It was another rough day for companies reporting earnings. In addition, there was bad news in jobs, autos, unemployment claims, housing, defense contractors, and chipmakers. Here is a recap of news headlines from the past two days.
Capital One Reports 2008 Net Loss of $.21 Per Common Share (Diluted), Including Goodwill Impairment; 2008 Earnings of $2.28 Per Common Share From Continuing Operations
The company added $1.0 billion to allowance for loan losses in anticipation of increasing charge-offs in 2009. Allowance as a percent of reported loans increased 90 basis points in the fourth quarter of 2008 to 4.5 percent.
The company recognized an $810.9 million non-cash impairment of goodwill in conjunction with its revised outlook for its Auto Finance business.
Capital One like Fifth Third and Keycorp is hiding behind the goodwill game See Fifth Third, Huntington, Keycorp Report Huge Losses for details. Calculated Risk notes that “Strikingly high FICO customers” Are Defaulting. This does not portend well for the card industry at all.
EBay Inc., the world’s biggest Internet auctioneer, fell in Nasdaq trading after giving a first- quarter forecast that was less than analysts’ estimates and saying the value of goods sold on its Web site declined.
First-quarter earnings will be 32 cents to 34 cents a share, EBay said yesterday after markets closed. That compared with the 39-cent average estimate of 17 analysts surveyed by Bloomberg. EBay dropped $1.61, or 12 percent, to $11.67 at 4 p.m. New York time in Nasdaq Stock Exchange composite trading, its biggest decline in three months.
“The buyer side of the equation has been deteriorating,” said John Aiken, an analyst at Majestic Research LLC in New York. “They’re not immune to the economy.”
Gross merchandise volume, the value of all goods that users sold on EBay’s sites excluding vehicles, fell 12 percent to $11.5 billion, the second drop in the company’s history.
Revenue from its Skype Internet telephone unit climbed 26 percent to $145 million, EBay said. Skype added 35 million users in the quarter, and now has more than 405 million.
New-home construction plunged to an all-time low in December, capping the worst year for builders on records dating back to 1959.
The Commerce Department reported Thursday that construction of new homes and apartments fell 15.5 percent to an annual rate of 550,000 units last month. That shattered the previous low set in November.
It was a much weaker showing than the pace of 610,000 that economists were forecasting and ended 2008 on a dismal note.
For all of last year, the number of housing units that builders broke ground on totaled just over 904,000, also a record low. That marked a huge 33.3 percent drop from the 1.355 million housing units started in 2007. The previous low was set in 1991.
The report also showed that applications for building permits — considered a reliable sign of future activity — sank to a rate of 549,000 in December, a 10.7 percent drop from the previous month.
British Gas is cutting its gas prices by 10% – the first major energy company to announce a price reduction since 2007.
The cut will take effect on 19 February and benefit more than 7.5m homes on British Gas’s standard tariff, the company’s parent Centrica said today. The reduction will save customers £84 on an average annual household gas bill. Customers who pay by direct debit will see their payments automatically reduced by 10%.
Consumer groups welcomed the move but said it was not enough. “The 10% cut, although very welcome, doesn’t bring us anywhere near where we were a year ago,” said a spokesman for Age Concern. “Prices are still considerably higher.”
British Gas raised its prices by 35% in July after wholesale energy costs surged. Crude oil peaked at more than $147 a barrel in July. Since then, prices have fallen sharply, with the economic slump reducing demand for energy. Crude now trades at around $35 a barrel.
British Gas locked in prices for delivery prices too high. Over time prices will continue to drop.
The yen traded near a record high against the pound as speculation that the deepening financial crisis will force the British government to nationalize banks boosted the haven appeal of Japan’s currency.
Sterling erased its decline yesterday against the dollar after touching the lowest since Margaret Thatcher was prime minister as equities climbed and Reuters reported the Group of Seven may discuss the pound’s slump. The dollar dropped to the lowest versus Japan’s currency since 1995 as traders quit buying the greenback to prevent it from sliding below 90 yen after options contracts expired.
“We have seen significant selling off of sterling in the past couple of days after the U.K. banking system came into its problems,” said Henrik Gullberg, a strategist in London at Deutsche Bank AG, the world’s biggest foreign-exchange trader. “Dollar-yen had been remarkably stable at 90 for some time.”
Average art prices at auction will drop by as much as 40 percent this year as many art speculators exit the market, said Daniel Komala, president and co-founder of Jakarta-based Larasati Auctioneers.
Larasati holds its next sale in Singapore on March. Its previous sale in the city on Oct. 11 raised S$2.1 million, less than the S$2.5 million predicted. A third of the lots offered didn’t find buyers.
“Now the game is back to the more experienced buyers,” said Komala at a media lunch in Singapore today. “You will see less speculators in the market — this is the survival of the fittest.”
