Almost done with earnings season, with 433 or 86.6% of S&P 500 second quarter results in. Total earnings growth low at 11.2%, but mostly due to one stock (BAC). Ex-Financials, growth is 20.9% year over year. Total revenue growth 12.15%, 12.73% ex-Financials. Median earnings surprise 3.13% and median sales surprise 2.06%. Remaining firms (67) expected to grow 8.9%, 5.4% growth expected excluding Financials.
If remaining firms all report in line, then 87.9% of earnings are now in. Final growth to be 10.95%, 18.80% ex-Financials. At start of earnings season 9.65% growth expected, 12.18% ex-Financials.
Earnings beats top misses by a 3.42 ratio, sales beats top misses by 2.81 ratio, 69.5% of all firms report positive earnings surprise, 72.1% beat on revenues.
Full-year total earnings for the S&P 500 jumps 45.6% in 2010, expected to rise 16.0% further in 2011. Growth to continue in 2012 with total net income expected to rise 11.5%. Financials major earnings driver in 2010. Excluding Financials, growth was 27.7% in 2010, and expected to be 18.8% in 2011 and 10.8% in 2012.
Total revenues for the S&P 500 rose 7.78% in 2010, expected to be up 6.72% in 2011, and 6.54% in 2012. Excluding Financials, revenues up 9.16% in 2010, expected to rise 11.14% in 2011 and 5.96% in 2012.
Annual Net Margins marching higher, from 5.88% in 2008 to 6.40% in 2009 to 8.65% for 2010, 9.34% expected for 2011 and 9.83% in 2012. Margin Expansion major source of earnings growth. Net margins ex-Financials 7.79% in 2008, 7.07% in 2009, 8.27% for 2010, 8.84% expected in 2011, and 9.25% in 2012.
Revisions ratio for full S&P 500 at 1.61 for 2011, at 1.41 for 2012, both bullish readings. Up from last week and driven by new increases, not old estimates falling out. Ratio of firms with rising-to-falling mean estimates at 1.44 for 2011, 1.30 for 2012 -- bullish readings. Total revisions activity still climbing, but should peak soon.
The S&P 500 earned $546.5 billion in 2009, rising to $795.4 billion in 2010, expected to climb to $922.2 billion in 2011. In 2012, the 500 are collectively expected to earn $1.028 trillion.
S&P 500 earned $57.20 in 2009: $83.16 in 2010 and $96.47 in 2011 expected, bottom up. For 2012, $107.53 expected. Puts P/Es at 14.4x for 2010 and 12.4x for 2011 and 11.2x for 2012, very attractive relative to 10-year T-note rate of 2.56%. Top-down estimates: $96.26 for 2011 and $105.44 for 2012.
Problems Here and There
Second quarter earnings season is almost over, with 433 of the S&P 500, or 86.6%, of the reports in. With the exception of a handful of financials, most notably Bank of America (NYSE: BAC - News), which had a $12 billion negative swing in net income from last year, this is another great earnings season.
The year-over-year growth rate for the S&P 500 is 11.2%, way off the 20.9% pace those same 433 firms posted in the first quarter. However, it you exclude the Financial sector, growth is 20.9%, down only slightly from the 21.2% pace of the first quarter.
The 86.6% reported figure slightly understates how far we are along in earnings season. If all the remaining firms were to report exactly in line with expectations, we now have 87.9% of the total earnings in. At the beginning of earnings season, growth of 9.7% was expected, 12.2% ex-Financials.
Top line results are also very strong, with 12.15% year-over-year growth for the 433, actually up from the 9.72% growth they posted in the first quarter. The top-line results are even more impressive if the Financials are excluded, rising to 12.73% from the 10.67% pace of the first quarter. Top-line surprises have been almost as good as than the bottom line surprises, with a median surprise of 2.06% and a 2.81 surprise ratio.
The revenue growth in the first half is remarkable, given only 0.4% GDP growth in the first quarter and just 1.3% in the second, with low overall inflation. High commodity prices helped revenues among the Energy and Materials sectors, and higher growth abroad and currency translation effects from a weak dollar have also helped.
What to Expect from the Rest
For those (67) still to report, the rate of growth is expected to be well below what we have seen already, with growth of 8.9%, in total and 5.4% ex Financials. I suspect that the actual growth will be somewhat higher than is now expected. With six sectors now done, and many more sectors with only one or two firms left to go, use caution in interpreting the “expected tables at the sector level.
Revenue growth for the remaining firms is also expected to slow, falling 1.52% among those yet to report, down from +4.79% they reported in the first quarter. Excluding the Financials, growth is expected to be 4.63%, down from 4.75% of the first quarter.
Net Margins Slimming
Net margins have been one of the keys to earnings growth, but cracks in the story are starting to appear. The 433 that have reported have net margins of 9.69%, down from 9.77% a year ago. That, however, is due to the Financials, especially BAC. Excluding Financials, next margins have come in at 9.08%, up from 8.47% a year ago.
The higher margin firms have reported early, 31% of the remaining firms are retailers, and traditionally retail is the lowest margin sector. The remainder are expected to post net margins of 6.66% up from last year’s 6.02%. Excluding Financials, the expected net margins are 6.05%, up from 6.01% last year.
On an annual basis, net margins continue to march northward. In 2008, overall net margins were just 5.88%, rising to 6.40% in 2009. They hit 8.65% in 2010 and are expected to continue climbing to 9.34% in 2011 and 9.83% in 2012. The pattern is a bit different, particularly during the recession, if the Financials are excluded, as margins fell from 7.78% in 2008 to 7.07% in 2009, but have started a robust recovery and rose to 8.27% in 2010. They are expected to rise to 8.84% in 2011 and 9.25% in 2012.
Full-Year Expectations & Beyond
The expectations for the full year are very healthy, with total net income for 2010 rising to $795.2 billion in 2010, up from $544.3 billion in 2009. In 2011, the total net income for the S&P 500 should be $922.2 billion, or increases of 45.6% and 16.0%, respectively.
The expectation is for 2012 to have total net income passing the $1 trillion mark to $1.028 Trillion, for growth of 11.5%. That will also put the “EPS for the S&P 500 over the $100 “per share level for the first time at $107.53. That is up from $57.15 for 2009, $83.16 for 2010 and $96.47 for 2011.
In an environment where the 10-year T-note is yielding 2.56%, a P/E of 14.4x based on 2010 and 12.4x based on 2011 earnings looks attractive. The P/E based on 2012 earnings is 11.2x.
Heavy Estimate Revisions
Estimate revisions activity is soaring (as is seasonally normal). During the seasonal decline in revisions activity, the ratio of increases to cuts also declined sharply, from over 2.0 at the height of the last earnings season, to slightly below 1.0 for both this year and next. Now as activity is ticking up, so are the revisions ratios standing at 1.61 (up from 1.45 last week) for 2011 and 1.41 (up from 1.36) for 2012.
The fundamental backing for the market continues to be solid. It is important to keep your eyes on the prize. There is lots of news out there, and much of it is more dramatic than earnings results, but rarely does it have more significance for your portfolio. Earning are, and are going to remain, the single most important thing for the stock market. Interest rates are an important, but distant second.
At the micro level, earnings and valuations provide plenty of reason to be bullish. This is particularly true when one looks at the prevailing level of interest rates. Currently 160 S&P 500 (32.0%) firms have dividend yields higher than the Friday yield on the 10-year T-note, and more than half (295, or 59.0%) yield more than the 5-year note.
One thing is absolutely certain: the coupon payment on those notes will never go up, while companies have been raising their dividends at a rapid pace of late. Nearly one quarter of the firms in the S&P 500 have raised their dividend at more than a 10% per year rate over the last five years, and those five years include the worst economic downturn since the 1930’s.
Encore Performance Scheduled
While major corporations, as represented by the S&P 500 are in great shape, not only with nicely growing earnings, but also with great balance sheets, all is not well in the markets, mostly because of political problems and a bad macro economy. In particular, there are major problems on both sides of the Atlantic. On this side, we managed to avoid an economic end of the world scenario last Tuesday when Congress passed a last minute raising of the debt ceiling. It only happened because President Obama caved in. He should have just invoked the 14th Amendment and told the Tea Party to go jump in a lake.
In effect, the Tea Party had held the economy hostage, and in the end Obama decided to pay a ransom. That ransom was about $1 trillion in spending cuts over the next decade, and the formation of a “Super Committee to identify an additional $1.5 trillion in deficit reduction over the next decade. If the Super Committee reaches an impasse by their deadline (Just before Thanksgiving) or Congress does not pass their plan (by Christmas), $1.2 trillion of spending cuts will automatically go into effect.
While the first part of the spending cuts are back-end loaded, with almost no spending cuts for the rest of 2011 and minimal cuts for 2012, the same is not true of the $1.2 trillion, which is a meat-cleaver approach and is very front-end loaded. Those cuts will kill the economy, which in turn will depress tax revenues by throwing us back into recession, and in the end might well result in a higher, not lower deficit. In other words, there is another hostage ripe for the taking.
If you enjoyed the debt-ceiling circus and are sad that the show is over, don’t worry -- there will be an encore performance just before Thanksgiving. It seems clear to me that the Super Committee is begin set up to fail and to reach an impasse. The GOP will appoint members who will not even discuss revenue increases. The Democrats will appoint strong defenders of Social Security, Medicare and programs like Food Stamps.
In the end, either the Democrats and Obama will once again fold like lawn chairs, or we will see the $1.2 trillion meat cleaver cuts go into effect. You think I’m being too political and over the top by calling the Tea Party Hostage takers? Don’t take my word for it, how about Senate Minority Leader Mitch McConnell’s?
“I think some of our members may have thought the default issue was a hostage you might take a chance at shooting, he said. “Most of us didn’t think that. What we did learn is this — it’s a hostage that’s worth ransoming."
S&P Downgrade Overblown, but...
This is exactly the dynamic that caused S&P to downgrade Treasury bonds to AA+ from AAA. Let me make one thing perfectly clear: as long as the debt is denominated in dollars (all of it is now) and the government owns a printing press that can print those dollars, the only way the government can default is if we make an absurdly stupid political decision to do so. That statement is true if the national debt is $14.5 trillion, or it is $114.5 trillion.
Could all that printing be inflationary? Of course it could. The debt covenants do not specify the purchasing power of the dollars paid back, just that they are paid back. However, right now inflation is not a problem. Right now the bond market, through the spread between regular T-notes and TIPS is forecasted to average about 2% per year over the next ten years, which is less than the 2.57% it has averaged over the last 20 years.
No AAA Political System
What S&P is saying is not that we don’t have a AAA economy or ability to pay, it is saying that we don’t have a AAA political system. After all, we just had a large number of members of the Congress that were saying “Let's just go ahead and default. That should be the realm of wing-nut bloggers, not people who actually have the job of governing this country.
I should also make two points as well. The S&P rating is only an opinion about the probability of a default, and the S&P has been disastrously wrong in the past. They handed out AAA ratings like candy on Halloween to any pile of bad mortgages tall enough to ring the doorbell, and they assigned a AAA rating to Enron until just days before it wrote the eleventh and final chapter in the firm's history.
Second, this does not have to mean that U.S. interest rates are going to have to rise (other than some potential short-term volatility). In time of stress, T-notes are still going to be the first place that institutions look to park money when they want to flee to a safe place, regardless of what S&P says about how safe they are.
There are simply no other markets that are big enough to do the job. Not the Swiss franc, not gold, not AAA corporates. All of them are simply too small to do the job. S&P downgraded Japan a long time ago, and their long-term bond rates are even lower than ours are and have been since they were downgraded.
Are the Chinese going to dump their Treasuries? NO. What would they do with the money if they did? Buy bonds in euros or yen? If they did so they would have to sell dollars and buy either yen or euros. That would weaken the dollar and strengthen those currencies. That would make our exports cheaper and imports more expensive, and thus lower our trade deficit. That would be a good thing for the economy.
Thus I don’t think that the S&P downgrade is, in and of itself, a big problem. There are some areas where there might be some difficulty. For example, it is exceedingly rare, if not unheard of for a sub unit of government to have a higher credit rating than the sovereign, so the states that still have AAA ratings will probably face downgrades, and that could hurt them.
Also, the remaining AAA firms in the country may see downgrades as well. Microsoft (NasdaqGS: MSFT - News) and Johnson & Johnson (NYSE: JNJ - News) are fine firms with excellent balance sheets, but to suggest that they are less likely to default than the U.S. government is silly. They don’t won a printing press that can legally churn out dollars, the government does.
Some Very Real Problems Here
Growth is very weak. In the second quarter the economy grew at only 1.3%, far below the consensus estimates of 1.7% growth. The real shocker in the report was the downward revisions to past quarters. Most notably, the first quarter was revised down to just 0.4% from 1.9% and the fourth quarter was revised down to 2.3% from 3.1%.
It also showed that the recession was FAR worse than previously reported, with a total decline in Real GDP of 5.1%, not the 4.2% we thought we had suffered. We need at least 2% growth to bring down unemployment.
Obama now says he wants to fight for jobs. Unfortunately, he just bargained away all of the ammo he needs to fight with. It is not that the current round of spending cuts are that big in the short term -- they aren’t. The problem is it precludes taking any other fiscal action that could help on the growth and employment front.
And Even Bigger Ones Over There
The drama was not limited to this side of the Atlantic. The sovereign debt crisis there is now focused on Italy. It is the third largest economy in the Euro Zone, and Spain, number four, looks to also be under attack. Both of which were supposed to be part of the lifeguard group that was going out to rescue Greece, Ireland and Portugal. Well, the first and most important requirement to be a lifeguard is the ability to swim, and Italy is proving itself to be no Michael Phelps. Its interest rates have spiked to over 6%, which is unsustainable.
There was a serious question during the week if the European Central Bank (ECB) would continue to buy, or continue to accept as collateral, Italian debt. That was the spark that lit the 513 point drop in the Dow on Thursday. On Friday, the ECB announced that it would, but only if Italy imposed a stiff austerity program right away, just like Greece, Portugal and Ireland are doing.
This “economic rescue that the ECB agreed to on Friday (and thus causing the market to rally back to finished mixed on Friday, rather than down hard again) is bound to fail, just as the packages for Greece, Ireland and Portugal are failing.
Ultimately, one of two things is going to have to happen. Either fiscal policy will have to be consolidated in Europe as a whole, which means that the individual countries will have to give up most of their sovereignty. Essentially Italy will have to become like Florida, and Germany like California. For that to happen, the overwhelming majority of people in Europe will have to think of themselves first and foremost as Europeans, not as French, German or Italian, just as most people here tend to think of themselves first and foremost as Americans, not as New Yorkers, Buckeyes or Hoosiers. Given historical, cultural and language differences in Europe, that seems unlikely to happen.
It would also mean that people in Germany and the Netherlands would see a big part of their tax dollars flowing to Greece and Spain, just like people in Connecticut and New Jersey see a big part of their tax dollars flowing to Mississippi and Alaska. If that doesn’t happen, the common euro currency has to fall apart.
