After Hours Summary: ANW +17% and SPKE +8% following earnings/guidance, CHK +6% on Barnett Shale news/production update.... SHAK -9% and FLO -4% following earnings/guidanceAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: KURA +49.1%, ANW +16.8%, LEU +14.8% (ticking higher), GURE +9.4%, SPKE +8.2%, AXU +6.4%, TPIC +5.2% (also TPI Composites extends and expands its long-term agreement with Nordex to continue to supply wind blades from its existing Izmir, Turkey manufacturing facility through 2020), DTRM +1.7%, BUFF +1.6%, SLW +0.6%
Companies trading higher in after hours in reaction to news: CHK +5.8% (Chesapeake Energy exits Barnett Shale, announces renegotiation of mid-continent gas gathering agreement; co sees 2017 adjusted production growth down 2-7%), LGF +2.1% (Lions Gate Entertainment Director disclosed purchase of 50K shares, worth total of ~$1.1 mln), WPZ +0.5% (Williams Partners confirms it has conditionally committed to execute a new gas gathering agreement with a new producer customer, a private company successor to Chesapeake Energy in the Barnett Shale), CLF +0.4% (Cliffs Natural Resources priced 44.4 mln Common Shares at a public offering price of $6.75 per share)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: SHAK -9%, WSTL -6.6%, FLO -4%, CHMA -1.8%, IMOS -1.1% (ticking lower), MXPT -0.9% (also announced strategic alliance with Adobe Audience Manager, the data management platform within Adobe Marketing Cloud), TARO -0.4% (light volume)
Companies trading lower in after hours in reaction to news: ALIM -11.7% (commences common stock offering for undisclosed amount), OMER -10.6% (commences 40 mln common stock offering), AMRN -10.2% (commences an underwritten public offering of its American Depositary pursuant to a shelf registration), FSP -4.6% (Franklin Street Properties announces underwritten public offering of 6,125,000 shares of its common stock), HCLP -3.7% (Hi-Crush Partners enters into contribution agreement with Hi-Crush Proppants to acquire Hi- Crush Blair ; commences primary public offering of 6.5 mln common units representing limited partnership interests in the Partnership), NRZ -1.2% (files mixed securities shelf offering; commences 20 mln common stock offering)
'..Shire edged 0.6 per cent lower to £50.75 amid continued speculation around Radius Health, a US-listed osteoporosis drugmaker with a market value of $2.2bn.
Radius was rumoured to have recently rejected a bid of about $70 a share from Shire, a premium of 37 per cent on Wednesday’s price, with Shire said to be weighing up whether to sweeten the offer by about $10 a share.
Roche, Pfizer and Amgen have also been linked with Radius, which has key trial data due next month.
>>> Up
*ADECCO RAISED TO NEUTRA ' AT MAIN FIRST BANK
*ARM HOLDINGS RAISED TO MARKET PERFORM AT BERNSTEIN
*CAMPARI RAISED TO BUY VS HOLD AT BERENBERG
*LIVERPOOL RAISED TO SECTOR OUTPERFORM AT SCOTIA
*RENTOKIL INITIAL RAISED TO ADD VS REDUCE AT ALPHAVALUE
>>> Down
*BRISTOL-MYERS SQUIBB CUT TO HOLD VS BUY AT BERENBERG
*HEIDELBERGER DRUCK CUT TO REDUCE VS ADD AT ALPHAVALUE
*JENOPTIK CUT TO HOLD AT HSBC
*TDC CUT TO HOLD AT NORDEA
*TEKFEN CUT TO HOLD AT HSBC
*TRAVIS PERKINS CUT TO UNDERWEIGHT VS EQUALWEIGHT AT BARCLAYS
>>> PT Change
>>> Initiation
>>> Call
Asian Mid-session Market Update: NZD jumps despite RBNZ rate cut amid focus on overheating housing and recovering inflation; BOK on hold in unanimous decision
***Economic Data***
- (NZ) NEW ZEALAND CENTRAL BANK (RBNZ) CUTS OFFICIAL CASH RATE 25 BPS TO 2.00% (RECORD LOW); AS EXPECTED
