Stock Market Predictions

Verizon iPhone sales dash hopes; shares fall

Stock Market Predictions

In the second quarter, Verizon Wireless, the No. 1 U.S. mobile service, signed up 1.3 million fewer iPhone customers than AT&T, dashing high hopes of investors who sent its shares down almost 3 percent.

On top of this, Verizon Wireless customers spent less per month than expected as the company changed its data service price plans, further disappointing Wall Street on Friday.

While Verizon Wireless added three times more net subscribers in the quarter than AT&T, it only activated 2.3 million Apple Inc iPhones compared with 3.6 million activations at AT&T.

"AT&T has done a much better job of hanging on to iPhone customers than anybody expected," said Credit Suisse analyst Jonathan Chaplin.

There was simply not enough good news in the report to justify Verizon's richer valuation than AT&T's, said Chaplin, who said Verizon shares have been trading at about 14 times 2012 earnings estimates compared with AT&T's 12 multiple.

Verizon Wireless' 1.9 percent growth in average monthly revenue per user (ARPU) was well behind Chaplin's expectation for 2.9 percent.

"Without the share gain in the smartphone category driving the ARPU, which would drive earnings per share growth, it's difficult to get enthusiastic about the (Verizon) shares at this valuation," Chaplin said.

AT&T may leapfrog Verizon Wireless and become the top U.S. mobile service next year if regulators approve its plan to buy Deutsche Telekom unit T-Mobile USA.

WRONG KIND OF SUBSCRIBERS

And while the subscriber numbers were strong on the surface "they were the wrong kind of subscribers," Chaplin said. Subscribers using devices such as the iPhone spend more on data services on a monthly basis than other wireless customers.

Verizon Wireless said it would now take it a quarter longer than expected to increase its smartphone user base to 50 percent of is subscribers. It blamed the delay on the launch of the next iPhone a quarter later than it had expected. Verizon said it now expects to sell the next version of iPhone in the autumn.

Still, Verizon Wireless, owned by Verizon and Vodafone Group Plc, added 1.3 million net subscribers in the quarter compared with the average expectation for about 930,000, according to seven analysts contacted by Global Markets.

Stifel Nicolaus analyst Chris King was impressed with Verizon's customer growth and its sale of 1.2 million high-speed wireless devices for the new 4G network it is building.

While some investors had worried that the relatively expensive iPhone would hurt Verizon's profit margins, King said its wireless service margin of 45.4 percent was well ahead of his expectation for 43.9 percent.

Verizon's quarterly profit was $1.61 billion, or 57 cents a share and was ahead of the average analyst estimate of 55 cents per share, according to Thomson Global Markets I/B/E/S.

Revenue rose 2.8 percent to $27.53 billion, ahead of Wall Street expectations for $27.42 billion.

Also on Friday, Verizon named Chief Operating Officer Lowell McAdam as chief executive, starting August 1. McAdam, the former CEO of Verizon Wireless, is replacing Ivan Seidenberg, who will remain chairman. The move follows its succession plan announced late last year.

Seidenberg has led Verizon since its inception in 2000 and before that he was CEO of Verizon's predecessor companies. The executive, who started out as a cable splicer's assistant at New York Telephone, has worked at the company for more than 40 years.

Verizon shares were down $1.06 or 2.8 percent at $36.51 in morning trading on the New York Stock Exchange, after falling as much as 3 percent shortly after the market opened.

(Reporting by Supantha Mukherjee in Bangalore and Sinead Carew in New York; Editing by Joyjeet Das, Derek Caney and Phil Berlowitz)

Low prices help McDonald's beat profit expectations

Stock Market Predictions

June sales at restaurants open at least 13 months were far stronger than analysts expected. During the month, same-restaurant sales were up 6.9 percent in the United States, 9.1 percent in Europe and 4.8 percent in the Asia/Pacific, Middle East and Africa unit.

Analysts were expecting June same-restaurant sales to rise 2 percent in the United States, 3 percent in Europe and 2 percent in the Asia/Pacific, Middle East and Africa unit.

Europe is McDonald's largest market for sales, contributing about 40 percent of revenue. The United States is a close second.

"It's the consistency of the everyday value message that has helped them a lot," said Lazard Capital Markets analyst Matthew DiFrisco, who added that McDonald's is good at adjusting its marketing to keep customers coming in.

