S&P 500: -37.21 (-4.28%)
Bank of America (BAC) -24.34%
Bank of America reported profit that topped estimates, but the focus was on its comments that “credit is bad and we believe credit is going to get worse before it will eventually stabilize and improve.”
The bank’s net income tripled, but most of the revenue came as a result of its Merrill Lynch acquisition. The company posted worsening ratios in terms of charge-offs (rose to 2.85 percent from 1.25 percent), credit-card losses (rose to 8.62 percent from 5.19 percent), and nonperforming assets (rose to $25.7 billion, up 41 percent).
Bank of America isn’t the first bank whose earnings were of low quality (see Wells Fargo and Goldman Sachs). As we have said before, these earnings are simply not repeatable and the financial sector still faces obstacles on its road to recovery.
On the bright side, fears that the government will nationalize troubled banks and wipe out existing shareholders have subdued. For this reason it seems unlikely that the major banks will revisit their recent lows. Of course, Uncle Sam continues to be a very active shareholder and it’s hard to see that changing anytime soon.
Eli Lilly & Co (LLY) -2.25%
Eli Lilly beat profit expectations and reiterated its 2009 earnings target. The main driver of the earnings upside was a nearly 700 bps increase in gross margins to 83.8 percent of total revenue, helped by a stronger dollar. Revenue increased 5 percent on higher volumes and higher prices.
Lilly’s long-term future is uncertain as the company faces U.S. patent expirations early next decade on two of its top selling drugs Zyprexa (antipsychotic) and Gemzar (cancer). At this point, the pipeline is does not have enough late-stage drugs to offset these patent losses, but the company wants to avoid large-scale acquisitions.
International Business Machines (IBM) -0.83%
After the market closed, IBM reported earnings that beat estimates and reiterated 2009 guidance. It looks like IBM’s mix of services contracts and wide-margin software business largely offset slumping sales of servers and a strong U.S. dollar.
The conference call is just getting started, so I will get you more details in my next post.
Quick Hits
Peter Lazaroff, Junior Analyst
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