Software license fees grew 18.7% year over year to $50.1 million. Maintenance fees declined 12.0% year over year to $109.7 million. Revenues from professional services came in at $58.1 million compared to $102.9 million in the same quarter last year. Compuware plans to have a smaller but more profitable Professional Services Business going forward.

Operating margin improved to 19% from 10% in the year-ago quarter due to a 27% decrease in operating expenses. The company has divested a few of its peripheral products and services (Quality family of products and DevPartner software) thereby reducing unprofitable revenue streams and increasing margins. The company plans to concentrate on its software business and deliver superior end-to-end application performance, which the company calls Business Service Delivery. 

These divestitures have reduced the top-line by $60 million when compared to the second quarter of last year. Net income came in at $28.0 million, up 29.7% year over year.  Earnings per share came in at 12 cents, which was in line with the Zacks Consensus Estimate.

During the quarter, the company repurchased approximately 7.3 million shares for about $53.5 million. The company expects to draw between $25 million and $35 million from its credit facility to fund its Gomez acquisition. Earlier this month, Compuware announced that it would acquire the privately-held Gomez Inc. for $295 million in cash.

Gomez is a leader in web application experience management and its clients include Google (GOOG) and Facebook. Gomez employs 272 people around the world. Compuware plans to retain all of them after the close of the transaction. The acquisition is expected to be completed by November 2009 and dilute fiscal 2010 EPS due to an amortization charge of $5 million per quarter.

Management expects to generate cash flow of $200 million from its operating activities in fiscal 2010 and targets an operating margin in the range of 25% – 30%. Management reiterated its EPS guidance between $0.60 and $0.70 (which includes the gain from the sale of quality solutions).
The company expects overall cost cutting activities along with operational momentum to drive significant margin expansion and EPS growth in the coming quarters. However, the economic climate remains tough and IT spending is not expected to gain impetus before 2010.

Headquartered in Detroit, Michigan, Compuware provides software products and professional services to many of the largest users of information systems in the world.

The Pier Shops at Caesars is a 282,000 square feet shopping center in which Taubman owns a 77.5% stake. The company considers net operating income from the property to be insufficient to repay its $135 million non-recourse mortgage debt. Thus, it will write down book value of the asset by $106 million to $111 million, out of which Taubman has a share of about $100 million to $105 million.

Regency Square is an 820,000 square feet shopping center housing leading fashion retailers like Macy’s Inc. (M), J. C. Penney Co. Inc. (JCP) and Sears Holding Corp. (SHLD). Taubman anticipates cash flow from the property to be hurt by the decline in its net operating income and necessary capital expenditures. It is accordingly writing down book value of the asset by $55 million to $58 million to approximately $30 million.

Taubman owns, develops, acquires and operates regional and super-regional shopping centers throughout the U.S. and Asia. Retail shopping centers spanning over 400,000 square feet of gross leaseable area (GLA) are generally referred to as regional shopping centers, while those with GLA in excess of 800,000 square feet are called super-regional shopping centers. A large number of these shopping centers are strategically located in major metropolitan areas, including Los Angeles, San Francisco, Denver, Detroit, Phoenix, Miami, Dallas, Tampa, Orlando and Washington DC.

Chrysler claimed that it would have to halt production of its 2010 model-year vehicles, Dodge Challenger, Charger, Chrysler 300 and Jeep Grand Cherokee models at its plants in Brampton, Ontario and Jefferson North in Detroit due to the disruption in the supply of components including steering columns and torque converters. The company will also have to idle workers and cease related orders from other suppliers.

The German automaker, Daimler believes that Chrysler’s claims have no merit. Daimler is willing to resolve the issues with Chrysler on new and modified supply agreements.

In 2007, Daimler had sold the wholly-owned Chrysler to a private equity firm Cerberus Capital Management, retaining a 20% stake. However, Cerberus acquired the remaining stake just before Chrysler’s bankruptcy. Daimler has been supplying diesel engines, steering columns and torque converters to Chrysler under previously negotiated contracts.

The Chrysler group, which emerged from bankruptcy in June this year, is now managed by the Italian automaker Fiat SpA who bought most of Chrysler's assets. The remaining assets in bankruptcy are now referred to as Old Carco LLC.

Earlier this month, the creditors of Old Carco LLC have also filed a suit against Daimler claiming that it unlawfully stripped billions of dollars in assets from Chrysler before the sale to Cerberus.

The Consumer Confidence Index bounced back to 54.1% in August, from 47.4% in July, better than the expected 47.8% level.  The Present Situation Index increased to 24.9 from 23.3 last month. The Expectations Index improved to 73.5 from 63.4 in July.  Consumers outlook on business conditions and the employment situation improved over the month.

Upcoming Releases
Durable Orders (08/26 at 8:30 AM EST)
GDP Preliminary (08/27 at 8:30 AM EST)
Initial Claims (08/27 at 8:30 AM EST)
Personal Consumption Expenditures (08/28 at 8:30 AM EST)

After 15 years of litigation, The New York State Court of Appeals – the highest court in the state – ruled against Taubman and upheld the plea of local activists on environmental grounds. In view of the court ruling, the company would probably have to write off over $150 million invested in the project.

The recent court order forbids Taubman to develop a high-end mall at the site and leaves it with three options – a) accepting defeat and selling the land; b) contemplating a mixed-use development; or c) re-appealing against the court order. A spokesperson said that the company is currently evaluating all options before taking a final call on the decision.

Taubman owns, develops, acquires and operates regional shopping centers throughout the US. A large number of these shopping centers are strategically located in major metropolitan areas, including Los Angeles, San Francisco, Denver, Detroit, Phoenix, Miami, Dallas, Tampa, Orlando and Washington DC.

The Oyster Bay project had been a continuous drag on the company’s earnings. During the fourth quarter of 2008, Taubman recorded $116 million as impairment charges for the project due to continued delay and uncertainty regarding completion of the project.

