SKY News Summary 03-10-09
According to ICSC, retail sales rose 0.2 percent week-to-week for the week ending March 7. Year-over-year, retail sales were down -0.9 percent. “Although Wal-Mart may have been the poster child of February’s relatively better-than-expected industry sales performance, there was a slightly broader industry improvement for the month,” said Michael P. Niemira, ICSC chief economist and director of research. ‘”Moreover, the last four months show an increasingly less negative performance for the industry — which is an encouraging sign and one that ultimately will form a foundation for stronger sales performance later in the year,” he added. For March, ICSC Research expects comparable store sales to be down 1 percent to flat on a year-over-year basis.’
http://www.icsc.org/srch/apps/newsdsp.php?storyid=2488®ion=main
http://www.nasdaq.com/asp/econodayframe.asp?page=http://anasdaq.econoday.com/byweek.asp?cust=nasdaq
Consumer credit increased $1.8 billion in January ending a 3-month drop. As Nasdaq puts it “Today’s consumer credit report, along with Monday’s ISM report and Thursday’s chain-store sales, may be early indications that the severity of economic contraction has already peaked.”
http://www.nasdaq.com/asp/econodayframe.asp?page=http://anasdaq.econoday.com/byweek.asp?cust=nasdaq
The U.S. Census Bureau announced today that adjusted January wholesalers’ sales were $326.1 billion, down 2.9 percent from December and were down 15.4 percent year-over–year. January sales of durable goods were down 6.5 percent from last month and were down 17.3 percent year-over-year. Sales of nondurable goods were up 0.3 percent from last month, but were down 13.7 year-over-year.
http://www2.census.gov/wholesale/pdf/mwts/currentwhl.pdf
“Johnson Controls intends to sell 8,000,000 equity units with an initial stated amount of $50 per unit, or $400 million in the aggregate, and $100 million in aggregate principal amount of convertible senior notes due 2012, for possible aggregate offerings of $500 million (or $575 million if the underwriters exercise their 15% over-allotment options in connection with each security in full). The Company will use the proceeds from the offerings to repay the short-term debt that the Company has incurred to finance its working capital requirements.”
http://www.johnsoncontrols.com/publish/us/en/news.html
Eli Lilly was granted a temporary restraining order to halt the launch of a generic version of Evista by Teva Pharmaceuticals. Teva was going to launch its product before the patent trial was settled. Evista treats and prevents osteoporosis in postmenopausal women; and the reduction in risk of breast cancer in postmenopausal women with osteoporosis.
http://newsroom.lilly.com/releasedetail.cfm?ReleaseID=369792
Medtronic is offering $550 million of its 4.50% Senior Notes due 2014, $400 million of its 5.60% Senior Notes due 2019, and $300 million of its 6.50% Senior Notes due 2039. Medtronic will use the funds to repay a portion of outstanding commercial paper.
http://wwwp.medtronic.com/Newsroom/NewsReleaseDetails.do?itemId=1236686763102&lang=en_US
Merck and Schering-Plough have approved a definitive merger agreement under which Merck and Schering-Plough will combine, under the name Merck. “Under the terms of the agreement, Schering-Plough shareholders will receive 0.5767 shares and $10.50 in cash for each share of Schering-Plough. Each Merck share will automatically become a share of the combined company. Merck Chairman, President and Chief Executive Officer Richard T. Clark will lead the combined company. Based on the closing price of Merck stock on March 6, 2009, the consideration to be received by Schering-Plough shareholders is valued at $23.61 per share, or $41.1 billion in the aggregate. This price represents a premium to Schering-Plough shareholders of approximately 34 percent based on the closing price of Schering-Plough stock on March 6, 2009. The consideration also represents a premium of approximately 44 percent based on the average closing price of the two stocks over the last 30 trading days…The transaction will double the number of potential medicines Merck has in Phase III development, bringing the total to 18. The combined company will have a more diverse portfolio across important therapeutic areas, including cardiovascular, respiratory, oncology, neuroscience, infectious disease, immunology, and women’s health.”