McDonald's has been taking market share from its fast food peers for many months. It has benefited from improving food quality, adding Dollar Menu items and introducing high-margin beverages such as coffee and fruit smoothies to broaden its appeal beyond the young men who account for the biggest share of sales at most other fast-food chains.

It is also renovating restaurants in Europe and the United States.

Europe's top performers were France, Britain and Russia.

"Broadly speaking, there was just a little bit of a lift in people's willingness to spend in Europe," said Bernstein Research analyst Sara Senatore.

McDonald's global same-restaurant sales rose 5.6 percent in the second quarter. It forecast July results that are up 4 percent to 5 percent overall.

Janney Capital Markets analyst Mark Kalinowski, who correctly signaled that the June U.S. result would be significantly above what many analysts were targeting, said some key competitors are floundering.

In particular, he said, Carrols Restaurant Group (TAST.O) -- one of privately held Burger King's biggest franchisees -- saw same-restaurant sales at its Burger King BKCBK.UL restaurants fell 3.6 percent in the second quarter.

Rival Yum Brands Inc (YUM.N) recently reported another quarter of strong earnings based on growth in China, but its U.S. Taco Bell business is hurting from a dismissed lawsuit over the quality of its ground beef.

Shares in Yum, also the parent of the KFC and Pizza Hut chains, were up 0.4 percent. Stock in burger chain Wendy's (WEN.N) was up 1.3 percent.

Shares of McDonald's, which has 32,000 restaurants, were up $2.69 to $89.22 on the New York Stock Exchange in the middle of the trading day. The shares closed at an all-time high of $86.54 on Thursday.

HOLDING THE LINE ON PRICES?

Second-quarter net income rose 15 percent to $1.41 billion, or $1.35 per share, topping the average analyst forecast of $1.28 per share, according to Thomson Global Markets I/B/E/S.

Foreign currency translation boosted earnings by 10 cents per share in the second quarter.

Revenue rose to $6.91 billion from $5.95 billion.

Analysts said the strong results showed that McDonald's has pricing power.

"We will continue to consider future price increases," McDonald's Chief Financial Officer Peter Bensen said on a conference call with analysts.

McDonald's has raised prices on some premium products to help offset higher food costs. The company still expects those costs to rise 4 percent to 4.5 percent in the United States and Europe this year.

McDonald's wants customers to keep coming through its doors, so Bensen said it would be "judicious" with additional price hikes.

"You can bet their competitors wish they would take pricing," said Victory Capital Management analyst Dave Kolpak. "You can't do it if McDonald's doesn't. They're putting the heat on the competition."

(Editing by Gerald E. McCormick and Lisa Von Ahn and Matthew Lewis)

Xerox's lowered cash forecast irks investors

Stock Market Predictions

While Xerox's solid second-quarter results and upbeat earnings forecast on Friday showed that its focus on providing corporate clients with more than just copiers was starting to pay off, its weaker outlook for operating cash flow served as a red flag for investors.

Xerox lowered its outlook for operating cash flow to a range of $2 billion to $2.3 billion for the year, down from a previous forecast of $2.5 billion.

"For a lot of investors in Xerox, the cash it is generating is one of the most looked at data points," said Neuberger Berman analyst Fayad Abbasi. "So in my view, that's the cause of disappointment in the stock today."

Neuberger Berman is one of the top holders of Xerox shares, which fell 2.2 percent, or 23 cents, to $10.07 on the New York Stock Exchange.

The more cash that Xerox has, the more it can reward investors by undertaking share buybacks or dividend increases.

Xerox Chief Executive Ursula Burns blamed the lowered cash forecast on supply problems in Japan and on new client accounts that require more upfront investment.

"We faced some unique challenges relative to cash usage during the first half of the year, including cash needs from ramping new contract signings and incremental cash required to support the supply chain constraints," Burns said on the call with analysts.

Xerox's quarterly revenue, which rose 2 percent to $5.6 billion, would have been higher had it not been for supply disruptions in Japan, the company said. The earthquake hurt revenue by putting constraints on its color supplies, which are sourced from its Fuji Xerox plant in Japan.

Xerox, which competes with Hewlett-Packard Co (HPQ.N), had about $1 billion in cash at the end of the quarter, which it said it would use for "modestly sized acquisitions" and to buy back shares. It expects to buy $700 million of stock in the second half of the year.

SHIFTING BUSINESS

Aside from the cash outlook, Xerox reported a strong quarter that initially boosted its shares.