Taubman has a high quality roster of high-end and specialty retailers at its malls and commands some of the highest rents in its sector. High-end and specialty retailers have been the hit hardest in the current recession and this trend will continue through at least the end of this year.

The recent spate of unfavorable court rulings would also add to the woes of the company. However, we think Taubman is better positioned than many peers due to its clean balance sheet and minimal debt maturities. We reiterate our Hold rating of the company.

Chicago, IL – July 13, 2009 – Zacks Equity Research highlights Heinz (HNZ) as the Bull of the Day and Xtent, Inc. (XTNT) the Bear of the Day. In addition, Zacks Equity Research provides analysis on Boeing (BA), Caterpillar (CAT) and Microsoft (MSFT).

Full analysis of all these stocks is available at http://at.zacks.com/?id=2676.

Here is a synopsis of all five stocks:

Bull of the Day:

Growth in Heinz’s (HNZ) domestic businesses, strengthening international operations, and the reallocation of resources in favor of key brands are major positive trends for the company.

Despite cost pressure from higher commodity costs, strong pricing of 3.5% to 4.5% has allowed the company to report positive earnings surprises in the last twelve quarters. Management expects net sales to increase by 4% to 6% in fiscal 2010 driven by new product introductions and positive pricing.

In addition, the stock's valuation is attractive. The Buy rating is maintained.

Bear of the Day:

Xtent, Inc.’s (XTNT) Custom NX drug eluting stent (DES) Systems treats coronary artery disease (CAD), the leading form of cardiovascular disease and major cause of death in the U.S. and Europe. CAD accounts for over 650,000 annual deaths and affects over 13 million people in the U.S.

The company received CE mark approval for the product. However, commercialization of the product in Europe may be delayed due to the company's shortage of funds.

As such, we lowered our near-term revenue estimates and downgraded this stock to a Sell.

Latest Posts on the Zacks Analyst Blog:

Trade Deficit Declines

Yes, it is nice to see imports decline, particularly things like oil imports, but it would be far better if we were reducing the deficit by selling more abroad, rather than buying less here. If there were some evidence that the reason for the reduced imports was that we were making more of what we consume here, say by buying Chevys built in Detroit rather than Hondas built in Tokyo (or Hondas build in Tennessee, for that matter), it might be a different story.

However, it appears that the reduction in imports is just another reflection of weak overall demand. The change in the balance of industrial goods and materials (including oil) was a very significant part of the year over year improvement, with our monthly import bill falling by 34.9 billion while our monthly exports were down by $11.0 billion. In other words, this category was responsible for $23.9 billion -- or 72.6% -- of the total improvement on a year-over-year basis.

Net imports (aka the trade deficit) is a direct input into the GDP numbers. The improvement in the May trade deficit will be an important factor in making the second quarter GDP growth decline much less than the 5.5% decline we saw in the first quarter. Since our exports are by definition the imports of some other country, the fact that demand for them is rising might indicate that the rest of the world is also starting to find its economic footing (although it would show up as a negative in their national income accounts, just as it helps ours).

I find the rise in actual exports to be a very encouraging sign. It might just be signaling some light at the end of the tunnel for major U.S. exporters like Boeing (BA), Caterpillar (CAT) and Microsoft (MSFT).

Get the full analysis of all these stocks by going to http://at.zacks.com/?id=5507.

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Here are highlights from Thursday's Analyst Blog:

Another Rough Week for Hotels

Chicago and New York City led the way lower last week, with ADR declines of 26.5% and 26.4%, respectively. These are major markets, with significant concentrations of hotels aligned with the large, publicly held lodging companies.

RevPAR declines were steep in the middle of the country last week, with Chicago, Detroit, and St. Louis posting the largest year-over-year declines, of 37.7%, 32.5%, and 30.5%, respectively. Next on the list was New York City, with a RevPAR decline of 30.2% versus the prior year.

Despite the continuing deterioration in operating fundamentals, hotel stocks have rallied in recent months, including Marriott International (MAR), Starwood Hotels (HOT), Intercontinental Hotels Group (IHG) and Wyndham Worldwide (WYN). We believe that these moves have been overdone, and are unwarranted. The sector has a history of false starts, as investors prematurely bid up shares in hopes of a quick recovery in the group. We expect that this will again be the case in this situation, and believe that hotel stocks are due for a correction.

Duke Realty Faces Headwinds

We maintain our Hold rating on Duke Realty (DRE), the 2nd largest mixed office/industrial REIT in the US. The company, formerly a large developer, will be scaling back new starts to deal with new economic realities. After a 75.2 million share offering, the company slashed its dividend by 32%. The equity sale enabled the company to strengthen the balance sheet and pay off debt, but it dilutes current shareholders.

In what we view as an emergency cash-raising move, the company sold shares at $7.65 per share. This ensures the company's survival, but Duke was trading at over $25.00 per share a year ago. Operations are fading and vacancies continue to increase in most of Duke's markets. In the absence of job growth, the company will have a hard time keeping its properties full, and we expect rents to fall as the company struggles to keep and attract new tenants.

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About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=2677

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=4580.

Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

Contact:
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Web Content Editor
312-265-9380
Visit: www.zacks.com

General Motors Corp., the world’s largest automaker for 77 years, will file for bankruptcy today, and emerge with majority ownership by taxpayers and liabilities reduced by more than 50 percent, the U.S. government said. The “new GM” will get $30.1 billion in bankruptcy financing from the government, and the Treasury “does not anticipate providing any additional assistance” after that, the Obama administration said yesterday in a statement. The federal government will have a 60 percent equity stake in the retooled automaker, and 12 percent will be held by the Canadian government, which is lending $9.5 billion to the company

“Our objective is to make sure we’re limiting our involvement to the minimum necessary, and that we get out of those involvements as quickly as we can,” Treasury Secretary Timothy Geithner said today in Beijing. “We want to have a quick, clean exit as soon as conditions permit.” The filing, which GM executives said last year wouldn’t happen, marks the plunge of a company that once made more than half the cars bought in the U.S. The Detroit-based automaker became burdened by higher costs than competitors and a reliance on fuel-guzzling light trucks as gasoline prices rose. GM has been battered by almost $88 billion of losses since 2004.

