Disney, GM, Goodyear, Varian Medical: U.S. Equity Preview

Shares of the following companies may have unusual moves in U.S. trading. Stock symbols are in parentheses and prices are as of 7:45 a.m. in New York.

Constellation Energy Group Inc. (CEG:US): The U.S. power- marketing company named Michael J. Wallace, 61, as chief operating officer, according to a regulatory filing. The company also said in a report to the U.S. Nuclear Regulatory Commission that it increased its Ginna reactor’s output in New York to full capacity from 58 percent.

General Motors Corp. (GM:US): The world’s largest carmaker until its 77-year reign ended last year, filed for bankruptcy protection in the U.S. with a plan to create a 21st-century company that can compete in world markets. Trading in the shares was halted.

Goodyear Tire & Rubber Co. (GT:US): The largest U.S. tiremaker said it sold some of its Akron, Ohio, properties to Industrial Realty, part of a plan to develop a new headquarters in Akron. Goodyear said it will record a non-cash, after-tax charge of as much as $45 million in the second quarter in connection with the property sales.

Green Mountain Coffee Roasters Inc. (GMCR:US): The Waterbury, Vermont-based roaster may be able to “manage” earnings by buying its own product from licensees, generating royalties that may obscure the business’s true profitability, Barron’s reported, citing its own analysis.

Varian Medical Systems Inc. (VAR:US): The supplier for more than half the global demand for radiation equipment used to treat cancer may see demand for its X-ray scanners rise at border-security agencies and hospitals in emerging markets, Barron’s said, citing analysts.

Walt Disney Co.’s (DIS:US): The entertainment company’s 3-D feature film “Up” opened as the top movie over the weekend, taking in $68.2 million at theaters in the U.S. and Canada.

Prudential passes on TARP funding to issue stock

Prudential Financial Inc. said Monday it will not take funds from the government's financial rescue program, but it is planning to raise $1.25 billion on its own through a common stock offering.

The Newark, N.J.-based life insurance and financial services firm said it will not participate in the Treasury Department's Troubled Asset Relief Program. Last month, the government said it would allow Prudential and five other major insurers to tap the program for additional capital. The other insurers included Hartford Financial Services Group Inc., Allstate Corp., Lincoln National Corp., Ameriprise Financial Inc. and Principal Financial Group Inc.

Both Allstate and Ameriprise have already declined to accept the funds.

As hundreds of banks accepted billions in government bailout funds last fall, some life insurers aggressively lobbied for their own piece of the federal aid program. The insurers were worried about their balance sheets, which have been hammered by hefty investment losses from declines in the stock market and other investments. The government approved those requests last month.

Prudential Financial lost $5 million during the first quarter, though it did record an operating profit of $436 million. As of March 31, Prudential's unrealized losses on investments totaled $11.25 billion. The unrealized losses were mostly tied to a decline in value of investment-grade securities the firm still holds. The value of many investments, such as mortgage-backed securities, has plummeted since the middle of 2007.

Instead of using the government to improve its financial position and help offset losses, Prudential will launch a public stock offering to raise $1.25 billion in new cash to bolster its reserves. It will use the additional funds for general corporate purposes, which could include adding capital to its insurance subsidiaries, for the repayment of short-term debt or for potential strategic initiatives.

Underwriters of the offering have been granted a 30-day option to purchase an additional $188 million in shares.

Shares of Prudential fell 86 cents, or 2.2 percent, to $39.05 in premarket trading Monday. Prudential shares closed Friday at $39.91.

Last fall when the government began the program, financial firms were unable to raise new cash through stock offerings or other private deals because the mushrooming credit crisis essentially shut down the credit and lending markets. That left the government as one of the few alternatives to get needed cash to help offset mounting losses because of the worsening economy.

Since the market began to rebound in early March, investors have become more receptive to buying new shares of financial firms. Some banks that received TARP funds last fall have already begun repaying the loans or raised new cash through stock offers in advance of repaying the debt.

Oil hits new 6-month high above $66

Oil prices extended a rally to above $66 a barrel Friday to hit a fresh six-month high, after the U.S. reported a fall in oil inventories and further signs of an improving economy.

