Wall Street Breakfast: Must-Know News

• UAL snubs US Air, reopens talks with Continental. Sources say United parent UAL (UAUA) broke off merger talks with US Airways (LCC) yesterday after realizing US Air labor contracts would destroy much of their anticipated synergies. It then reentered talks with Continental (CAL), which has already rejected it as a merger partner, to discuss the possibility of boosting its cross-Atlantic presence by selling fares on Continental's international routes. Continental has previously been courted by AMR's American Airlines (AMR) and British Airways (BAIRY.PK).
• CFTC probes for oil infractions. In a surprise announcement, the CFTC said it has been probing oil futures trading since December. "The commission is taking the extraordinary step of disclosing this investigation because of today's unprecedented market conditions," it said.It also annouced initiatives to increase market transparency, including steps that will help it monitor funds that track the price of oil and other futures. Former Fed Chairman Alan Greenspan estimates speculators have added $10 to the price of oil; others put the figure at $20. The acknowledgement of the probe seems to lend some validity to ongoing rumors of price manipulation.
• Dell turns the corner? Dell's (DELL) Q1 results came in ahead of consensus estimates, fueling hope its restructuring efforts are taking hold. Earnings rose 3.7% to $784M ($0.38/share), better than the $0.34 analysts expected. Sales rose 9% to $16.08B. Server shipments were up 21%, and laptop shipments jumped 43%. Shares rallied 9.9% in extended trading to $24.14.
• Swiss bank lives up to its name? Swiss banking giant UBS (UBS) frequently teamed up with Liechtenstein bankers to help wealthy U.S. citizens evade taxes, a DoJ probe reveals. Yesterday former UBS executive Bradley Birkenfeld said he would plead guilty to tax fraud and cooperate with the DoJ. UBS is discussing a settlement under which the DoJ could solicit the names of UBS's American clients from the Swiss government.

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• Tiffany not a LVMH target. Contrary to speculation, French high-end jeweler LVMH is not interested in Tiffany (TIF), saying it's too expensive, and that LVMH only covers the high-end while Tiffany is both middle- and high-end.
• Red flags at Ford Credit. Delinquencies are rising at Ford's (F) Motor Credit unit - and some borrowers owe more than their cars are worth. The unit's troubles stem largely from aggressive leases and loans it used to entice customers to buy new trucks and SUVs. Ford initially thought the unit would earn $1.2B in 2008, but that was before its tepid $36M profit in Q1. Over the past two months, Ford Credit has also borrowed $1.1B in high-interest debt and another $5.3B in secured loans.
• Moody's sacks CIT. Moody's downgraded battered lender CIT Group's (CIT) long-term rating one level to Baa1. CIT took issue with the decision, in light of its recent moves to strengthen its balance sheet and boost liquidity. Moody's said potential mortgage losses remain, "a significant impediment to the firm re-establishing solid footing in the credit markets."
• Harris Corp. fields bids. Electronics and defense firm Harris Corp. (HRS) is selling itself, and has received bids in the $70-range. It is looking for $75-80. Possible bidders include General Dynamics (GD) and Northrop Grumman (NOC).
• So long Bear. Bear Stearns (BSC) shareholders signed off on JPMorgan's (JPM) $10/share buyout. "That which doesn't kill you makes you stronger. By now we all must be Hercules," BSC CEO Alan Schwartz said. "I personally apologize," Chairman Jimmy Cayne said in his first public comment in months. "Words can't describe the feelings that I feel." 84% of shareholders approved the deal.
• BP Russia dispute escalates. BP's (BP) Russian JV partners demanded it remove the unit's CEO, Robert Dudley, and was rebuffed. The three billionaires who own the other 50% of TNK-BP say Dudley is favoring BP. Industry watchers are anxious to see whether the Kremlin will move to have state-controlled Gazprom take over the Russian stake, or whether it is indeed interested in foreign investment after years of confrontation with non-domestic firms like Shell (RDS.A). TNK-BP is Russia's third biggest oil producer.
• Inflation worries in EU. Eurozone inflation bounced back to 3.6% after backing off to 3.3% in April. It's at its highest since at least 1996. The EU executive sees the economy growing at only 1.6% this year.
• Q1 GDP revised upward.As expected, the Commerce Department upward-revised its Q1 GDP estimate to 0.9% from 0.6%, bringing 12-month growth to 2.5%. Exports were up 2.8%, while imports fell 2.6%.
• Initial claims came in at 372,000 vs. 368,000 last week.