And the BBC;

Elliot Sloane, spokesman for an ad hoc bondholders committee, said investors representing about 54 percent of GM's bonds had agreed to exchange their unsecured bonds for a 10% stake in a newly restructured company, the Associated Press news agency reported. But it is still possible that dissident bondholders may mount legal challenges in the bankruptcy court.

Meanwhile, a US bankruptcy court judge in New York has approved the sale of fellow US carmaker Chrysler to a consortium including Italy's Fiat. The move, which is backed by both the US and Canadian governments, should enable the carmaker to exit bankruptcy protection in the near future. Under the terms of the deal, Fiat will control 20% of Chrysler, while 68% will be owned by a union trust, and the two governments will share 12%.

And finally, there is Reuters;

Since the start of the year, GM has been kept alive with U.S. government funding as a White House-appointed task force vetted plans for a sweeping reorganization that will be undertaken with $50 billion in government financing. By preparing to take a 60 percent stake in a reorganized GM, the Obama administration is gambling that the automaker can compete with the likes of Toyota Motor Corp after its debt is cut by half and its labor costs are slashed under a new contract with the United Auto Workers union. The governments of Canada and the province of Ontario agreed to provide another $9.5 billion to GM in a late addition to the plans for the bankruptcy that have been taking shape for weeks, U.S. officials said.

GM plans to close 11 U.S. facilities and idle another three plants. It has not provided an updated target for job cuts but had been looking to cut 21,000 factory jobs from the 54,000 UAW workers it now employs in the United States. The UAW would have a 17.5 percent stake in the "new GM." The Canadian government would own 12 percent stake and GM bondholders would get 10 percent.

Fritz Henderson, GM President & Chief Executive Officer will hold a press conference at 12.15 p.m. ET in which one would assume that more details are revealed. Of course, this was hardly surprising and one has the distinct feeling that the financial crisis was only the proverbial nudge which pushed GM into the abyss close to which the company had been situated for a long time due to a poor response to changing market dynamics. But don't take my word for it. Stories about GM's problems and potential demise, to a great extrent, preceded the financial crisis and this is thus not a surprise for anyone I'd imagine.

Visteon Corp. (VSTN), the largest auto-parts supplier to Ford Motor Co. (F) and a key player in the industry, filed for bankruptcy protection for its U.S. operations on Thursday after months of speculation.

As the worst economic crisis in decades forced automakers to slash production to combat slumping sales volumes, the Van Buren, Michigan-based company sought safeguard from creditors in U.S. Bankruptcy Court in Delaware declaring total debts of $5.32 billion and assets of $4.58 billion.

Visteon is the latest casualty in the battered domestic auto industry that has seen the painful proceedings of a Chapter 11 filing by Chrysler and General Motors Corp. (GM) inching closer to a similar fate. Visteon's bankruptcy filing is also the largest in the auto-parts segment since Delphi entered reorganization in 2005.

As their components suppliers struggle with anemic cash reserves and unrelenting labor problems, the Detroit auto giants may face even more pressure this summer. GM saw no results even after injecting billions of dollars into its former parts arm Delphi. Now, Ford has pledged to do everything in order to support Visteon.

"Ford's top priority is to ensure we have sufficient parts and material to protect our production," Ford's Global Purchasing Group Vice President Tony Brown said.

A former unit of Ford, Visteon failed to garner profit since it was spun off in 2000. Now, with no banks lined up to support its cause, the company will depend heavily on Ford to help it avoid liquidation. Ford assumed $167 million in Visteon secured loans earlier this month. It has also agreed to support debtor-in-possession financing for the company's restructuring efforts.

The industry has been expecting Visteon to file for bankruptcy protection since auditors questioned its ability to continue as a going concern in March and shares dropped into the penny-stock zone. What would now grab its attention is the effect of the procedure on Ford, which is by far the only Detroit bigwig to avoid federal bailout funds, and also the larger impact on the industry.

The S&P/Case-Shiller Home Price Indexes continued to set record declines in March 2009, according to new data released by S&P.

The S&P/Case-Shiller U.S. National Home Price Index fell 19.1% in Q1 2009 over year-ago levels, the largest drop in the index's 21-years of back-tested data. 

The more widely used 10-City and 20-City Composites dropped 18.6% and 18.7% respectively, according to S&P's statement about the latest figures for the indexes.

The average home price in the nation is now down 32.2% from its peak in Q2 2006, and home prices have retreated to levels last seen in Q4 2002.

Phoenix, Las Vegas and San Francisco posted the worst year-over-year returns, declining 36%, 21.2% and 30.1%, respectively. Denver did the best, falling just 5.5% year-over-year.

Home prices in Phoenix are now down 53% from peak levels in June 2006.

Three cities managed monthly gains in March, with prices rising in Charlotte (0.3%), Denver (0.1%) and Dallas (0.0%). Elsewhere, however, the pace of the decline was brutal, with home prices in Minneapolis dropping 6.1% in March alone; in Detroit, prices retreated 4.9%.

The U.S. Treasury is expected to extend more than $7 billion in fresh aid to GMAC LLC in a move that could turn the government into a majority stakeholder in both the auto lender and its parent General Motors Corp (GM).

Last week, federal stress tests indicated that GMAC needs to raise $11.5 billion to plug capital holes in order to endure a deepening recession. GMAC has already received more than $5 billion in government bailout last December.

After several weeks of holding talks to secure additional capital, the government's new aid will allow the firm to revive its battered balance sheet from rising home foreclosures and defaults in its auto finance unit. A large part of these funds will be used to provide financing to customers for buying Chrysler and GM vehicles.