Italy and Greece, unlike the U.S., do not have their own printing press. They have to rely on the printing press of the ECB, and that is largely controlled by the Germans. The process of unscrambling the euro-egg and going back to drachmas and lira is going to be a very messy one, and will result in huge dislocations, and thus potentially cause economic collapse. For example, if someone in Italy owes $1 million euros, how many lira will that be when there is no longer a euro to pay back?
European banks are heavily invested in the bonds of the PIIGS, and there is a real threat to the stability of the European banking system. If it goes down, ours will follow as night follows day. This is not a problem caused here, and is not the fault of Obama, or Bush, or Congress for that matter. It is a mess of the Europeans own making, but its effects will be felt here, just as the effects of the mortgage mess of our making were felt there.
This Too Shall Pass
All this said, I am still inherently optimistic. The U.S. has weathered many storms before -- world wars, depressions, terrorist strikes -- and has always proved resilient. Stock market valuations remain compelling, and it is good to buy when things are cheap. Usually the end of the world does not happen.
There are plenty of companies that are in great shape and which will continue to grow and prosper. In the final analysis, the value of a company is based on what it will earn in the future, and what interest rate you have to discount those future earnings by. Corporate earnings are still very strong and interest rates are very low. Still, these are perilous times on a macro level.
I first suggested taking out insurance against a debt ceiling fiasco in the June 30th edition of Earnings Trends. Then the 120 September SPY puts (my suggested vehicle, but just an example) were trading for $0.89. Now they are going for $4.65. If you followed my advice, sell off half of your position now. Close out the position if the S&P 500 falls below 1100, which would be just about a doubling from here.
On balance, I remain bullish. I am, however, pulling back on my year-end target price for the S&P 500. I had been looking for about 1400 by the end of the year (since December). With the slower economy, and the turmoil on both sides of the Atlantic, something more on the order of 1325 now looks more realistic.
Strong earnings should trump a dicey international situation, and the drama in DC. Valuations on stocks look very compelling, with the S&P trading from just 12.44x 2011, and 11.16x 2012 earnings. Put in terms of earnings yields, we are looking at 8.04% and 8.96%, while T-notes are only at 2.56%.
The old “Fed Model suggested that the forward earnings yield (call it 8.50%) should be in line with the 10-year note. On that basis, stocks are wildly undervalued. Even based on the 10-year trailing P/E, which includes two periods of very depressed earnings, and does not take into consideration interest rates, stocks are just about fairly valued. Between here and there could be a very bumpy ride though. The direct implications of the S&P downgrade are overblown, but the other problems we face are not.
Scorecard & Earnings Surprise
We have another great earnings season underway. So far, 319 (63.8%) reports in. Total growth looks low at 12.24% but that is entirely due to a handful of Financials). We have a 3.13 surprise ratio, and 3.13% median surprise. Positive Surprises for 69.5% of all firms reporting.
Positive year-over-year growth for 320, falling EPS for 104 firms, a 3.13 ratio, 75.3% of all firms reporting have higher EPS than last year.
Six sectors done, most others down to one or two left to go.
Autos, Discretionary and Tech lead in surprise; Transports, Industrials lag.
Historically, a “normal earnings season will have a surprise ratio of about 3:1 and a median surprise of about 3.0%. Thus we are doing much better than average on the median front, and about average on the ratio front. Pay attention to the percent reporting in evaluating the significance of the sector numbers.
Scorecard & Earnings Surprise 4Q Reported
Income Surprises Yr/Yr
Growth
%
Reported
Surprise
Median
EPS
Surp
Pos
EPS
Surp
Neg
#
Grow
Pos
#
Grow
Neg
Auto 15.57% 100.00% 8.33 6 1 6 1
Consumer Discretionary 16.42% 70.97% 6.90 16 5 17 5
Computer and Tech 28.42% 81.69% 5.61 44 10 43 15
Retail/Wholesale 14.04% 54.17% 4.99 22 2 22 3
Finance -28.19% 97.50% 4.04 58 12 57 21
Oils and Energy 42.49% 97.56% 3.65 27 11 32 8
Utilities 5.71% 90.24% 3.64 22 11 24 13
Aerospace 3.07% 100.00% 3.47 6 3 4 5
Basic Materials 50.34% 100.00% 3.01 15 6 21 2
Conglomerates 18.87% 100.00% 2.84 7 1 9 0
Business Service 17.44% 94.74% 2.00 12 2 16 2
Medical 4.73% 93.33% 1.76 29 6 33 9
Consumer Staples 7.94% 66.67% 1.62 15 4 16 8
Construction -13.36% 100.00% 1.43 6 4 3 8
Industrial Products 27.41% 81.82% 1.03 10 7 15 3
Transportation 16.55% 100.00% 0.96 6 3 8 1
S&P 11.24% 86.60% 3.13 301 88 326 104
Sales Surprises
Strong revenue start, revenue growth of 12.15% among the 433 that have reported, median surprise 2.06 (very strong), surprise ratio of 2.81. Positive surprise for 72.1%.
Growing Revenues outnumber falling revenues by ratio of 5.01; 83.4% have higher sales than last year.
Autos and Energy have biggest median surprises, but Energy Surprise ratio is below average.
Aerospace, Utilities only sectors with more disappointments than positive surprises.
Sales Surprises
Sales Surprises Yr/Yr
Growth
%
Reported
Surprise
Median
Sales
Surp
Pos
Sales
Surp
Neg
#
Grow
Pos
#
Grow
Neg
Auto 11.95% 100.00% 7.768 7 0 7 0
Oils and Energy 34.69% 97.56% 4.896 27 13 35 5
Conglomerates 2.89% 100.00% 3.217 7 1 8 1
Finance -4.25% 97.50% 2.77 57 19 53 25
Basic Materials 23.64% 100.00% 2.656 19 4 23 0
Consumer Discretionary 15.88% 70.97% 2.286 21 2 20 3
Construction 2.15% 100.00% 2.135 7 4 5 6
Medical 6.22% 93.33% 1.853 33 8 39 3
Retail/Wholesale 10.09% 54.17% 1.81 20 6 25 1
Consumer Staples 8.68% 66.67% 1.766 18 6 19 5
Industrial Products 17.95% 81.82% 1.653 12 7 19 0
Business Service 12.18% 94.74% 1.65 13 5 17 1
Computer and Tech 17.59% 81.69% 1.51 43 15 47 11
Transportation 12.95% 100.00% 1.371 6 3 9 0
Aerospace -1.83% 100.00% -0.03 4 5 5 4
Utilities 4.83% 90.24% -0.129 18 19 30 7
S&P 12.15% 86.60% 2.06 312 117 361 72
Reported Quarterly Growth: Total Net Income
The total net income is 10.76% above what was reported in the second quarter of 2010, down from 21.37% growth the same 319 firms reported in the first quarter. Excluding Financials, growth of 21.46%, down from 23.70% reported in the first quarter. Financials hit by a $12 billion negative swing at Bank of America for mortgage settlement.
Sequential earnings growth is 1.16% for the 319 that have reported, +10.96% ex-Financials.
Materials, Energy, Industrials and Tech all report over 25% growth, Construction and Finance only sectors with negative growth.
Five sectors see earnings accelerate from first quarter, 11 see slowing growth.
If remaining firms all report in line, 69.9% of total earnings for the quarter have reported.
Quarterly Growth: Total Net Income Reported
Income Growth 'Sequential Q3/Q2 E' 'Sequential Q2/Q1 A' Year over Year 2Q 11 A Year over Year 3Q 11 E Year over Year 1Q 11 A
Basic Materials -23.13% 2.64% 50.34% 32.63% 48.26%
Oils and Energy -4.37% 15.54% 42.49% 51.03% 40.47%
Computer and Tech -7.01% 16.37% 28.42% 11.16% 28.53%
Industrial Products 2.40% 12.82% 27.41% 20.98% 76.09%
Conglomerates -1.92% 13.39% 18.87% 9.96% 29.30%
Business Service 2.87% 10.87% 17.44% 19.70% 14.25%
Transportation 5.53% 37.05% 16.55% 16.95% 23.82%
Consumer Discretionary 22.50% 14.77% 16.42% 5.71% 16.76%
Auto -22.16% 7.21% 15.57% 11.44% 46.88%
Retail/Wholesale 4.21% -6.33% 14.04% 7.09% 8.65%
Consumer Staples -2.10% 27.92% 7.94% 7.61% 4.66%
Utilities 20.62% 1.53% 5.71% 4.92% -2.48%
Medical -4.26% 0.90% 4.73% 1.77% 6.09%
Aerospace -4.13% 18.01% 3.07% 2.09% 5.04%
Construction 18.23% 214.06% -13.36% 63.15% -34.25%
Finance 49.73% -35.08% -28.19% 15.74% 15.84%
S&P 500 4.14% 2.11% 11.24% 15.67% 20.09%
Excluding Financial -2.50% 11.40% 20.91% 15.66% 21.21%
Expected Quarterly Growth: Total Net Income
Total net income growth of 8.90% is expected for remaining 67 firms, up from -0.58% year over year growth in the first quarter. Ex-Finance, 5.42% expected, down from 7.86 in first quarter.
Sequential earnings growth of negative 1.47% expected, 6.98% ex-Financials.
If all remaining firms report in line, 87.0% of earnings reported already. Final growth 10.95%, 18.8% ex-Financials.
Materials, Finance and Industrials expected to lead among remaining firms. Retail and Staples still have significant number of firms left to report.
Some sectors have only a handful of firms left to report, and often not major players, refer back to % reported in Scorecard table to assess significance of sector numbers.
Quarterly Growth: Total Net Income Expected
Income Growth Sequential Q3/Q2 E Sequential Q2/Q1 A Year over Year 2Q 11 E Year over Year 3Q 11 E Year over Year 1Q 11 A
Oils and Energy 27.47% 19.81% 371.25% 475.14% 50.00%
Finance 0.00% 96.38% 50.78% 6.47% -58.41%
Industrial Products -10.67% -16.18% 19.40% 27.68% 32.91%
Utilities 9.97% -19.55% 15.09% 5.62% 19.23%
Consumer Discretionary 0.59% -11.47% 9.40% 31.92% 8.23%
Retail/Wholesale -13.64% 14.81% 5.48% 9.92% 3.41%
Consumer Staples 32.94% -18.31% 5.43% -0.40% 1.88%
Computer and Tech 7.55% -21.18% 0.47% -7.40% 12.40%
Medical 6.06% -10.31% -2.13% 3.80% 1.63%
Busines Service 5.16% -5.18% -21.98% -15.83% 4.00%
Auto na na Na na Na
Basica Materials na na Na na Na
Construction na na Na na Na
Conglomerates na na Na na Na
Aerospace na na Na na Na
Transportation na na Na na Na
S&P 500 2.55% -1.47% 8.90% 4.91% -0.58%
Excluding Financial 2.85% -6.98% 5.42% 4.73% 7.86%
Quarterly Growth: Total Revenues Reported
Revenue growth very strong at 12.15%, up from the 9.72% growth posted (433 firms) in the first quarter. Growth ex-Financials 12.73%, up from 10.67%.
Sequentially, revenues 5.04% higher than in the first quarter, up 5.73% ex-Financials.
Energy, Materials, Industrials, Tech and Discretionary all reporting revenue growth over 15%, four more in double digits.
Quarterly Growth: Total Revenues Reported
Sales Growth 'Sequential Q3/Q2 E' 'Sequential Q2/Q1 A' Year over Year 2Q 11 A Year over Year
3Q 11 E
Year over Year 1Q 11 A
Oils and Energy -5.94% 13.08% 34.69% 25.17% 24.99%
Basica Materials -9.15% 8.19% 23.64% 13.06% 19.48%
Industrial Products 1.40% 9.09% 17.95% 15.83% 25.45%
Computer and Tech -1.35% 7.34% 17.59% 13.26% 22.10%
Consumer Discretionary 8.86% 8.90% 15.88% 20.36% 10.83%
Transportation 1.60% 9.66% 12.95% 13.37% 11.75%
Business Service -2.11% 5.93% 12.18% 8.78% 10.10%
Auto -7.13% 8.00% 11.95% 11.41% 13.96%
Retail/Wholesale 2.73% 1.21% 10.09% 9.40% 8.04%
Consumer Staples -14.08% 15.78% 8.68% -2.76% 6.27%
Medical -1.18% 2.72% 6.22% 5.81% 4.42%
Utilities 13.75% -3.61% 4.83% 7.50% -0.80%
Conglomerates -1.28% 1.37% 2.89% 4.19% 7.40%
Construction 4.08% 17.54% 2.15% 8.33% 0.84%
Aerospace 5.08% 5.40% -1.83% 0.71% -3.24%
Finance -3.13% -4.99% -4.25% -5.68% -2.97%
S&P 500 -1.63% 5.04% 12.15% 9.24% 9.72%
Excluding Financial -2.77% 5.73% 12.73% 9.39% 10.67%
Quarterly Growth: Total Revenues Expected
Revenue growth expected to drop 1.52% year over year, down from the +4.79% growth posted in the first quarter (67 firms). Ex-Financials growth of 4.63% expected, down from 4.75% in first quarter.
Sequentially revenues 5.96% lower than in the first quarter, up 0.04% ex-Financials.
Financial sector expected to have falling revenues.
As one would expect in an economic recovery, cyclicals are leading the way on revenue growth. Energy growth helped by strong commodity prices.
Very small samples left, use this table with caution. Pay more attention to reported table.
Quarterly Growth: Total Revenues Expected
Sales Growth Sequential Q3/Q2 E Sequential Q2/Q1 A Year over Year
2Q 11 E
Year over Year
3Q 11 E
Year over Year
1Q 11 A
Oils and Energy 10.57% 3.22% 44.18% 36.85% 38.37%
Industrial Products 1.36% -9.92% 15.03% 10.14% 23.60%
Consumer Staples 1.52% 0.39% 6.22% 3.40% 4.31%
Consumer Discretionary 5.02% -2.99% 5.75% 9.90% 7.80%
Utilities -32.52% -16.07% 5.61% -36.03% 0.99%
Retail/Wholesale -6.72% 1.87% 4.04% 0.01% 4.02%
Computer and Tech 5.19% -1.41% 3.37% 4.07% 4.67%
Medical -0.21% -3.49% 3.13% 2.73% 1.43%
Busines Service 4.67% 2.72% -1.18% 0.73% 0.11%
Finance 354.61% -79.31% -78.00% -12.58% 5.25%
Auto Na Na Na na Na
Basica Materials Na Na Na na Na
Construction Na Na Na na Na
Conglomerates Na Na Na na Na
Aerospace Na Na Na na Na
Transportation Na Na Na na Na
S&P 500 2.76% -5.96% -1.52% 0.05% 4.79%
Excluding Financial -3.19% 0.04% 4.63% 1.22% 4.75%
Quarterly Net Margins Reported
Sector and S&P net margins are calculated as total net income for the sector divided by total revenues for the sector.
Net margins for the 4.33 that have reported fall to 9.69% from 9.77% a year ago, and down from 9.77% in the first quarter. Net margins ex-Financials rise to 9.08% from 8.47% a year ago and 8.62% in the first quarter.
Twelve sectors see year-over-year margin expansion, only four see contraction. Financial net margins fall to 9.21% from 12.88%.