The company raised its 2011 earnings outlook to a range of $1.07 to $1.12 per share, compared with analysts' expectations of $1.04 to $1.10 per share.

Xerox, which performs services such as managing the E-ZPass electronic tolling system in several states, said its services business contributed more revenue than its traditional copier and printer business in the quarter.

Its services business rose 6 percent, which included a 2 percentage point bump from the weaker dollar. Overall services business revenue totaled $2.67 billion, 48 percent of the business.

The company's business of selling printers, copiers, toners and ink generated $2.5 billion in revenue, representing about 45 percent of the company's revenue.

Adjusted for various charges, Xerox reported earnings per share of 27 cents, beating Wall Street analysts' average estimate of 24 cents per share, according to Thomson Global Markets I/B/E/S. Total revenue increased 2 percent to $5.6 billion, in line with analysts' estimates.

Xerox's adjusted profit also rose 39 percent in the second quarter, to $327 million, or 22 cents per share, from $236 million, or 16 cents per share, a year earlier.

The value of the company's contract signings fell 10 percent, which it blamed on the cyclical nature of large corporate deals.

In the quarter, the company said it employed 133,500 workers globally, which is 3,000 fewer than a year earlier.

A company spokesman said in an email that in the past quarter it cut 500 jobs, "which is based on attrition and the ebb-and-flow of the contracts that we have."

(Reporting by Liana B. Baker; Editing by Lisa Von Ahn, Derek Caney; Editing by Phil Berlowitz)

Microsoft Windows fizzles as PC fears loom

Stock Market Predictions

The results failed to excite a market already wary about growth prospects for the company and PC industry as netbook sales give way to tablets. The stock was flat in after-hours trading.

"All eyes are on Windows and how they are ultimately going to extend this franchise in the future, as the PC business continues to lose share to the tablets," said Josh Olson, technology analyst at money manager Edward Jones. "Microsoft is really a show-me story in terms of its ability to extend its core flagship products to these new growth platforms."

On Wednesday, chipmaker Intel Corp warned that PC sales will not be as strong as it had expected this year.

Microsoft is expected to enter the tablet market in earnest next year with the launch of its next operating system -- code-named Windows 8 -- which will be compatible with the low-power chips designed by ARM Holdings favored by tablet and mobile phone makers.

Despite the Windows dip, Microsoft managed to ease past Wall Street's earnings estimates, helped by strong sales of its Office software and Xbox game console, as well as a dramatic drop in its tax bill.

The world's largest software maker follows Google Inc, Apple Inc and International Business Machines Corp in reporting surprisingly good results as technology spending holds up relatively well in an uncertain economy.

BIG BEAT

The Redmond, Washington-based company on Thursday posted net profit of $5.87 billion, or 69 cents per share, up from $4.52 billion, or 51 cents per share, in the year-ago quarter.

That easily beat Wall Street's average estimate of 58 cents, according to Thomson Global Markets I/B/E/S. Microsoft has beaten the average profit estimate for each of the last nine quarters.

Microsoft was helped by an unusually low tax rate of 7 percent in the quarter, which cut its tax bill by more than $1 billion from the year before, to $445 million. The company, which gets most of its revenue from overseas, said the savings were due to a one-time tax gain and more business flowing through its regional centers in the low-tax jurisdictions of Ireland, Singapore and Puerto Rico.

Sales rose 8 percent to $17.37 billion, ahead of analysts' average estimate of $17.23 billion, boosted chiefly by sales of Office, Xbox and server software behind Microsoft's push into Internet-centric, or "cloud" computing.

Microsoft shares fluctuated after the results were announced in after-hours trading, settling close to their closing price of $27.09 on Nasdaq. The stock is up 8 percent over the past 12 months, compared to a 30 percent rise in the Nasdaq composite index. The shares are stuck at a level first hit in 1998, adjusted for stock splits.

"These numbers are good. The question is, what will make Microsoft break this range in which it is stuck, between $25 and $28?" said Trip Chowdhry, managing director at Global Equities Research. "I don't see these numbers giving an indication that the stock is going to break away."

OFFICE, XBOX STAR

Spending by businesses on technology has generally outstripped cash-strapped consumers since the worldwide economic downturn.

Microsoft's business division, which last month rolled out online versions of its popular Office suite of programs such as Outlook, SharePoint and Excel, was the company's biggest seller in the quarter, racking up a 7 percent increase in sales to $5.8 billion.