Art auction houses including Christie’s International and Sotheby’s, the two biggest, have missed estimates in the past three months as the global credit crisis and falling stock markets curbed buyers’ interest.
San Francisco Bay Area home prices fell 44 percent last month from a year earlier as foreclosures accounted for a record half of all deals on existing properties, MDA DataQuick said.
The median price declined to $330,000 from $587,500 in the nine-county region, the San Diego-based real estate research company said today in a statement. Sales jumped 36 percent from a year earlier.
California led the U.S. in foreclosures last year with more than a 500,000 filings, RealtyTrac Inc. said last week in a report. Banks owned a record $11.5 billion of repossessed homes at the end of the third quarter and accounted for almost half of all purchases in November.
“Half of the resales were foreclosures,” MDA DataQuick analyst Andrew LePage said in an interview. “That says nothing about the number of sales sold under the threat of foreclosure, or some sort of distressed situation.”
Toyota Motor Corp. ended General Motors Corp.’s 77-year reign as the world’s largest automaker after avoiding the worst of the meltdown in global auto demand.
GM’s 2008 sales fell more than 11 percent to 8.35 million vehicles, according to a company statement today. Toyota posted a 4 percent drop to 8.92 million.
Toyota seized the crown after boosting sales 70 percent since 1999 on demand for fuel-efficient cars. Still, bragging rights may do little to revive growth amid a recession that has forced the company to forecast its first operating loss in 71 years and spurred Detroit-based GM to seek a government bailout.
“The collapse of auto sales in the U.S. completely trumps any joy Toyota may have taken in being the world’s largest automobile manufacturer,” AutoNation Inc. Chief Executive Officer Mike Jackson said in a Bloomberg Television interview. “The auto industry is in turmoil.”
Demand is still shrinking, with U.S. industrywide sales in January possibly falling to an annualized rate of fewer than 10 million vehicles because of fewer fleet purchases, GM’s chief sales analyst, Mike DiGiovanni, said today on a conference call. That compares with 13.2 million units in 2008 after an annual average of about 16 million during the past decade.
Bernard Madoff’s customers may recoup more of their investment losses by using tax strategies than by suing the man accused of bilking them in a $50 billion Ponzi scheme or his bankrupt firm.
“If they invested a lot, then they could possibly recover 40 percent of everything” through U.S. and state tax laws, Micah Bloomfield, a tax specialist at New York law firm Stroock & Stroock & Lavan LLP, said.
U.S. tax law allows Madoff’s customers to take income deductions for losses caused by theft if they prove their money was stolen, Bloomfield said. Madoff’s alleged estimate of the size of the fraud didn’t specify if it included principal or how much was lost by charities not subject to taxation.
The number of newly laid-off Americans filing jobless claims and the pace of home construction both posted worse-than-expected results in government data released Thursday, lending urgency to the economic recovery plan President Barack Obama and Congress are scrambling to advance.
The latest batch of economic news cemented fears that the recession, already in its second year, will drag on through much of 2009.
The reports “paint a bleak economic landscape ahead,” said Stuart Hoffman, chief economist at PNC Financial Services Group.
And the furious pace of layoffs continued Thursday, with Microsoft Corp. saying it will slash up to 5,000 jobs over the next 18 months. Chemical maker Huntsman Corp. will ax 1,175 jobs this year and will get rid of an additional 490 contractors. Those — as well as other employers — have seen customer demand wane and are cutting costs to survive the fallout.
The Commerce Department reported that new-home construction plunged 15.5 percent in December to an annual rate of 550,000 units, an all-time low, capping the worst year for builders on records dating back to 1959. Last month’s performance was weaker than economists expected, and shattered the previous record low set in November.
“The extent of the decline was breathtaking,” said Joel Naroff, president of Naroff Economics Advisors. “Home builders were simply sitting around watching the grass grow, and conditions are not likely to change soon.”
Leonard Barnes, Port of Grays Harbor deputy director, counted the rows and rows of shiny new Kia vehicles as thousands were parked in neat lines along Marine Terminal 4.
“This space used to be all logs,” he said.
From more than a dozen stories up on the bridge of the massive Morning Menad, Barnes looked down last week on the first shipment of automobiles to unload in Grays Harbor.
“We’re very excited,” Barnes said.
Far below, longshore workers bustled, zipping back and forth to retrieve and place almost 3,200 new Kia cars and sport-utility vehicles into carefully measured rows.
Barnes said the Port had been working to attract auto dealers for years, and finally broke through with the Pasha Group as excess inventory forces automakers to find new storage space.
The shipment out of South Korea was directed to Grays Harbor at the last minute last Wednesday.
Barnes is excited over essentially bad news. The only reason Port of Grays Harbor got that business is there is absolutely no place else to put them. I predict manufacturer direct sales to clear this inventory. Dealers will scream but it will not do them any good.
