What’s the Story?

by CC August 1, 2012 8:54 am • Commentary


Automatic Data Processing and consultancy Macroeconomic Advisers reported 163,000 new private-sector jobs added in July, much stronger than expectations for 108,000 new jobs. However, June’s reading was revised lower.

Stocks remained little changed following the report, however, as investors remained focused on the Federal Reserve’s latest policy statement, due out at 2:15 p.m. EDT. Fed Chairman Ben Bernanke’s recent comments that economic growth has “decelerated,” and that the Fed was “prepared to take further action,” have led many to hope new stimulus measures will be announced.

After ending a volatile July with a gain of 1% on the Dow, investors are jumping into August with a bevy of headlines. In addition to the ADP report and the Fed’s policy statement, investors are awaiting the European Central Bank, which is expected to announce new measures to address the euro-zone’s debt crisis on Thursday. And on Friday, investors will have their look at the latest monthly government data on hiring.

The Institute of Supply Management’s purchasing manager’s index for July, due at 10 a.m., is expected to rise to 50.4 from 49.7 in June, with a reading of 50 and above indicating expansion. Also at 10 a.m., construction spending for June is expected to rise 0.4% from the previous month after rising 0.9% in May.

European markets edged higher, with the Stoxx Europe 600 up 0.3%, as investors looked ahead to possible Fed action while shrugging off data showing contraction in manufacturing activity accelerated last month.

The euro-zone PMI for July slipped to 44 from a preliminary forecast of 44.1, and down from 45.1 in June. Also, the U.K.’s July PMI declined to 45.4 from 48.4 in June

Asian markets were mostly lower. Japan’s Nikkei Stock Average lost 0.6% while the Shanghai Composite bucked the trend by rising 0.9%.

Crude-oil futures gained 0.5% to about $88.50 a barrel, while gold futures slipped 0.1% at about $1615 an ounce. The U.S. dollar was trading flat against the euro but ticked higher against the yen.


Today, as policy makers at the central bank consider whether to take another, similar step, most of those indicators look better, on a relative basis, than they did before earlier rounds of Fed support.

That means the Fed could wait until conditions get worse before taking action. Or, the Fed could move if it sees an even deeper slowdown in the offing, acting earlier to protect against potentially calamitous shocks that might emanate from a struggling Europe or slowing China.

Central-bank officials, who conclude a two-day meeting Wednesday, face a landscape that has become familiar in recent years. Improvement in the economy early this year gave way to a widespread slowdown by summer. Events abroad added to the trouble.

That has given rise to two questions: What will it take for the Fed to act again? And if the Fed acts, what good will it do?

This year’s data on employment, one of the most important gauges for the Fed, appears to match the pattern that occurred before previous interventions. Payroll growth in the second quarter slowed to an average of 75,000 jobs a month, down from 226,000 jobs a month in the first quarter. The unemployment rate has remained above 8%.

In his most recent appearances before Congress, Fed Chairman Ben Bernanke repeatedly said central-bank officials would consider more action if unemployment failed to improve.


The United States raised pressure on euro zone leaders to take decisive action to solve the region’s debt crisis, notably by lowering troubled members’ borrowing costs, on the eve of a crucial European Central Bank meeting.

U.S. Treasury Secretary Timothy Geithner said the euro zone must take steps including “bringing down interest rates in the countries that are reforming and making sure those banking systems can provide the credit those economies need”.

He made the comments in an interview with Bloomberg Television recorded in Los Angeles on Tuesday, a day after he flew specially to Germany to meet Finance Minister Wolfgang Schaeuble and ECB President Mario Draghi. The interview was broadcast on Wednesday.


The chief executive of Career Education CECO +2.39%  didn’t mince words about what the Schaumburg, Ill.-based company’s up against as it reported a second-quarter net loss and lower revenue. “Withering public criticism, combined with a game-changing regulatory environment aimed at reducing the role of private-sector educational institutions, is effectively constraining growth,” said Chairman, President and CEO Steven Lesnik in Career Education’s CECO +2.39% earnings release late Tuesday. “We are dealing with these headwinds like others, but progress is slow.” Both the for-profit education company’s student population and new student starts were down, by 24% and 40%, respectively, compared to a year ago, according to Career Education.