OPEC oil ministers, who on Thursday agreed to leave production levels unchanged, expected the rally to continue until 2010. "I think that by year end we will see $70 to $75," Abdalla Salem El Badri, secretary general of the Organization of the Petroleum Exporting Countries, said Friday in Vienna.

Benchmark crude for July delivery was up $1.16 cents to $66.24 a barrel by late morning in Europe in electronic trading on the New York Mercantile Exchange. On Thursday, the contract rose $1.63 to settle at $65.08, a six-month high and almost double the lows reached in March, when it fell below $35 a barrel.

The Energy Department's Energy Information Administration on Thursday said U.S. oil supplies dropped unexpectedly by 5.4 million barrels last week. Though crude inventories remain near 19-year highs, it was the third week in a row that supplies have fallen.

Investors were also cheered by signs the U.S. recession may be bottoming out. The government reported Thursday that demand for big-ticket manufactured goods in April had its biggest jump in 16 months, while separate data showed the number of newly laid-off people requesting jobless benefits fell last week.

"We've got a lot more optimism about the economic outlook than we did," said Toby Hassall, an analyst with Commodity Warrants Australia in Sydney. "The market is factoring in a recovery in demand by the end of the year."

"But there's no real evidence that demand is picking up at this point."

OPEC's announcement to keep output levels unchanged was widely expected and did not weigh on prices. It had made production cuts totaling 4.2 million barrels a day between September and January, but has kept output steady since then.

El Badri, speaking to reporters a day after the meeting, said OPEC would be careful "not to take any negative decision" to hurt the chances of economic recovery. He even held out hope of output increases "if the price goes high" and if stockpiles diminish too much -- but declined to specify what a "high" price would be.

Analysts at JBC Energy noted in a report, however, that "supply is still exceeding demand with oil inventories around the world close to record highs" and that a further output cut is still possible.

In other Nymex trading, gasoline for June delivery rose 1.8 cents to $1.93 a gallon and heating oil gained 3.45 cents to $1.64 a gallon. Natural gas for June delivery was up 12.9 cents at $4.09 per 1,000 cubic feet.

In London, Brent prices rose 92 cents to $65.31 a barrel on the ICE Futures exchange.

Starbucks Pushing Landlords for 25% Cut in Cafe Rents

Starbucks Corp., the world’s largest coffee-shop operator, is pushing some U.S. landlords for as much as a 25 percent reduction in lease rates, taking advantage of a declining real estate market to save on rent.

Faith Hope Consolo, chairman of New York-based Prudential Douglas Elliman’s retail leasing, marketing and sales division, is generally advising about a dozen landlords to work with Starbucks after they received letters seeking rent reductions of 20 percent to 25 percent. She hasn’t seen the correspondence.

Separately, two other letters were confirmed by two property managers, who declined to be named because the negotiations are still under way.

“In this environment, what we’ve seen in general is the landlords and the retailers really have to work together more closely to prevail,” Consolo, 50, said in a May 27 telephone interview. “We’re talking a lot about tenant retention.”

Starbucks began rent-reduction efforts in January as part of a plan to trim overall expenses, according to Tara Darrow, a spokeswoman for the Seattle-based company. The same month, the company said it would close about 300 cafes this year and cut as many as 6,700 jobs after first-quarter profit plunged 69 percent, hurt by an economy in which cost-conscious consumers cut back on premium coffee.

Labor, Food Costs

Starbucks is looking to trim labor, food and other costs, and had cut $195 million through the first half of fiscal 2009. In April, the company said it was on pace to lower total costs by $500 million in the fiscal year that ends in September.

Darrow wouldn’t confirm the size of the reduction the company is asking. She also wouldn’t specify how many leases the company is trying to renegotiate or how many landlords have agreed to reductions. Starbucks isn’t asking for a blanket rate reduction from the landlords it has approached, Darrow said.

Starbucks rose 11 cents to $13.82 at 9:38 a.m. New York time on the Nasdaq Stock Market. The shares advanced 45 percent this year before today.

“We’re taking advantage of the opportunity in as many cases as we can,” Darrow said. “We feel like it’s a positive program for us. Most of the landlords we’ve worked with have felt it is a mutually beneficial situation.”