Margin expansion the key driver behind earnings growth. Due to seasonality, it is best to compare to a year ago, particularly at the individual company and sector levels. A mix of companies reporting will lead to big changes in both the reported and expected net margin tables from week to week.
Quarterly: Net Margins Reported
Net Margins Q3 2011 Estimated Q2 2011 Reported 1Q 2011 Reported 4Q 2010 Reported 3Q 2010 Reported 2Q 2010 Reported
Computer and Tech 19.04% 20.20% 18.63% 20.40% 19.40% 18.50%
Medical 13.04% 13.46% 13.71% 12.44% 13.56% 13.65%
Busines Service 12.81% 12.19% 11.65% 12.29% 11.64% 11.64%
Consumer Staples 13.82% 12.13% 10.98% 10.21% 12.49% 12.21%
Conglomerates 9.93% 10.00% 8.94% 10.73% 9.41% 8.65%
Finance 14.23% 9.21% 13.48% 10.65% 11.60% 12.28%
Basic Materials 7.36% 8.70% 9.17% 6.71% 6.27% 7.15%
Industrial Products 8.65% 8.57% 8.28% 7.72% 8.28% 7.93%
Oils and Energy 8.70% 8.55% 8.37% 7.73% 7.21% 8.09%
Consumer Discretionary 9.52% 8.46% 8.02% 9.33% 10.83% 8.42%
Transportation 8.76% 8.43% 6.75% 8.03% 8.49% 8.17%
Utilities 8.86% 8.36% 7.93% 6.56% 9.08% 8.29%
Aerospace 6.28% 6.88% 6.14% 6.49% 6.19% 6.55%
Auto 5.52% 6.59% 6.64% 3.76% 5.52% 6.38%
Retail/Wholesale 3.29% 3.24% 3.50% 3.35% 3.36% 3.13%
Construction 3.53% 3.10% 1.16% 2.04% 2.34% 3.66%
S&P 500 10.26% 9.69% 9.97% 9.37% 9.69% 9.77%
Excluding Financial 9.11% 9.08% 8.62% 8.42% 8.62% 8.47%
Quarterly Net Margins Expected
Sector and S&P net margins are calculated as total net income for the sector divided by total revenues for the sector.
Net margins for the 67 yet to report firms expected to expand to 6.66% from 6.02% a year ago, and 6.36% in the first quarter. Net margins ex-Financials rise to 6.05% from 6.01% a year ago, but down from 6.51% in the first quarter.
Small sample sizes, use this table with caution.
Margin expansion the key driver behind earnings growth.
Quarterly: Net Margins Expected
Net Margins Q3 2011 Estimated Q2 2011 Estimated 1Q 2011 Reported 4Q 2010 Reported 3Q 2010 Reported 2Q 2010 Reported
Finance 8.18% 42.54% 4.48% 7.75% 7.68% 6.21%
Medical 17.95% 16.89% 18.57% 18.57% 17.77% 17.80%
Consumer Discretionary 11.23% 11.73% 12.32% 11.92% 9.36% 11.34%
Oils and Energy 12.49% 10.83% 9.33% 5.14% 2.97% 3.31%
Industrial Products 8.84% 10.03% 10.77% 9.12% 7.62% 9.66%
Utilities 15.47% 9.49% 9.27% 10.08% 9.37% 8.71%
Computer and Tech 9.16% 8.96% 11.15% 10.38% 10.29% 9.22%
Consumer Staples 10.38% 7.92% 9.50% 11.37% 10.77% 7.98%
Busines Service 4.49% 4.46% 4.84% 4.77% 5.37% 5.65%
Retail/Wholesale 3.48% 3.76% 3.31% 4.52% 3.17% 3.71%
Auto na Na na na na Na
Basic Materials na Na na na na Na
Construction na Na na na na Na
Conglomerates na Na na na na Na
Aerospace na Na na na na Na
Transportation na Na na na na Na
S&P 500 6.58% 6.66% 6.36% 7.17% 6.34% 6.02%
Excluding Financial 6.43% 6.05% 6.51% 7.10% 6.21% 6.01%
Annual Total Net Income Growth
Following rise of just 2.1% in 2009, total earnings for the S&P 500 jumps 45.6% in 2010, 16.0% further expected in 2011. Growth ex-Financials 27.7% in 2010, 18.9% in 2011.
For 2012, 11.5% growth expected. 10.8% ex-Financials.
Auto net income expands more than 15x in 2010, Financial net income more than quadruples.
All sectors expected to show total net income rise in 2011 and in 2012. Utilities only (small) decliner in 2010. Ten sectors expected to post double-digit growth in 2011 and 13 in 2012. No sector expected to grow less than 5% in 2012.
Cyclical/Commodity sectors expected to lead in earnings growth again in 2011 and into 2012. Energy and Materials expected to grow over 35% for second year.
Sector dispersion of earnings growth narrows dramatically between 2010 and 2012, only three sectors expected to grow more than 20% in 2012, seven grew more than 35% in 2010.
Annual Total Net Income Growth
Net Income Growth 2009 2010 2011 2012
Oils and Energy -55.09% 50.09% 40.53% 10.68%
Basic Materials -50.27% 72.18% 39.37% 13.05%
Industrial Products -35.11% 36.51% 34.67% 13.50%
Computer and Tech -5.09% 47.97% 23.11% 11.80%
Transportation -30.22% 44.41% 21.71% 21.00%
Consumer Discretionary -15.47% 22.50% 20.87% 13.76%
Auto - to + 1457.95% 18.73% 14.16%
Business Service 1.26% 13.67% 17.46% 14.01%
Conglomerates -23.60% 11.23% 12.85% 17.34%
Retail/Wholesale 2.64% 14.67% 10.76% 12.99%
Consumer Staples 5.79% 11.72% 9.30% 9.30%
Medical 2.52% 10.40% 6.43% 4.87%
Aerospace -16.75% 21.02% 4.45% 8.21%
Finance - to + 306.06% 3.05% 15.00%
Utilities -13.47% -0.86% 2.98% 5.75%
Construction - to - - to + 1.62% 58.91%
S&P 500 2.06% 45.56% 15.96% 11.50%
Annual Total Revenue Growth
Total S&P 500 Revenue in 2010 rises 7.78% above 2009 levels, a rebound from a 6.33% 2009 decline.
Total revenues for the S&P 500 expected to rise 6.72% in 2011, 6.54% in 2012.
Energy to lead revenue race in 2011. Six other sectors (all cyclical) also expected to show double-digit revenue growth in 2011.
All sectors but Staples and Finance expected to show positive top-line growth in 2011, but four sectors expected to show positive growth below 5%. All sectors see 2012 growth, four in double digits.
Aerospace the only sector to post lower top-line for 2010. Revenues for Financials were virtually unchanged.
Four sectors expected to post double-digit top line growth in 2012, led by Construction and Industrials. No sector expected to post falling revenues.
Revenue growth significantly different if Financials are excluded, down 10.46% in 2009 but growth of 9.16% in 2010, 11.14% in 2011, and 5.96% in 2012.
Annual Total Revenue Growth
Sales Growth 2009 2010 2011 2012
Oils and Energy -34.41% 23.15% 24.52% 7.06%
Basic Materials -19.30% 12.78% 18.39% 6.62%
Industrial Products -20.96% 12.34% 17.69% 11.78%
Auto -21.40% 8.53% 14.66% 9.32%
Consumer Discretionary -4.95% 3.93% 13.83% 7.63%
Transportation 7.25% 10.83% 13.50% 10.88%
Computer and Tech -6.55% 15.36% 12.58% 10.29%
Business Service -3.61% 4.81% 7.89% 7.08%
Retail/Wholesale 1.40% 4.08% 6.21% 6.04%
Utilities -5.84% 2.46% 6.07% 3.02%
Medical 6.25% 11.37% 4.82% 2.74%
Construction -15.92% 0.47% 4.17% 11.48%
Conglomerates -13.30% 0.94% 3.54% 5.16%
Aerospace 6.51% -0.34% 0.40% 6.23%
Consumer Staples -0.36% 4.77% -1.38% 6.07%
Finance 21.57% 0.11% -15.57% 5.55%
S&P 500 -6.33% 7.78% 6.72% 6.54%
Excluding Financial -10.56% 9.16% 11.14% 5.96%
Annual Net Margins
Net margins marching higher, from 5.88% in 2008 to 6.40% in 2009 to 8.65% for 2010, 9.34% expected for 2011. Trend expected to continue into 2012 with net margins of 9.83% expected. Major source of earnings growth.
Financials significantly distort overall net margins. Net margins ex-Financials 7.78% in 2008, 7.07% in 2009, 8.27% for 2010, 8.84% expected in 2011. Expected to grow to 9.25% in 2012.
Financials net margins soar from -8.42% in 2008 to 14.54% expected for 2012.
All sectors but Medical and Utilities saw higher net margins in 2010 than in 2009. All sectors but Utilities expected to post higher net margins in 2011 than in 2010. Widespread margin expansion currently expected for 2012 as well with all sectors expected to post expansion in margins.
Six sectors to boast double-digit net margins in 2012, up from just three in 2009.
Sector net margins are calculated as total net income for sector divided by total revenues. However, there are generally fewer revenue estimates than earnings estimates for individual companies.
Annual Net Margins
Net Margins 2009A 2010E 2011E 2012E
Computer and Tech 11.81% 15.15% 16.31% 16.80%
Medical 13.17% 10.93% 13.34% 14.54%
Finance 2.69% 13.06% 13.24% 13.53%
Business Service 10.17% 11.02% 11.93% 12.77%
Consumer Staples 9.85% 10.50% 11.43% 12.00%
Conglomerates 8.19% 9.02% 9.83% 10.97%
Consumer Discretionary 7.50% 8.83% 9.25% 9.92%
Industrial Products 6.15% 7.65% 8.63% 8.92%
Oils and Energy 6.27% 7.45% 8.44% 8.66%
Basic Materials 4.47% 6.82% 7.99% 8.51%
Transportation 5.83% 7.60% 7.98% 8.89%
Utilities 8.36% 8.09% 7.85% 8.06%
Aerospace 5.04% 6.12% 6.36% 6.48%
Auto 0.36% 5.23% 5.42% 5.66%
Retail/Wholesale 3.04% 3.35% 3.46% 3.72%
Construction -0.51% 2.68% 2.61% 3.72%
S&P 500 6.40% 8.65% 9.34% 9.83%
Excluding Financial 7.07% 8.27% 8.84% 9.25%
Earnings Estimate Revisions: Current Fiscal Year
The Zacks Revisions Ratio: 2011
Revisions ratio for full S&P 500 at 1.45, up from 1.32 last week, a bullish reading. Passed seasonal low in activity, meaning changes are driven more by new estimates being added, not old ones falling out (raising significance of revisions ratio).
Six sectors with revisions ratio above 2.0. Aerospace, Discretionary and Autos lead. Construction and Staples weak. Thirteen sectors with positive revisions ratios, three negative (below 1.0).
Ratio of firms with rising-to-falling mean estimates at 1.44, up from 1.26, a bullish reading.
Total number of revisions (4-week total) soaring at 4,474, up from 3,670 last week (21.9%), should rise to over 5000 in a few weeks. Increases at 2,757 up from 2,171 (27.0%), cuts at 1,717, up from 1,499 (14.5%).
The Zacks Revisions Ratio: 2011
Sector %Ch
Curr Fiscal Yr
Est - 4 wks
#
Firms
Up
#
Firms
Down
#
Ests
Up
#
Ests
Down
Revisions
Ratio
Firms
up/down
Aerospace 0.95 7 2 124 26 4.77 3.50
Consumer Discretionary 2.64 19 9 178 49 3.63 2.11
Auto 9.34 6 1 62 18 3.44 6.00
Retail/Wholesale -0.03 31 12 247 83 2.98 2.58
Business Service 0.29 12 6 106 43 2.47 2.00
Conglomerates 0.46 5 3 60 29 2.07 1.67
Utilities -0.40 24 12 126 69 1.83 2.00
Medical 0.92 28 17 330 184 1.79 1.65
Finance 1.84 46 33 545 358 1.52 1.39
Computer and Tech -0.65 36 30 358 258 1.39 1.20
Oils and Energy 1.26 20 20 264 207 1.28 1.00
Transportation 0.32 5 4 78 63 1.24 1.25
Basic Materials -3.91 11 10 90 75 1.20 1.10
Industrial Products -0.43 11 10 80 87 0.92 1.10
Consumer Staples -0.07 15 16 86 105 0.82 0.94
Construction -14.41 2 8 23 63 0.37 0.25
S&P 500 0.16 278 193 2757 1717 1.61 1.44
Earnings Estimate Revisions: Next Fiscal Year
The Zacks Revisions Ratio: 2012
Revisions ratio for full S&P 500 at 1.41, up from 1.36 last week, in bullish territory.
Three sectors have at least two increases per cut. Retail and Discretionary lead.
Construction and Industrials have negative revisions ratio (below 1.0). Construction especially weak.
Ratio of firms with rising estimate to falling mean estimates at 1.30, up from 1.29, in bullish territory.
Total number of revisions (4-week total) at 4,137, up from 3,465 last week (19.4%), nearing seasonal peak.
Increases at 2,419 up from 1,995 last week (21.3%), cuts rise to 1,718 from 1,470 last week (16.9%).
The Zacks Revisions Ratio: 2012
Sector %Ch
Next Fiscal Yr Est - 4 wks
#
Firms Up
#
Firms Down
#
Ests Up
#
Ests Down
Revisions
Ratio
Firms up/down
Retail/Wholesale 0.23 30 13 222 79 2.81 2.31
Consumer Discretionary 1.27 18 9 165 64 2.58 2.00
Auto 2.42 5 2 45 21 2.14 2.50
Transportation 0.32 5 4 84 43 1.95 1.25
Medical 0.59 27 18 306 178 1.72 1.50
Business Service -0.06 11 6 82 51 1.61 1.83
Oils and Energy 3.02 24 17 292 192 1.52 1.41
Aerospace -0.43 6 3 80 58 1.38 2.00
Conglomerates -0.13 3 5 34 26 1.31 0.60
Basic Materials -0.86 14 8 82 63 1.30 1.75
Computer and Tech -1.37 27 37 311 243 1.28 0.73
Utilities -1.10 20 14 106 83 1.28 1.43
Consumer Staples 0.13 18 14 96 85 1.13 1.29
Finance -0.37 43 35 434 386 1.12 1.23
Industrial Products -0.79 10 11 61 84 0.73 0.91
Construction -7.42 3 7 19 62 0.31 0.43
S&P 500 -0.15 264 203 2419 1718 1.41 1.30
Total Income and Share
S&P 500 earned $546.5 billion in 2009, rising to earn $795.2 billion in 2010, $922.2 billion expected in 2011.
Early expectations that the S&P 500 total earnings will hit the $1 Trillion mark in 2012 at $1.028 Trillion.
Finance share of total earnings moves from 5.9% in 2009 to 17.8% in 2010, dip to 15.9% expected for 2011; rebound to 16.4% in 2012, but still well below 2007 peak of over 30%. Energy share also rising going from 11.9% in 2009 to 14.7% in 2012.
Medical share of total earnings far exceeds market cap share (index weight), but earnings share expected to shrink from 17.3% in 2009 to 11.0% in 2012, down each year.