- (KR) BANK OF KOREA (BOK) LEAVES 7-DAY REPO RATE UNCHANGED AT 1.25%; AS EXPECTED
- (NZ) New Zealand Jul Food Prices M/M: -0.2% v +0.4% prior
- (AU) AUSTRALIA AUG CONSUMER INFLATION EXPECTATION: 3.5% V 3.7% PRIOR
- (SG) SINGAPORE Q2 FINAL GDP Q/Q: 0.3% V 0.8%E; Y/Y: 2.1% V 2.2%E; Narrows 2016 GDP target to 1-2% from 1-3% prior
***Index Snapshot (as of 04:30 GMT)***
- Nikkei225 closed, S&P/ASX -0.7%, Kospi -0.2%, Shanghai Composite +0.1%, Hang Seng +0.2%, Sep S&P500 +0.1% at 2,175
***Commodities/Fixed Income***
- Dec gold -0.2% at $1,349/oz, Sep crude oil -0.3% at $41.57/brl, Sep copper +0.3% at $2.18/lb
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.6255 V 6.6530 PRIOR; 3rd straight firmer fix; strongest Yuan setting since Aug 2nd
- (CN) PBOC to inject CNY100B in 7-day reverse repos
***Market Focal Points/FX***
- Asian equities are mixed in another thin market with Tokyo closed for holiday and little direction coming from the modestly negative day on Wall St. Gold and energy stocks in Australia and China suffered as those commodities fell, while financials/insurance names led the gainers in Hong Kong. FX market was more active given the rate decisions from New Zealand and South Korea - NZD/USD spiked up over 100pips above 0.73 despite the RBNZ rate cut amid expectations of inflation bounce in Q4 and BOK acknowledged some of the recent strengthening in KRW as part of its hold. In other FX majors, USD/JPY was up about 40pips above 101.40, AUD/USD fell about 30pips below 0.77, and GBP/USD returned below $1.30 in 25pip slide.
- RBNZ cut rates to new record low of 2.00% as widely expected in its 6th policy easing since 2015. In its accompanying policy statement, RBNZ added focus on house price inflation becoming "more broad-based across the regions, adding to concerns about financial stability." It deemed headline inflation remaining held back by negative tradables and lower CPI in the near term, but anticipated a rise from Q4 "reflecting the policy stimulus to date and the strength of the domestic economy." Traders interpreted that sentiment as a consideration of postponing future rate cuts, even though RBNZ specifically stated that "further policy easing will be required to ensure that future inflation settles near the middle of the target range." Central bank also updated its 2016-end CPI forecast to 1.0% from 1.3%, but kept its GDP target unchanged to slightly higher in the near term. Economists with ANZ forecast 2 more rate cuts in the easing cycle, ASB saw Nov or Sept cut depending on data, and Westpac said back-to-back cuts are still possible.
- Bank of Korea remained at 1.25% for the 2nd straight month after a surprise rate cut earlier this summer, though expectations of more easing down the line were sustained as Gov Lee acknowledged KRW strength in FX market. Inflation was seen at a low level in the near future before rising toward year-end. BOK also pointed to risks associated with the above-average in household leverage, and while the recent easing was deemed as positive to consumption, the impact has been less pronounced than in the past.
- In corporate news, Westpac reported its Q3 asset quality metrics remaining near cyclical lows and impairment charges to be below H1 average, but also saw a 37bp drop in CET1 ratio and higher insurance claims due to impact of storms. Telstra saw y/y growth on top and bottom lines, but shares traded slightly lower as EBITDA declined while Capex rose.
