Earnings spur activity; Xilinx drops outright, expands on hedge; Cubist adds on hedge

By Rebecca Melvin

New York, July 23 – Convertibles players were focused on quarterly earnings reports on Wednesday, including reports from such convert issuers as Xilinx Inc., Cubist Pharmaceuticals Inc., Jakks Pacific Inc. and Hawaiian Holdings Inc., a Connecticut-based sellsider said.

“They were all big movers on earnings,” the sellsider said.

Xilinx convertibles traded very actively and were down sharply on an outright basis but better on a dollar neutral, or hedged, basis, after the San Jose, Calif.-based programmable chipmaker warned that revenue for the current quarter will be weaker than expected.

Likewise, Cubists’ dual convertible tranches were a bit lower on an outright basis, but better on swap by a little over a point for the A tranche and a little under a point for the B tranche, on lower shares post earnings, a trader said.

Restoration Hardware Holdings Inc.’s 0% convertibles due 2019, which debuted in the market last month, changed hands at 100.328, which was higher by about 0.6 point outright, according to Trace data.

The Restoration Hardware bonds were seen in line on swap against shares of the Corte Madera, Calif.-based specialty retailer that were up $2.45, or nearly 3%, at $87.81 at the close.

Secondary market trading was described as “better to buy,” meaning that the market had more bidders, a New York-based trader said.

A second trader said the market was “marginally better to buy,” and a third trader called the market “kind of flat.”

There were issues that were surprisingly quiet despite earnings. Electronic Arts Inc. was quiet early on after the Redwood City, Calif.-based video game publisher posted better-than-expected quarterly revenue and profit in its report after the market close Tuesday.

The Electronic Arts 0.75% convertibles due 2016, ended up trading in the 127.25 bid, 128.25 offered context with underlying shares down 6% at $36.04.

Medicines Co.’s 1.375% convertibles due 2017 were also quiet with shares of the Parsippany, N.J.-based pharmaceutical company closing down 5.6% after the company missed earnings estimates, but revenue was in line with expectations.

Elsewhere, Jakks Pacific’s convertibles were down on an outright basis with shares off 14%. The Jakks 4.25% convertibles due 2018 were seen last at 106 compared to 112.84 previously, and the company’s 4.875% convertibles due 2020 were last at 91.04 from 100.76 previously, the market source said.

Shares of the Malibu, Calif.-based toy and leisure products company fell $1.15, or 14%, to $7.19.

Jakks narrowed its quarterly loss, but the result was still weaker than expected, while revenue was better than expected.

Hawaiian Holdings’ 5% convertibles were seen higher at 192.3 at the close compared to 171.94 previously, according to a market source. Hawaiian Holdings shares were up $1.78, or 14%, to $14.75 at the close.

Hawaiian Holdings, which owns Hawaiian Airlines Inc., reported higher adjusted net income, and passenger revenue per available seat rose 4.1% over the year-earlier quarter.

Xilinx adds on hedge

The Xilinx 2.625% convertibles due 2017 plunged 25 points on an outright basis to 141.629. Later it traded back up to 146 to 146.875 with the underlying shares at $41.09, or down 14.5%.

It was better by 2 points on a dollar-neutral, or hedged, basis, said a New York-based trader, who was busy in the name.

“It traded pretty good. There were outright buyers,” the trader said. Xilinx was atop the Trace volume charts at the end of the session, with $37.15 million of bonds having been reported in trade.

Shares of the San Jose, Calif.-based programmable chipmaker fell about 16% in the early going after the company beat earnings estimates by a penny but missed on revenue and guided lower for current quarter revenue.

The Xilinx report was followed by several analysts’ downgrades.

Xilinx reported earnings of $174 million, or 62 cents per share, which was up from $157 million, or 56 cents per share, in the same period a year earlier and a penny better than estimates. Revenue rose 6% to $612.6 million from the year-earlier quarter but missed estimates. Also Xilinx said it expects current quarter revenue to be flat to down 4% and below estimates.

Cubist expands on swap

Cubist’s 1.125% convertibles due 2018 traded in the 108 to 109 context with the underlying shares at $63.05 at the close. The bonds were seen to have expanded by about 1 point to 1.25 points, a trader said.

A Trace trade went up in the Cubist 1.125% convertibles at 108.75 near the close, which was down 1.9 points on the day on an outright basis, according to Trace.

Cubist’s 1.875% convertibles due 2020 traded at about the same level and were 109.125 bid at the close, which was up 0.25 point to a point on a dollar-neutral basis, a trader said.

Shares of the Lexington, Mass.-based biopharmaceutical company closed down $3.12, or 4.8%, at $62.58 on the day.

Cubist reported earnings excluding items that were lower from the year-earlier period. The company earned $41.4 million, or 23 cents per share, compared to $51.3 million, or 42 cents per share, in the year-earlier period.

Revenue rose 14% to $294.4 million but was lower than expected.

Weak Cubicin sales hurt the company’s quarterly performance, a trader said.

Mentioned in this article:

Cubist Pharmaceuticals Inc. Nasdaq: CBST

Electronic Arts Inc. NYSE: EA

Jakks Pacific Inc. Nasdaq: JAKK

Hawaiian Holdings Inc. NYSE: HA

Medicines Co. Nasdaq: MDCO

Restoration Hardware Holdings Inc. NYSE: RH

Xilinx Inc. Nasdaq: XLNX

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