear cited a 5 percent increase in global auto production in the first quarter compared with a year earlier. Demand grew around the world, offsetting a 32 percent production decline in Japan due to the earthquake and tsunami last month.

Friday's earnings reports continued a strong week for the sector, underlined by Ford Motor Co's (F.N) better-than-expected profit.

Other suppliers whose results topped expectations this week included BorgWarner Inc (BWA.N), Federal-Mogul Corp (FDML.O) and Dana Holding Corp (DAN.N).

Dealer groups -- AutoNation Inc (AN.N), Penske Automotive Group Inc (PAG.N), Asbury Automotive Group Inc (ABG.N) and Group 1 Automotive Inc (GPI.N) -- also posted strong profits, although many warned the Japanese crisis would crimp vehicle inventories on their lots.

"Obviously, it's all about volume," Morningstar analyst David Whiston said. "With a lower fixed cost and a better top line, it's not a surprise to see earnings doing so well."

While he still expects some choppiness due to the Japanese crisis, he said the industry's recovery remains in place.

David Silver, analyst with Wall Street Strategies, cautioned against exuberant expectations, however.

"I wouldn't call it a party right now. It's more of a get-together," he said. "The profitability of the North American automakers is much improved from 2007 and 2008, but the Japan disaster is an overhang."

Silver expects more of drag on automaker and supplier earnings later this year.

That squared with comments from General Motors Co (GM.N) Chief Executive Dan Akerson, who said on Thursday that the Japanese crisis was a "second-quarter event.

Akerson, like Ford CEO Alan Mulally, said the disaster in Japan was not likely to have a great impact on earnings.

Silver also said the European market will be weak for the year, while Ghriskey voiced concern about rising raw material costs.

(Additional reporting by Bernie Woodall; editing by John Wallace)

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Xerox's lowered cash forecast irks investors

Xerox's lowered cash forecast irks investors

Stock Market Predictions

NEW YORK (Global Markets) - Xerox Corp (XRX.N) warned it would have less operating cash than expected this year, partly because it has to absorb added costs related to the earthquake in Japan, sending its shares down more than 2 percent.

While Xerox's solid second-quarter results and upbeat earnings forecast on Friday showed that its focus on providing corporate clients with more than just copiers was starting to pay off, its weaker outlook for operating cash flow served as a red flag for investors.

Xerox lowered its outlook for operating cash flow to a range of $2 billion to $2.3 billion for the year, down from a previous forecast of $2.5 billion.

"For a lot of investors in Xerox, the cash it is generating is one of the most looked at data points," said Neuberger Berman analyst Fayad Abbasi. "So in my view, that's the cause of disappointment in the stock today."

Neuberger Berman is one of the top holders of Xerox shares, which fell 2.2 percent, or 23 cents, to $10.07 on the New York Stock Exchange.

The more cash that Xerox has, the more it can reward investors by undertaking share buybacks or dividend increases.

Xerox Chief Executive Ursula Burns blamed the lowered cash forecast on supply problems in Japan and on new client accounts that require more upfront investment.

"We faced some unique challenges relative to cash usage during the first half of the year, including cash needs from ramping new contract signings and incremental cash required to support the supply chain constraints," Burns said on the call with analysts.

Xerox's quarterly revenue, which rose 2 percent to $5.6 billion, would have been higher had it not been for supply disruptions in Japan, the company said. The earthquake hurt revenue by putting constraints on its color supplies, which are sourced from its Fuji Xerox plant in Japan.

Xerox, which competes with Hewlett-Packard Co (HPQ.N), had about $1 billion in cash at the end of the quarter, which it said it would use for "modestly sized acquisitions" and to buy back shares. It expects to buy $700 million of stock in the second half of the year.

SHIFTING BUSINESS

Aside from the cash outlook, Xerox reported a strong quarter that initially boosted its shares.

The company raised its 2011 earnings outlook to a range of $1.07 to $1.12 per share, compared with analysts' expectations of $1.04 to $1.10 per share.

Xerox, which performs services such as managing the E-ZPass electronic tolling system in several states, said its services business contributed more revenue than its traditional copier and printer business in the quarter.

