4:56 pm Weekly Wrap

For the first time in four weeks the market lost ground.  To be exact, the S&P 500 declined 1.8%. 

The pullback in many respects was not unexpected.  After all, with the S&P 500 up 11.0% since the Bear Stearns bailout in mid-March, many participants believed it was due to take a breather.

That feeling was on the mark, even if few people predicted the specific causes for the selling pressure, which were rapidly rising oil prices, a faltering financial sector and an inability to hold above 1400 on the S&P, which has been viewed as a key technical point.

Oil dominated the headlines throughout the week with crude futures closing at new record highs each day.  The final settlement of $126.13 per barrel marked an 8.4% gain for the week.  That move was underpinned by weakness in the dollar, supply concerns and speculative buying interest as momentum investors chased returns.

The spike in oil prices took its toll on sentiment and knocked the wind out of the market's sails.  Its effect was punctuated at the end of the week when FedEx (FDX) issued an earnings warning late Friday that was pinned on rising fuel costs. 

By the same token, the financial sector also had a heavy hand in the action, falling 6.3% for the week following a batch of ugly earnings reports from the likes of Fannie Mae (FNM), UBS (UBS) and Dow component American International Group (AIG).

The latter company helped grease the selling wheels on Friday after reporting a $7.8 billion net loss for its first quarter and revealing that it intends to raise $12.5 billion in new capital.  Earlier in the week Fannie Mae said it would be raising $6 billion in new capital.

Separately, Citigroup (C) announced Friday that it would be pursuing a plan to sell $400 billion in noncore assets over the next two to three years.  Although this initiative is deemed to be necessary by many pundits, it, along with AIG's news, exposed the ongoing challenges that continue to confront financial companies in their bid to restore earnings power in the aftermath of the credit market mess.

Dow component Disney (DIS) for its part demonstrated this week that it still has ample earnings power.  The entertainment giant reported a 35% increase in fiscal second quarter earnings per share on growth in each of its business segments.  Disney ended the week 2.4% higher, but its influence was mostly company-specific.

Cisco (CSCO) was the other heavyweight that reported earnings this week.  It posted a 12% increase in fiscal third quarter earnings per share and reaffirmed its long-term growth targets.  Still, its news failed to advance the market given the acknowledgment that its U.S. business is soft and the understanding that Cisco had gained 12% in the three weeks leading up to its report.

There wasn't a lot of economic data this week, yet the majority of the data released provided relatively good news.

The ISM Services, Q1 Productivity, Initial Claims and Trade Balance reports were all better than expected.  Pending home sales for March fell 1.0%, which was in line with estimates, while consumer credit in March expanded to $15.3 billion from $6.5 billion in February.

Naturally, with the spike in oil prices and the jump in consumer credit, concerns persisted about the state of the consumer.  However, the April same-store sales results reported Thursday showed consumers are still alive and kicking.  Granted their preferences have shifted to lower price points, and many have cut back on discretionary purchases, yet even Wal-Mart reported it is still seeing strength in sales of flat-panel TVs and video games.

Next week the Retail Sales report for April will be a standout on a very busy economic calendar, which will also feature CPI, industrial production and housing starts data for April.

--Patrick J. O'Hare, Briefing.com

**For interested readers, please note that the S&P 400 Midcap Index, which isn't included in the table below, was up 0.4% for the week and is down 0.5% year-to-date.

11:52 am First Marblehead (FMD)

Student lender First Marblehead (FMD 3.51, -0.21) lost $229.6 million, or $2.36 per share, in its latest quarter as credit market turmoil continues to wreak havoc on financial companies.  One year prior, the firm made a profit of $71.2 million.

The company said revenues declined principally as a result of illiquidity in the financing market for private student loans, leading to the firm's inability to complete a securitization transaction. In addition, the firm decreased its fair value of service receivables, which resulted in a $315 million pretax decrease in total value. A Chapter 11 bankruptcy filing at Education Resources Institute played a large role in the write-down.