Market Cap shares of Construction, Staples, Retail, Transportation, Industrials and Business Service sectors far exceed earnings shares of any of the years from 2010 through 2012.
Earnings shares of Energy, Finance and Medical well above market-cap shares.
As a general rule, one should try to overweight sectors with rising earnings shares, underweight falling earnings shares, but also overweight sectors where earnings shares exceed market-cap shares.
Total Income and Share
Computer and Tech $134,094 $165,087 $184,569 16.86% 17.90% 17.95% 18.30%
Finance $142,308 $146,654 $168,648 17.90% 15.90% 16.40% 15.12%
Oils and Energy $97,365 $136,829 $151,446 12.24% 14.84% 14.73% 11.96%
Medical $101,476 $108,003 $113,266 12.76% 11.71% 11.02% 10.24%
Consumer Staples $62,810 $68,650 $75,034 7.90% 7.44% 7.30% 8.79%
Retail/Wholesale $58,913 $65,252 $73,731 7.41% 7.08% 7.17% 8.81%
Utilities $49,924 $51,413 $54,368 6.28% 5.58% 5.29% 6.28%
Conglomerates $28,658 $32,341 $37,947 3.60% 3.51% 3.69% 3.58%
Basic Materials $23,168 $32,289 $36,504 2.91% 3.50% 3.55% 3.22%
Consumer Discretionary $26,420 $31,933 $36,326 3.32% 3.46% 3.53% 4.00%
Industrial Products $16,815 $22,645 $25,702 2.11% 2.46% 2.50% 2.52%
Business Service $14,422 $16,939 $19,312 1.81% 1.84% 1.88% 2.40%
Aerospace $14,143 $14,773 $15,986 1.78% 1.60% 1.55% 1.36%
Transportation $11,691 $14,229 $17,216 1.47% 1.54% 1.67% 1.87%
Auto $11,090 $13,167 $15,031 1.39% 1.43% 1.46% 1.02%
Construction $1,936 $1,968 $3,127 0.24% 0.21% 0.30% 0.50%
S&P 500 $795,235 $922,170 $1,028,214 100.00% 100.00% 100.00% 100.00%
P/E Ratios
Trading at 14.43x 2010, 12.44x 2011 earnings, or earnings yields of 6.93% and 8.04%, respectively. P/E for 2012 at 11.16x, or earnings yield of 8.96%.
Earnings yields still very attractive relative to 10-year T-Note rate of 2.40% (Thursday matching rest of the data, still good relative to 2.56% on Friday).
Autos and Energy have lowest P/E based on 2011 and 2012 earnings. Five more sectors trading for under 11x 2012 earnings.
Construction has highest P/E for all three years by wide margin.
S&P 500 earned $57.20 in 2009 rising to $83.27 in 2010. Currently expected to earn $96.56 in 2011 and $111.17 for 2012.
P/E Ratios
P/E 2009 2010 2011 2012
Auto 165.05 10.59 8.92 7.82
Oils and Energy 21.16 14.10 10.03 9.06
Aerospace 13.35 11.03 10.56 9.76
Medical 12.79 11.58 10.88 10.38
Basic Materials 27.49 15.96 11.45 10.13
Finance 49.49 12.19 11.83 10.28
Conglomerates 15.94 14.33 12.70 10.82
Computer and Tech 23.17 15.66 12.72 11.37
Industrial Products 23.49 17.21 12.78 11.26
Utilities 14.31 14.43 14.02 13.25
Consumer Discretionary 21.29 17.38 14.38 12.64
Consumer Staples 17.94 16.06 14.69 13.44
Transportation 26.49 18.35 15.07 12.46
Retail/Wholesale 19.68 17.16 15.50 13.71
Business Service 21.69 19.08 16.25 14.25
Construction NM 29.59 29.12 18.32
S&P 500 21.00 14.43 12.44 11.16
FY1 Revisions of More than 5%
The first table below shows the S&P 500 firms with the biggest increases in their FY1 (mostly 2010) mean estimate over the last 4 weeks. The second shows the largest declines. To qualify, there must be more than 3 estimates for FY1, and have a mean estimate of more than $0.50.
In addition to the change in the mean estimate, the net percentage of estimates being raised is shown for both FY1 and FY2, as well as the P/E ratios based on each year’s earnings is shown.
Note that estimate momentum and value are not mutually exclusive. The most interesting of these firms will be where the net revisions percentage (#up-#dn/Tot) is more than 0.50 but less than 1.00. Big mean estimate changes based on a handful of individual revisions are suspect, but could prove to be the most interesting if other analysts follow suit. On the other hand, if all the analysts have raised their estimates already, the mean estimate is less likely to rise again over the next month.
This week’s cut off +/- 5%, 55 make increase cut, 35 make decrease cut.
Seventeen increases greater than 10%, 22 decreases.
Financials, Energy and Steel dominate the decrease list.
Biggest FY1 Revisions(Largest Increases)
Company Ticker %Ch
Curr Fiscal Yr Est - 4 wks
%Ch
Next Fiscal Yr Est - 4 wks
# Up-Dn/Tot
%Ch
Curr Fiscal Yr Est - 4 wks
# Up-Dn/Tot
%Ch
Next Fiscal Yr Est - 4 wks
P/E using
Curr FY Est
P/E using
Next FY Est
Zions Bancorp ZION 73.00% 2.39% 0.88 0.24 24.53 10.73
Cabot Oil & Gas COG 51.81% 31.23% 0.67 0.67 43.61 23.97
Whirlpool Corp WHR 38.03% -7.79% 0.00 -1.00 5.69 7.53
Goodyear Tire GT 30.45% 1.42% 0.67 0.11 9.85 6.32
Wynn Resrts Ltd WYNN 25.11% 20.57% 0.90 0.79 25.95 22.76
First Hrzn Natl FHN 19.92%
Monday, August 8, 2011
S&P Rating: Your money in a AA-rated U.S.
United States bonds are no longer officially rated Triple-A, at least in the eyes of Standard & Poor's.
And while Moody's and Fitch, the other leading rating agencies, have affirmed the top rating, they too have worried about the long-term prospects for the United States.
None of this necessarily means disaster for your money. The United States has not been downgraded to "junk" status, like say, Greece. The rating is still very high -- just not tops.
Still, there could be ripple effects. Here's where.
Your stocks
Bad news for the economy generally means tough times for stocks. But history shows that when a country loses its AAA credit rating, it's not necessarily terrible news for that nation's stock market.
When Canada lost its AAA rating in April 1993, for instance, the country's stocks gained more than 15% in the subsequent year. The Tokyo stock market climbed more than 25% in the 12 months after Moody's downgraded Japan in November 1998.
S&P rating downgrade: FAQ
At the very least, a downgrade could add more fear and uncertainty to an already sluggish economic recovery, market strategists say. As a result, they advise investors to dial down risk in their equity portfolios by gravitating toward shares of larger, stable companies -- but not just any large caps.
Mark Luschini, chief investment strategist for Janney Montgomery Scott, favors "boring blue chip stocks with pristine balance sheets and that are globally diversified and therefore benefit from faster growth outside the U.S., especially in the emerging markets."
Why not just go directly to emerging market stocks? For starters, U.S.-based multinationals are a safer bet than volatile emerging market shares, especially in times of economic uncertainty. Long-forgotten U.S. multinationals are trading at much more attractive values than emerging market stocks, which have been on a tear for the past decade. And large-cap multinationals tend to pay big dividends, which come in handy during periods of slow growth.
Your bonds
In the year following Canada's downgrade in 1993, yields on 10-year Canadian bonds jumped from 7.6% to 8.1%. So there could be an uptick in U.S. bond yields, but experts didn't think it would be big.
That's because Treasuries, unlike Canadian securities, are considered a default investment for global investors seeking safety.
"There isn't a fund that owns Treasuries just because they're rated AAA," says Ben Inker, head of asset allocation for the asset management firm GMO. "They own Treasuries because, well, they're Treasuries."
That said, a downgrade would likely force investors to look at bond issuers with balance sheets, unlike the U.S.'s, that are improving.
"If you're a bond holder, you want the most credit-worthy securities," says Anthony Valeri, fixed income strategist for LPL Financial. That would mean high-quality corporate bonds and emerging market debt, he says.
After deleveraging over the past three years, U.S. corporations are sitting on nearly $2 trillion in cash.
As for emerging market countries, their ratio of debt-to-GDP is falling as the same ratio rises in the U.S. and Europe.
Plus, Americans who buy emerging market debt could see their investments rise simply because emerging market currencies are strengthening against the U.S. dollar.
Your cash
The relative safety of the different vehicles in which you might stash your cash -- FDIC-insured accounts, money market funds or short-term Treasuries, for example -- wouldn't be so affected by a downgrade that you'd need to shift your money around, say experts.
Skittish investors who wouldn't want to park their cash in downgraded Treasuries might feel more secure by putting that money into an FDIC-backed bank account instead, since it would be protected by deposit insurance, says FPA New Income manager Thomas Atteberry.
But the increased sense of security would be little more than psychological, says Peter Crane, president of Crane Data, which tracks the money-market fund industry; after all, like Treasuries, FDIC-insured accounts are ultimately backed by the same entity: the U.S. government.
As for money market mutual funds, which are not insured, the effect of a downgrade is not expected to be dramatic, since those funds generally invest in short-term debt, and discussion of a downgrade has so far been limited to long-term U.S. bonds, says Mike Krasner, managing editor of imoneynet.com, which monitors the money fund industry.
Despite a downgrade, U.S. debt would still be considered a safe haven. "Double A will become the new triple A," says Crane, "because there simply isn't a viable competitor to Treasuries."
Your borrowing
The price of consumer credit would be pegged less to a Treasury downgrade than it would be to bond investors' overall confidence, says Scott Hoyt, senior director of consumer economics for Moody's Analytics.
Because yields -- and corresponding interest rates -- move inversely to price, rates that track shorter-term Treasuries are more likely to see a bump.
Rates on car loans, which follow shorter-term rates like the two-year Treasury or LIBOR, the London Interbank Offered Rate, could go up -- but not enough to really hit consumers, says Paul Cuevas, director of auto finance at J.D. Power & Associates.
Most mortgage rates, however, track the 10-year Treasury yield, which continues to fall. Adjustable rate mortgage holders could be slightly more vulnerable, because ARMs are typically tied to shorter-term interest rate movements, says Lawrence Yun, chief economist for the National Association of Realtors.
For students and parents who rely on private student loans, any jump in borrowing costs for lenders would be passed on to borrowers, says Mark Kantrowitz, publisher of FinAid.org and Fastweb.com. Federal student loan rates would remain fixed.
Credit card rates are pegged to the prime rate, which moves with the federal funds rate. If the prime rate goes up, consumers could be hit with credit card rate hikes, says Beverly Blair Harzog of Credit.com. Even if the rate doesn't go up, she says, card issuers spooked by a credit downgrade could raise your interest rates anywhere from 1% to 5% -- but only if you've had your card for more than a year.
United States bonds are no longer officially rated Triple-A, at least in the eyes of Standard & Poor's.
And while Moody's and Fitch, the other leading rating agencies, have affirmed the top rating, they too have worried about the long-term prospects for the United States.
None of this necessarily means disaster for your money. The United States has not been downgraded to "junk" status, like say, Greece. The rating is still very high -- just not tops.
Still, there could be ripple effects. Here's where.
Your stocks
Bad news for the economy generally means tough times for stocks. But history shows that when a country loses its AAA credit rating, it's not necessarily terrible news for that nation's stock market.
When Canada lost its AAA rating in April 1993, for instance, the country's stocks gained more than 15% in the subsequent year. The Tokyo stock market climbed more than 25% in the 12 months after Moody's downgraded Japan in November 1998.
S&P rating downgrade: FAQ
At the very least, a downgrade could add more fear and uncertainty to an already sluggish economic recovery, market strategists say. As a result, they advise investors to dial down risk in their equity portfolios by gravitating toward shares of larger, stable companies -- but not just any large caps.
Mark Luschini, chief investment strategist for Janney Montgomery Scott, favors "boring blue chip stocks with pristine balance sheets and that are globally diversified and therefore benefit from faster growth outside the U.S., especially in the emerging markets."
Why not just go directly to emerging market stocks? For starters, U.S.-based multinationals are a safer bet than volatile emerging market shares, especially in times of economic uncertainty. Long-forgotten U.S. multinationals are trading at much more attractive values than emerging market stocks, which have been on a tear for the past decade. And large-cap multinationals tend to pay big dividends, which come in handy during periods of slow growth.
Your bonds
In the year following Canada's downgrade in 1993, yields on 10-year Canadian bonds jumped from 7.6% to 8.1%. So there could be an uptick in U.S. bond yields, but experts didn't think it would be big.
That's because Treasuries, unlike Canadian securities, are considered a default investment for global investors seeking safety.
"There isn't a fund that owns Treasuries just because they're rated AAA," says Ben Inker, head of asset allocation for the asset management firm GMO. "They own Treasuries because, well, they're Treasuries."
That said, a downgrade would likely force investors to look at bond issuers with balance sheets, unlike the U.S.'s, that are improving.
"If you're a bond holder, you want the most credit-worthy securities," says Anthony Valeri, fixed income strategist for LPL Financial. That would mean high-quality corporate bonds and emerging market debt, he says.
After deleveraging over the past three years, U.S. corporations are sitting on nearly $2 trillion in cash.
As for emerging market countries, their ratio of debt-to-GDP is falling as the same ratio rises in the U.S. and Europe.
Plus, Americans who buy emerging market debt could see their investments rise simply because emerging market currencies are strengthening against the U.S. dollar.
Your cash
The relative safety of the different vehicles in which you might stash your cash -- FDIC-insured accounts, money market funds or short-term Treasuries, for example -- wouldn't be so affected by a downgrade that you'd need to shift your money around, say experts.
Skittish investors who wouldn't want to park their cash in downgraded Treasuries might feel more secure by putting that money into an FDIC-backed bank account instead, since it would be protected by deposit insurance, says FPA New Income manager Thomas Atteberry.
But the increased sense of security would be little more than psychological, says Peter Crane, president of Crane Data, which tracks the money-market fund industry; after all, like Treasuries, FDIC-insured accounts are ultimately backed by the same entity: the U.S. government.
As for money market mutual funds, which are not insured, the effect of a downgrade is not expected to be dramatic, since those funds generally invest in short-term debt, and discussion of a downgrade has so far been limited to long-term U.S. bonds, says Mike Krasner, managing editor of imoneynet.com, which monitors the money fund industry.
Despite a downgrade, U.S. debt would still be considered a safe haven. "Double A will become the new triple A," says Crane, "because there simply isn't a viable competitor to Treasuries."
Your borrowing
The price of consumer credit would be pegged less to a Treasury downgrade than it would be to bond investors' overall confidence, says Scott Hoyt, senior director of consumer economics for Moody's Analytics.
Because yields -- and corresponding interest rates -- move inversely to price, rates that track shorter-term Treasuries are more likely to see a bump.
Rates on car loans, which follow shorter-term rates like the two-year Treasury or LIBOR, the London Interbank Offered Rate, could go up -- but not enough to really hit consumers, says Paul Cuevas, director of auto finance at J.D. Power & Associates.