After rescuing several large banks from definite failure, the government is now trying to drag Detroit automakers out of doomsday by encouraging more lending. Thus, Treasury Secretary Timothy Geithner recently said that the administration will provide substantial support to GMAC.

After Chrysler's filing last month, it is increasingly looking like GM will be ushered into bankruptcy as well. It remains uncertain if the government will ever get back the funds it has injected or is in the process of putting into these company. The Treasury's investment in GMAC already bought it 5 million preferred shares in December. The Obama administration may push for a conversion of its GMAC stake into common equity after the new capital infusion.

Industry insiders belive that after its merger with Chrysler's financial arm, GMAC under government ownership would have the power to offer better loan terms to buyers of GM and Chrysler vehicles. This will not only pave the way for healthy competition with rivals like Ford (F), but also resuscitate the beleaguered auto sector.

As an investor, I realize that you are less concerned with the details that economists seemingly over-analyze and more concerned with what the report means to your portfolio. So, today, I'm going to show you where some of the investment opportunities and risks lie in the current environment.

Consumers Opened Their Wallets

The biggest positive surprise in the report was that Personal Consumption Expenditures ("PCE") actually contributed 1.50 points to GDP.

Clearly, in the first quarter, consumers took advantage of discounted prices. The much higher than expected PCE is part of the reason that the retailers and restaurants have been earning so much more than was expected. Almost every retailer and restaurant in the S&P 500 that has reported so far has come in with higher than expected earnings. Given the need to rebuild savings and the mounting levels of unemployment, I am skeptical that the strong PCE levels can be sustained.

Inventory Levels Plunged

On a forward-looking basis, perhaps the best part of the GDP report was that inventory investment subtracted 2.79 points from growth (versus -0.11 in Q4). Large inventory draw downs in one quarter have a tendency to be reversed in the next quarter. When the shelves are bare, people start to order more to restock them, causing output to rebound.

The destocking of inventories has contributed to the cash flow of the retailers, but the restocking will reverse that. On the other hand, restocking the shelves will increase orders for manufacturers, both here and abroad. The report is not detailed enough to say where exactly the biggest inventory draw downs were, so it does not give that much guidance as to which manufacturers might benefit the most from the restocking.

A Bad Trend for Equipment Makers and Software Developers

Essentially all investment in the real economy, both fixed and inventory, residential and non-residential, came to a screeching halt in the quarter. While ugly contributions from inventories are a good thing, the same cannot be said about fixed investments. There bad is bad, and this was real bad.

Fixed investments, particularly non-residential fixed investment is what drives increases in the productive capacity of the economy (along with investments in education which is counted as part of PCE and state & local spending). In other words, it is the engine of future growth, not just a part of the current growth. The stunning declines in all forms of fixed investment mean that businesses are in effect eating their seed corn. However, given the huge amount of idle capacity in the economy right now, it is easy to understand why businesses are cutting back.

Until we see a large rebound in capacity utilization, it is unlikely that businesses will start to spend more for equipment and software. Capacity utilization is at a post WWII low, and is below 70% for the first time since it has been tracked. As a general rule of thumb, 80% is normal, 85% is a boom and 75% is a nasty recession. This is obviously not good news for more traditional equipment manufacturers, such as Parker-Hannifin (PH) or Ingersoll-Rand (IR), nor is it good news for software firms like Microsoft (MSFT) or Oracle (ORCL).

Expect this part of the economy to remain weak for at least several more quarters. This is particularly true on the structures side. I suspect that most of the spending we did see in the quarter was simply finishing off projects that were started in earlier quarters. The Commercial Real Estate ("CRE") bust is just getting started and will last at least another year. Investment in structures has only started to decline and was a major contributor to GDP up until the third quarter of last year.

This means that demand for the basic materials that go into building large structures, steel, glass and cement, are likely to remain depressed for at least the next year. Not exactly bullish for Nucor (NUE), PPG Industries (PPG) or Cemex (CX).

Vacancy rates going up and effective rents are going down in almost all areas of commercial real estate. I would be very cautious about investing in REITs here. Commercial foreclosures are going to become a much bigger story over the next year. This will hurt the banks, particularly the mid-sized banks (between $1 and $10 billion in assets). The Wall Street titans do have as much exposure (relative to their overall size) to CRE.

The decline in equipment and software has been unusually steep (it was down 33.8% in the first quarter, following a 28.1% decline in the fourth quarter), and it now represents the smallest share of the economy since the mid 1960s. The decline will probably continue, but is may be at a slower rate in coming quarters.

At some point it will turn up again since equipment wears out and software becomes obsolete. I would focus on those equipment makers where the product most obviously decays over time. For example, spending on transportation equipment was 61% lower in the first quarter of 2009 than it was a year ago. This means that there is some potential pent up demand for firms like PACCAR (PCAR) that is building up.

Residential Investment Still Slumping

Perhaps the most surprising number on the downside in fixed investment was the subtraction of 1.36 points from Residential Investment ("RI"). RI is now only 2.7% of GDP, down from a peak of 6.3% in the Q4 of 2005.

RI turning up is a classic signal that a recession is ending, and there is no sign that it is happening yet, but it seems unlikely that RI will fall to zero. Normally the rebound is very sharp, but I have my doubts that it will be so this time around, given the huge inventory of unsold houses, both new and used and the second wave of foreclosures that is starting to crash upon the shore.

I have long been very bearish on the Homebuilders like D.R. Horton (DHI), however at this point I am becoming more neutral since it is hard to see how much lower residential investment can go as a percentage of GDP. That does not mean that I expect a big rebound anytime soon, but the worst of that particular storm may have passed.

Net exports helped prevent the quarter from being a total disaster, adding 1.99 points to growth. This was however not due to a surge of exports, but rather a collapse of imports.

The decline in imports was stunning, contributing 6.05 points to growth. (Imports are a subtraction from GDP, so when they fall GDP goes up). Put another way, if we had continued to import in the first quarter at the rate we had in the fourth quarter, then GDP would have crashed at an annualized rate of over 12% in the first quarter.