The rent-reduction program covers the U.S. stores operated by Starbucks, a number that totaled 7,035 as of March 29. The effort doesn’t include the more than 4,400 U.S. stores in airports, supermarkets and other licensed locations, Darrow said.

Consolo said she’s generally advising landlords to give Starbucks a break in the rent, in the hope that the retailer remains a tenant. Doing so may make sense even in cases where the retailer would be required to continue paying rent if it closed a store.

Longer Leases

“The owner or developer doesn’t want a dark store,” Consolo said. “It reduces the traffic.”

Rising vacancy rates and falling property values are spurring landlords to offer lower rents in exchange for longer lease terms, said Hudson Riehle, senior vice president of research at the Washington-based National Restaurant Association.

“In this recession, compared with the last one, we do see developers and owners being much more willing to work with the operators to make sure the restaurant remains where it is,” Riehle said. “It’s much more of a partnership than it used to be.”

Commercial real estate values dropped 22.8 percent through March from their October 2007 peak, according to a May 19 report from Moody’s Investors Service. Property prices have fallen 21 percent from a year ago, and Moody’s expects further declines.

Landlords are hoping lower lease rates will allow tenants to remain open, Riehle said. Vacancies at malls and shopping centers climbed to 9.5 percent in the first quarter, the most in a decade, as stores and restaurants closed, according to Reis Inc., a New York-based real estate research firm.

Prime Sites

Quiznos Corp., the closely held toasted-sandwich chain, has been able to reduce rents by 15 percent to 20 percent, often in exchange for signing longer leases, Chief Executive Officer Rick Schaden said in an interview. The Denver-based company has renegotiated as many as 90 leases, including 40 using a team of three outside consulting firms. Quiznos also has grabbed more attractive sites at better prices, including an “A+” site in Denver that hasn’t been available for 25 years, Schaden said.

The phenomenon isn’t limited to the U.S. Brinker International Inc., the Dallas-based owner of Chili’s Grill & Bar, has seen lease rates fall as much as 30 percent in Beijing, John Reale, president of international operations, said in an interview.

S&P places Coeur d'Alene Mines on CreditWatch

Standard & Poor's Ratings Services on Monday placed Coeur d'Alene Mines Corp. on CreditWatch with positive implications, but warned that the mining company may require more funding for its capital spending plan

The ratings, including Standard & Poor's "CCC" corporate credit rating, reflects its assessment that near-term operating cash flow generation will likely increase due to higher metal volumes and continued favorable gold and silver prices, it said.

The Coeur D'Alene, Idaho, company's construction of its Palmarejo mine and start of operation in the first quarter of 2009 are increasing volumes.

"Still, the company's liquidity position remains somewhat thin because its near-term capital spending plan of approximately $70 million will likely necessitate additional external funding," Standard & Poor's said.

The ratings agency said it expects Coeur d'Alene will seek to raise capital through sale leasebacks, gold leases, and other sources over the next several months.

Mitchell Krebs, Coeur d'Alene's chief financial officer, said the company believes its liquidity is adequate going forward. He said the company ended March with over $38 million in cash and expects to generate $100 million in operating cash flow in 2009.

"These combined sources of cash are expected to more than satisfy remaining capital expenditures during the year," he said.

S&P said that if it upgrades the company, "we currently expect it would likely be limited to one notch" because the improvement in its liquidity will likely be marginal until it benefits from increased output and favorable metal prices over time.

Coeur D'Alene's shares ended Monday unchanged at $1.37.

Yahoo CEO: Deal or No Deal, I Can Reignite Growth & Stock

By firmly declaring her willingness to do a deal on search, Yahoo CEO Carol Bartz provided some of the biggest headlines of the first full day of the AllThingsD conference here.

But there was more to the story.