Along with reporting second-quarter financial results late Tuesday, True Religion Apparel TRLG -16.01%  updated its forecast and said it expects to generate a profit of $1.80 to $1.86 a share for the full year, with revenue pegged at $450 million to $455 million. The forecast assumes that U.S. Consumer Direct, the Vernon, Calif.-based company’s largest business segment, generates same-store sales growth at a “mid-single digit” percentage rate. These sales increased 2.4% in the latest quarter, less than management’s target. Chairman and CEO Jeffrey Lubell primarily cited “a weaker response toward our spring and summer merchandise assortment,” but he noted that promotions and attention to costs “allowed us to exceed our second-quarter earnings-per-share forecast.”

Along with reporting higher profit and revenue for the second quarter ended June 24, Papa John’s International PZZA +0.49%  raised its 2012 earnings forecast as well as projected growth in comparable sales for both its North American and international divisions. As revised, the Louisville-based company sees profit in a range of $2.45 to $2.55 a share, up from $2.40 to $2.50 a share previously. North America comparable sales are now pegged to rise by 2% to 3% on the year, up from 1.5% to 2.5% previously, and international comparable sales will grow in a projected range of 4% to 5.5%, up from 2.5% to 4.5% previously.

Along with reporting lower earnings and revenue for the first quarter ended June 30, Black Box Corp. BBOX -1.70%  issued full-year financial targets. The Pittsburgh-based company is shooting for operating earnings in a range of $2.45 to $2.85 a share, including 68 cents to 75 cents a share for the second quarter; operating profit was 56 cents a share in the first quarter, excluding an after-tax restructuring benefit of 7 cents a share. Black Box’s full-year revenue is pegged at $990 million to $1.03 billion, including about $247 million to $257 million for the second quarter. The company’s six-month order backlog as of June 30 was $192 million, down from $199 million as of March 31 and from $230 million at mid-2011.

HanesBrands Inc. HBI -1.02%  expects to generate “solid” results in the latter half of 2012, with the Winston-Salem, N.C.-based company “performing slightly ahead of our plans for the year” on the heels of its second-quarter results, according to Chairman and CEO Richard Noll. The company recently announced it’s exiting some businesses, leading Noll to note that “we still have a long way to go” but that HanesBrands stands “well positioned for the second half.” Higher costs for cotton checked its second-quarter profit, but cotton inflation has now largely subsided. For 2012, HanesBrands forecast earnings of $2.50 to $2.60 a share on sales of $4.52 billion to $4.57 billion, with free cash flow pegged at $400 million to $500 million.

The board of Scripps Networks Interactive Inc. SNI -2.06%  authorized an additional $1 billion for the Knoxville-based company’s stock-buyback program. The move comes on the heels of the company having completed a previous repurchase authorization, also in the amount of $1 billion, during the second quarter. According to Scripps Networks Interactive, some $250 million was committed to repurchases in both the first and second quarters of 2012.

Along with reporting second-quarter results late Tuesday, Life Technologies Corp. LIFE -0.30%  said its board authorized the company to buy back up to $750 million of its common stock, augmenting about $62 million remaining under a July 2011 repurchase authorization. “In 2012, we have already spent $335 million to repurchase shares and are committed to executing on this new authorization beginning in the second half,” said Gregory Lucier, chairman and CEO of the Carlsbad, Calif.-based biotech company, in a statement. Repurchases can be made on the open market, via private transactions or both, financed through available cash and, if needed, Life Technologies’ revolving credit facility.

The board of CBOE Holdings Inc. CBOE -0.14%  declared a quarterly cash dividend of 15 cents a share, a 25% increase over the Chicago-based company’s prior payout, and authorized the repurchase of an additional $100 million of unrestricted common stock. This brings the total buyback authorization for CBOE Holdings to about $103.3 million. The company’s unrestricted common shares outstanding number about 87.3 million, the company said. The increased dividend’s payable Sept. 21 to stockholders of record as of Aug. 31.

The board of CSS Industries Inc. CSS +1.02%  authorized the repurchase of up to 500,000 additional common shares, the Philadelphia-based consumer products company said. This represents about 5% of the common stock currently outstanding. Buyback may be through the open market or privately negotiated transactions, CSS Industries said.