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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Day Traders Diary

10/19/12

Today's session was dominated by the sellers as disappointing third quarter earnings continued to roll in. Equities opened lower, and spent the majority of the session sliding to fresh lows. The sell-off came to an end once the S&P 500 hit the 1,430 level 90 minutes ahead of the close. The index then staged a minor bounce during the final hour before closing with a loss of 1.7%.

The technology sector was the weakest performer, Advanced Micro Devices (AMD 2.18, -0.44) reported a loss of $0.20, which was $0.04 worse than the Capital IQ consensus estimate. In addition, the company's revenue of $1.27 billion was in-line with Capital IQ analyst expectations. Also of note, the second largest manufacturer of microprocessors issued downside guidance for the fourth quarter, and announced restructuring plans in order to improve profitability. AMD shares settled lower by 16.8%.

Marvell Technology (MRVL 7.56, -1.26) slid 14.3% after lowering its third quarter guidance. The company now expects revenue to fall between $765 million and $785 million. This is down from the previous range of $800 million to $850 million, and below the Capital IQ consensus estimate of $815.58 million. The management commented on the lowered expectations by saying that "the continued slowdown in the global economy during the third quarter is resulting in a weaker PC market than previously anticipated." The guidance cut was met with a slew of downgrades as Credit Suisse, Credit Agricole, JP Morgan, Lazard, Jefferies, Deutsche Bank, and FBR Capital all lowered their rating of the semiconductor manufacturer.

On the upside, SanDisk (SNDK 44.02, +1.16) advanced 2.7% after beating on earnings and revenues. The flash memory maker reported earnings of $0.48, which was $0.14 ahead of the Capital IQ consensus estimate. Meanwhile, the company's revenue of $1.27 billion was ahead of the $1.22 billion expected by the Capital IQ consensus. Additionally, Piper Jaffray upgraded the stock to 'overweight' from 'neutral' following the earnings release.

Looking at industrials, General Electric (GE 22.03, -0.78) slipped 3.4% after reporting earnings and revenues below Capital IQ consensus. However, the management noted that the company is performing well, and is on track to deliver double-digit earnings growth in 2012.

Caterpillar (CAT 83.86, -2.76) slid 3.2% after reporting a 6.0% increase in retail sales of machines during September. The rate appears to be slowing as sales growth during the previous two months was reported at 13.0% in August and 14.0% in July. Note that Caterpillar will report its third quarter results before Monday's open.

On the upside, freight carrier Forward Air (FWRD 32.54, +1.93) gained 6.3% after beating Capital IQ earnings estimates by $0.01, and reporting in-line revenue at $143.5 million. In addition, the company issued in-line guidance for the fourth quarter as it expects its earnings to fall between $0.48 and $0.52. Following the report, Wolfe Trahan upgraded the stock to 'outperform' from 'peer perform.'

Staffing firm ManpowerGroup (MAN 39.53, +3.55) surged 9.9% after beating top and bottom line expectations. In addition, the company raised its fourth quarter guidance above Capital IQ consensus.

Quick service restaurants saw weakness following disappointing earnings from McDonald's (MCD 88.72, -4.14) and Chipotle (CMG 242.97, -42.96).

McDonald's dropped 4.5% after its earnings of $1.43 fell short of the Capital IQ consensus estimate of $1.47. Meanwhile, the company's revenues were reported at $7.15 billion, which was in-line with the Capital IQ consensus.

Meanwhile, Chipotle plunged 15.0% after missing on both earnings and revenues. The management commented on the upcoming quarter by saying they do not expect food inflation to be an issue. Following the earnings report, Wedbush downgraded the stock to 'neutral' from 'outperform' with a $270 price target. Peers Buffalo Wild Wings (BWLD 83.92, -2.21), Panera Bread (PNRA 161.85, -7.69), and Starbucks (SBUX 45.68, -1.72) all registered losses between 2.6% and 4.5%.

The Dow Jones Transportation Average shed 1.4%, and outperformed the remaining industrials. Kansas City Southern (KSU 78.43, +1.05) was the lone advancer among the twenty transportation stocks. The rail operator settled higher by 1.4% after reporting earnings of $0.82, which was $0.03 below Capital IQ consensus estimates. Meanwhile, the company's third quarter revenue of $577.4 million was in-line with the Capital IQ consensus. Peers CSX (CSX 21.10, -0.26), Norfolk Southern (NSC 65.64, -1.06), and Union Pacific (UNP 123.77, -1.57) all lost between 1.2% and 1.6%.

Overseas Shipholding Group (OSG 3.25, -0.29) was the weakest transportation component. The oil tanker operator slid 8.2% after trading near its all-time low of $3.13.

Existing home sales for September hit an annualized rate of 4.75 million units, which is stronger than the rate of 4.70 million units that had been generally expected by the Briefing.com consensus. The pace for September is down from the prior month rate of 4.83 million units.

Third Quarter Earnings Season Enters Full Force

The first busy week of the Q3 earnings season has concluded, featuring many bellwethers in the financial, technology and industrial sectors. As expected, earnings are down year over year. Meanwhile, last quarter's trend of most companies beating earnings expectations and missing sales estimates has held up.

Banks once again came in with relatively solid results, due in part to the Fed's accommodations. Financials have reported modest sequential improvements amid meager economic growth.

However, disappointing reports from high profile, large cap names like Intel (INTC 21.26, -0.40), IBM (IBM 193.36, -1.60), Google (GOOG 681.79, -13.21), Microsoft (MSFT 28.64, -0.85), General Electric (GE 22.03, -0.78), and McDonald's (MCD 88.72, -4.14) have since stolen the headlines and added to bearish sentiment.

So far, earnings from the 117 companies in the S&P 500 that have reported third quarter results are down approximately 4.0% year-over-year. Roughly 63.0% have beat earnings expectations while only 38.0% of companies have beat sales estimates. At the same juncture last quarter, about 68.0% of companies had beat earnings expectations while 42.0% beat sales expectations.

Looking to next week, about 700 companies covered by Briefing.com are expected to report Q3 results, including more than 150 companies in the S&P 500. Apple (AAPL 609.84, -22.80) will report on Thursday afternoon.

All comments contained herein are for informational purposes only, and should not be considered as a solicitation to buy or sell any security. The firm does not guarantee the accuracy or completeness of the information or make any warranties regarding results from it's usage.