Bank of America (BAC) -13.70%
In advance of their scheduled earnings release date, Bank of America reported terrible fourth quarter results and received an additional $20 billion from the U.S. government under the TARP. The government will receive preferred stock carrying an eight percent dividend rate and has agreed to a loss sharing program on $118 billion in selected capital. Under the agreement, Bank of America would cover the first $10 billion in losses and the government would cover 90 percent of any subsequent losses.
Revenues rose 22.5 percent year-over-year to $15.68 billion, but were well short of the $20.72 billion consensus. Credit costs were steep for BAC at $8.54 billion, which includes boosting its reserves by $3 billion – nearly double estimates as the consumer credit environment continues to deteriorate. Bank of America ended 2008 with a Tier 1 capital ratio of 9.15 percent.
Bank of America said that fourth quarter results were driven by escalating credit costs, including additions to reserves, and significant write-downs and trading losses in the capital markets businesses.
In light of continuing severe economic and financial market conditions, Bank of America slashed its dividend to $0.01 per share from $0.32 per share.
Intel (INTC) +3.39%
The cyclical slowdown in business conditions in the chip sector clearly weighed on Intel’s results in the quarter. Volume was significantly lower as the health of the computer industry has been deteriorating with cutbacks in spending from consumers and corporations.
Sales of Intel’s Atom chips, which are targeted at the rapidly emerging netbook segment of the PC market, grew 50% sequentially, to $300 million. The growth in sales of Atom chips directly affected Intel’s profitability, as the gross margin came in at 53.1 percent versus 58.9 percent in the third quarter.
There is a lot of concern that the Atom processor may cannibalize demand for Intel’s mainstream processor products, which are more profitable for the company, as consumers opt for low-cost netbooks over notebooks and desktops in the PC market. However, these fears are overblown since netbooks offer limited processing power and less functionality, and thus are not a viable substitute for PCs. This is not to talk down the importance of these chips to a huge new market for Intel, as the lower price points for netbooks and Atom processors allow the firm to sell chips to a significantly larger portion of the worldwide population that presently cannot afford mainstream computers.
Intel did not repurchase any shares during the quarter as the company focused on preserving cash in the current challenging environment. However, dividends remain untouched and management expects to continue using share buybacks as part of the company’s long-term capital structure strategy.
While a supply chain correction, inventories, utilization levels and slowdown in PC demand will dominate near-term concerns, the company remains well positioned structurally to benefit from:
- Accelerating PC growth especially in emerging markets;
- Market share gains in entry level PCs (Atom) and high-end servers (Nehalem);
- Higher margin 32 nm products in 2010; and
- Manufacturing, cost and competitive advantages over competition.
Johnson Controls (JCI) -5.04%
Johnson Controls reported disappointing results for its first fiscal quarter and issued an outlook that expects the trouble to continue. The loss was $1.02 a share for its first quarter ended in December, but the company said its first quarter is typically the weakest and generates the smallest portion of annual earnings.
Johnson Controls, with about 58 percent of revenue from automotive products in the quarter, booked fewer orders as automakers cut output in North America, Europe and Asia to cope with a worldwide recession. Softness in the global construction markets reduced sales for the supplier’s building division, which makes heating and cooling equipment and contributed 42 percent of sales.
Johnson Controls is working to close 21 plants this year to counter global auto production cuts that include a 23 percent reduction in North America in the final three months of 2008.
Johnson Controls said its first quarter is typically the weakest and generates the smallest portion of annual earnings.
Quick Hits
Peter Lazaroff, Junior Analyst
No comments:
Post a Comment