Bartz sat down with me this afternoon. Highlights of our conversation:

* Talks not on fast track: "Negotiations always ebb and flow and right now they¹re in an ebb position. There’s not that much going on,” she said.
* Why a deal hasn't happened to date: "The boatload [of money] hasn't driven to the dock."
* What about her relationship with Steve Ballmer? Been strong for 15+ years, she says.
* The slide in Yahoo's search market share is over: Bartz says Yahoo can certainly hold 20%, possibly grow it.
* Outlook for Yahoo stock and growth: Bartz wouldn't directly address a question about what happens to Yahoo stock if no deal materializes, but she did express extreme confidence she can repeat her performance at Autodesk, whose stock rose more than eightfold during her 14-year tenure and delivered compounded annual sales growth of 13%.

"Given enough time, absolutely Yahoo can match that," she said.

Stay tuned for part II of the interview where Bartz and I discuss her vision for the company and her strategy to meet those ambitious long-term targets.

Lehman Bankruptcy Haunts Stocks With S&P 500 Cheapest to Bonds

By almost any measure, credit markets have recovered most of the losses caused by September’s collapse of Lehman Brothers Holdings Inc. Not U.S. stocks.

The Standard & Poor’s 500 Index, while up 31 percent from its lows, must rise 41 percent to reach its last closing price before Sept. 15, when Lehman filed for the biggest bankruptcy in history, freezing financial markets. Since then, 10-year Treasury notes have climbed 4.6 percent and investment-grade company bonds, which plunged as much as 14 percent, are now down 1.2 percent, according to Merrill Lynch & Co. bond indexes.

The disparity shows that while the U.S. government succeeded in calming markets, stock investors aren’t convinced that the economy and profits will grow fast enough to sustain a bigger advance. Investors are paying the lowest prices on record for equities compared with corporate bonds, based on the earnings yield on the S&P 500.

“Equity investors are still scarred,” said James Dunigan, chief investment officer at PNC Financial Services Group Inc.’s wealth-management unit, which oversees $96 billion in Philadelphia. “Those scars aren’t as easy to heal as they are in the fixed-income market.”

Earnings yield, calculated by dividing the total profit of companies in the S&P 500 by the index’s price, equaled 8.2 percent last week, based on analysts’ earnings estimates for next year. That exceeded yields on U.S. investment-grade bonds by 1.36 percentage points, the widest margin on record when compared with historic profits, monthly data compiled by Bloomberg and Merrill Lynch show.

Stocks Versus Bonds

A stock that pays more in earnings than corporate bonds yield in interest is judged to be cheap by some investors who view profits as the main gauge of returns in equities. Comparing earnings yields to bond payments is a valuation technique used by Warren Buffett, the chairman and chief executive officer of Omaha, Nebraska-based Berkshire Hathaway Inc. and the world’s most successful investor.

Stocks have become even cheaper than debt during the S&P 500’s two-month rebound as corporate bond yields fell by 1.5 percentage points. The gap has widened 0.15 percentage point since the start of March, data compiled by Bloomberg and New York-based Merrill show.

The S&P 500 also trades below its average price-earnings ratio of 16.3 over the past 128 years, the period tracked by Yale University professor Robert Shiller. Based on analysts’ estimates for combined earnings of $72.59 per share for S&P 500 companies next year, the measure would have to increase 33 percent to 1,183.22 to match the historic valuation, according to share-weighted data compiled by Bloomberg.

Lehman, Libor

Unraveling credit markets sparked by the collapse of bonds tied to subprime mortgages triggered bank losses that have grown to almost $1.5 trillion, causing the economy to contract by more than 6 percent in each of the last two quarters, the most since 1958, Bloomberg data show. The recession deepened when New York- based Lehman, then the fourth-biggest securities firm, filed for bankruptcy.

Banks hoarded cash on concern more lenders would fail, causing the London interbank offered rate that banks charge each other for overnight loans to more than triple in a month, while the interest for 3-month loans jumped 71 percent. The difference between Libor and the Federal Reserve’s target rate for overnight lending among financial institutions climbed to 3.32 percent on Oct. 10, the highest since at least 1984.

Investment-grade U.S. corporate debt fell 6.8 percent last year, high-yield bonds lost 26 percent and the S&P 500 plunged 37 percent, including dividends. Ten-year Treasuries returned 20 percent. Securities rated below BBB- by S&P or Baa3 by Moody’s Investors Service are considered below investment grade.