Most mortgage rates, however, track the 10-year Treasury yield, which continues to fall. Adjustable rate mortgage holders could be slightly more vulnerable, because ARMs are typically tied to shorter-term interest rate movements, says Lawrence Yun, chief economist for the National Association of Realtors.
For students and parents who rely on private student loans, any jump in borrowing costs for lenders would be passed on to borrowers, says Mark Kantrowitz, publisher of FinAid.org and Fastweb.com. Federal student loan rates would remain fixed.
Credit card rates are pegged to the prime rate, which moves with the federal funds rate. If the prime rate goes up, consumers could be hit with credit card rate hikes, says Beverly Blair Harzog of Credit.com. Even if the rate doesn't go up, she says, card issuers spooked by a credit downgrade could raise your interest rates anywhere from 1% to 5% -- but only if you've had your card for more than a year.
Wednesday, July 6, 2011
Zynga Inc. filed for an initial public offering Friday that has the social gaming company seeking to raise as much as $1 billion from investors to continue to build out its booming business.
In a filing with the Securities and Exchange Commission, Zynga didn't spell out a proposed offering-price range or number of shares to be included in the deal. The company also didn't specify on which exchange it intends to list its shares.
If completed, Zynga's IPO would be the latest debut of a high-profile online social-networking company this year. LinkedIn (LNKD: 93.70, 3.04, 3.35%) completed its IPO in late May, and Groupon Inc. has since filed its own papers for a deal expected to be executed later this year.
Facebook games maker Zynga filed to raise as much as $1 billion in an IPO, pulling back the curtain on its financials and showing how fast its profits have grown.
Facebook is widely expected to make its own public offering next year.
Zynga, which makes popular Facebook games such as "FarmVille" and "CityVille," saw revenues surge nearly 400% to $597.5 million in 2010 and reported a net profit of $90.6 million for the year. Earnings for the first quarter of this year were $11.8 million on revenue of $235.4 million putting the company on track to surpass the $1 billion mark in revenue this year.
Monthly active users as of March 31 totaled 236 million flat with the same period the previous year and up 21% from the end of December.
Markets Hub: Can Zynga Thrive Without Facebook?
Fast-growing gaming company Zygna may soon file for an IPO, but there are questions of how much the company can grow outside of Facebook. Heard on the Street's Rolfe Winkler discusses.
Zynga noted that it spreads out the recognition of revenue from the sale of virtual goods. Bookings represents the total value of revenue earned in a period; the company said bookings totaled $286.6 million in the first quarter compared to reported revenue of $235.4 million for the period.
In a letter attached to the filing, CEO Mark Pincus said the San Francisco company would "continue to make big investments in servers, data centers and other infrastructure" to keep building out games.
"We believe we will maximize long-term shareholder value by delivering long-term player value. This means we will make decisions and trade-offs that are different from other companies. We will prioritize innovation and long-term growth over quarterly earnings.
"We will not," he added, "make short-term decisions that sacrifice our core values or veer from our long-term vision."
The company also noted in its filing that it generates "substantially all" of its current revenue through the Facebook platform. Much of this is through the sale of virtual goods using Facebook's credits payment system, of which Facebook retains a 30% cut. The relationship with Facebook was listed as the No. 1 risk factor in Friday's filing.
In the first quarter this year, in-game transactions made up about 95% of total revenues for the period, with the remainder coming from advertising, according to the filing.
Zynga also noted that a majority of its revenue comes from a small percentage of its player base. Zynga games are free to play and only generate revenue through micro-transactions and advertising.
The company also said a majority of its revenue comes from "a small number of games." Zynga's four largest games "CityVille," "Empires & Allies," "FarmVille" and "Texas Hold'Em" accounted for about three-quarters of the company's total monthly active users, according to data from AppData.
Morgan Stanley and Goldman Sachs are named as the lead underwriters of the offering, with B. of A. Merrill Lynch, Barclays Capital, J.P. Morgan and Allen & Co. also participating.
In a filing with the Securities and Exchange Commission, Zynga didn't spell out a proposed offering-price range or number of shares to be included in the deal. The company also didn't specify on which exchange it intends to list its shares.
If completed, Zynga's IPO would be the latest debut of a high-profile online social-networking company this year. LinkedIn (LNKD: 93.70, 3.04, 3.35%) completed its IPO in late May, and Groupon Inc. has since filed its own papers for a deal expected to be executed later this year.
Facebook games maker Zynga filed to raise as much as $1 billion in an IPO, pulling back the curtain on its financials and showing how fast its profits have grown.
Facebook is widely expected to make its own public offering next year.
Zynga, which makes popular Facebook games such as "FarmVille" and "CityVille," saw revenues surge nearly 400% to $597.5 million in 2010 and reported a net profit of $90.6 million for the year. Earnings for the first quarter of this year were $11.8 million on revenue of $235.4 million putting the company on track to surpass the $1 billion mark in revenue this year.
Monthly active users as of March 31 totaled 236 million flat with the same period the previous year and up 21% from the end of December.
Markets Hub: Can Zynga Thrive Without Facebook?
Fast-growing gaming company Zygna may soon file for an IPO, but there are questions of how much the company can grow outside of Facebook. Heard on the Street's Rolfe Winkler discusses.
Zynga noted that it spreads out the recognition of revenue from the sale of virtual goods. Bookings represents the total value of revenue earned in a period; the company said bookings totaled $286.6 million in the first quarter compared to reported revenue of $235.4 million for the period.
In a letter attached to the filing, CEO Mark Pincus said the San Francisco company would "continue to make big investments in servers, data centers and other infrastructure" to keep building out games.
"We believe we will maximize long-term shareholder value by delivering long-term player value. This means we will make decisions and trade-offs that are different from other companies. We will prioritize innovation and long-term growth over quarterly earnings.
"We will not," he added, "make short-term decisions that sacrifice our core values or veer from our long-term vision."
The company also noted in its filing that it generates "substantially all" of its current revenue through the Facebook platform. Much of this is through the sale of virtual goods using Facebook's credits payment system, of which Facebook retains a 30% cut. The relationship with Facebook was listed as the No. 1 risk factor in Friday's filing.
In the first quarter this year, in-game transactions made up about 95% of total revenues for the period, with the remainder coming from advertising, according to the filing.
Zynga also noted that a majority of its revenue comes from a small percentage of its player base. Zynga games are free to play and only generate revenue through micro-transactions and advertising.
The company also said a majority of its revenue comes from "a small number of games." Zynga's four largest games "CityVille," "Empires & Allies," "FarmVille" and "Texas Hold'Em" accounted for about three-quarters of the company's total monthly active users, according to data from AppData.
Morgan Stanley and Goldman Sachs are named as the lead underwriters of the offering, with B. of A. Merrill Lynch, Barclays Capital, J.P. Morgan and Allen & Co. also participating.
The 25 Documents You Need Before You Die!
It isn't enough simply to sign a bunch of papers establishing an estate plan and other end-of-life instructions. You also have to make your heirs aware of them and leave the documents where they can find them.
Consider: At least 10 states have been investigating whether some of the country's largest insurers are failing to pay out unclaimed life policies to beneficiaries. California and Florida have held public hearings on the issue in recent weeks.
Insurers say they are behaving lawfully. Under policy contracts, they aren't required to take steps to determine if a policyholder is still alive, but instead pay a claim when beneficiaries come forward.
You can avoid such problems by securing important documents and telling your family where they are stored.
Jean Parr is grateful that her mother obsessed about the subject. "I really didn't want to think about it," says Ms. Parr, 54 years old, a manager at the American Chemical Society in Washington. But when her mom died in 2005, she knew exactly where to look for the will, the key to a safe-deposit box and documents indicating her mother had paid and arranged for her own funeral.
The financial consequences of failing to keep your documents in order can be significant. According to the National Association of Unclaimed Property Administrators, state treasurers currently hold $32.9 billion in unclaimed bank accounts and other assets. (You can search for unclaimed assets at MissingMoney.com .)
Most experts recommend creating a comprehensive folder of documents that family members can access in case of an emergency, so they aren't left scrambling to find and organize a hodgepodge of disparate bank accounts, insurance policies and brokerage accounts.
You can store the documents with your attorney, lock them away in a safe-deposit box or keep them at home in a fireproof safe that someone else knows the combination to.
That isn't to say you should keep everything. Sometimes people hold onto so many papers that loved ones can't find the important ones easily.
How to Manage Important Documents
How to Write a Will
How to Choose Beneficiaries
In 2008, Jane Bissler, a counselor in Kent, Ohio, approached her then-87-year-old mother about organizing her documents. Because her mom was a widow with relatively simple finances and two homes, Ms. Bissler, 57, says she figured it would be a relatively simple task.
Instead, it took an entire year for Ms. Bissler and her mother to go through all of her papers, which included documents from eight bank accounts, utility bills from the 1950s and reams of canceled checks.
The two of them pared down the stash from four four-drawer filing cabinets to one two-drawer cabinet, shredding anything extraneous. Ms. Bissler and her mother visited banks and brokerages to ensure she was listed on all of her mother's accounts. Her mother died in May 2009.
"It would have been a total nightmare if we hadn't gone through it all with her," Ms. Bissler says. "It was that Depression-era stuff where you keep everything and hide other things." Ms. Bissler estimates that having the documents organized ahead of time spared them from ordering an additional 15 copies of the death certificate and "years" of time.
Here is a rundown of the most important documents you'll need to have signed, sealed and delivered. You should start collecting these as soon as possible and update them every few years to reflect changes in assets and preferences. Some—such as copies of tax returns or recent child-support payments—need to be updated more often than others.
The Essentials
An original will is the most important document to keep on file.
A will allows you to dictate who inherits your assets and, if your children are underage, their guardians. Dying without a will means losing control of how your assets are distributed. Instead, state law will determine what happens.
Wills are subject to probate—legal proceedings that take inventory, make appraisals of property, settle outstanding debt and distribute remaining assets. Not having an original document means this already-onerous process could be much more of an ordeal, since family members can challenge a copy of a will in court.
Rick Law, founder of estate-planning firm Law ElderLaw LLP in Aurora, Ill., says estate planners increasingly recommend revocable trusts in addition to wills, since they are more private and harder to dispute. "Every will is like a compass that points toward the closest courthouse," he says.
A revocable living trust can be changed anytime during your lifetime. After you transfer ownership of various assets to the trust, you can serve as the trustee on behalf of beneficiaries you designate. Provided you do so, there aren't any ongoing fees.
If your family can't find the original trust documents, you are "basically setting your estate up for litigation," says Duncan Moseley, vice president of Sanders Financial Management in Atlanta.
A "letter of instruction" can be a useful supplement to a will, though it doesn't hold legal weight. It is a good way to make sure your executor has the names and contact information of your attorneys, accountants and financial advisers. While the will should be stored with your attorney or in a courthouse, the letter of instruction should be more readily accessible, particularly if it contains instructions on funeral arrangements.
Also, make sure your heirs have access to a durable financial power-of-attorney form. Without it, no one can make financial decisions on your behalf in the event that you are incapacitated.
Proof of Ownership
You should keep documentation of housing and land ownership, cemetery plots, vehicles, stock certificates and savings bonds; any partnership or corporate operating agreements; and a list of brokerage and escrow mortgage accounts.
If you don't tell your family that you own such assets, there is a chance they never will find out. Mr. Moseley says in such an event, clients must perform their own detective work, watching the mail for real-estate tax bills or combing bank accounts for interest payments, for example.
File any documents that list loans you have made to others, since they could be included as assets in an estate. Similarly, keep a list of any debts you owe to avoid surprising your family. Wills and living trusts generally are drafted to include provisions for how debts should be settled, and creditors have a stipulated period of time in which to file a claim against the estate.
Make the most recent three years of tax returns available, too. "Looking at last year's returns offers a snapshot of what assets we should be looking for this year," says Lesley Moss Mamdouhi, a principal at estate-law firm Oram & Moss in Chevy Chase, Md. This also will help your personal representative file a final income-tax and estate return and, if necessary, a revocable-trust return.
Bank Accounts
Mr. Law recommends sharing a list of all accounts and online log-in information with your family so they can notify the bank of your death. "If nobody ever takes any more out or puts money in, it becomes a dormant account and then becomes the property of the state," he says.
Be sure to list any safe-deposit boxes you own, register your spouse or child's name with the bank and ask them to sign the registration document so they can have access without securing a court order.
Health-Care Confidential
Possibly the most important health-care document to fill out in advance is a durable health-care power-of-attorney form. This allows your designee to make health-care decisions on your behalf if you are incapacitated. The document should be compliant with federal health-information privacy laws, so that doctors, hospitals and insurance companies can speak with your designee. You may also need to fill out an Authorization to Release Protected Healthcare Information form.
If you are incapacitated and your family can't locate a health-care power of attorney, they will have to go to court to get a guardian appointed.
Porter Storey, executive vice president of the American Academy of Hospice and Palliative Medicine in Glenview, Ill., says it isn't enough to establish a health-care power of attorney unless you have explained to your designee how you would like to be treated in case of incapacity. He also recommends writing a living will detailing your wishes.
After Diane Dimond's mother had a series of strokes in 2006, Ms. Dimond knew there was a signed living will tucked away in a safe at home. Ms. Dimond, 58 and living in New York, recalls the Sunday she watched her mother in a coma and was able to fulfill her wishes never to be kept on external life support. "It was gut-wrenching," she says, "but I took the physician aside and said, 'I want to take her home.'" Having her mother's living will enabled Ms. Dimond to do just that.
The living will and the power of attorney constitute what are called "advance directives"; some states consolidate these into a single form. (AARP offers a state-by-state listing of advance-directive forms on its website.) Terminally ill patients may wish to have their doctors sign a do-not-resuscitate order.
Certain companies, such as Advance Choice Inc.'s DocuBank, will keep copies of health-care documents for a fee. Subscribers get a wallet-sized card and, in case of an emergency, a hospital will call DocuBank, which will fax over the information.
Life Insurance and Retirement Accounts
Copies of life-insurance policies are among the most important documents for your family to have. Family members need to know the name of the carrier, the policy number and the agent associated with the policy.
Be especially careful with life-insurance policies granted by an employer upon your retirement, since those are the kind that financial planners most often miss, says David Peterson, CEO of Denver-based Peak Capital Investment Services. New York state alone is holding more than $400 million in life-insurance-related payments that have gone unclaimed since 2000, according to the state comptroller's office.
Estate planners also recommend that you draw up a list of pensions, annuities, individual retirement accounts and 401(k)s for your spouse and children.
An IRA is considered dormant or unclaimed if no withdrawal has been made by age 70½. According to the National Association of Unclaimed Property Administrators, tens of millions of dollars languish in unclaimed IRAs every year.
If your heirs don't know about these accounts, they won't be able to lay claim to them, and the money could languish. The U.S. Department of Labor estimates that each year tens of thousands of workers fail to claim or roll over $850 million in 401(k) assets. You can track unclaimed pensions, 401(k)s and IRAs at Unclaimed.com.