The server and tools business, which sells software used by datacenters -- an essential building block of cloud computing -- posted a 12 percent increase in sales to $4.6 billion.

The entertainment and devices unit, which sells the company's video game and phone products, posted a 30 percent increase in sales to $1.5 billion, mostly due to the popularity of the Xbox and the new hands-free gaming Kinect add-on.

Sales at the Windows unit fell 0.8 percent to $4.7 billion. PC sales grew only 2.3 percent in the second quarter, according to tech research firm Gartner, well below earlier projections, as economic uncertainty hangs over consumers and Apple's iPad and other tablets eat into the market.

Microsoft's perennial money-losing online services unit, which runs the Bing search engine and MSN Internet portal, posted a 16.5 percent increase in sales to $662 million, but its loss widened to $728 million from a loss of $688 million a year ago, as Microsoft continues to pour money into attacking Google. The unit has now lost almost $6.5 billion in the last three fiscal years.

(Additional reporting by Alexei Oreskovic in San Francisco and Liana Baker in New York; Editing by Richard Chang)

Chrysler set to outshine Fiat as weak Europe weighs

Stock Market Predictions

Fiat will report second-quarter results on Tuesday, incorporating Chrysler for the first time after raising its stake in the company past the 50 percent mark last month.

Fiat had taken an initial 20 percent of Chrysler two years ago under a bailout deal with the U.S. government.

Fiat CEO Sergio Marchionne, who also runs Chrysler, is expected to announce a unified management structure of 25 top executives for both companies, paving the way for a merger while making a Chrysler initial public offering less likely.

"In his mind, Marchionne already thinks of the two companies as a single entity," said a source close to the situation.

Marchionne, who has made Fiat one of Europe's top turnaround stories, wants to elevate the Italian carmaker to a global player through a revamped Chrysler. A merger would reduce costs and improve integration, helping to achieve a target of around 100 billion euros ($143.8 billion) in combined revenue by 2014.

"With the business strategies of Fiat and Chrysler irrevocably linked, we believe a merger is a logical next step," said Goldman Sachs in a research note this week, reinstating Fiat as a "conviction buy" with a price target of 12.9 euros.

Second-quarter results consolidating Chrysler from May 24 are expected to show a trading profit of 485 million euros, according to an survey of analyst expectations distributed by Fiat.

MORE GROWTH

Excluding Fiat's luxury brands Ferrari and Maserati, Fiat will contribute 175 million euros of that total for the three months to June, compared with 155 million euros for Chrysler in the month of June alone.

Fiat is known for its relatively low-cost small cars, where profit margins are narrower, while Chrysler earns more money per unit from its sedans and SUVs.

"Chrysler will generate a lot more cashflow and growth than Fiat very soon," said Bruno Lapierre, an analyst with brokerage Cheuvreux, explaining why Marchionne would want to take over all of the U.S.-based group.

Chrysler's U.S. sales rose 21 percent in the first half of 2011, while Fiat's European sales fell 12.7 percent in the same period.

Fiat is doing much better in Brazil, where it is the leader of a market that hit record sales in the first half of 2011 and is a key target for auto makers struggling with stagnating European sales.

The decision to hold Tuesday's board meeting there highlights the growing importance of the area for Fiat.

Marchionne boosted Fiat's stake in Chrysler cheaply and more quickly than expected. It has 53.5 percent after buying the U.S. Treasury's and Canadian government's stakes. [ID:nN1E76K14Y]

By the end of this year its holding will have risen to 58.5 percent -- an increase linked to Chrysler developing a car that gets 40 miles per gallon of gasoline.

But he needs to decide what to do with the 41.5 percent of Chrysler that is owned by VEBA, the United Auto Workers' healthcare trust.

After initially planning an IPO that would allow VEBA to cash in on its stake, Marchionne now seems to be aiming to buy it -- although he says he is not in talks with VEBA yet.

If he goes for a full takeover of Chrysler, Marchionne will need to convince ratings agencies Moody's and Fitch -- which have already warned they may downgrade Fiat's debt -- that Fiat's finances are solid enough.

That has led to speculation Fiat may float Ferrari, although Ferrari's chairman said this week there was no plan to do so.

(Additional reporting by Gianni Montani in Turin; Editing by David Holmes)

Schlumberger quarterly results jump, shares rise

Stock Market Predictions

Schlumberger shares rose 3 percent in early trading, as the world's largest oilfield services company delivered its first set of market-pleasing results this year.