First Marblehead said, "our earnings this fiscal quarter were disappointing and affected by the continued disruption in the capital markets and the challenging consumer credit cycle. However, we recognize that the demand for private student loans and other services continues to be very strong."

In response to the current environment, First Marblehead has planned to transition into a diversified education finance products and services company.  It continues to work to close a $260 million investment from GS Capital Partners, in a deal first announced in December 2007.

10:54 am Citigroup (C)

Citigroup (C 24.53, +0.23) has been rocked by the subprime market turmoil with roughly $40 billion in write-downs and $42 billion in capital raises to shore up its balance sheet. At its annual analyst meeting, Citigroup outlined a new plan to cut some of its assets in hopes to revitalize its flagging business. 

Over the next two to three years, Citigroup will sell $400 billion of its $500 billion in "Legacy Assets" -- which are noncore assets.  As of March 31, Citi had $2.2 trillion in assets on its balance sheet. The company hopes that this will allow them to put capital back in its core business, which will then increase the firm's return on equity.

Citi has outlined a three-stage turnaround plan.  Stage one involves cutting noncore assets and costs, while decreasing risk and streamlining its business.  In the second stage Citi plans to move toward clear goals and restructuring. Finally, Citi is going to leverage and integrate its business model to deliver the full power of Citi to all of its clients in the third stage.

Shares of Citigroup are up 1%, which is slightly ahead the financial sector's current advance of 0.8%.

10:13 am Activision (ATVI)

Video game developer and publisher Activision (ATVI 26.92, +1.92) announced its latest quarter was its most profitable nonholiday quarter ever, even though the company did not release any new titles. Investors are pleased with the results sending shares 7% higher, after the company trounced analysts' expectations.

For its fiscal fourth quarter, which ended in March, the maker of popular games Guitar Hero and Call of Duty 4 said revenue rose 93% compared to last year to $602.5 million, blowing out the $369.1 million consensus estimate.  The company earned $55 million or $0.17 per share, excluding stock options expenses, rebounding from a loss of $0.05 in the year-ago quarter.  Wall Street was only expecting earnings of $0.05 per share.

For its full year, the company earned $377.5 million, or $1.20 per diluted share up 273% from the previous year.  In its press release, Activision said it was the top U.S. console and handheld publisher in dollars for the first time, according to the NPD group.  The company said Guitar Hero III was the best selling game in the U.S. and Europe in dollar terms and Call of Duty 4: Modern Warfare was the second best selling game worldwide in units, citing the NPD Group, Chartrack and Gfk.

New titles set for release in fiscal 2009 based on the popular brands Call of Duty, Guitar Hero and James Bond has kept management bullish. The company expects to earn $1.30 per share in full year 2009, which is higher than the consensus estimate of $1.18.

The December 1, 2007 definitive agreement to combine Vivendi Games and Activision remains subject to approval by Activision's stockholders and other customary closing conditions.

09:38 am NVIDIA (NVDA)

Semiconductor company NVIDIA (NVDA 21.97) earnings per share, excluding items, rose 64%, but fell short of analysts' lofty expectations.

The company, which specializes in visual computing technologies, said first quarter revenue rose 37% compared to last year to $1.15 billion, which matched estimates.  Earnings per diluted share were $0.36, falling two cents short estimates.  When including stock-based compensation charges net income rose 34% to $0.30 per diluted share.

Growth in graphic processing units (GPUs), which are chips that render graphics, continues to outpace the personal computer market, as gamers and other high end computer users upgrade their video cards to meet the ever increasing demands of next generation games and applications. GPUs are used in workstations, personal computers, game consoles and mobile devices.

The president and CEO said, "We shipped 42 percent more GPUs this quarter compared to the same period a year ago, resulting in our best first quarter ever." NVIDIA noted that it expects developers to continue to create applications with "beautiful graphics" which will continue to spur demand for faster graphic performance.

NVIDIA's gross margins were somewhat disappointing at 44.9% versus expectations of 46.0%, but the company helped mitigate some selling pressure after it said on its conference call that margins should increase by roughly 1%.  It expects revenue of $1.09 billion in the second quarter, which falls short of the $1.12 billion consensus estimate.

