Positive earnings lift Wall St

Positive earnings lift Wall St
By Kiran Stacey in New York
Copyright The Financial Times Limited 2009
Published: April 24 2009 13:53 | Last updated: April 24 2009 15:30
http://www.ft.com/cms/s/0/ccc90590-304b-11de-88e3-00144feabdc0.html


Wall Street stocks opened higher on Friday as several companies finished the busiest week yet of earnings season with better results than expected.

The embattled car maker Ford announced a surprisingly narrow loss and a much slower rate of cash consumption than during the previous quarter. Alan Mullaly, the chief executive, told business channel CNBC that the company would increase auto production by 25 per cent during the second quarter.

This came days after Goldman Sachs said the company would be able to survive without a government bail-out and put it on its “conviction buy list”, and its shares jumped 17.8 per cent to $5.24.

This helped calm investors’ nerves, as Wall Street waited for details on what parameters the government had used for its stress tests on bank capital positions.

Analysts warned the uncertainty over both the parameters and results of the test could continue to dominate market sentiment. Nick Kalivas, an analyst at MF Global warned stocks could be driven more by rumours surrounding the financial system than earnings. “The details of the [banks’] stress tests are expected to be made available to banks today, but the final results are expected to be made public on May 4. The amount of information which will be provided or leaked to the public is unknown, and the market could be very rumour driven today,” he said.

All three major market measures gained 1.3 per cent by mid-morning, driven higher also by figures showing the stock of home for sales is starting to fall. The benchmark S&P index stood at 862.85 points, the Dow Jones Industrial Average was at 8,060.76 points and the Nasdaq Composite index was at 1,673.96 points.

Profits at American Express beat expectations. The company made 32 cents in earnings per share compared to predictions of 13 cents, and said it intended to repay government bail-out money. It also increased the amount of money put aside for future losses on bad loans. Its shares gained 6.1 per cent to $23.72.

This came a day after President Barack Obama met with managers from 13 credit-card companies to talk about ways to make their lending practices more transparent to consumers. That meeting triggered a rally in the sector on Thursday and several companies continued to rise on Friday morning. Discover rose 2.4 per cent to $8.71 while Visa picked up 0.5 per cent to $58.91.

Elsewhere in the financial sector, Prudential rose after Goldman Sachs upgraded the company sharply from a “sell” to a “buy”. Goldman said the risks of shareholder dilution as the company seeks more capital may be mitigated by cheap capital from the government to the sector. Prudential’s shares gained 4.2 per cent to $26.66 while fellow life insurer MetLife advanced 2.9 per cent to $28.66

Microsoft also rose after reporting results that were marginally ahead of consensus expectations. The company was able to balance its first ever decline in sales with cost cuts, and reported earnings of 39 cents per share. Its shares advanced 4.2 per cent to $20.13, having been given a further boost by Goldman Sachs, which upgraded the company to “overweight”, saying it is “ahead of plan on cost controls”.

Amazon, the online retailer, fell despite reporting strong results. The company attracted more customers to its website and to its ‘Kindle’ electronic book reader, helping drive revenues up 18 per cent, defying the consumer downturn. But its shares lost 0.7 per cent to $82.80 with investors apparently nervous over a lawsuit the company is facing over an alleged breach of patent.

But the online consumer sector was given a boost by Netflix. The online DVD rental company reported strong profits as customers continue to use the service as an inexpensive form of entertainment. Its shares picked up 1.1 per cent to $42.75.

Figures showing that orders for durable goods fell less than expected during March helped the materials sector perform better than any other on the S&P. This also helped industrial stocks despite some negative earnings news.

3M, the industrial company, reported disappointing earnings and revised downwards its full-year profit forecasts amid what Patrick Campbell, the company’s chief financial officer, has called “by far the most difficult quarter we have” had. But its shares gained 0.9 per cent to $55.27 by mid-morning.

Honeywell dampened sentiment in the sector however after the company cut its full-year profit outlook despite first quarter earnings that were in line with analysts’ estimates. The shares lost 6 per cent to $31.60.

Schlumberger, the energy company, also found gains, as it profits fell less than expected. Its shares rose 7.3 per cent to $50.33.

European stocks were higher early on Wall Street. The FTSE Eurofirst 100 index was 1.9 per cent up at 806.67 points. Asian equity markets closed mainly up, although the FTSE Asia-Pacific index was almost unchanged.

Bond yields were up, with the yield on the two-year Treasury note 2 basis points higher at 0.949 per cent and that on the 10-year Treasury note 6bp up at 2.979 per cent.

The dollar was up against major currencies early in New York, gaining 0.8 per cent against the yen to $0.0103.

Gold was trading $0.15 higher at $905.68 per troy ounce.

Oil prices were up early in New York, with US crude selling $1.33 higher at $50.95.