***Equities***
US equities / ADRs:
- ANW: Reports Q2 $0.32 v $0.23e, R$1.13B v $938Me; +19.1% afterhours
- CHK: Agrees to exit Barnett Shale, asset to be acquired and operated by PE firm First Reserve; announces renegotiation of mid-continent gas gathering agreement; +5.6% afterhours
- IMOS: Reports Q2 $0.02 (unclear if comp**) v $0.12e, R$146.7M v $147Me (2 est); -1.1% afterhours
- SHAK: Reports Q2 $0.14 v $0.13e, R$66.5M v $63.3Me; -9.5% afterhours
- VRX: Said to be under criminal investigation in the US for allegedly defrauding insurers about Philidor - financial press; -12.5% afterhours
Notable movers by sector:
- Consumer discretionary: KEE Holdings Co 2011.HK +5.6% (profit alert); Sun Art Retail Group 6808.HK -1.5% (H1 result); Li Ning Co 2331.HK +6.5% (H1 result); Goodman Group GMG.AU +0.4% (FY16 result)
- Financials: China Galaxy Securities Co 6881.HK +2.1% (July result); Magellan Financial Group MFG.AU +5.5% (FY16 result); Westpac Banking Corp WBC.AU -2.7% (Q3 asset quality update)
- Industrials: Automotive Holdings AHG.AU +7.9% (new CEO)
- Technology: Semiconductor Manufacturing International Corp 981.HK +4.3% (Q2 result); Hon Hai Precision Industries 2317.TW -1.1% (July result); Pegatron Corp 4938.TW -2.2% (July result)
- Materials: Hanwha Chemical 009830.KR -1.3% (Q2 result)
- Telecom: Telstra Corp.TLS.AU -0.7% (FY16 result)
Closing Market Summary: Averages Pullback as Oil WeighsThe stock market ended the midweek affair on a modestly lower note as weakness from the oil patch applied pressure to the broader market. For the most part, equities endured another quiet session as the quarterly earnings reporting season continues to taper off. Today's trade also featured a bid in Treasuries, softening in the dollar, and relative weakness from the heavily-weighted technology (-0.3%), health care (-0.4%), and financial (-0.8%) sectors. The Nasdaq Composite (-0.4%) settled behind the S&P 500 (-0.3%) and the Dow Jones Industrial Average (-0.2%).
The major averages vacillated at the start of the session as investors responded to a modest downturn in global markets and a mixed set of U.S. quarterly earnings reports. European averages paced the retreat as weaker-than-expected stockpile data from the American Petroleum Institute weighed on the energy component. Conversely, OPEC's Oil Market Report for August added some early support to the commodity. The oil collective increased its demand outlook for 2016, estimating that demand growth will average 1.22 million barrels per day.
The major averages yielded to selling pressure in the late morning as investors pored over the Energy Information Administration's latest stockpile data. The Department of Energy reported that crude oil inventories rose by 1.055 million barrels (estimated: -1.025 million barrels), but that gasoline inventories fell by 2.807 million barrels (estimated: -1.063 million barrels). In response, WTI crude slipped from the $42.00/bbl price level and ended its day lower by 2.3% ($41.76/bbl; -$0.98).
The S&P 500 (-0.3%) endured a range-bound session, maintaining a meager 11-point trading range. The index finished near its worst level of the day while four sectors ended above their flat lines. In front of the pack, countercyclical consumer staples (+0.4%) and telecom services (+0.3%) outperformed while energy (-1.4%) financials (-0.8%), health care (-0.4%), and technology (-0.3%) ended with the largest losses.
The economically-sensitive financial sector (-0.8%) demonstrated broad-based weakness as the group saw pressure from declining long-term interest rates. In the group, Wells Fargo (WFC 48.18, -0.75) and Bank of America (BAC 14.81, -0.38) declined 1.5% and 2.5%, respectively. Elsewhere, MetLife (MET 40.15, -1.13) weighed on the life insurance sub-group, extending its post-earnings loss to 8.1%. The broader sector trimmed its monthly gain to 0.9% and returned to negative territory on a year-to-date basis (UNCH).