08:55 am Clear Channel Communications (CCU)

Media company Clear Channel Communications (CCU 29.84) reported first quarter earnings per share from continuing operations that slipped from last year, and fell short of Wall Street expectations.

The radio broadcasting and billboard company earned $94.2 million, or $0.19 per share, excluding nonrecurring items, which fell 9.5% short of expectations. In the year-ago quarter, Clear Channel earned $0.20 per share.  Including a $67.2 million gain in a 50% divesture in a South African advertising company, Clear Channel's income rose 70% to $161.4 million, or $0.32 per share.

Revenue rose 6.7% year-over-year to $1.6 billion, which was slightly ahead of the $1.53 billion consensus.

Clear Channel was supposed to be taken private during the first quarter by a group lead by Thomas H. Lee Partners and Bain Capital Partners, but financing issues have stalled the $19 billion buyout. The company and a unit of the buyout partners are suing the banks that have pulled out of financing, with a trial date set for June 2, 2008.  Clear Channel is not sure if the deal will now close.

08:28 am Priceline.com (PCLN)

Shares of Priceline.com (PCLN 123.78) have spiked nearly 15% in premarket trading after the company reported a 130% jump in earnings per share over one year ago.  If premarket gains hold, the stock will establish a fresh 52-week high.

Priceline reported first quarter earnings of $0.76 per share, which was $0.16 better than the consensus estimate that stood at $0.60. Revenue rose 41.2% year-over-year to $403.20 million versus the $377.17 million consensus estimate.

The company also topped its previous guidance. First quarter gross travel bookings increased 76% compared to last year, versus the company's guidance of 60% to 65%. Pro forma gross profit increased 74.7% year-over-year versus the company's guidance of 55% to 60%.

The online travel company expects to continue its winning ways. Priceline said it expects to earn between $5.25 and $5.65 per share for the full year, which is well ahead of the $5.12 consensus estimate.

08:16 am American International Group (AIG)

The credit and housing market turmoil continues to take a toll on American International Group (AIG 44.15).  The insurance giant reported its second straight quarterly loss, announced plans to raise capital and had its credit rating cut at two agencies.

The end result was a first quarter net loss of $7.81 billion or $3.09 per diluted share in the first quarter.  By comparison, in first quarter 2007 AIG earned $4.13 billion. Excluding nonrecurring items, AIG posted a loss of $3.56 billion, or $1.41 per share, which fell well short of the consensus estimate that called for a smaller loss of $0.76.

The loss was driven by a $9.11 billion pretax write-down related to its super senior credit default swap portfolio.  The company also had $6.09 billion in net realized capital losses, mostly due to "other-than-temporary" impairment charges. In other words, AIG feels the decline in market values of certain residential mortgage backed securities will not recover.

In response to AIG's massive loss, Standard & Poor's Rating Services lowered AIG's credit rating to AA- from AA, and lowered ratings on several of AIG's subsidiaries. All of AIG ratings are on CreditWatch with negative implications -- indicating that the ratings may be lowered. Separately, Fitch Ratings downgraded AIG's Default Rating and senior debt ratings to AA- from AA, with all ratings remaining on Rating Watch Negative.

The Dow component also announced  plans to raise approximately $12.5 billion in capital to shore up its balance sheet.  AIG will raise $7.5 billion in a common stock and equity-linked offering.  Some time in the future, AIG will raise the remaining $5 billion by issuing  "high equity content fixed income securities."  AIG stated the capital raising will strengthen the company's resources and enhance its ability to grow, while allowing it to withstand short-term market volatility.

In a questionable move, the company is going to raise its dividend by 10% to $0.22 per share -- even though its capital raise will be dilutive to existing shareholders.  The increased cost of the dividend at $50 million per quarter, however, is small in comparison to the capital raise.  This marks 23 straight years that AIG has raised its dividend.

Shares of AIG are down nearly 8% in premarket trading, and are down 44% from their 52-week high.