Earnings: Thursday After Close

• Dell (DELL): Q1 EPS of $0.38 beats consensus of $0.34. Revenue of $16.08B v.s consensus of $15.68B. +9.9%.
• Heico (HEI): FQ2 EPS of $0.44 beats consensus of $0.42. Revenue of $144M vs. consensus of $140M. +2.8%.
• J. Crew (JCG): Q1 EPS of $0.48 just beats consensus of $0.47. Revenue of $341M vs. consensus of $335M. Sees Q2 EPS of $0.31-0.33, short of consensus of $0.40. Sees 2008 EPS of $1.70-1.75, short of consensus of $1.86. -17.8%.
• Marvell Tech (MRVL): Q1 EPS of $0.24 beats consensus of $0.13. Revenue of $804M vs. consensus of $784M. Sees Q2 revenue of $830-840M vs. consensus of $814M. +15.8%.
• Novell (NOVL): FQ2 EPS of $0.06 just beats consensus of $0.05. Revenue of $236M vs. consensus of $233M. +0.3%.
• OmniVision (OVTI): FQ4 EPS of $0.27 misses consensus of $0.32. Revenue of $169M vs. consensus of $177M. Sees FQ1 EPS of $0.27-0.40, short of consensus of $0.36, and revenue of $170-190M vs. consensus of $191M. -7.9%.
• The Wet Seal (WTSLA): Q1 EPS of $0.09 beats consensus of $0.07. Revenue of $142.4M vs. consensus of $141.9M. Sees Q2 EPS of $0.08-0.10, better than consensus of $0.07. +1.4%.

Earnings: Friday Before Open

• DRS Tech (DRS): FQ4 EPS of $1.36 beats consensus of $1.20. Revenue of $939M vs. consensus of $874M.
• Tiffany (TIF): Q1 EPS of $0.50 beats consensus of $0.40. Revenue of $668M vs. consensus of $649M. Sees 2008 EPS of $2.80-2.90, better than consensus of $2.73.

Today's Markets

• Asia markets Friday: Nikkei +1.52% to 14,339. Hang Seng +0.61% to 24,533. Shanghai +0.94% to 3,433. BSE +0.18% to 16,345.
• Europe at midday: FTSE +0.07%. CAC +0.44%. DAX +0.50%.
• U.S. futures are up slightly. Dow +0.27%. Nasdaq +0.4%. S&P +0.21%.
• Oil +0.13% to $126.80. Gold +0.79% to $884.

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Comments

[User 59050]

Thanks so much for this morning report. It makes me feel "informed". I appreciate your work.

[don miguel]

Yes....First report I look at in the morning.
Thank you!

[Mazel Tov]

Eli baby!!! You are the best!!!! Mazel Mazel...good things!!!!

[petyaczar]

IMO, the Morning report is one of the absolute best things going by way of market info.

First thing I read every morning before my morning coffee and cognac.

[notsosmart]

can anybody trust the euro inflation #s?

[TRUCKERBLUES]

Well, I don't have cognac with my coffee but I must say you are very informative.

[SA EditorEli Hoffmann]

Thanks for all the generous feedback. How do you like our real-time Market Currents home-page blog?

[petyaczar]

Trucker Blues,

If you were to have a cognac with your morning coffee. then perhaps the comments in the breakfast report would seem even more insightful - if that's possible.

good luck to you

[Lynn]

"Oil +0.13% to $216.80"

OUCH!

[SA EditorEli Hoffmann]

Thanks Lynn, fixed that typo.