Amgen trades little changed ahead of earnings; U.S. Steel slips; Tibco outperforms shares

By Rebecca Melvin

New York, April 24 - The lion's share of trading volume in convertible bonds on Tuesday was concentrated in a few of the larger, investment-grade issues, so that while volume picked up, it still felt quiet, market players said.

Pricing was pretty much unchanged on the day, and earnings news was the general trading catalyst.

Amgen Inc. dominated trading volume and was little changed ahead of its first-quarter earnings report expected after the market close.

United States Steel Corp. traded lower on Tuesday after the Pittsburgh-based steelmaker posted a wider first-quarter loss on higher sales. The loss was tied to the sale of the steelmaker's Serbian unit, masking a jump in sales and improved pricing. Results were better than expected.

Rayonier Inc.'s two convertible bonds were quiet after the Jacksonville, Fla.-based real estate investment trust reported lower first-quarter earnings and revenue that beat analysts' expectations.

Some of Tibco Software Inc.'s 2.5% convertibles, which were issued last week, were in trade at pricing that was better than where the underlying shares were trading, which was down; and the same was true of Micron Technology Inc.'s recently priced convertible tranches, a New York-based trader said.

"They were a little better than the shares, modestly," the trader said.

In addition, James River Coal Co.'s shorter-dated convertibles bounced back a bit as buyers stepped in following a plunge on Monday. The James River 4.5% convertibles due 2015 traded at 43 bid, 45 offered, compared to trades below 43 on Monday.

Meanwhile, RadioShack Corp.'s convertibles were better bid after the underlying shares of the Fort Worth, Texas-based electronics retailer tumbled on a first-quarter loss and after Fitch Ratings cut its long-term issuer default rating on the company to B- from B+.

Amgen little changed

Amgen's 0.375% convertibles due 2013 traded last at 101.5, which was up 0.2 point, according to Trace data.

Amgen shares, which closed up 34 cents, or 0.5%, to $68.63, are slightly below where they were six years ago when the Amgen convertible was issued in February 2006.

At the current price "you are losing money outright while waiting for the stock to possibly work for you, I guess," a Connecticut-based analyst said of the Amgen convertibles.

He said that the convertible is only half a point above fair value and has only a 17% premium. But with the short duration left on the bond, there isn't much time left for the stock to move the converts into the money, the analyst said.

The paper has become sort of a money market trade, one source said, while a third source weighed in saying of Amgen "Very little risk to go with very little reward."

As for Amgen earnings, analysts are looking for the Thousand Oaks, Calif.-based biotechnology giant to report earnings of $1.45 per share on revenue of $3.93 billion.

The consensus estimate range is $1.34 to $1.60 for earnings and $3.84 billion to $4.04 billion for revenue, according to First Call.

U.S. Steel weaker

U.S. Steel's 4% convertibles due May 2014 were last at 114.367, after trading from a low of 113.899 to a high of 115.745 during the session, market sources said. That was down about 3 points.

U.S. Steel shares, which have wavered in the past few months, were choppy during the session but ended down 57 cents, or 2%, at $27.65 on Tuesday.

U.S. Steel posted a loss of $219 million, or $1.52 a share, compared with a year-earlier loss of $86 million, or 60 cents a share. Stripping out $399 million in losses from the sale of its Serbia unit and other items, the company earned 67 cents.

Net sales rose 6.3% to $5.17 billion. Analysts had expected a profit of 45 cents on revenue of $4.95 billion. Gross margin widened to 10.5% from 5% on the higher sales.

For the current quarter, the company expects its European segment results to improve sequentially, while tubular-segment results should remain strong and flat-rolled results decrease due to higher maintenance costs.

Rayonier quiet

Rayonier's 4.5% exchangeable due August 2015 looked to be about 140, which was up in line with 49 cents, or 1.1%, rise in the underlying shares to $44.50.

The bonds were quiet however.

The company is structured as a real estate investment trust that manages timber land and sells timber and forest products. Better pricing from forest products helped the company's most recent quarter.

Rayonier's net income fell almost 9% to $53.4 million, or 42 cents a share, from $58.5 million, or 47 cents a share, a year earlier.

Revenue dipped to $355.8 million from $357.7 million. Analysts expected the company would earn 37 cents per share on revenue of $334.2 million.

RadioShack 93 bid

RadioShack's 2.5% convertibles due 2013 were 93 bid, up from 92 bid, during the session, traders said.

RadioShack shares slumped 63 cents, or 10.6%, to $5.34, their lowest level in three decades, after the consumer electronics retailer reported an unexpected first-quarter loss and received a Fitch Ratings downgrade.

"RadioShack is a good busted bond, and they were better bid going into the report. But they are getting a rating cut and the stock got whacked, so that could change tomorrow," a trader said.

The short-dated bonds trade outright and have almost no equity sensitivity.

The net loss for the most recent quarter was $8 million, or 8 cents a share, compared to a profit of $35.1 million, or 33 cents a share, in the year-earlier period. Analysts expected a profit of 4 cents a share.

The downgrade reflected weaker-than-anticipated operating results due to pressure on the company's mobility segment and the resulting increase in financial leverage, according to Fitch.

Mentioned in this article:

Amgen Inc. Nasdaq: AMGN

James River Coal Co. Nasdaq: JRCC

Micron Technology Inc. NYSE: MU

RadioShack Corp. NYSE: RSH

Rayonier Inc. NYSE: RYN

Tibco Software Inc. Nasdaq: TIBX

United States Steel Corp. NYSE: X

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