The stronger North American trend drove an estimate-beating 54 percent jump in earnings for rival Halliburton Co (HAL.N) this week, though Halliburton shares were little changed on Friday.

While half of Halliburton's revenue comes from Canada and the United States, the region accounts for less than a third for Schlumberger, which sees big improvements elsewhere led by a dramatic increase in Saudi Arabian activity.

"None of the other countries are executing with the speed of Saudi. So yes, it's going to come, but it's not there yet," Chief Executive Andrew Gould said on a call with analysts -- his last before he retires as CEO and hands off the top job to 44-year-old Paal Kibsgaard.

Iraq is also a key factor in the improving international outlook, along with the North Sea and East Asia, he added.

Asked about Iraq, where many oil firms have found it hard to establish a foothold, Kibsgaard said it is likely to be Schlumberger's seventh biggest out of 14 markets in the Middle East and Asia, before improving to No. 3 next year.

Oil and gas companies' spending picked up far more quickly in North America than elsewhere this year as oil prices surged and producers rushed to tap fields rich in liquids.

Schlumberger said onshore U.S. strength and demand from the world's deepwater regions drove second-quarter earnings, while Gulf of Mexico activity was improving after the drilling halt that followed last year's BP Plc (BP.L) Macondo oil spill.

PROFIT PLEASES WALL ST.

Second-quarter profit rose to $1.34 billion, or 98 cents a share, from $818 million, or 68 cents a share, a year earlier.

Leaving out one-time items, Schlumberger earned 87 cents a share from continuing operations, topping the analysts' average forecast of 85 cents as compiled by Thomson Global Markets I/B/E/S.

Revenue rose 62 percent to $9.6 billion, topping the $9.2 billion that analysts had expected.

The strong North American performance offset disappointing earnings in Europe, the former Soviet states and the Middle East, UBS analyst Angie Sedita said, though she also saw high energy prices eventually driving those businesses as well.

"Schlumberger offers the best play on the international ... and deepwater markets, which should slowly start to improve later this year, with greater gains in 2012," Sedita said in a note to investors.

Gould expressed optimism about deepwater in particular, a view supported by the dozens of new rigs in the pipeline.

"There have never been so many deepwater rigs on order. So to the extent that we have exploration success in deepwater ... I think that the exploration cycle can be a lot more sustained than it was last time, when it was abruptly terminated by the financial crisis and by the Macondo incident," he said.

Gould also said the steep ramp-up in demand for services in the U.S. market and elsewhere is straining the sector, making it difficult to get equipment and staff to customers.

Shares in Schlumberger climbed 3.3 percent to $93.93 in morning trading. At Thursday's close, the stock had gained 9 percent so far this year, lagging a near-12 percent rise in the Philadelphia Stock Exchange Oil Service Index .OSX.

The improving global outlook gave a 2.6 percent boost to shares of Weatherford International Ltd (WFT.N), which is making a big push outside the United States, while U.S.-geared Baker Hughes Inc (BHI.N) fell 0.8 percent.

(Additional reporting by Krishna N Das in Bangalore; Editing by Derek Caney and Gerald E. McCormick)

Europe's banks, insurers jump on Greece rescue deal

Stock Market Predictions

Although the deal will force many banks to take a big hit -- non-Greek banks face a 5.4 billion euros ($7.7 billion) loss -- the Greek deal was seen as reducing the threat the euro zone crisis will spread to Spain and Italy. But risks remain.

"It is good that everybody has been able to make a compromise, but it still needs to be detailed and implemented," said Francois Savary, chief investment officer at Geneva-based fund managers Reyl.

Other investors and analysts also gave it a cautious welcome, saying the threat of further contagion remains.

"There is still the need for a strong policy response, but the market's reaction this morning shows it is willing to give them (EU leaders) credibility," said Paola Biraschi, an analyst at RBS in London. "There is more to come ... but it has restored credibility."

By 0830 GMT the STOXX Europe 600 banking index .SX7P was up 1 percent, pulling back from an early 2.6 percent rally. The index jumped 4 percent on Thursday as a Greek deal neared. The STOXX Europe 600 insurance index .SXIP was up 1.1 percent in early trade.

Four options are being offered to creditors, including bond exchange and rollover offers as well as a bond buyback scheme as part of a 37 billion euro private sector contribution to Greece's rescue plan.

