September-quarter earnings report


Lockheed Martin ($84; NYSE: LMT) earned $1.92 per share, up 7% and above consensus estimates by $0.03. Net sales slipped 5% to $10.58 billion, hurt by declines in three of four business segments. Sales at the information-systems unit rose 9%. Lockheed lowered expectations for the December quarter and projected per-share profits of $7.65 to $7.90 in 2009, well below the $8.39 consensus, partly because of higher pension costs. The shares fell on the news. At 11 times the low end of company profit guidance for 2009, Lockheed shares still look cheap. The stock remains a Focus List Buy and a Long-Term Buy.

General Dynamics’ ($55; NYSE: GD) profits surged 19% to $1.59 per share, $0.08 above the consensus. Revenue rose 4% to $7.14 billion on growth in three of four operating segments. General Dynamic appears well-positioned for the year ahead, with its funded backlog increasing 10% to $49.7 billion. The company raised its 2008 per-share-earnings forecast to $6.10 from its previous range of $6.00 to $6.05. General Dynamics is a Buy and a Long-Term Buy.

Sigma-Aldrich ($45; NASDAQ: SIAL) grew per-share profits to $0.64 including currency gains, up 19% but a penny below the consensus. Sales rose 7%, lifted by gains in all business segments. In the nine months ended September, Sigma’s operating cash flow increased 12% to $300 million, helping the company fund $291 million in share buybacks. Sigma-Aldrich is a Long-Term Buy.

Pfizer ($17; NYSE: PFE) posted per-share profits of $0.62 excluding special items, up 7%. Revenue was roughly flat, as international sales growth offset weakness in the U.S. Wall Street expects Neutral-rated Pfizer to grow profits at an annualized rate of about 3% over the next five years, hurt by generic competition and weak revenue from new drugs.

Citigroup ($14; NYSE: C) lost $0.71 per share from continuing operations, down from a profit of $0.42 per share in the year-earlier period. The company took a $13.2 billion hit for write-downs, credit losses, and increases in loan-loss reserves. Revenue fell 23%, while assets declined by $308 billion, or 13%, from the year-earlier quarter. In related news, Citigroup lowered its quarterly dividend 50% to $0.16 per share, payable Nov. 26. Neutral-rated Citigroup has cut the payout twice this year.

3M ($60; NYSE: MMM) earned $1.42 per share excluding special items, up 10% and $0.04 above consensus estimates. Sales rose 6% to $6.56 billion, paced by double-digit growth at the three largest business segments. 3M is rated Neutral.

Merrill Lynch ($19; NYSE: MER) lost $5.56 per share, nearly double the loss in the year-earlier period and $0.34 worse than the consensus. Contributing to the loss was $9.5 billion in write-downs. The company, which is being acquired by Bank of America ($24; NYSE: BAC), lost $11.77 billion from continuing operations in the first nine months of 2008. Bank of America and Merrill Lynch are rated Neutral.

Halliburton ($21; NYSE: HAL) earned $0.76 per share excluding nonrecurring items, up 19% and $0.02 above consensus estimates despite $0.04 per share in hurricane-related costs. Including a $693 million loss on a debt settlement and merger-related costs, Halliburton lost $0.02 per share. Revenue rose 24% to $4.85 billion. The company said no overseas drillers have announced major cutbacks, though U.S. demand has begun to slow. Halliburton is rated Neutral.

Boston Scientific ($9; NYSE: BSX) earned $0.16 per share excluding special items, up 45% and $0.05 better than consensus estimates. Revenue fell 3% to $1.98 billion, as a strong performance from the cardiac rhythm management segment couldn’t offset an erosion in stent sales. The company says it expects per-share profits of at least $0.18 for the December quarter, versus the $0.15 consensus. Boston Scientific shares have declined 35% since we downgraded the stock to Underperform in August 2007. While we aren’t ready to recommend the stock, Boston Scientific’s recent product launches and improvements in market position warrant an upgrade to Neutral.

Merck ($30; NYSE: MRK) posted per-share profits of $0.80 excluding $0.29 of restructuring charges, up 7% and $0.01 above the consensus estimate. Declining sales of cholesterol drugs and Fosamax, which lost patent protection in February, caused revenue to fall 2% to $5.94 billion. Merck projects per-share profits of $3.28 to $3.32 excluding charges in 2008, versus the $3.28 consensus. Neutral-rated Merck is likely to have trouble generating profit growth in the next few years — the consensus projects annualized growth of 4% through 2013.

McDonald’s ($55; NYSE:MCD) earned $1.05 per share from continuing operations, up 27% and $0.07 above consensus estimates. Global same-store sales increased 7.1%, with U.S. growth of 4.7%. At 14 times projected 2009 earnings, Neutral-rated McDonald’s doesn’t look particularly cheap.

News roundup
General Motors ($7; NYSE: GM) is struggling to find financial backing for its bid to acquire Chrysler. As currently constructed, the deal would give Cerberus Capital, Chrysler’s controlling owner, the 49% of GMAC Financial Services it does not already own. Many of the automakers’ vehicle lines overlap, creating the potential for substantial cost cuts. Chrysler’s $11 billion in cash would also boost GM’s liquidity, but GM’s junk-grade credit rating is making it difficult for GM to borrow enough money to buy Chrysler. GM is reportedly also interested in a large cash infusion from an outside investor, though the likelihood of such a deal emerging is uncertain. General Motors is rated Underperform.

Retailers experienced flat September sales, and the holiday forecast looks less than cheery. The National Retail Federation projects holiday spending will rise 1.9%, the slowest growth since 2002. Many big-name retailers — including Target ($38; NYSE: TGT), Nordstrom ($18; NYSE: JWN), and J.C. Penney ($22; NYSE: JCP) — lowered their profit targets for the current fiscal year in the wake of weak September sales. At this time, the only retail stocks the Forecasts recommends are drugstore chain Walgreen ($24; NYSE: WAG) and discount giant Wal-Mart Stores ($54; NYSE: WMT). Walgreen and Wal-Mart, both rated Long-Term Buy, are known for being less sensitive to economic trends than most retailers. Nordstrom, Target, and J.C. Penney are rated Neutral.

In coming weeks, American International Group ($2; NYSE: AIG) is expected to auction off a large stake of its Asian life-insurance segment, a unit potentially worth more than $20 billion. AIG hopes to retain a majority stake in the business as it tries to pay off up to $123 billion in federal loans. AIG is rated Neutral.

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