Marriage and Divorce
Ensure your spouse knows where you have stored your marriage license. Mary Cay Corr, now 74 and living in Raleigh-Durham, N.C., couldn't locate hers when her husband died. "I had to write to New York, where we got married, and pay for a new marriage license to prove that I had been married to my husband before I could claim anything," she says.
For divorced people, it is important to leave behind the divorce judgment and decree or, if the case was settled without going to court, the stipulation agreement, says Linda Lea Viken, president of the American Academy of Matrimonial Lawyers in Chicago. These documents lay out child support, alimony and property settlements, and also may list the division of investment and retirement accounts.
Include the distribution sheet listing bank-account numbers that accompanied the settlement to avoid disputes about ownership or payments due. Also include a copy of the most recent child-support payment order. In the majority of states, the obligation to pay child support still exists after death.
Ms. Viken also recommends filing copies of any life-insurance papers. In many states if you have a policy that benefits your children, it can be set off against the ongoing child support.
You also should include a copy of the "qualified domestic-relations order," which can prove your spouse received a share of your retirement accounts.
It isn't enough simply to sign a bunch of papers establishing an estate plan and other end-of-life instructions. You also have to make your heirs aware of them and leave the documents where they can find them.
Consider: At least 10 states have been investigating whether some of the country's largest insurers are failing to pay out unclaimed life policies to beneficiaries. California and Florida have held public hearings on the issue in recent weeks.
Insurers say they are behaving lawfully. Under policy contracts, they aren't required to take steps to determine if a policyholder is still alive, but instead pay a claim when beneficiaries come forward.
You can avoid such problems by securing important documents and telling your family where they are stored.
Jean Parr is grateful that her mother obsessed about the subject. "I really didn't want to think about it," says Ms. Parr, 54 years old, a manager at the American Chemical Society in Washington. But when her mom died in 2005, she knew exactly where to look for the will, the key to a safe-deposit box and documents indicating her mother had paid and arranged for her own funeral.
The financial consequences of failing to keep your documents in order can be significant. According to the National Association of Unclaimed Property Administrators, state treasurers currently hold $32.9 billion in unclaimed bank accounts and other assets. (You can search for unclaimed assets at MissingMoney.com .)
Most experts recommend creating a comprehensive folder of documents that family members can access in case of an emergency, so they aren't left scrambling to find and organize a hodgepodge of disparate bank accounts, insurance policies and brokerage accounts.
You can store the documents with your attorney, lock them away in a safe-deposit box or keep them at home in a fireproof safe that someone else knows the combination to.
That isn't to say you should keep everything. Sometimes people hold onto so many papers that loved ones can't find the important ones easily.
How to Manage Important Documents
How to Write a Will
How to Choose Beneficiaries
In 2008, Jane Bissler, a counselor in Kent, Ohio, approached her then-87-year-old mother about organizing her documents. Because her mom was a widow with relatively simple finances and two homes, Ms. Bissler, 57, says she figured it would be a relatively simple task.
Instead, it took an entire year for Ms. Bissler and her mother to go through all of her papers, which included documents from eight bank accounts, utility bills from the 1950s and reams of canceled checks.
The two of them pared down the stash from four four-drawer filing cabinets to one two-drawer cabinet, shredding anything extraneous. Ms. Bissler and her mother visited banks and brokerages to ensure she was listed on all of her mother's accounts. Her mother died in May 2009.
"It would have been a total nightmare if we hadn't gone through it all with her," Ms. Bissler says. "It was that Depression-era stuff where you keep everything and hide other things." Ms. Bissler estimates that having the documents organized ahead of time spared them from ordering an additional 15 copies of the death certificate and "years" of time.
Here is a rundown of the most important documents you'll need to have signed, sealed and delivered. You should start collecting these as soon as possible and update them every few years to reflect changes in assets and preferences. Some—such as copies of tax returns or recent child-support payments—need to be updated more often than others.
The Essentials
An original will is the most important document to keep on file.
A will allows you to dictate who inherits your assets and, if your children are underage, their guardians. Dying without a will means losing control of how your assets are distributed. Instead, state law will determine what happens.
Wills are subject to probate—legal proceedings that take inventory, make appraisals of property, settle outstanding debt and distribute remaining assets. Not having an original document means this already-onerous process could be much more of an ordeal, since family members can challenge a copy of a will in court.
Rick Law, founder of estate-planning firm Law ElderLaw LLP in Aurora, Ill., says estate planners increasingly recommend revocable trusts in addition to wills, since they are more private and harder to dispute. "Every will is like a compass that points toward the closest courthouse," he says.
A revocable living trust can be changed anytime during your lifetime. After you transfer ownership of various assets to the trust, you can serve as the trustee on behalf of beneficiaries you designate. Provided you do so, there aren't any ongoing fees.
If your family can't find the original trust documents, you are "basically setting your estate up for litigation," says Duncan Moseley, vice president of Sanders Financial Management in Atlanta.
A "letter of instruction" can be a useful supplement to a will, though it doesn't hold legal weight. It is a good way to make sure your executor has the names and contact information of your attorneys, accountants and financial advisers. While the will should be stored with your attorney or in a courthouse, the letter of instruction should be more readily accessible, particularly if it contains instructions on funeral arrangements.
Also, make sure your heirs have access to a durable financial power-of-attorney form. Without it, no one can make financial decisions on your behalf in the event that you are incapacitated.
Proof of Ownership
You should keep documentation of housing and land ownership, cemetery plots, vehicles, stock certificates and savings bonds; any partnership or corporate operating agreements; and a list of brokerage and escrow mortgage accounts.
If you don't tell your family that you own such assets, there is a chance they never will find out. Mr. Moseley says in such an event, clients must perform their own detective work, watching the mail for real-estate tax bills or combing bank accounts for interest payments, for example.
File any documents that list loans you have made to others, since they could be included as assets in an estate. Similarly, keep a list of any debts you owe to avoid surprising your family. Wills and living trusts generally are drafted to include provisions for how debts should be settled, and creditors have a stipulated period of time in which to file a claim against the estate.
Make the most recent three years of tax returns available, too. "Looking at last year's returns offers a snapshot of what assets we should be looking for this year," says Lesley Moss Mamdouhi, a principal at estate-law firm Oram & Moss in Chevy Chase, Md. This also will help your personal representative file a final income-tax and estate return and, if necessary, a revocable-trust return.
Bank Accounts
Mr. Law recommends sharing a list of all accounts and online log-in information with your family so they can notify the bank of your death. "If nobody ever takes any more out or puts money in, it becomes a dormant account and then becomes the property of the state," he says.
Be sure to list any safe-deposit boxes you own, register your spouse or child's name with the bank and ask them to sign the registration document so they can have access without securing a court order.
Health-Care Confidential
Possibly the most important health-care document to fill out in advance is a durable health-care power-of-attorney form. This allows your designee to make health-care decisions on your behalf if you are incapacitated. The document should be compliant with federal health-information privacy laws, so that doctors, hospitals and insurance companies can speak with your designee. You may also need to fill out an Authorization to Release Protected Healthcare Information form.
If you are incapacitated and your family can't locate a health-care power of attorney, they will have to go to court to get a guardian appointed.
Porter Storey, executive vice president of the American Academy of Hospice and Palliative Medicine in Glenview, Ill., says it isn't enough to establish a health-care power of attorney unless you have explained to your designee how you would like to be treated in case of incapacity. He also recommends writing a living will detailing your wishes.
After Diane Dimond's mother had a series of strokes in 2006, Ms. Dimond knew there was a signed living will tucked away in a safe at home. Ms. Dimond, 58 and living in New York, recalls the Sunday she watched her mother in a coma and was able to fulfill her wishes never to be kept on external life support. "It was gut-wrenching," she says, "but I took the physician aside and said, 'I want to take her home.'" Having her mother's living will enabled Ms. Dimond to do just that.
The living will and the power of attorney constitute what are called "advance directives"; some states consolidate these into a single form. (AARP offers a state-by-state listing of advance-directive forms on its website.) Terminally ill patients may wish to have their doctors sign a do-not-resuscitate order.
Certain companies, such as Advance Choice Inc.'s DocuBank, will keep copies of health-care documents for a fee. Subscribers get a wallet-sized card and, in case of an emergency, a hospital will call DocuBank, which will fax over the information.
Life Insurance and Retirement Accounts
Copies of life-insurance policies are among the most important documents for your family to have. Family members need to know the name of the carrier, the policy number and the agent associated with the policy.
Be especially careful with life-insurance policies granted by an employer upon your retirement, since those are the kind that financial planners most often miss, says David Peterson, CEO of Denver-based Peak Capital Investment Services. New York state alone is holding more than $400 million in life-insurance-related payments that have gone unclaimed since 2000, according to the state comptroller's office.
Estate planners also recommend that you draw up a list of pensions, annuities, individual retirement accounts and 401(k)s for your spouse and children.
An IRA is considered dormant or unclaimed if no withdrawal has been made by age 70½. According to the National Association of Unclaimed Property Administrators, tens of millions of dollars languish in unclaimed IRAs every year.
If your heirs don't know about these accounts, they won't be able to lay claim to them, and the money could languish. The U.S. Department of Labor estimates that each year tens of thousands of workers fail to claim or roll over $850 million in 401(k) assets. You can track unclaimed pensions, 401(k)s and IRAs at Unclaimed.com.
Marriage and Divorce
Ensure your spouse knows where you have stored your marriage license. Mary Cay Corr, now 74 and living in Raleigh-Durham, N.C., couldn't locate hers when her husband died. "I had to write to New York, where we got married, and pay for a new marriage license to prove that I had been married to my husband before I could claim anything," she says.
For divorced people, it is important to leave behind the divorce judgment and decree or, if the case was settled without going to court, the stipulation agreement, says Linda Lea Viken, president of the American Academy of Matrimonial Lawyers in Chicago. These documents lay out child support, alimony and property settlements, and also may list the division of investment and retirement accounts.
Include the distribution sheet listing bank-account numbers that accompanied the settlement to avoid disputes about ownership or payments due. Also include a copy of the most recent child-support payment order. In the majority of states, the obligation to pay child support still exists after death.
Ms. Viken also recommends filing copies of any life-insurance papers. In many states if you have a policy that benefits your children, it can be set off against the ongoing child support.
You also should include a copy of the "qualified domestic-relations order," which can prove your spouse received a share of your retirement accounts.
The Federal Trade Commission is reviewing Internet messaging-service Twitter Inc. and its interactions with at least one other company that builds programs using Twitter data, according to a person familiar with the matter.
The precise focus of the review isn't clear, but representatives of the FTC's antitrust arm have requested information from a company called UberMedia Inc., which owns applications that let people read and send "tweets," or messages, broadcast by Twitter users, this person said.
Antitrust regulators are reviewing messaging-service Twitter and its interactions with a company that builds programs using Twitter data. Jen Valentino reports on digits.
UberMedia's chief marketing officer said in a statement on Thursday that the company was contacted by the agency and "we intend to fully comply with their request for information."
Twitter considers UberMedia to be a potential competitor, people familiar with the matter have said.
The review is "narrow" in scope and won't impact Twitter's fledgling advertising business, said the person familiar with the FTC review.
Spokesmen for Twitter and the FTC declined to comment. The agency's interest in Twitter was reported earlier Thursday by the Business Insider blog.
The FTC routinely examines companies to determine whether they are involved in anticompetitive behavior, often after receiving allegations from rivals. Often the reviews don't result in any legal action or penalty against the companies.
Twitter, which has more than 200 million registered accounts, lets people broadcast tweets of up to 140 characters in length and read tweets from other users. For much of Twitter's history, many users accessed the service through desktop and mobile-device applications developed by other companies rather than through Twitter.com.
Twitter has allowed those companies to access "tweets" generated by Twitter users, and those programs were vital to Twitter's growth because they helped people sort through, organize, and search for "tweets" in a way that Twitter couldn't.
But over the past year or so Twitter has looked to exert greater control over its user base as it has introduced advertising on its site. Twitter acquired some of those application companies, including TweetDeck, and developed its own services that rendered some other third-party companies obsolete.
UberMedia also tried to purchase TweetDeck, people familiar with the matter have said.
In February UberMedia, which owns Twidroyd and other applications that let people access and send tweets, said Twitter shut off its access to tweets because it believed UberMedia had violated "several provisions of their terms of service."
UberMedia said it worked with Twitter to resolve the issues, and service to those applications was restored.
At a recent conference, a Twitter employee noted that "with more people joining Twitter and accessing the service in multiple ways, a consistent user experience is more crucial than ever." The employee asked that app developers create apps that don't mimic Twitter's own mobile-device applications or Twitter.com.
The precise focus of the review isn't clear, but representatives of the FTC's antitrust arm have requested information from a company called UberMedia Inc., which owns applications that let people read and send "tweets," or messages, broadcast by Twitter users, this person said.
Antitrust regulators are reviewing messaging-service Twitter and its interactions with a company that builds programs using Twitter data. Jen Valentino reports on digits.
UberMedia's chief marketing officer said in a statement on Thursday that the company was contacted by the agency and "we intend to fully comply with their request for information."
Twitter considers UberMedia to be a potential competitor, people familiar with the matter have said.
The review is "narrow" in scope and won't impact Twitter's fledgling advertising business, said the person familiar with the FTC review.
Spokesmen for Twitter and the FTC declined to comment. The agency's interest in Twitter was reported earlier Thursday by the Business Insider blog.
The FTC routinely examines companies to determine whether they are involved in anticompetitive behavior, often after receiving allegations from rivals. Often the reviews don't result in any legal action or penalty against the companies.
Twitter, which has more than 200 million registered accounts, lets people broadcast tweets of up to 140 characters in length and read tweets from other users. For much of Twitter's history, many users accessed the service through desktop and mobile-device applications developed by other companies rather than through Twitter.com.
Twitter has allowed those companies to access "tweets" generated by Twitter users, and those programs were vital to Twitter's growth because they helped people sort through, organize, and search for "tweets" in a way that Twitter couldn't.
But over the past year or so Twitter has looked to exert greater control over its user base as it has introduced advertising on its site. Twitter acquired some of those application companies, including TweetDeck, and developed its own services that rendered some other third-party companies obsolete.
UberMedia also tried to purchase TweetDeck, people familiar with the matter have said.
In February UberMedia, which owns Twidroyd and other applications that let people access and send tweets, said Twitter shut off its access to tweets because it believed UberMedia had violated "several provisions of their terms of service."
UberMedia said it worked with Twitter to resolve the issues, and service to those applications was restored.
At a recent conference, a Twitter employee noted that "with more people joining Twitter and accessing the service in multiple ways, a consistent user experience is more crucial than ever." The employee asked that app developers create apps that don't mimic Twitter's own mobile-device applications or Twitter.com.
Twitter Inc., trying to put recent management changes behind it and build its business, is taking steps to broaden the appeal of the well-known messaging service.
Twitter is making a concerted effort to educate its users about what, exactly, it is. WSJ's Amir Efrati explains why to Stacey Delo.
The San Francisco company, which lets users broadcast and view short messages, wants to make it easier for new users to navigate the service and help longtime users find interesting content.
While Twitter has more than 200 million registered accounts, it doesn't say how many are active users. Users discuss a variety of topics, but some people—especially adults—view the service as a vehicle for celebrities to broadcast their thoughts online.