http://www.merck.com/newsroom/press_releases/corporate/2009_0309.html
The Wall Street Journal carried an article that indicated that Johnson & Johnson could impede the Merck/Schering-Plough merger because J&J co-owns the drugs Remicade and golimumab (a new drug) with Schering. As part of the partnership, J&J has the opportunity to acquire full rights to the drugs if Schering-Plough were to be taken over. Remicade generated $2.1 billion in sales for Schering-Plough last year, making it an attractive part of the acquisition for Merck. J&J recorded $3.7 billion for remicade.”
http://online.wsj.com/article/SB123664995502979183.html?mod=todays_us_page_one
The board of Genentech is near an agreement to sell the biotechnology company to Roche Holding for $46.7 billion. Roche would acquire the 44% of Genentech it doesn’t already own for $95 a share, which is 6% above Roche’s July opening bid of $89.50 a share. If Roche buys all of Genentech, it will become the world’s biggest biotech company by revenue.
http://online.wsj.com/article/SB123662056448173663.html?mod=todays_us_marketplace
Praxair Electronics received Intel’s Preferred Quality Supplier award. Praxair supplies Intel with “electronic process and bulk gases, sputtering targets, and spare parts management, deemed essential to Intel’s success.”
http://www.praxair.com/praxair.nsf/AllContent/BF34209066709EF38525757000749FA1?OpenDocument
United Technologies will lay off 11,600 employees as part of a cost saving restructure. Savings from 2008 and 2009 restructuring and other 2009 actions will result in total cost reductions exceeding $1 billion in 2009. Employment reductions will total approximately 18,000 or slightly more than 8 percent over the two years.
http://www.utc.com/utc/News/News_Details/2009/2009-03-10.html?page=1&year=0
Here is a video of a new innovation by IBM used at a Danish Hospital to manage patient information. It’s worth viewing.
http://www.youtube.com/watch?v=G5Zk-sJAOxk&feature=channel_page
Sources: Youtube, IBM, UTC, Praxair, Wall Street Journal, Merck, Medtronic, Lilly, Johnson Controls, Census Bureau, Nasdaq, ICSC websites.
SKY News Summary 03-05-09
Exxon’s 2009 production target is up 2% from last year’s figure of 3.9 million barrels a day despite a drop in oil prices of about 70% since last summer. Much of the production growth will come from natural gas, mainly in Qatar.
http://online.wsj.com/article/SB123626365503340059.html
The Census Bureau reported that new orders for manufactured goods in January, down six consecutive months, decreased $6.9 billion or 1.9 percent to $351.9 billion. Excluding transportation, new orders decreased 0.9 percent. Inventories, down five consecutive months, decreased $4.4 billion or 0.8 percent to $537.6 billion.
http://www.census.gov/indicator/www/m3/
Productivity and labor costs in the fourth quarter were revised downward by the Department of Labor. Fourth quarter productivity actually was revised to a decline of 0.4 percent annualized, compared to the initial estimate of 3.2 percent due to the downward revision to fourth quarter GDP and revised labor numbers. According to NASDAQ, “year-on-year, productivity was unchanged at 2.2 percent in the fourth quarter. Year-on-year, unit labor costs firmed to up 1.8 percent from up 1.6 percent for the third quarter.”
http://www.nasdaq.com/asp/econodayframe.asp?page=http://anasdaq.econoday.com/byweek.asp?cust=nasdaq
Monday’s ISM report may indicate that the factory sector’s pace of contraction may be slowing, showing an easing in inventories during February.
http://www.nasdaq.com/asp/econodayframe.asp?page=http://anasdaq.econoday.com/byweek.asp?cust=nasdaq
Here are excerpts from Dennis Lockhart’s, President and Chief Executive Officer of the Federal Reserve Bank of Atlanta talk yesterday before the Greater Miami Chamber of Commerce.
“Commercial real estate
While historically smaller than residential real estate, commercial real estate (or nonresidential structures) accounts for a not-insignificant portion of the American economy—at least 4 percent of GDP directly and perhaps more, depending on estimates. Also, commercial real estate is important to the financial sector. And a rejuvenated financial sector is essential for economic recovery.
There are currently some $2.5 trillion of commercial property loans on the balance sheets of financial institutions and in commercial mortgage-backed securities (CMBS) markets. In contrast, residential mortgage debt amounts to about $11 trillion.