Its services business rose 6 percent, which included a 2 percentage point bump from the weaker dollar. Overall services business revenue totaled $2.67 billion, 48 percent of the business.

The company's business of selling printers, copiers, toners and ink generated $2.5 billion in revenue, representing about 45 percent of the company's revenue.

Adjusted for various charges, Xerox reported earnings per share of 27 cents, beating Wall Street analysts' average estimate of 24 cents per share, according to Thomson Global Markets I/B/E/S. Total revenue increased 2 percent to $5.6 billion, in line with analysts' estimates.

Xerox's adjusted profit also rose 39 percent in the second quarter, to $327 million, or 22 cents per share, from $236 million, or 16 cents per share, a year earlier.

The value of the company's contract signings fell 10 percent, which it blamed on the cyclical nature of large corporate deals.

In the quarter, the company said it employed 133,500 workers globally, which is 3,000 fewer than a year earlier.

A company spokesman said in an email that in the past quarter it cut 500 jobs, "which is based on attrition and the ebb-and-flow of the contracts that we have."

(Reporting by Liana B. Baker; Editing by Lisa Von Ahn, Derek Caney; Editing by Phil Berlowitz)

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Olympus dumped by major shareholder as Japan steps up probe

Olympus dumped by major shareholder as Japan steps up probe

Stock Market Predictions

SINGAPORE/TOKYO (Global Markets) - Singapore's sovereign wealth fund said on Saturday it has sold most of its holdings of Olympus Corp (7733.T) on concern about wrongdoing, the first major shareholder to show it had lost confidence in the scandal-hit Japanese medical device and camera maker.

Japanese authorities are investigating Olympus after the company admitted this week that it hid investment losses for decades using funds from M&A payments. Media reports on Saturday said police and regulators were joining forces in a rare collaborative effort to examine the cover-up.

GIC GIC.UL, which is the acronym for Government of Singapore Investment Corp, was the 10th biggest shareholder in Olympus, with 2.17 percent as of the end of March, according to the latest Olympus annual report.

"GIC disposed of almost all of its investments on first suspicion of possible wrongdoing in Olympus," the Singapore fund said in a statement.

GIC added it had only an insignificant holding under a portfolio managed by an external fund manager. It said the majority of its investment was made in the midst of the global financial crisis.

The Tokyo District Public Prosecutors Office's special investigations unit, the Tokyo Metropolitan Police Department and the Securities and Exchange Surveillance Commission (SESC) will team up to investigate the Olympus cover-up of investment losses, Japanese media reported on Saturday.

Nikkei has said the concealment could have exceeded 130 billion yen ($1.68 billion) at its peak, and said the company's creditors were likely to press for a change in lending terms.

Lenders will confront Olympus next week to demand an explanation on its accounting, a banking source said on Friday, though he denied reports they would seek more security over their loans.

Tokyo's stock exchange has told Olympus it will be delisted if it fails to report earnings by December 14, which could effectively leave the 92-year-old company cut off from equity capital markets at a time when its shares have already lost more than three-quarters of their market value since the scandal erupted on October 14.

Olympus plans to correct 20 years of its financial statements and submit them to financial authorities, the Mainichi newspaper reported on Saturday.

Delisting would take effect on January 15 in principle if Olympus does not meet the reporting deadline. Even if Olympus meets the deadline, the bourse could still decide to delist the company, depending on the scale of its past misreporting.

The bourse placed Olympus on its supervisory list on Thursday, which means short-selling of its shares is restricted. But such trading had already been suspended by Japan Securities Finance, the processor of margin transactions.

"LOSING MONEY"

Sixteen investment trusts managed by Nomura Holdings Inc. (8604.T) group member Nomura Asset Management Co. have recently held Olympus in their portfolios, Nikkei also reported.

Eleven stock-index-linked mutual funds held a total of roughly 1.9 billion yen in Olympus shares as of Wednesday, and five more "fund of funds" owned shares as of September 30. The asset manager disclosed the information because of the possibility that Olympus will be delisted, Nikkei said.

Nomura Holdings, Japan's largest investment bank, said Olympus was its client but that it wasn't involved in any of the transactions at the center of the scandal.

