A Higher Ground: U.S. Service Sector

The dominant U.S. service sector grew at its fastest rate in a year in May, beating market expectations for a slightly slower pace.

The Institute for Supply Management's ISM services index rose to 59.7 in May from 56.0 in April. The analyst had actually expected a slight decline of 55.3. Analysts believe this is a very strong number and a key piece of the recent strength seen in U.S. data.

The stock market did not respond to these strong numbers from the service sector. However the dollar did respond gaining some ground to euro. Also the bond prices weakened on signs of strong growth. The services sector represents about 80 percent of U.S. economic activity, including businesses such as restaurants, hotels, hair salons, banks and airlines.

Company Earnings: Qualcomm, Akamai, NutriSystem, Anheuser-Busch

Qualcomm Shares Rise
Qualcomm QCOM reported Q2 net income rose 22% to $726 million. EPS totaled $0.50, ahead of analysts estimates of $0.47. Revenues increased 21% to $2.22b, again beating analysts' expectations. Qualcomm also raised its full-year EPS guidance on sales of $8.4b - $8.7b (from $8.1b - $8.6b). Shares of Qualcomm gained 2.2% to $45.34 during normal trading and added 0.90% to $45.75 in after-hours activity on volume near 2.6m.

Akamai Shares Tumble
Akamai AKAM reported Q1 net income climbed 67% to $19.2 million. Revenues grew 53% to $139.3m, compared to analysts' estimates of $138.8 - $139m. Akamai forecast Q2 sales of $149m - $153, compared to analysts' consensus estimate of $150.3m. In a conference call, Akamai reiterated its full-year revenue growth guidance of $610m - $625m. However its shares fell 10.3% to $48.97 during normal trading and last traded down 0.35% to $48.80 in the after-hours, having dropped as low as $46.46 (-5.1%), on volume of more than 1.1m. Analysts had very high expectations, especially with Akamai beating in the several quarters prior.

NutriSystem Beats Street
NutriSystem's NTRI revenues soared 62% to $238m in Q1'07 vs. $146m in Q1'06. Net income rose 70% to $38m in Q1'07, vs. $22m in Q1'06, beating analyst's expectations. Operating income almost doubled from $35m in Q1'06 to $60m in Q1'07. Despite a 92% rise in marketing costs, revenue per customer grew and returning customers should bring in $93m in 2007 compared to $38m in 2006. NutriSystem grew its online market and its men's market grew faster than the traditional woman's market increasing cash flow. Strong Q1 comes from New Year's weight loss program. NutriSystem forecasts Q2 revenues of $190-$200m, a 43% increase. Full year revenues are expected between $790-$805m, as NutriSystem continues to focus on the men, women and senior markets, returning customers and new products. Shares rose $7.41 to $65.65 after hours Wednesday.

Anheuser-Busch Shares Down
Anheuser-Busch BUD shares fell 2.8% yesterday, their biggest drop in almost two years, after the company posted a Q1 profit miss on advertising expenses for Bud Light and imported beers. Net earnings were $517.5 million in the quarter, up 3.7% from $499.2 million a year ago. Net revenue rose 2.7% to $3.86 billion from $3.76 billion in the year-ago quarter. Analysts were expecting revenue of $3.94 billion. Marketing and administration expenses were up 8.1% to $665.7 million in a bid to keep consumers away from rival Miller Lite. Advertising costs were also increased. Sales were up 2.7% to $3.86 billion for Q1 from $3.76 billion a year earlier. The company's U.S. market share dropped to 50.2% from 50.9% a year ago. Shipments to U.S. wholesalers rose 0.5% from a year ago, but international shipments to wholesalers were up 8.7% to 5.2 million barrels, primarily on sales to China and Canada.

(Source: Seeking Alpha)