When inventories are drawn down, we buy less from China as well as less from domestic manufacturers. In case you have not noticed a lot of the stuff on the shelves of Wal-Mart Stores (WMT) and Target (TGT) comes from overseas. If PCE can continue its surprising strength going forward, the decline in imports is unlikely to continue. That, however, is a big IF.

No industry is more exposed to a decline in world trade more than the shipping industry. There are lots of ships that were ordered during the boom times that are just putting to sea. It will be a while before enough ships are scrapped to bring capacity into line with demand, thus keeping shipping rates very low. Ships represent very large capital investments and having them idle is very expensive. While the group has been hammered, I would still avoid those firms for anything but a very short term trade.

Understand that the longest recession since the Great Depression is not over by a long shot, but it will not last forever. We are past the steepest rate of decline, but are still going down.

The U.S. consumer is once again proving to be the Rasputin of the world economy, he is very hard to kill thanks, in part, due to some extraordinary measures taken by Dr. Bernanke. This is probably the key reason for the better than expected PCE numbers.

As I said earlier this week, there are still very substantial risks out there that could cause the rate of decline to accelerate again, most notably the prospect of long messy bankruptcies in Detroit, and the worst fears of the Flu epidemic coming true (almost impossible to tell at this point). However, the seeds of recovery have been planted. Inventory will need to be restocked and eventually businesses will have to replace some of their equipment and will start to spend again. However, I would not expect a bumper crop from those seeds. The recovery, when it comes, is likely to be very anemic.

Best of Luck,
Dirk van Dijk, CFA
Director of Research,
Zacks Equity Research

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Although the S&P/Case-Shiller Home Price indexes kept dropping in February, some good signs did appear.

For the first time in 16 months, the benchmarks' fall didn't set new records, according to the latest monthly results released on Tuesday. That was seen as at least some sign of progress for the heavily depleted housing market.

Nearly all of the major metro areas followed by the index, which benchmarks existing single-family home prices across the country, showed improvement from January.

"We will certainly need a few more months of data before we can determine if home prices are finally turning around," said David Blitzer, chairman of S&P's index committee, in a statement.

All 20 metro areas covered by the indexing series produced a monthly decline in February. However, some 16 of the 20 metro areas saw an improvement in their monthly returns compared with January. "Furthermore, this is the first month since October 2007 where the 10- and 20-City composites [benchmarks] did not post a record annual decline," added Blitzer.

Still, average U.S. home prices are at similar levels to where they were in the third quarter of 2003. From the peak in mid-2006, the 10-City Composite Index was down 31.6% and the 20-City Composite was down 30.7% through February 2009.

From the U.S. housing market's peak through February 2009, Dallas has suffered the least. Average home prices in that metropolitan market were down 11.1% from peak levels in June 2007. Meanwhile, Phoenix was down 50.8% from its peak in June 2006.

Cleveland was the only metro area having a record monthly decline, returning -5.0%. Besides that metro area, home prices in Charlotte, New York and Washington were the only areas showing larger declines in February than the previous month.

But all 20 major metro areas remained steeped in double-digit declines from their peaks. In fact, 10 of those posted February declines of greater than 30% and seven of those—Detroit, Las Vegas, Los Angeles, Miami, Phoenix, San Francisco and San Diego—in excess of 40%.

On an annualized basis, three metro areas fared the best:

• Dallas dropped 4.5% and turned in the best performance, returning -0.3%

• Denver fell some 5.7%

• Boston lost 7.2%

The three worst-performing cities continue to be from the Sunbelt, all reporting negative returns in excess of 30%:

• Phoenix was down 35.2%

• Las Vegas declined 31.7%

• San Francisco fell 31%

Although the S&P/Case-Shiller Home Prices indexes kept dropping in February, some good signs did appear.

For the first time in 16 months, the benchmarks' fall didn't set new records, according to the latest monthly results released on Tuesday. That was seen as at least some sign of progress for the heavily depleted housing market.

Nearly all of the major metro areas followed by the index, which benchmarks existing single-family home prices across the country, showed improvement from January.

"We will certainly need a few more months of data before we can determine if home prices are finally turning around," said David Blitzer, chairman of S&P's index committee, in a statement.

All 20 metro areas covered by the indexing series produced a monthly decline in February. However, some 16 of the 20 metro areas saw an improvement in their monthly returns compared to January. "Furthermore, this is the first month since October 2007 where the 10- and 20-City composites (benchmarks) did not post a record annual decline," added Blitzer.

Still, average U.S. home prices are at similar levels to where they were in the third quarter of 2003. From the peak in mid-2006, the 10-city composite index was down 31.6% and the 20-city composite was down 30.7% through February 2009.

From the U.S. housing market's peak through February 2009, Dallas has suffered the least. Average home prices in that metropolitan market were down 11.1% from peak levels in June 2007. Meanwhile, Phoenix was down 50.8% from its peak in June 2006.

Cleveland was the only metro area having a record monthly decline, returning -5.0%. Besides that metro area, home prices in Charlotte, New York and Washington were the only areas showing larger declines in February than the previous month.

But all 20 major metro areas remained steeped in double-digit declines from their peaks. In fact, 10 of those posted February declines of greater than 30% and seven of those -- Detroit, Las Vegas, Los Angeles, Miami, Phoenix, San Francisco and San Diego -- in excess of 40%.

On an annualized basis, three metro areas fared the best on an annualized basis:

• Dallas dropped 4.5% and turned in the best performance, returning -0.3%

• Denver fell some 5.7%

• Boston lost 7.2%

The three worst performing cities continue to be from the Sunbelt, all reporting negative returns in excess of 30%:

• Phoenix was down 35.2%

• Las Vegas declined 31.7%

• San Francisco fell 31%

The decline in housing values is really at the core of the current economic troubles. To be more precise, it was the unwarranted rise in those housing values (which are now returning to earth) that was the core problem -- it is just that the pain is felt on the downside of the bubble.