Financial firms are likely to write down the value of Greek bonds in the second quarter, possibly by 21 percent, but more losses could follow. The change in the terms on Greek bonds means ratings agencies are likely to downgrade Greece to selective default soon.

"We have long thought that the most likely outcome for Greek bondholders would be that they would take a small haircut first followed by a larger one at a later date. To give Greece a fighting chance they probably need a write down close to 65 percent," said Gary Jenkins, head of fixed income research at Evolution.

Top early gainers included firms that have been hit hard by the threat the Greek crisis could spread.

Belgian-French Dexia (DEXI.BR) jumped 4 percent and France's BNP Paribas (BNPP.PA) and Societe Generale (SOGN.PA), Italy's Unicredit (CRDI.MI), Germany's Commerzbank (CBKG.DE) and Britain's Barclays (BARC.L) all gained over 2 percent. Insurers AXA (AXAF.PA) and Ageas (AGES.BR) were each up about 2 percent.

The Institute of International Finance (IIF), which has led the negotiations for private investors, reckons 90 percent of creditors will sign up. Deutsche Bank (DBKGn.DE), HSBC (HSBA.L), BNP Paribas, Allianz and AXA are among the firms to already sign up.

There is about 150 billion euros of outstanding Greek sovereign debt, so a 90 percent take-up would account for 135 billion euros, including about 54 billion euros in the period up to mid-2014.

Europe's banks held 98 billion euros of Greek debt at the end of last year, with two-thirds of that in domestic hands. They will be recapitalized under the rescue plan, with about 15 billion euros likely to be pumped in, on top of 10 billion already earmarked for them.

About four-fifths of debt is typically held in banking books that may now face a haircut, indicating non-Greek banks face a loss of 5.4 billion euros.

BNP Paribas has the biggest holding outside Greece, with 4.5 billion euros of bonds in its banking book, according to data released last week as part of an industry health check. A 21 percent loss on that would be 945 million euros.

Dexia held 3.5 billion euros and Cyprus's Marfin CPBC.CY held 3.4 billion, indicating a hit to each of over 700 million euros. Commerzbank held 3 billion euros and Societe Generale (SOGN.PA) held 2.4 billion, so they face haircuts of 630 million and 500 million euros respectively. ($1 = 0.695 Euros)

(Reporting by Steve Slater, Myles Neligan and Sudip Kar-Gupta in London and Michel Rose in Milan; Editing by Mike Peacock)

Murdoch links set to overshadow Sky results

Stock Market Predictions

Investors who saw their shares fall over 20 percent at one point this month after a phone-hacking scandal scuppered News Corp's BSkyB takeover bid, will want to see some indication of a future return of capital to boost the value of the company.

However, a buyback of shares or special dividend would draw attention to News Corp's near 40 percent ownership of the British pay-TV operator at a time when a criminal scandal has engulfed Murdoch's empire and hammered the family reputation.

"It will be a tough decision for the board," said Panmure Gordon's Alex DeGroote, one of the first financial analysts to stress the increasing chances that the bid would fall apart.

"At a time when BSkyB should be hypersensitive about the links to News Corp, both a special dividend and the chairman's position are pertinent."

The 38-year-old James Murdoch took over as non-executive chairman of BSkyB in late 2007 after a highly successful four years as the company's chief executive, transforming the group from a pure-play TV operator to one that also offered broadband and telephony.

Several shareholders have told Global Markets they are supportive of James as chairman but will want to discuss the situation.

"Our focus is how BSkyB moves forward," a top 20 BSkyB shareholder told Global Markets on condition of anonymity. "We've got this on a watching brief, because if something dramatic happens then we'll need to have conversations with them.

"We're not pushing for anything as far as James Murdoch going or anything like that, but it will be a topic of conversation when we do talk to them. Our concern will be to make sure the business is structured sufficiently well to drive it through to make sure the perceived valuation and forthcoming revenues that we anticipate are protected."

HEAVY LIFTING

BSkyB has performed strongly during the financial downturn, growing its customer base to over 10 million homes, and is set for a period of strong cash generation after James Murdoch led it through a heavy period of investment.

With the withdrawal of the News Corp bid for the 61 percent of BSkyB it did not already own, shareholders will want to see what will happen next with that cash.