Where You Won’t Shop in 2009
While industry executives and shoppers will remember 2008 as the year the party ended, figure 2009 to be the year of the hangover. Already, Circuit City, Linens ‘N Things and Mervyn’s stores are going away. Sharper Image is too, though the company will continue to sell some of its high-end gadgets through license agreements with other retailers.
More pain is on the way. One-third of U.S. women recently surveyed by America’s Research Group said they plan no clothing purchases–none–in 2009. Normally, it’s just 4%. That means the market is still far too saturated with stores.
“I don’t think we will live the same way for 10 years,” says Howard Davidowitz, chairman of New York-based retail consultant and investment bank Davidowitz & Associates. “People are so scared they’re starting to save.”
Retailers at risk in 2009, he thinks, include outerwear specialist Eddie Bauer and teen-apparel-seller Pacific Sunwear, along with Zales, the big jewelry chain. All three shuttered at least 8% of their U.S. stores last year, with many more closings expected. The same is largely true of Charming Shoppes, the owner of Lane Bryant, which closed 150 stores last year. With a mountain of debt and losses totaling over $260 million over the most recent 12-month reporting period, the company will close another 100 locations this year.
Lockheed Martin Corp. said 2009 profit will be lower than forecast on rising pension costs, while Northrop Grumman Corp. will report a net loss for 2008 after taking a charge of as much as $3.4 billion to write down the value of acquisitions.
Lockheed, the biggest U.S. defense contractor, slashed its 2009 earnings forecast by more than 60 cents to a range of $7.05 to $7.25 a share, after falling stocks eroded benefit plan assets. Northrop’s falling shares triggered a non-cash, after-tax charge of $3 billion to $3.4 billion to reduce the value of purchases made in 2001 and 2002, the company said today in a statement.
Lockheed’s pension plan lost 28 percent of its value last year as the Standard and Poor’s 500 Index plunged 38 percent in the market’s worst annual drop since the Great Depression. Lockheed said in a statement that it faces $470 million in pension costs this year, more than seven times its prior projection of $60 million. Such costs may pose a bigger problem for Northrop than the declining book value of eight-year-old acquisitions.
“Given the size of the 2009 pension obligation that Lockheed Martin announced today, we remain more concerned about pension obligations going forward than writedowns attributed to goodwill” at Northrop, Rob Stallard, a New York-based analyst with Macquarie Research Equities, wrote in a report today. He rates shares of both companies “outperform.”
Goodwill charges are popping up everywhere, and will continue to do so.
Intel plans to close five factories worldwide this year — including Fab 20, an aging semiconductor factory on its Ronler Acres campus in Hillsboro — as the chip maker ratchets back production in the face of a spectacular decline in sales.
The move, announced this afternoon, will eliminate hundreds of production jobs amid a historic downturn in Oregon’s economy. Manufacturing, as a percentage of the state’s total work force, is already at an all-time low.
Between 5,000 and 6,000 positions will be eliminated globally, including 1,000 at Fab 20 in Oregon.
Intel admitted it had become bloated and eliminated nearly 20,000 jobs companywide over the next two years, including about 2,500 in Oregon, as it refocused on its core microprocessor business. Intel’s Oregon work force stabilized at about 15,000 early in 2008, and has remained at roughly that level since.
Oregon’s unemployment rate jumped a full percentage point in December, hitting 9 percent, compounding misery and shattering records as far back as 1976.
The seasonally adjusted figure — the highest in more than 23 years — could well increase further, economists said Tuesday. The recession is dealing Oregon one of the highest unemployment rates in the country, which had a 7.2 percent jobless rate in December.
More than 174,000 Oregonians were unemployed last month, the most since January 1983. December’s 1 percent unemployment-rate jump from November’s revised 8 percent level was the biggest since at least 1976, when officials began keeping comparable records.
Shanghai-headquartered automaker SAIC Motor Corp. warned Friday its profit for 2008 may be more than halved because of slowing sales growth and losses related to its investment in South Korea’s Ssangyong Motor Co.
Earlier this month Ssangyong Motor suspended production at factories and filed for bankruptcy protect with a South Korean court.
Samsung Electronics, the world’s biggest chip-maker, has recorded its first-ever quarterly loss. Prices of the South Korean firm’s core products – memory chips and liquid crystal displays (LCDs) – have plunged alongside global demand.
Samsung’s loss follows a profit warning from Japan’s electronics giant Sony and other tech firms, Microsoft and Nokia.
I was looking for good news today but other than Google delivering a decent quarter (although having its first-ever decline in quarterly profit, there simply was not much good news to be found. This is not a case of nowhere to go but up. Jobs, credit card writeoffs, commercial real estate, Alt-A loans, and foreclosures are a long ways from bottoming.
Mike “Mish” Shedlock
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