The continuing decline in housing prices will lead to more people being underwater on their homes. That will lead to more foreclosures (and rising unemployment will speed that process along). Those foreclosures will cause more pressure on bank balance sheets.

Since the administration seems intent on being extremely nice to the bankers, it means that there will be more taxpayer money flowing to the coffers of the banks to shore them up. It certainly does not come as a surprise that Citigroup (C) and Bank of America (BAC) are likely to need to raise more capital. However, if recent history is any guide (under both the Obama and Bush administrations), they will probably get it from the government on extremely preferential terms, with the government going out of its way to asset any ownership rights that might protect the taxpayers.

The decline in housing values also means that those still with positive equity in their houses will have less of it, further diminishing retirement nest eggs for millions. This will keep the pressure on for people to try to save out of current income. That is a good thing over the long run, but the savings will come at the expense of consumption, and the lower consumption will further depress the economy.

On the bright side, young people (and renters) may actually be able to afford a house in the near future. They will need a low monthly mortgage payment given the amount of taxes they will have to pay in the future given the debt the country is taking on to make sure that bankers can live in the style that they have become accustomed to.

General Motors Corp. (GM) reportedly found a buyer for its majority stake in German unit Opel a day after the struggling automaker said it does not plan to repay a $1 billion debt due June 1.

Citing sources familiar with the matter, German magazine Der Spiegel reported that Fiat SpA was close to a deal to buy a large chunk of GM's European business. The Italian carmaker is already in talks to buy a stake in Chrysler LLC with an April 30 deadline for the transaction.

A unit of Canadian auto parts manufacturer Magna International Inc. (MGA) is also reported to have shown interest in the Ruesselsheim-based Opel. However, none of the parties confirmed these reports.

GM needs to sell a large stake in Opel to get about $4.30 billion in German government loan guarantees to keep the unit afloat. The Detroit auto giant also needs to persuade bondholders to restructure $27.5 billion in unsecured debt to avoid bankruptcy filing.

Earlier this week, the company had said it would temporarily idle most of its U.S. factories and lay off another 1,600 employees. Although GM does not have a large impact on the market, its bankruptcy filing could have broader ramifications for the economy. Shares of the company were down more than 3% to $1.63 in morning trade on the New York Stock Exchange.

Data source: Wardsauto.com

I think not. Although Americans bought 168,000 more light vehicles in March than in February, the average February-to-March gain over the last five years has been 247,000 additional units. The main reason that the March '08 to March '09 comparison sounds like an improvement over February '08 to February '09 is that March '08 was the beginning of the big downturn in auto sales. From that fact alone, we should continue to see improving year-over-year comparisons in subsequent months, particularly for domestically manufactured light trucks, the segment hit hardest by last spring and summer's gasoline price spike.

Data source: Wardsauto.com

Detroit needs to sell more vehicles, not have smaller year-over-year drops, to remain viable.

Data source: Wardsauto.com

Nonetheless, the Wall Street Journal found some optimism to report:

"I believe we are in a bottoming process for the industry," Bob Carter, a group vice president at Toyota Motor Corp., said in a conference call. Mr. Carter said the company's 18% sales improvement in March compared with February could be "a very early indication that we have floored and some optimism is starting to return to the market."

Michael DiGiovanni, the top sales analyst at General Motors Corp., said he expects a "very, very gradual pickup" in vehicle sales in the second quarter. He cited "the first signs of brightening" in the market. Jim Press, Chrysler LLC's vice chairman and president, said, "The market is starting to show small signs of life which need to be nourished like seedlings"....

Positive signs also include rising used car prices, more cash buyers in the market and the expected return of the government and other large-scale vehicle buyers that will be boosting fleet sales, Ford officials said.

I'm certainly ready to cheer some good news when we get some. But I don't see much basis for that in the March sales numbers.

Technorati Tags: macroeconomics, autos, auto sales, economics, recession

Yesterday, the Hospitality Sales & Marketing Association International announced that it was cancelling its annual conference, which was scheduled to be held early next month at a resort hotel in Palm Beach Gardens, Florida. Instead, the Association will hold a virtual conference over the web.

When even hotel industry groups are cancelling their travel plans, lodging companies will take any good news they can find.

This weekend offers a bit of temporary hope, at least for hotels in the Detroit metro area.

The men's NCAA basketball Final Four tips off tomorrow at Ford Field in Detroit, with the championship game set for Monday night. Given that premiere sporting events like the Final Four historically have a very significant, albeit short-term, impact on the local lodging industry for the host city, we decided to take a look at how the two largest publicly-traded lodging companies, Marriott (MAR) and Starwood (HOT), stand to benefit this weekend.

When it comes to exposure to the Detroit market, Marriott is the clear winner, at least for the next few days.

While Starwood has only 6 hotels with 1,865 rooms within 35 miles of downtown, Marriott checks in with 45 hotels containing 7,648 rooms within the same area.

Given Marriott's larger size and greater concentration of hotels in the United States, the fact that the company has more exposure to the Detroit area is not surprising.

Marriott has approximately 3,200 hotels and 560,000 rooms in its portfolio, with approximately 85% of its properties located in the United States. Starwood, however, has approximately 940 hotels containing 285,000 rooms in its portfolio, with roughly half of its properties in the U.S.

Even taking the relative sizes into account, however, Marriott still has greater exposure to the Detroit market. Starwood's Detroit-area hotel rooms account for approximately 0.6% of its total portfolio, while Marriott's Detroit rooms account for approximately 1.4% of its total portfolio.

While Marriott will likely get a bump in occupancy percentages and room rates at its Detroit metro properties this weekend, the ongoing exposure to a market hit hard by the economic downturn and challenges facing the U.S. automakers is likely a negative attribute, in our opinion.