"Cash distribution is likely to be a contentious issue as Sky nears zero net debt next year," Jefferies analyst Nick Bell said, adding that by gearing up to two times from the current 0.6 times net debt to core earnings could release 2.1 billion pounds.

"Under normal circumstances News Corp would be expected to block such a move (it is already flush with cash and any distribution is likely to a incur a substantial tax charge), but circumstances are far from normal at the moment.

"It may relent in order to assuage criticism of wielding too much control at Sky and also to help secure James Murdoch's position as chairman."

James was deemed to have given a good performance when he appeared before a high-profile British parliamentary committee this week to answer questions on the hacking scandal, but he has since come under renewed pressure after former staff at the tabloid at the heart of the problem contradicted a critical part of his testimony.

Merrill Lynch said it thought the company would opt for a special dividend instead of a buyback, as this would prevent News Corp from increasing its stake, but Panmure's DeGroote said he did not expect a firm commitment to be announced next week.

"I don't think it's in the company's interests to undertake share buybacks or a special dividend at this moment in time," he said. "There's the News Corp linkage but also I'm not convinced of the merit of injecting high levels of leverage at a time in which the earnings appear to be under modest pressure."

Others are hoping for at least some indication of a future payout, and expectations on the size of that sum have grown in recent days.

BSkyB is expected to post solid results Friday, but with subscriber growth slowing as the company focuses on cross selling products to existing customers rather than adding new ones in a tough consumer environment.

(Reporting by Kate Holton; additional reporting by Chris Vellacott; Editing by Chris Wickham and Will Waterman)

GE tops Wall Street estimates on overseas demand

Stock Market Predictions

The largest U.S. conglomerate said on Friday its second-quarter results were helped by a rebound in sales of railroad locomotives, which offset weakening demand for wind turbines. With overall orders up 24 percent, pushing the company's backlog to $189 billion, Chief Executive Jeffrey Immelt said he was confident about the rest of the year.

"We are optimistic about our growth prospects in the second half and beyond," Immelt said.

The company's industrial revenues outside the United States were up 23 percent in the quarter, outperforming the overall company, which recorded a 7 percent rise in sales from continuing operations.

Investors said the results showed the Fairfield, Connecticut-based company's focus on emerging markets was paying off.

"GE's strategy of growth in developing nations and energy and infrastructure and healthcare and technology is serving it well," said Perry Adams, vice president and senior portfolio manager at Huntington Private Financial Group, in Traverse City, Michigan, which holds GE shares.

The rise in orders is a key sign that GE will be able to continue its pace of growth, said Nick Heymann, an analyst at William Blair & Co.

"That's the path back to the future," he said.

GE shares were down 5 cents at $19.11 on Friday morning, a day when fellow blue-chip industrial Caterpillar Inc missed profit forecasts, sending its shares sharply lower and weighing on the broader stock market.

Over the past year, GE shares have risen 26 percent, ahead of the 23 percent rise in the Dow Jones industrial average.

PROFIT TOPS STREET VIEW

The world's largest maker of jet engines and electric turbines said second-quarter profit attributable to common shareholders rose to $3.69 billion, or 35 cents per share, from $3.03 billion, or 28 cents per share, a year earlier.

Factoring out one-time items, profit was 34 cents per share. On that basis, analysts had expected 32 cents, according to Thomson Global Markets I/B/E/S.

Revenue fell 3.5 percent to $35.63 billion, reflecting the sale of a majority stake in GE's NBC Universal business to Comcast Corp. Analysts had expected $34.7 billion.

Profit fell 19 percent at GE's energy unit, which incurred large costs to integrate the $11 billion wave of takeovers it made between September and March. Profit margins on renewable energy equipment deteriorated. Demand was split, with sales of equipment used in oil and natural gas production up 39 percent, and electricity-producing gear up just 1 percent.

"If oil keeps going up and if Congress and the president do something more on renewables, which they keep talking about but haven't done, then margins have a long way to expand," said Jack De Gan, chief investment officer at Harbor Advisory Corp in Portsmouth, New Hampshire. "They're doing well to keep margins in those businesses as good as they are."

(Reporting by Scott Malone, additional reporting by Nick Zieminski, Ryan Vlastelica and Roy Strom in New York; Editing by Lisa Von Ahn, John Wallace and Matthew Lewis)

Caterpillar profit misses

Stock Market Predictions

The maker of equipment used in mining and construction also said economic growth in the United States and other developed economies was weaker than expected and reported signs of a slowdown in China.