Some 25 percent of commercial real estate debt is securitized, compared with 60 percent of outstanding home mortgage debt. The volume of CMBS has more than doubled since 2003, a bit faster than the growth of overall commercial real estate debt.
There are several subsectors of commercial real estate: retail, office, hotel, and industrial. All are facing problems. There is a growing imbalance of retail space for several reasons. A lot of new retail space was added in areas that saw a high level of home construction, much of which has not been absorbed. This imbalance is aggravated by general weakness in the retail industry. Established retail centers are seeing rising vacancy rates. When an anchor tenant leaves a shopping center, or overall occupancy falls below a threshold level, other tenants are often free to cancel their leases. Industry data indicate that abandoned retail store expansions and store closings have reached levels not seen since the recession and real estate slump of 1991–92. The hotel subsector is facing excess supply in the face of soft demand. Occupancy rates declined about 8 percentage points in the fourth quarter of 2008, according to industry sources. Summer tourism was hurt by high gas prices, and now business travel is declining as companies scale back in a weak economy. Also, with the decline in the economy and rising unemployment, office and industrial vacancies have been rising. In virtually all segments of commercial real estate, there is downward pressure on property values because of new construction coming on stream—construction started before the recession fully set in—coupled with the effects of the economic downturn.
Interestingly, the only property type currently withstanding downward pressures is warehouse. This seems to be, perversely, at least partly because of the back-up of inventories resulting from weak consumer spending and adverse retail and manufacturing conditions.
Financing pressures
Given eroding demand for commercial space, financing pressures in commercial real estate are cause for concern. Vacancy, property value, and financing are connected, of course. Banks are a primary source of construction financing for commercial properties. Various financing models have evolved. The largest construction loans on “trophy properties,” for example, are typically syndicated among very large banks with equity provided by institutional investors. When construction is completed and the property’s operating cash flow has stabilized, the loan is placed with an investment fund, with an institutional investor, or in the CMBS market. For other large properties, banks lend for the construction of new projects or to refinance existing loans and then look to the CMBS market to provide the longer-term funding. For smaller properties, many regional and community banks do not use the CMBS market on a regular basis, often keeping the mortgages on their books. The National Association of Real Estate Investment Trusts estimates that about $400 billion of commercial mortgages are set to mature this year, raising concern about maturity defaults. Commercial real estate finance challenges could further complicate efforts to stabilize the banking system and credit markets. Banks that financed the construction of commercial properties may end up keeping those loans if the properties cannot achieve the cash flow needed to service new permanent debt. Loans maturing face a CMBS market that virtually shut down in the latter part of 2008 and a banking industry that is already saddled with bad assets from the residential sector.
http://www.frbatlanta.org/invoke.cfm?objectid=D1FC8CAD-5056-9F12-1237784165295FC0&method=display
The Monster February employment index was up 4 points from January’s to 122 but still well below December’s 131.
http://www.nasdaq.com/asp/econodayframe.asp?page=http://anasdaq.econoday.com/byweek.asp?cust=nasdaq
U.S. chain store sales for February 2009 were down 0.1 percent on a year-over-year same-store basis, according to ICSC’s index. “Although Wal-Mart may have been the poster child of February’s relatively better-than-expected industry sales performance, there was a slightly broader industry improvement for the month,” said Michael P. Niemira, ICSC chief economist and director of research. “Moreover, the last four months show an increasingly less negative performance for the industry — which is an encouraging sign and one that ultimately will form a foundation for stronger sales performance later in the year,” he added. According to NASDQ research, “many chains, in comparison to prior months, were effusive in their description of business conditions with some describing traffic as strong. Warm weather late in the month helped apparel retailers. But many department-store chains, especially those on the high-end, report increasing contraction.
http://www.nasdaq.com/asp/econodayframe.asp?page=http://anasdaq.econoday.com/byweek.asp?cust=nasdaq
http://www.icsc.org/srch/apps/newsdsp.php?storyid=2488®ion=main
The delinquency rate for mortgage loans on residential properties rose to a seasonally adjusted rate of 7.88 percent of all loans outstanding as of the end of the fourth quarter of 2008, up 89 basis points from the third quarter of 2008, and up 206 basis points from one year ago, according to the Mortgage Bankers Association’s National Delinquency Survey. “Foreclosure inventory jumped sharply in the fourth quarter even though the rate at which loans were entering foreclosure remained unchanged,” said Jay Brinkmann, MBA’s Chief Economist and Senior Vice President for Research and Economics. “This is mainly attributable to various state and local moratoria on foreclosure sales, the Fannie Mae and Freddie Mac halt on foreclosure sales announced in late November, a general reluctance by servicers to proceed with evictions in the last few weeks of December and a slowing down caused by an overburdened legal process in some areas.”