Any boost to operating metrics, no matter how temporary, will be welcomed in the current operating environment. In the larger picture, however, we expect the industry as a whole to face significant challenges throughout 2009, and we maintain our negative outlook on the sector.

The industry is very concentrated, with the top 8 global auto companies having more than 90% of global revenues and the top 50 global auto parts companies having 80% of global revenues (the top 4 US tire producers have 75% of the US market).

There is a focus on automation and simplifying product lines to lower costs and benefit from economies of scale. The average car now needs only 15-25 man-hours per vehicle and this drops 2% annually.

Hybrid/alternative cars represent a source of growth in the future. Market share gains by hybrids/alternatives will be slow, and they are now only 4% of cars on the road.

Back in December of 2008, President Bush approved an emergency bailout of the U.S. auto industry, offering $17.4 billion in rescue loans in exchange for tough concessions from the deeply troubled carmakers and their workers. The government will have the option of becoming a stockholder in the companies, in effect partially nationalizing the industry.

If the carmakers fail to prove viability by March 31, 2009, they will be required to repay the loans, which they would find all but impossible. A firm will be deemed viable only if it can show positive cash flow and can fully repay the government loans. Under terms of the loan, General Motors (GM) and Chrysler must provide the government with stock warrants giving it the option to buy GM and Chrysler stock at a specific price. In addition, the automakers would be required to agree to limits on executive pay and eliminate some perks such as corporate jets.

This is a band-aid, but not the surgery this industry needs. In essence, we see this as the first step towards a long-term solution, which will include the following:

• Getting a bankruptcy attorney and filing ASAP -- this measure extends this until March 31. Then healthcare and pension issues can be removed and this would go a long way towards making Detroit competitive with foreign manufacturers
• Separate dealerships from the rest of the company. The parts and service issue can be guaranteed by the US Government and these companies can be separated and recapitalized from the rest of the Big Three. We find it hard to believe that consumers would buy something from a bankrupt company
• Get a labor attorney and have a nasty confrontation with the UAW while in bankruptcy. This would be the worst labor showdown in out memory and may involve the Supreme Court at some point
• Have the US Government be a DIP [debtor-in-possession] financer, as opposed to writing blank checks to the auto manufacturers. They are there to support -- but not nationalize -- the industry. The challenge will be when to get these companies out of the private sector hospital, which is the US Government
• Focus on only 35+ MPG vehicles. Transition from SUV to AFV (Alternative-Fuel Vehicles)
• Remove the top 50 officers of the all of the Big Three and replace them with outsiders. Encourage creative and dynamic thinking
• The US Government should look at tariffs and quotas to protect these companies as they restructure. Also, this would force foreign manufacturers to build plants in the US rather than export, which would make a worker-retraining issue a worker-relocation issue, which is far easier to deal with
• Consumers should be allowed to deduct automotive interest, which would increase demand for autos and alleviate the credit issue that surrounds the industry now. Perhaps this can be for AFVs and 35+ MPG vehicles only. There should be a punitive tax on SUVs which will make them unaffordable for consumers. These tax revenues can fund growth of the AFVs and high MPG vehicles with tax credits
• Global alliances should be forged among the manufacturers to take advantage of global economies of scale. These new "super-car" companies would be able to tap into the Chinese and Indian markets, where the car industry is a growth business and billions of people are screaming for a new car, not just a second hand retread from the US or Europe. Economies of scale/Rationalization and China/India increasing the global baseline demand for cars may permanently increase profitability for the industry and avoid this situation from happening again

Demand is also hurt by weakening employment. The recent credit crunch is crippling to auto sales, and this has a trickle-down effect throughout the industry.

Furthermore, there is a slowdown of SUV sales, which are 55% of sales (cars are 45%). Imports have also been more competitive, as they tend to have better gas mileage. Costs for domestic producers is much higher than seen for foreign producers, and this is creating a loss of market share in the US by US producers.

The presence of unions has led to costs being much higher than seen in other countries. Pricing averages (2)% in this sector annually. Incentives are increasing as the industry is trying to increase sales. Overcapacity is about 20% in this sector. Pension deficits are rising due to a weak stock market, lower interest rates and less pension funding.

Auto sales were very weak in February, but this is a continuation of an ongoing trend. Overall sales are down 41% and were the worst since 1981. The average incentive was $2900, which is up 8% and was unable to stimulate sales. Ford (F) sales were off 50%, mainly due to a tired product line and weak F-series sales. GM (GM) sales were down 53%, with weakness in the SUV part of the product line. Chrysler sales were down 44%, even with average incentives of $5,500, which is 20% of the price of a car.

Honda (HMC) sales were off 38%, which is 3% higher that the market and shows why they are the best of the "Big-4" automakers (Honda sources more of its content from the USA than even Chrysler). Nissan (NSANY) sales were down 37%. Toyota (TM) sales were off 40%. We suspect sales were weak in the SUV part of the product line. Hyundai continued to buck the trend and had flat sales, which implies that their "return your car if you lose your job" program is having huge success.

BUY/SELL RATINGS

Autoliv (ALV) is a Sell due to the slowdown in the auto market and weak pricing. AutoNation (AN) is a Sell due the slowdown in the auto market and exposure to California. American Axle and Manufacturing (AXL) is a sell due to the slowdown in the auto market and costs related to the new UAW agreement.

Ford and General Motors are Sells and bailout candidates that need a major restructuring. CarMax (KMX) is a Sell due the weak auto market and falling prices. Lear (LEA) is a bankruptcy candidate. TRW Automotive (TRW) is a Sell due to the weak auto market. Zacks Investment Research

The industry is very concentrated, with the top 8 global auto companies having more than 90% of global revenues and the top 50 global auto parts companies having 80% of global revenues (the top 4 US tire producers have 75% of the US market).

There is a focus on automation and simplifying product lines to lower costs and benefit from economies of scale. The average car now needs only 15-25 man-hours per vehicle and this drops 2% annually.