Biotechnology weighed on the health care space (-0.4%) as the iShares Nasdaq Biotechnology ETF (IBB 288.81, -5.75) ended lower by 2.0%. In the ETF, Mylan Labs (MYL 48.79, -1.13) underperformed after reporting a mixed quarter. The group also traded lower in sympathy with specialty pharmaceutical name Perrigo (PRGO 86.00, -9.09). The company disappointed investors with its quarterly results and guidance. The broader ETF sports a monthly loss of 0.2%, which compares to a decline of 1.0% in the broader sector.
The Dow Jones Transportation Average (-0.4%) ended its day behind the benchmark index as cautious revenue guidance from Southwest Air (LUV 36.99, -0.47) weighed. Southwest trimmed its revenue per available seat mile guidance for the third quarter ahead of today's open. The broader U.S. Global Jets ETF (JETS 22.13, -0.17) ended the day lower by 0.8%.
In the consumer discretionary (+0.2%) sector, retail names outperformed as they gained alongside Fossil (FOSL 30.57, +0.21) and Ralph Lauren (RL 103.14, +8.07). The two names reported above-consensus quarterly results and issued better-than-expected guidance. Separately, Dow component Disney (DIS 97.86, +1.19) ended higher by 1.2% after topping bottom-line estimates for the quarter.
The U.S. Dollar Index (95.65, -0.53) finished broadly lower as the pound, euro, and yen each ended with gains against the greenback. The pound/dollar pair gained 0.1% (1.3013) while the single currency advanced 0.6% against the dollar (1.1176). Elsewhere, the dollar lost 0.6% against the safe-haven yen (101.29) as investors reacted to a positive reading of Japan's Core Machinery Orders for June (+8.3% month-over-month; expected 3.1%).
Treasuries ended higher as yields slid throughout the complex. The yield on the 10-yr note settled lower by four basis points (1.51%).
Today's participation was below the recent average as fewer than 745 million shares changed hands at the NYSE floor.
Today's economic data included the weekly MBA Mortgage Index, the Job Openings and Labor Turnover Survey for June, and the Treasury Budget for July:
- The weekly MBA Mortgage Index showed a seasonally adjusted increase of 7.1% in mortgage applications after declining 3.5% in the prior week.
- The June Job Openings and Labor Turnover Survey showed that job openings increase to 5.624 million from a revised 5.514 million (from 5.500 million) in May.
- The Treasury Budget for July showed a deficit of $112.8 billion versus a deficit of $149.2 billion in July 2015.
- The Treasury Budget data is not seasonally adjusted, so the July deficit cannot be compared to the $6.3 billion surplus registered in June.
- Total receipts in July were $210.0 billion while total outlays were $322.8 billion.
- Receipts were $15.5 billion less than receipts in July 2015. Total outlays, meanwhile, were $51.9 billion less than the same period a year ago.
- The 12-month deficit narrowed to $487.2 billion from $523.6 billion in June.
Tomorrow's economic data will include weekly initial claims (consensus 266k) and Import/Export Prices for July, which will each cross the wires at 8:30 ET.
- Russell 2000 +7.7% YTD
- S&P 500 +6.4% YTD
- Dow Jones +6.1% YTD
- Nasdaq Composite +3.9% YTD
Organic Industry Watchdog Asks DOJ to Block Merger
August 10th, 2016
France’s Groupe Danone’s purchase of WhiteWave would combine Stonyfield, Horizon and Wallaby to Dominate the Organic Dairy Market
The French dairy giant, Groupe Danone (Dannon in the U.S.) has announced the proposed acquisition of WhiteWave Foods for approximately $10 billion. The deal would combine the world’s largest organic yogurt brand, Stonyfield, with Wallaby, a rapidly growing yogurt label, and the nation’s largest brand of organic milk, Horizon. The Cornucopia Institute, an organic industry watchdog, said they were formally challenging the acquisition based on the serious erosion of competition it would create in the consumer marketplace and the negative economic impact it would have on U.S. organic dairy farmers.