“The rate of new foreclosures has remained essentially flat for the last three quarters of 2008. This might be seen as a good sign for mortgage performance, but most other measures point to exactly the opposite conclusion. The percentage of loans 90 days or more past due jumped sharply in the fourth quarter. Normally servicers would have initiated foreclosure actions on a significant portion of these loans but delayed doing so for a variety of reasons, including working on loan modifications, complying with the guidelines of different investors, and various delays in different locales. In addition, some servicers report a spate of borrowers running their accounts 90 days delinquent in order to qualify for certain modifications,” Brinkmann said.
“Subprime ARM loans and prime ARM loans, which include Alt-A and pay option ARMs, continue to dominate the delinquency numbers. Nationwide, 48 percent of subprime ARMs were at least one payment past due and in Florida over 60 percent of subprime ARMs were at least one payment past due.
“The delinquency rates continue to climb across the board for prime fixed-rate and subprime fixed-rate loans, loans whose performance is driven by the loss of jobs or income rather than changes in payments,” Brinkmann said.
http://www.mbaa.org/NewsandMedia/PressCenter/68008.htm
Jobless filings moderated in the latest weekly data to indicate an easing in labor market contraction. First-time claims totaled 639,000 in the Feb. 28 week, down from a revised 670,000 in the Feb. 21 week. Data on continuing claims show a 14,000 dip for the Feb. 21 week.
http://www.nasdaq.com/asp/econodayframe.asp?page=http://anasdaq.econoday.com/byweek.asp?cust=nasdaq
GE CFO Keith Sherin rebutted the rumors, saying the company has an “incredibly strong liquidity position, including $45 billion in cash. We have no triggers that we can see that would have any call on our cash in the short-term; and we have $60 billion of additional capacity available under the Temporary Loan Guarantee Program (TLGP). We’ve done 70% of the long-term debt we need for this year, and we’re going to complete the remainder of 2009’s funding needs in the near future. We have the capacity under TLGP to complete 2010’s funding needs as well.
Mr. Sherin said he expects the financial services business to be profitable for the first quarter and full-year 2009, and he addressed questions on the Company’s position on cash generation and loss reserves: “Over a three-year period here, we expect GE Capital to be profitable, even after $35 billion of losses and impairments. We’re looking today for GE’s total cash flow to be around $16 billion for the year. In our stress case we could be down in the $14 billion level. In either scenario, we can fund the company. If conditions were to deteriorate beyond what is in our stress scenario, we also have the option of scaling back originations in GE Capital to conserve cash and capital.”
Mr. Sherin corrected some of the inaccuracies circulating in the market, including the rumor the Company has $45 billion in commercial mortgage backed securities (CMBS) that will need to be marked down, “I have no idea where that comes from. We don’t have $45 billion in CMBS. We have a $50 billion commercial real estate loan book. It’s a senior secured position and we underwrite each individual property. We have about $34 billion of equity. That’s the actual value of the properties, with over 80% of that with no third party debt.” The Company has $2.9 billion of CMBS in its investment portfolio, as reported in its 2008 10-K.”
http://www.genewscenter.com/Content/Detail.asp?ReleaseID=6226&NewsAreaID=2&MenuSearchCategoryID=
Kaspar Villiger is nominated for election as Chairman of the UBS Board of Directors, replacing Peter Kurer, who has decided not to stand for re-election.
http://www.ubs.com/1/e/investors/releases?newsId=162754
Sources: Department of Labor, The Federal Reserve, The Census Bureau, The Wall Street Journal, UBS, NASDAQ, GE, MBAA, ICSC websites.