Nikkei reported separately, quoting sources, that a majority of the 100-plus businesses acquired during former Olympus President Tsuyoshi Kikukawa's tenure are losing money. Kikukawa stepped down on October 26.

Most of the acquired firms, in areas such as pet care services, DVD production and others with little apparent connection to core Olympus operations, were unlisted and therefore not required to make their financial details public, Nikkei said.

Olympus President Shuichi Takayama on Tuesday blamed Kikukawa, Vice-President Hisashi Mori and internal auditor Hideo Yamada for the cover-up, and said he would consider criminal complaints against them. Mori was dismissed on Tuesday, and Hamada offered to resign.

The SESC, Japan's securities regulator, plans to take voluntary testimony from Kikukawa and two other current and former officials said to be involved in the investment cover-up, Nikkei said.

The report said the regulator also plans to hear as early as next week from former Olympus head Michael Woodford, who was ousted on October 14 - six months after being made president and just two weeks after becoming CEO - due to what the company said were management issues. Woodford subsequently made public some of the contentious M&A deals.

A third-party panel is now examining those acquisitions, and accounting experts have said the investigation could lead to asset writedowns of more than 70 billion yen, though Olympus' big and profitable medical business is likely to emerge unharmed.

The independent panel's head, retired Supreme Court justice Tatsuo Kainaka, told Global Markets his team may recommend criminal charges in its report, to be completed early next month.

(Editing by Robert Birsel)

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McDonald's August sales miss; Japan drags

McDonald's August sales miss; Japan drags

Stock Market Predictions

NEW YORK/CHICAGO (Global Markets) - McDonald's Corp (MCD.N) reported a lower-than-expected rise in worldwide August sales at established restaurants on a steep drop in Japan and a lull in new product launches in the United States.

The world's largest hamburger chain, whose shares fell 4.4 percent on Friday, said sales at restaurants open at least 13 months rose 3.5 percent globally. Analysts polled by Thomson Global Markets were looking for an increase of 4.3 percent.

Same-restaurant sales rose 3.9 percent in the United States, just shy of analysts' 4.0 percent expectation. In Europe -- McDonald's largest market -- the company reported an increase of 2.7 percent, missing analysts' estimate of a 4.7 percent increase.

To help increase sales, McDonald's has relied on new products like breakfast oatmeal and a beverage overhaul that has included the introduction of fruit smoothies and other drinks.

In August 2010, demand for smoothies helped drive up U.S. same-restaurant sales by 4.6 percent.

This year "new product launches were really weighted toward the front half of the summer," Morningstar analyst R.J. Hottovy said.

But he noted the company was still doing better than its competitors in terms of same-restaurant sales.

"It's still comping positive while a lot of their competitors are still squarely in negative territory," Hottovy said.

McDonald's sales and profits for months have been the envy of the global fast-food industry, which means that the company is punished when results meet or miss expectations.

The company has been outpacing rivals like Wendy's Co (WEN.N), Burger King Corp BKCBK.UL and Yum Brands Inc's (YUM.N) KFC by attracting a broader range of diners than fast-food's typical young adult males.

WEAK JAPAN WEIGHS

McDonald's reported a 0.3 percent decline in Asia/Pacific, Middle East and Africa, while Wall Street had forecast a rise of 3.5 percent.

Asia was dragged down by a sharp decline in comparable sales in Japan, where consumers are still adjusting to the aftermath of the March earthquake and tsunami.

Janna Sampson, co-chief investment officer at Oakbrook Investments, said the weak results in Japan were troubling, given how many months have passed since the earthquake and tsunami struck in March.

"I would have thought that was already priced into expectations," Sampson said. "But one month does not make for a pattern ... If we see that continue in September, it becomes more problematic."

Earlier this week, Red Lobster and Olive Garden parent Darden Restaurants Inc (DRI.N) warned that Hurricane Irene had dented its quarterly earnings by 2 cents per share.

But Irene had only minimal impact on McDonald's sales, a company spokeswoman said.

Oak Brook, Illinois-based McDonald's shares were down 4.4 percent at $84.71 in New York Stock Exchange trading.

(Additional reporting Lisa Baertlein in Los Angeles; Editing by Lisa Von Ahn, Dave Zimmerman)

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