Although Caterpillar raised its full-year sales and profit forecast, the midpoint of its new range was below analysts' average estimate. Shareholders also noted a more cautious tone in the company's economic commentary, closely watched by investors in economically sensitive manufacturing and transport stocks.

Caterpillar shares were down $6.65 to $104.95 in afternoon trading and most other industrial stocks were also lower, though off the day's worst levels.

Rising prices of commodities like steel and copper, as well as higher transportation and labor costs, hurt profit in a quarter with elevated expectations, said Andrew Meister, equity research analyst with Minneapolis-based Thrivent Financial, which holds almost 1 million Caterpillar shares.

"In a quarter where the price increases lag the increases in manufacturing costs, you have a miss like you have today," Meister said. "But what it says is, the long-term outlook for Cat's products appears robust."

Caterpillar's commentary was more subdued than in the past but its forecasts may eventually prove conservative, said Meister, who called Friday's stock sell-off an overreaction.

"I don't think there's anything wrong with Caterpillar," he said.

Caterpillar finance chief Ed Rapp said raw material inflation was roughly in line with what the company expected when it laid out its 2011 forecasts.

Longer-term, higher commodity prices are a "net positive" for the company, he said in an interview. They drive investment by producers, which in turn boosts demand for infrastructure.

3-CENT MISS

Net earnings rose 44 percent to $1.02 billion, or $1.52 per share, in the second quarter, from $707 million or $1.09 per share a year earlier.

Excluding acquisition costs, Caterpillar earned $1.72 per share, 3 cents short of analysts' average forecast, according to Thomson Global Markets I/B/E/S.

Sales rose 37 percent to a record $14.23 billion.

"The bottom line disappointed," said Oliver Pursche, Co-Portfolio Manager of the GMG Defensive Beta Fund that holds Caterpillar shares. "Caterpillar tends to be very sensitive to macro issues."

The company faced headwinds from China and Japan, he said, but did a good job lifting sales to a record and has been especially successful expanding in Latin America.

The company said the March earthquake in Japan reduced its operating profit by $60 million by boosting costs, but the negative impact from Japan is now past.

Caterpillar said it expects its recently-closed $7.6 billion acquisition of mining equipment maker Bucyrus to add $2 billion to its sales this year and to add to earnings after this year. It now expects 2011 profit of $6.75 to $7.25 per share, excluding Bucyrus, raising its range by 50 cents on either end. Analysts expect $7.08.

"The forward guidance is a little bit disappointing," said Eric Marshall, director of research for Hodges Capital Management, which recently sold its Caterpillar holdings.

"The dealer statistics were so strong throughout the quarter, it built in a lot of pretty high expectations," he said. "People expected a little bit more."

Asked about the company's initial 2012 estimate for earnings of $8 to $10 a per share, before acquisitions, CFO Rapp said, "We're still very comfortable with that range."

Analysts' 2012 estimates currently average $9.12 per share but vary widely, from $7.54 to $9.90.

SLOWER GROWTH

Caterpillar forecast slower global economic growth this year than in 2010, and said U.S. growth was being curtailed by "a lack of confidence in the business climate."

Like many U.S. multinationals, Caterpillar has been able to increase profits, despite a slow economic recovery in its domestic market, thanks to rapid expansion in other economies, including Brazil, Russia, India and China. Caterpillar derives more than a third of sales from such emerging markets.

China, however, has taken steps to cool its economy and tame inflation. Higher interest rates and other policy moves have raised concerns among investors that China's growth could slow abruptly.

"We've seen some softening of growth in China," Caterpillar Chief Executive Doug Oberhelman said in a statement, but he added that expectations remain positive. China is doing a good job of balancing growth and inflation, Oberhelman said. Overall, emerging markets remain robust.

Fellow industrials General Electric Co and Honeywell International Inc also reported quarterly results on Friday.

GE shares were little changed after its profit beat forecasts, helped by emerging market demand for equipment used in energy production. Honeywell fell 2.5 percent despite higher earnings and an improved full-year forecast.

(For a Global Markets Insider view on Caterpillar vs GE, see link.reuters.com/zur72s.)

Caterpillar's tumble, its steepest since May, was enough to keep the Dow Jones industrial average in negative territory, even as the S&P 500 index turned positive.

(Reporting by Nick Zieminski in New York and Scott Malone in Boston; Editing by Derek Caney, Matthew Lewis and John Wallace)