Twitter wants to show how the service works to first-time users by highlighting tweets from people in their geographic regions, such as local politicians and musicians, when they first sign on, people familiar with the matter said.
Jonathan Strauss, chief executive of Awe.sm, which tracks marketing campaigns on Twitter and Facebook Inc., argues that Twitter needs to attract more mainstream Internet users if it wants to justify its multibillion-dollar valuation. "Most people understand Twitter exists, but they don't understand what Twitter is and how they can participate," he said.
For more experienced users, Twitter is developing ways to create a narrower stream of the most relevant tweets rather than requiring users to wade through messages in chronological order.
As it looks to add tools for power users, Twitter is also in advanced talks to purchase a program used by many Twitter users to view and manage tweets, Tweetdeck, for around $50 million, people familiar with the matter said.
Jack Dorsey, a Twitter founder, recently returned as its product chief. He has become more active advising the company.
It is unclear when the changes will be introduced or how Twitter may use Tweetdeck. A spokesman for Twitter, which has made seven small acquisitions to date, declined to comment. TweetDeck Inc.'s chief executive, Iain Dodsworth, couldn't be reached.
The moves come as Jack Dorsey, the founding chief executive of the four-year-old company, formally returned as product chief three weeks ago after being pushed out by the board two-and-a-half years ago.
Mr. Dorsey remained chairman of Twitter's board after his ouster, and also leads a mobile-payments company named Square Inc. Mr. Dorsey has been laying out his vision for Twitter to its executives, said a person familiar with the matter.
Twitter allows users to post messages of up to 140 characters in length, and those messages can be viewed by other users. People log on—often through their mobile phones—to track everything from sporting events to transportation delays to natural disasters. Egyptians, for example, used the service to organize revolutionary protests earlier this year.
The company has been slower to build a business around its popularity than some other Web players, such as Facebook. The research firm eMarketer puts Twitter 2010 ad revenue at $45 million and expects ad revenue to reach $150 million this year.
Yet Twitter investors are buying up shares of the privately held company on secondary exchanges or through individual middlemen. Twitter completed a financing at the end of last year that valued the company at around $4 billion, though it has argued for higher valuations in low-level talks with potential acquirers, including Google Inc., people familiar with the matter have said.
The company this year will try to make the breadth of its content more visible to first-time visitors, helping them quickly discover information about stocks, sports and other organizations and individuals they care about, the people familiar with the matter said.
One possibility is showcasing tweets by well-known people or organizations located in the user's region, or from certain types of users, such as athletes or musicians.
Twitter users already have created thousands of "lists" in which such content on specific topics is grouped together, and Twitter is looking at ways to promote such lists, said a person familiar with the matter.
Twitter is also exploring concepts similar to a Facebook technology called "EdgeRank" that highlights posts by a user's closest friends—an effort that is being aided by Ashish Goel, a Twitter research fellow and Stanford University professor, these people said.
"Most of the time what people want is the most relevant and important information, and without filtering its content for individual users that's difficult for Twitter to satisfy," said Awe.sm's Mr. Strauss.
Twitter is making a concerted effort to educate its users about what, exactly, it is. WSJ's Amir Efrati explains why to Stacey Delo.
The San Francisco company, which lets users broadcast and view short messages, wants to make it easier for new users to navigate the service and help longtime users find interesting content.
While Twitter has more than 200 million registered accounts, it doesn't say how many are active users. Users discuss a variety of topics, but some people—especially adults—view the service as a vehicle for celebrities to broadcast their thoughts online.
Twitter wants to show how the service works to first-time users by highlighting tweets from people in their geographic regions, such as local politicians and musicians, when they first sign on, people familiar with the matter said.
Jonathan Strauss, chief executive of Awe.sm, which tracks marketing campaigns on Twitter and Facebook Inc., argues that Twitter needs to attract more mainstream Internet users if it wants to justify its multibillion-dollar valuation. "Most people understand Twitter exists, but they don't understand what Twitter is and how they can participate," he said.
For more experienced users, Twitter is developing ways to create a narrower stream of the most relevant tweets rather than requiring users to wade through messages in chronological order.
As it looks to add tools for power users, Twitter is also in advanced talks to purchase a program used by many Twitter users to view and manage tweets, Tweetdeck, for around $50 million, people familiar with the matter said.
Jack Dorsey, a Twitter founder, recently returned as its product chief. He has become more active advising the company.
It is unclear when the changes will be introduced or how Twitter may use Tweetdeck. A spokesman for Twitter, which has made seven small acquisitions to date, declined to comment. TweetDeck Inc.'s chief executive, Iain Dodsworth, couldn't be reached.
The moves come as Jack Dorsey, the founding chief executive of the four-year-old company, formally returned as product chief three weeks ago after being pushed out by the board two-and-a-half years ago.
Mr. Dorsey remained chairman of Twitter's board after his ouster, and also leads a mobile-payments company named Square Inc. Mr. Dorsey has been laying out his vision for Twitter to its executives, said a person familiar with the matter.
Twitter allows users to post messages of up to 140 characters in length, and those messages can be viewed by other users. People log on—often through their mobile phones—to track everything from sporting events to transportation delays to natural disasters. Egyptians, for example, used the service to organize revolutionary protests earlier this year.
The company has been slower to build a business around its popularity than some other Web players, such as Facebook. The research firm eMarketer puts Twitter 2010 ad revenue at $45 million and expects ad revenue to reach $150 million this year.
Yet Twitter investors are buying up shares of the privately held company on secondary exchanges or through individual middlemen. Twitter completed a financing at the end of last year that valued the company at around $4 billion, though it has argued for higher valuations in low-level talks with potential acquirers, including Google Inc., people familiar with the matter have said.
The company this year will try to make the breadth of its content more visible to first-time visitors, helping them quickly discover information about stocks, sports and other organizations and individuals they care about, the people familiar with the matter said.
One possibility is showcasing tweets by well-known people or organizations located in the user's region, or from certain types of users, such as athletes or musicians.
Twitter users already have created thousands of "lists" in which such content on specific topics is grouped together, and Twitter is looking at ways to promote such lists, said a person familiar with the matter.
Twitter is also exploring concepts similar to a Facebook technology called "EdgeRank" that highlights posts by a user's closest friends—an effort that is being aided by Ashish Goel, a Twitter research fellow and Stanford University professor, these people said.
"Most of the time what people want is the most relevant and important information, and without filtering its content for individual users that's difficult for Twitter to satisfy," said Awe.sm's Mr. Strauss.
Twitter Seeks $7 Billion Valuation
As Peers Pursue Bigger IPOs, Messaging Service Sticks to Private Backing; Still Searching for the Right Business Model
Even as Internet companies such as Zynga Inc. and Groupon Inc. file to go public, Twitter Inc. is taking a different route: It is continuing to tap private investors.
Twitter, the Internet-messaging service, is privately raising hundreds of millions of dollars in a new financing round that values the company at as high as $7 billion. Emir Afrati has details.
The fast-growing Internet messaging service is currently in discussions to raise a new round of private financing, said people familiar with the matter. The round could yield hundreds of millions of dollars and value Twitter as high as $7 billion, one of these people said. It is unclear which investors are participating in the new round.
The talks come seven months after Twitter, which lets people broadcast and read messages called "tweets," raised $200 million in a financing led by venture-capital firm Kleiner Perkins Caufield & Byers that valued the company at $3.7 billion.
A Twitter spokesman declined to comment on the San Francisco company's finances.
Twitter's new valuation underscores the soaring price tags for some Web companies. Over the last month, daily deals site Groupon and online gaming start-up Zynga have filed for initial public offerings, in moves that some estimate would value those companies at around $20 billion each upon their stock market debuts.
By trying to raise a large slug of money, Twitter buys itself more time to develop an advertising-based business that is relatively immature compared to its peers. Though Twitter has a growing user base, its ad system remains fledgling and it isn't generating as much revenue as Groupon or Zynga.
Twitter is also much smaller than some of its peers, counting just over 500 employees, and until recently its executive ranks were thin. Chief Executive Dick Costolo, who took over last fall, has been working on building out the company's executive team and advertising business.
"Twitter is still evolving its business model," said Tony Florence, a partner with venture capital firm New Enterprise Associates. "Staying private while you are figuring out your model makes a lot of sense."
Twitter, which was created in 2006 and has more than 200 million registered user accounts, is currently on track to produce about $150 million in ad revenue this year, according to research firm eMarketer, up from $45 million last year.
Chief Tweeter: CEO Dick Costolo has revamped Twitter's executive team and slowly built its advertising business.
Mr. Costolo has said that the company has purposely limited the availability of ad space to "make sure we get it right."
In contrast, Zynga reported net income of $91 million on revenue of $597 million last year, according to its filing. Groupon, in its filing, revealed its revenue surged to $644.7 million in this year's first quarter, though it was unprofitable.
Today, Twitter's main advertising unit is called a "promoted tweet," which looks like a regular tweet—a message of 140 characters or less—and shows up in some users' Twitter accounts or when any Twitter user executes a search on Twitter.com. People log on to Twitter to track everything from global conflicts to sporting events and natural disasters.
Twitter is currently working on a plan to regularly incorporate promoted tweets prominently in users' accounts, the company has said. The move could significantly accelerate revenue growth by increasing the number of ads it can sell.
Twitter is also working on ways to create a new ad offering of the sort that made Google Inc. a Web-search advertising powerhouse, said a person familiar with the matter. The new ad type would differ from those that are currently available, this person said.
Much of the push to build out Twitter's business comes from 47-year-old Mr. Costolo. The former management consultant and Google product manager, who has won over many Twitter employees with his self-deprecating humor, has also been busy building out the company's executive bench.
Mr. Costolo has been credited with carefully managing the exits of two of the company's co-founders: Evan Williams, who was Twitter CEO between 2008 and last fall, and Biz Stone, Twitter's evangelist and spokesman on talk-show circuits. Mr. Williams remains on Twitter's board of directors.
In March, Mr. Costolo brought back Jack Dorsey, Twitter's creator and CEO of mobile-payments company Square Inc., to help oversee the company's product initiatives.
Around April, Mr. Costolo also brought on Satya Patel, a former Google product manager, to help lead product initiatives with Mr. Dorsey. The two are now working on ways to make the breadth of Twitter content more visible to first-time visitors, helping them quickly discover information about stocks, sports and other topics and people they care about, people familiar with the matter have said. They are also exploring concepts similar to a Facebook Inc. technology that highlights posts by a user's closest friends, these people said.
Mr. Costolo has made several other key hires, including from Facebook and News Corp., and is close to hiring a chief marketing officer, people familiar with the matter said.
Twitter's Valuation, By the Numbers
The CEO had a coup last month when Apple Inc. said that starting this fall, users of Apple mobile devices such as the iPhone will be able to publish photos, links to websites or broadcast their current location on Twitter with the tap of a button while using the device's camera and Web browser, among other things. Twitter believes the partnership could significantly help it attract new users and increase the amount of information that people contribute to the service, people familiar with the matter said.
Twitter is continuing to grow quickly. According to comScore Inc., Twitter.com in May saw 139 million unique visitors globally, up from 90 million a year earlier. Growth in the U.S. has been slower than internationally, with the site hitting 27 million unique U.S. visitors in May, up from 23.8 million in 2010. "We're growing like a weed," Mr. Costolo said at a conference last month.
On Tuesday, Twitter also said it has acquired a small firm called BackType Labs that helps companies understand their impact on the Web via social media sites, including Twitter.
As Peers Pursue Bigger IPOs, Messaging Service Sticks to Private Backing; Still Searching for the Right Business Model
Even as Internet companies such as Zynga Inc. and Groupon Inc. file to go public, Twitter Inc. is taking a different route: It is continuing to tap private investors.
Twitter, the Internet-messaging service, is privately raising hundreds of millions of dollars in a new financing round that values the company at as high as $7 billion. Emir Afrati has details.
The fast-growing Internet messaging service is currently in discussions to raise a new round of private financing, said people familiar with the matter. The round could yield hundreds of millions of dollars and value Twitter as high as $7 billion, one of these people said. It is unclear which investors are participating in the new round.
The talks come seven months after Twitter, which lets people broadcast and read messages called "tweets," raised $200 million in a financing led by venture-capital firm Kleiner Perkins Caufield & Byers that valued the company at $3.7 billion.
A Twitter spokesman declined to comment on the San Francisco company's finances.
Twitter's new valuation underscores the soaring price tags for some Web companies. Over the last month, daily deals site Groupon and online gaming start-up Zynga have filed for initial public offerings, in moves that some estimate would value those companies at around $20 billion each upon their stock market debuts.
By trying to raise a large slug of money, Twitter buys itself more time to develop an advertising-based business that is relatively immature compared to its peers. Though Twitter has a growing user base, its ad system remains fledgling and it isn't generating as much revenue as Groupon or Zynga.
Twitter is also much smaller than some of its peers, counting just over 500 employees, and until recently its executive ranks were thin. Chief Executive Dick Costolo, who took over last fall, has been working on building out the company's executive team and advertising business.
"Twitter is still evolving its business model," said Tony Florence, a partner with venture capital firm New Enterprise Associates. "Staying private while you are figuring out your model makes a lot of sense."
Twitter, which was created in 2006 and has more than 200 million registered user accounts, is currently on track to produce about $150 million in ad revenue this year, according to research firm eMarketer, up from $45 million last year.
Chief Tweeter: CEO Dick Costolo has revamped Twitter's executive team and slowly built its advertising business.
Mr. Costolo has said that the company has purposely limited the availability of ad space to "make sure we get it right."
In contrast, Zynga reported net income of $91 million on revenue of $597 million last year, according to its filing. Groupon, in its filing, revealed its revenue surged to $644.7 million in this year's first quarter, though it was unprofitable.
Today, Twitter's main advertising unit is called a "promoted tweet," which looks like a regular tweet—a message of 140 characters or less—and shows up in some users' Twitter accounts or when any Twitter user executes a search on Twitter.com. People log on to Twitter to track everything from global conflicts to sporting events and natural disasters.
Twitter is currently working on a plan to regularly incorporate promoted tweets prominently in users' accounts, the company has said. The move could significantly accelerate revenue growth by increasing the number of ads it can sell.
Twitter is also working on ways to create a new ad offering of the sort that made Google Inc. a Web-search advertising powerhouse, said a person familiar with the matter. The new ad type would differ from those that are currently available, this person said.
Much of the push to build out Twitter's business comes from 47-year-old Mr. Costolo. The former management consultant and Google product manager, who has won over many Twitter employees with his self-deprecating humor, has also been busy building out the company's executive bench.
Mr. Costolo has been credited with carefully managing the exits of two of the company's co-founders: Evan Williams, who was Twitter CEO between 2008 and last fall, and Biz Stone, Twitter's evangelist and spokesman on talk-show circuits. Mr. Williams remains on Twitter's board of directors.
In March, Mr. Costolo brought back Jack Dorsey, Twitter's creator and CEO of mobile-payments company Square Inc., to help oversee the company's product initiatives.