Hybrid/alternative cars represent a source of growth in the future. Market share gains by hybrids/alternatives will be slow, and they are now only 4% of cars on the road.

Back in December of 2008, President Bush approved an emergency bailout of the U.S. auto industry, offering $17.4 billion in rescue loans in exchange for tough concessions from the deeply troubled carmakers and their workers. The government will have the option of becoming a stockholder in the companies, in effect partially nationalizing the industry.

If the carmakers fail to prove viability by March 31, 2009, they will be required to repay the loans, which they would find all but impossible. A firm will be deemed viable only if it can show positive cash flow and can fully repay the government loans. Under terms of the loan, General Motors (GM) and Chrysler must provide the government with stock warrants giving it the option to buy GM and Chrysler stock at a specific price. In addition, the automakers would be required to agree to limits on executive pay and eliminate some perks such as corporate jets.

This is a band-aid, but not the surgery this industry needs. In essence, we see this as the first step towards a long-term solution, which will include the following:   

• Getting a bankruptcy attorney and filing ASAP -- this measure extends this until March 31. Then healthcare and pension issues can be removed and this would go a long way towards making Detroit competitive with foreign manufacturers    
• Separate dealerships from the rest of the company. The parts and service issue can be guaranteed by the US Government and these companies can be separated and recapitalized from the rest of the Big Three. We find it hard to believe that consumers would buy something from a bankrupt company    
• Get a labor attorney and have a nasty confrontation with the UAW while in bankruptcy. This would be the worst labor showdown in out memory and may involve the Supreme Court at some point    
• Have the US Government be a DIP [debtor-in-possession] financer, as opposed to writing blank checks to the auto manufacturers. They are there to support -- but not nationalize -- the industry. The challenge will be when to get these companies out of the private sector hospital, which is the US Government    
• Focus on only 35+ MPG vehicles. Transition from SUV to AFV (Alternative-Fuel Vehicles)    
• Remove the top 50 officers of the all of the Big Three and replace them with outsiders. Encourage creative and dynamic thinking    
• The US Government should look at tariffs and quotas to protect these companies as they restructure. Also, this would force foreign manufacturers to build plants in the US rather than export, which would make a worker-retraining issue a worker-relocation issue, which is far easier to deal with    
• Consumers should be allowed to deduct automotive interest, which would increase demand for autos and alleviate the credit issue that surrounds the industry now. Perhaps this can be for AFVs and 35+ MPG vehicles only. There should be a punitive tax on SUVs which will make them unaffordable for consumers. These tax revenues can fund growth of the AFVs and high MPG vehicles with tax credits    
• Global alliances should be forged among the manufacturers to take advantage of global economies of scale. These new "super-car" companies would be able to tap into the Chinese and Indian markets, where the car industry is a growth business and billions of people are screaming for a new car, not just a second hand retread from the US or Europe. Economies of scale/Rationalization and China/India increasing the global baseline demand for cars may permanently increase profitability for the industry and avoid this situation from happening again

Earnings are below expectations and have been for some time. Some of these companies may be bailout candidates, which would leave equity holders with no value. Demand for autos is down (15)% due to a weak economy and weakening real estate market.

Demand is also hurt by weakening employment. The recent credit crunch is crippling to auto sales, and this has a trickle-down effect throughout the industry.

Furthermore, there is a slowdown of SUV sales, which are 55% of sales (cars are 45%). Imports have also been more competitive, as they tend to have better gas mileage. Costs for domestic producers is much higher than seen for foreign producers, and this is creating a loss of market share in the US by US producers.

The presence of unions has led to costs being much higher than seen in other countries. Pricing averages (2)% in this sector annually. Incentives are increasing as the industry is trying to increase sales. Overcapacity is about 20% in this sector. Pension deficits are rising due to a weak stock market, lower interest rates and less pension funding.

Auto sales were very weak in February, but this is a continuation of an ongoing trend. Overall sales are down 41% and were the worst since 1981. The average incentive was $2900, which is up 8% and was unable to stimulate sales. Ford (F) sales were off 50%, mainly due to a tired product line and weak F-series sales. GM (GM) sales were down 53%, with weakness in the SUV part of the product line. Chrysler sales were down 44%, even with average incentives of $5,500, which is 20% of the price of a car.

Honda (HMC) sales were off 38%, which is 3% higher that the market and shows why they are the best of the "Big-4" automakers (Honda sources more of its content from the USA than even Chrysler). Nissan (NSANY) sales were down 37%. Toyota (TM) sales were off 40%. We suspect sales were weak in the SUV part of the product line. Hyundai continued to buck the trend and had flat sales, which implies that their "return your car if you lose your job" program is having huge success.

BUY/SELL RATINGS

Autoliv (ALV) is a Sell due to the slowdown in the auto market and weak pricing. AutoNation (AN) is a Sell due the slowdown in the auto market and exposure to California. American Axle and Manufacturing (AXL) is a sell due to the slowdown in the auto market and costs related to the new UAW agreement.

Ford and General Motors are Sells and bailout candidates that need major restructuring. CarMax (KMX) is a Sell due the weak auto market and falling prices. Lear (LEA) is a bankruptcy candidate. TRW Automotive (TRW) is a Sell due to the weak auto market.

The company also announced, "The current labor level will be reviewed on a regular basis to determine if it is sustainable."

Its Spanish plant in Valencia, which currently produces the Fiesta, will operate on a two-shift pattern from May 1, rather than three shifts currently, and Ford Focus production will be replaced by production of the next-generation Ford C-MAX.

The Detroit carmaker's plant in the German city of Cologne will share the production of a new, small-displacement EcoBoost advanced petrol engine with Ford's Craiova (Romania) engine plant.

Ford of Europe sales fell 7.4% to 1.44 million vehicles in 2008. However, within the first 2 months of the current year the decline accelerated to 19%. The company is now realigning its sourcing plans to meet future business needs, as European demand is unlikely to rebound "for some considerable time."