WhiteWaveWhiteWave brands are the top sellers in their categories. Horizon organic milk controls nearly 25% of the organic milk market, while their Silk brand is a leader in plant-based beverages. Danone will be taking control of a bigger piece of the organic dairy market than has ever been controlled by a single company before.
“With this acquisition we are concerned that Danone will easily be able to beat out any competition by lowering prices beyond what farmstead dairies, and more moderately sized milk processors and marketers, can withstand,” said Marie Burcham, a livestock policy analyst with the Wisconsin-based Cornucopia Institute.
Dairy has long been the first food consumers’ associate with the organic label. In many households organic milk is among the first foods introduced to children. Following fruits and vegetables, organic dairy products are the second largest product segment in the organic industry. “As such a key part of the organic market, it is vital that competition remains open,” Burcham added.
The Cornucopia Institute makes this argument in letters calling on the Department of Justice and the Federal Trade Commission to treat this merger as suspect. They have also launched a petition drive on their website pushing for a full investigation of the proposed merger by federal regulators.
The market for organic dairy already has less competition than other agricultural sectors and is more susceptible to monopolization. “It is important that the authorities look at the anti-competitive implications of the Danone-WhiteWave deal,” continued Burcham, “We ask that they consider the organic dairy and organic yogurt markets in particular as different and already more concentrated markets in comparison to Danone’s other, non-organic market share.”
Burcham, who in addition to her expertise in livestock agriculture is trained as an attorney in environmental law, added, “These are important considerations for determining whether this acquisition violates the Sherman Act and the Clayton Act for anti-competitive and anti-trust reasons.”
DanonelogoDanone is already a majority shareholder of Stonyfield, the largest organic yogurt brand worldwide, and owns a 21% stake in the Lifeway organic Kefir brand. Adding WhiteWave’s Wallaby and Horizon Organic brand yogurts to Danone’s existing market share will allow the dairy conglomerate to control a sizable slice of the U.S. organic market.
“Mergers like this one could eventually reduce options and raise prices for consumers without any positive impact on the quality of the products they are buying,” said Mark A. Kastel, Cornucopia’s codirector. “With less competition, big companies commonly underpay independent farmers for their products, undermining the economic viability of small, family-scale farms. We should be very wary of this acquisition.”
Kastel went on to explain that the multibillion-dollar acquisition could seriously erode wholesale competition in other less obvious but potentially ominous ways.
The number two brand of organic milk in the marketplace, Organic Valley, is produced by a member-owned farmer cooperative that has been the longtime raw milk supplier to the Stonyfield yogurt brand. If, after its acquisition, Danone decides to dump Organic Valley, a Horizon competitor, as a supplier, it could leave only one major purchaser of farm milk in some regions of the U.S., like New England.
Complicating the matter, one of the other leading brands of fluid milk, marketed under the Stonyfield label, is actually produced and distributed by Organic Valley. “We are talking about the potential for a major disruption in the marketplace and erosion of true competition which has historically benefited farmers,” said Kastel, a longtime analyst on dairy policy issues and former lobbyist with the Farmers Union.
Under both Democratic and Republican administrations, antitrust enforcement in the U.S. has been anemic, at best, over the past two decades. However, recent decisions by the DOJ to scrutinize the Staples/Office Depot merger, and major proposed consolidations in the beer and healthcare industries, organic dairy farmers optimistic that closer scrutiny of the Danone/WhiteWave deal is possible.
“Dairy farmers commercialized the organic industry, starting in the 1980s, because of the oppressive control of the conventional milk market by an increasingly concentrated group of companies allegedly manipulating the market,” said Peter Hardin, perennial industry observer and publisher of The Milkweed, a dairy publication. “Ironically, Dean Foods, the original parent company of WhiteWave, was long viewed as the consummate industry ‘bad actor’ and was under scrutiny by the Justice Department for market manipulation. The corporate kingpins that run the company are still making billions at the expense of hard-working dairy families.”