Around April, Mr. Costolo also brought on Satya Patel, a former Google product manager, to help lead product initiatives with Mr. Dorsey. The two are now working on ways to make the breadth of Twitter content more visible to first-time visitors, helping them quickly discover information about stocks, sports and other topics and people they care about, people familiar with the matter have said. They are also exploring concepts similar to a Facebook Inc. technology that highlights posts by a user's closest friends, these people said.
Mr. Costolo has made several other key hires, including from Facebook and News Corp., and is close to hiring a chief marketing officer, people familiar with the matter said.
Twitter's Valuation, By the Numbers
The CEO had a coup last month when Apple Inc. said that starting this fall, users of Apple mobile devices such as the iPhone will be able to publish photos, links to websites or broadcast their current location on Twitter with the tap of a button while using the device's camera and Web browser, among other things. Twitter believes the partnership could significantly help it attract new users and increase the amount of information that people contribute to the service, people familiar with the matter said.
Twitter is continuing to grow quickly. According to comScore Inc., Twitter.com in May saw 139 million unique visitors globally, up from 90 million a year earlier. Growth in the U.S. has been slower than internationally, with the site hitting 27 million unique U.S. visitors in May, up from 23.8 million in 2010. "We're growing like a weed," Mr. Costolo said at a conference last month.
On Tuesday, Twitter also said it has acquired a small firm called BackType Labs that helps companies understand their impact on the Web via social media sites, including Twitter.
TAIPEI—Apple Inc. has placed orders for key components used in a next-generation iPhone it is preparing to launch sometime in the third quarter, according to people familiar with the situation.
According to some suppliers of components to Apple, the new version of the iPhone is expected to be thinner and lighter than the iPhone 4 and sport an eight-megapixel camera.
Apple, like many other big personal-computer and consumer-electronics brands, doesn't actually make most of its products. It hires manufacturing specialists—mainly companies from Taiwan that have extensive operations in China—to assemble its gadgets based on Apple's designs. They use parts from other outside suppliers, many of which also are from Taiwan and elsewhere in Asia. The arrangement frees Apple and its fellow vendors from running complicated, labor-intensive production lines, while the ability of Taiwanese companies to slash manufacturing costs helps cut product prices over time.
"Apple's sales estimate of the new iPhone is quite aggressive. It told us to prepare to help the company meet its goal of 25 million units by the end of the year," said another person at one of Apple's suppliers. "The initial production volume will be a few million units... we were told to ship the components to assembler Hon Hai in August."
Carolyn Wu, a spokeswoman for Apple in Beijing, declined to comment. A spokesman for Hon Hai Precision Industry Co. declined to comment on the new iPhone.
Hon Hai, based in Taiwan, is the world's biggest contract manufacturer of electronics by revenue and is the global assembler for Apple products.
Two of the people, however, cautioned that shipments of the new iPhone could be delayed if Hon Hai can't improve its yield rate, as the new iPhone is "complicated and difficult to assemble."
Last month, Hon Hai Chairman Terry Gou said at the company's annual general meeting that the yield rate of Apple's touch-screen devices hasn't been satisfactory, which weighed on Hon Hai's profitability.
"The touch-screen devices are so thin. It's really difficult to install so many components into the iPhones and iPads," Mr. Gou said. "We hope to raise the yield rate and volume in the second half which will help improve our gross margin."
Apple's iPhone has led much of the cellphone industry's innovation since the device was introduced in 2007. Apple said in April that it sold 18.6 million iPhones in its fiscal second quarter ended March 26, more than double the year-earlier tally. That figure was also 15% higher than the December quarter, which is typically Apple's strongest periodsince it is fueled by holiday sales.
According to some suppliers of components to Apple, the new version of the iPhone is expected to be thinner and lighter than the iPhone 4 and sport an eight-megapixel camera.
Apple, like many other big personal-computer and consumer-electronics brands, doesn't actually make most of its products. It hires manufacturing specialists—mainly companies from Taiwan that have extensive operations in China—to assemble its gadgets based on Apple's designs. They use parts from other outside suppliers, many of which also are from Taiwan and elsewhere in Asia. The arrangement frees Apple and its fellow vendors from running complicated, labor-intensive production lines, while the ability of Taiwanese companies to slash manufacturing costs helps cut product prices over time.
"Apple's sales estimate of the new iPhone is quite aggressive. It told us to prepare to help the company meet its goal of 25 million units by the end of the year," said another person at one of Apple's suppliers. "The initial production volume will be a few million units... we were told to ship the components to assembler Hon Hai in August."
Carolyn Wu, a spokeswoman for Apple in Beijing, declined to comment. A spokesman for Hon Hai Precision Industry Co. declined to comment on the new iPhone.
Hon Hai, based in Taiwan, is the world's biggest contract manufacturer of electronics by revenue and is the global assembler for Apple products.
Two of the people, however, cautioned that shipments of the new iPhone could be delayed if Hon Hai can't improve its yield rate, as the new iPhone is "complicated and difficult to assemble."
Last month, Hon Hai Chairman Terry Gou said at the company's annual general meeting that the yield rate of Apple's touch-screen devices hasn't been satisfactory, which weighed on Hon Hai's profitability.
"The touch-screen devices are so thin. It's really difficult to install so many components into the iPhones and iPads," Mr. Gou said. "We hope to raise the yield rate and volume in the second half which will help improve our gross margin."
Apple's iPhone has led much of the cellphone industry's innovation since the device was introduced in 2007. Apple said in April that it sold 18.6 million iPhones in its fiscal second quarter ended March 26, more than double the year-earlier tally. That figure was also 15% higher than the December quarter, which is typically Apple's strongest periodsince it is fueled by holiday sales.
Inside the Disappointing Comeback!
Two years ago, officials said, the worst recession since the Great Depression ended. The stumbling recovery has also proven to be the worst since the economic disaster of the 1930s.
The News Hub covers one of the slowest recoveries from economic recession on record. Also, the National Education Association endorses President Obama. Plus, mules put on a show in Missouri. AP Photo/Paul Sancya
Across a wide range of measures—employment growth, unemployment levels, bank lending, economic output, income growth, home prices and household expectations for financial well-being—the economy's improvement since the recession's end in June 2009 has been the worst, or one of the worst, since the government started tracking these trends after World War II.
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In some ways the recovery is much like the 1991 and 2001 post-recession periods: All three are marked by gradual output growth rather than sharp snap-backs typical of earlier recoveries. But this recovery may remain lackluster for years, many economists say, because of heavy household debt, a financial system still damaged by the mortgage crisis, fragile confidence and a government with few good options for supporting growth.
There are bright spots. Exports, particularly of manufactured and agricultural goods, are improving, in part because of booming developing-country economies and the weaker dollar. They are expected to pick up in the second half of the year as the temporary shock fades from Japan's earthquake and tsunami. In a hint of this, the Institute of Supply Management on Friday reported an uptick in manufacturing for June. Higher corporate profits, stock prices and business investment also are supporting the expansion.
Still, broader problems are holding the economy back.
Disappointing Data
The economy's improvement since the recession's June 2009 end has been the worst, or among the worst, recorded across a wide range of measures since the government started tracking these trends after World War II.
View Interactive
Banks are less able or willing to lend than before the recession. Since the recovery started, banks have reduced money they make available through credit card lines from $3.04 trillion to $2.69 trillion and have reduced home equity credit lines from $1.33 trillion to $1.15 trillion, according to the Federal Reserve Bank of New York.
Policy makers, meanwhile, are reluctant to do more to stimulate economic growth. The Federal Reserve has already pushed short-term interest rates to near zero. Two rounds of quantitative easing that including purchasing $1.425 trillion in mortgage bonds and $900 billion in Treasury debt helped to stabilize the economy but failed to spur a vigorous recovery.
Likewise, fiscal stimulus, either in the form of tax cuts favored by Republicans or spending increases favored by Democrats, looks unlikely given large federal deficits and the disappointing results of earlier efforts, including President Obama's $830 billion stimulus program of 2009.
The biggest problem may be household indebtedness. At the peak of the economic boom in the third quarter of 2007, U.S. households collectively had borrowed the equivalent of 127% of their annual incomes to fund purchases of homes, cars and other goods, up from an average of 84% in the 1990s. The money used to pay off that debt means less available for new spending. Households had worked their debt-to-income levels down to 112% by the first quarter, in part because banks have written off some debt as uncollectible.
View Interactive
Jurgen Schulz, owner of K-5, a San Diego area retailer that sells surfboards, skateboards and lifestyle apparel, sees more people living month-to-month. "Our sales trail way off the further it gets from pay period," he said. Mr. Schulz, in turn, didn't hire this year the six to eight seasonal workers his company usually brings on each summer.
Getting rid of debt could be a long and slow process.To get back to a 1990s debt-to-income ratio of 84%, households would either need to pay down another $3.3 trillion of debt, or see their incomes rise $3.9 trillion. That's equivalent to about nine years' worth of income growth in normal times, estimates Credit Suisse economist Dana Saporta.
Debt constraints are especially hard on consumers who before the crisis relied on credit cards or home equity lines to keep spending when they needed money. Now many of those lines have been limited or cut.
With less access to credit, many families are finding the only way to make ends meet is to cut spending.
"Every single month you're struggling, struggling, struggling," said Javier Toro, 49, a father of three. He makes $13 an hour as a customer service representative at a non-profit that administers a program offering free energy efficiency upgrades to homeowners. The program, funded by the 2009 stimulus law, ends in a few months as government funds dry up. He's paying about $100 a month to keep current on $3,000 in credit card debt, but making no headway paying down principal. To make ends meet, he's cut his cable and Internet service, and the fixed telephone line to his rented home.
He said, "You don't see when this is going to stop."
Debt and a dismal job market have hurt consumers' confidence, which further damps their willingness to spend. The University of Michigan finds that 24% of households expect to be better off financially within a year's time. That's the lowest this measure has been at this point in a recovery since World War II.
Two years ago, officials said, the worst recession since the Great Depression ended. The stumbling recovery has also proven to be the worst since the economic disaster of the 1930s.
The News Hub covers one of the slowest recoveries from economic recession on record. Also, the National Education Association endorses President Obama. Plus, mules put on a show in Missouri. AP Photo/Paul Sancya
Across a wide range of measures—employment growth, unemployment levels, bank lending, economic output, income growth, home prices and household expectations for financial well-being—the economy's improvement since the recession's end in June 2009 has been the worst, or one of the worst, since the government started tracking these trends after World War II.
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In some ways the recovery is much like the 1991 and 2001 post-recession periods: All three are marked by gradual output growth rather than sharp snap-backs typical of earlier recoveries. But this recovery may remain lackluster for years, many economists say, because of heavy household debt, a financial system still damaged by the mortgage crisis, fragile confidence and a government with few good options for supporting growth.
There are bright spots. Exports, particularly of manufactured and agricultural goods, are improving, in part because of booming developing-country economies and the weaker dollar. They are expected to pick up in the second half of the year as the temporary shock fades from Japan's earthquake and tsunami. In a hint of this, the Institute of Supply Management on Friday reported an uptick in manufacturing for June. Higher corporate profits, stock prices and business investment also are supporting the expansion.
Still, broader problems are holding the economy back.
Disappointing Data
The economy's improvement since the recession's June 2009 end has been the worst, or among the worst, recorded across a wide range of measures since the government started tracking these trends after World War II.
View Interactive
Banks are less able or willing to lend than before the recession. Since the recovery started, banks have reduced money they make available through credit card lines from $3.04 trillion to $2.69 trillion and have reduced home equity credit lines from $1.33 trillion to $1.15 trillion, according to the Federal Reserve Bank of New York.
Policy makers, meanwhile, are reluctant to do more to stimulate economic growth. The Federal Reserve has already pushed short-term interest rates to near zero. Two rounds of quantitative easing that including purchasing $1.425 trillion in mortgage bonds and $900 billion in Treasury debt helped to stabilize the economy but failed to spur a vigorous recovery.
Likewise, fiscal stimulus, either in the form of tax cuts favored by Republicans or spending increases favored by Democrats, looks unlikely given large federal deficits and the disappointing results of earlier efforts, including President Obama's $830 billion stimulus program of 2009.
The biggest problem may be household indebtedness. At the peak of the economic boom in the third quarter of 2007, U.S. households collectively had borrowed the equivalent of 127% of their annual incomes to fund purchases of homes, cars and other goods, up from an average of 84% in the 1990s. The money used to pay off that debt means less available for new spending. Households had worked their debt-to-income levels down to 112% by the first quarter, in part because banks have written off some debt as uncollectible.
View Interactive
Jurgen Schulz, owner of K-5, a San Diego area retailer that sells surfboards, skateboards and lifestyle apparel, sees more people living month-to-month. "Our sales trail way off the further it gets from pay period," he said. Mr. Schulz, in turn, didn't hire this year the six to eight seasonal workers his company usually brings on each summer.
Getting rid of debt could be a long and slow process.To get back to a 1990s debt-to-income ratio of 84%, households would either need to pay down another $3.3 trillion of debt, or see their incomes rise $3.9 trillion. That's equivalent to about nine years' worth of income growth in normal times, estimates Credit Suisse economist Dana Saporta.
Debt constraints are especially hard on consumers who before the crisis relied on credit cards or home equity lines to keep spending when they needed money. Now many of those lines have been limited or cut.
With less access to credit, many families are finding the only way to make ends meet is to cut spending.
"Every single month you're struggling, struggling, struggling," said Javier Toro, 49, a father of three. He makes $13 an hour as a customer service representative at a non-profit that administers a program offering free energy efficiency upgrades to homeowners. The program, funded by the 2009 stimulus law, ends in a few months as government funds dry up. He's paying about $100 a month to keep current on $3,000 in credit card debt, but making no headway paying down principal. To make ends meet, he's cut his cable and Internet service, and the fixed telephone line to his rented home.
He said, "You don't see when this is going to stop."
Debt and a dismal job market have hurt consumers' confidence, which further damps their willingness to spend. The University of Michigan finds that 24% of households expect to be better off financially within a year's time. That's the lowest this measure has been at this point in a recovery since World War II.
Warner Music Shareholders Approve $3.3B Takeover, And Golden Parachutes
Warner Music is a step closer to becoming a division of Access Industries, the privately held chemical, natural resource, and real estate company controlled by Russian-born industrialist Len Blavatnik. Shareholders in the music company this morning overwhelmingly approved Blavatnik's $3.3 billion takeover offer. The deal, which pays investors $8.25 a share, is expected to close in the third quarter. Investors also approved, on an advisory basis, the controversial "golden parachute" package that guarantees about $16.9 million in equity to CEO Edgar Bronfman Jr and $10 million to Lyor Cohen, the CEO of recorded music. Although they're expected to stay at the company, they can cash in even if they leave.
Warner Music is a step closer to becoming a division of Access Industries, the privately held chemical, natural resource, and real estate company controlled by Russian-born industrialist Len Blavatnik. Shareholders in the music company this morning overwhelmingly approved Blavatnik's $3.3 billion takeover offer. The deal, which pays investors $8.25 a share, is expected to close in the third quarter. Investors also approved, on an advisory basis, the controversial "golden parachute" package that guarantees about $16.9 million in equity to CEO Edgar Bronfman Jr and $10 million to Lyor Cohen, the CEO of recorded music. Although they're expected to stay at the company, they can cash in even if they leave.
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