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Groupe Danone’s 2015 revenue was pegged at $25 billion (€22.4 billion) while WhiteWave sales for the year ending December 31 totaled $3.9 billion.
“This merger also represents a ‘clash of cultures,’” opined Cornucopia’s Kastel.
One of the companies, Stonyfield, built its reputation and brand on its imagery of supporting family-scale dairy farms, predominantly in the Northeast. Then there is WhiteWave, a former division of Dean Foods, the largest corporate dairy enterprise in the U.S. A substantial percentage of the milk used in their Horizon products come from factory-dairies, west of the Mississippi, many milking thousands of cows each. This organic production is taking place in states, like Texas, Idaho, New Mexico, and eastern Oregon, where conventional dairy has shifted to over the last two decades.
Kastel added, “Which production model dominates, in the new merged entity, will have a great impact on the future financial viability of family dairy farms in this country. If the management and infrastructure at Horizon takes charge, many of the smaller dairy farms will become expendable as more, cheaper milk, produced on industrial-scale dairies, becomes available.”
WallabylogoCurrently The Cornucopia Institute is investigating reports of new giant organic dairies, each milking 2,000-5,000 cows, springing up in Oregon, Idaho and Texas. Many of these operations milk three to four times per day, rather than twice which is the standard on farms that move their cattle back and forth to pasture each day. In addition, state regulatory documents indicate some of these dairy operations have as many as 10 cows per acre whereas previous polling done by Cornucopia indicated the national average for organic producers was one cow per acre.
Lifewaylogo“If this merger is allowed to go through, it may very well exacerbate the illegal and unfair competition being condoned currently by the corporate-friendly regulators overseeing the organic industry at the USDA,” Kastel lamented.
Bridgewater Associates (Raymond Dalio) discloses updated portfolio positions in 13F filing: new BTG and GPS position, closed AGU and T POSITIONS
Highlights from 2016 Q2 filing as compared to 2016 Q1 filing:
- New positions in: BTG (~0.7 mln shares), ADM (~0.1 mln), FOSL (~0.1 mln), TRP (~0.1 mln), GPS (~0.4 mln)
- Increased positions in: ABX (to ~2.1 mln shares from ~1.2 mln shares),CTL (to ~0.6 mln from ~0.3 mln), AMAT (to ~0.5 mln from ~0.3 mln), AEM(to ~0.5 mln from ~0.3 mln), BWA (to ~0.2 mln from ~0.1 mln), CVE (to ~0.4 mln from ~0.3 mln), GG (to ~1.7 mln from ~1 mln) AUY (to ~2 mln from ~1.1 mln), CVE (to ~0.4 mln from ~0.3 mln), NE (to ~2.3 mln from ~0.7 mln),
- Decreased positions in: AKAM (to ~40K shares from ~0.1 mln shares), ESV(to ~1.3 mln from ~1.9 mln), MSFT (to ~0.3 mln from ~0.6 mln), NRG (to ~0.1 mln from ~0.5 mln), NUAN (to ~28K mln from ~0.5 mln), NEM (to ~0.3 mln from ~0.5 mln), FOXA (to ~0.1 mln from ~0.2 mln)
- Closed positions in: AGU (from ~0.1 mln shares), T (from ~0.4 mln), KR(from ~0.1 mln), SE (from ~0.2 mln), RHT (from ~0.1 mln), STJ (from ~0.1 mln)
Ralph Lauren up 8% at six month high following earnings: Additional call notes
- Ecommerce comps were down mid-single digits (better in Europe) due to decreased promotions; sees mid to high single digit decrease in comps for same reasons.
- Co is delvoping flagship ecommerce platform, which will become very important part of business.
- Co is cutting lead times.
- SG&A savings will be weighted to 2H.
- Europe comps fell low single digits.
RL at six month high after reproting first quarter since announcing Way Forward Plan (restructuring). Mgmt set expectations appropriately low in early June and upside Q2 sales guidance has been well received as co focues on improving margins.