RadioShack strengthens with buyback news; Gilead 'up small' ahead of earnings; AMD lower

By Rebecca Melvin

New York, Oct. 23 - RadioShack Corp.'s convertibles strengthened Tuesday on word that the Fort Worth, Texas-based consumer electronics retailer bought back a chunk of that paper, and despite a gaping third-quarter loss that sent its straight debt lower.

RadioShack said it bought back $88 million of the convertible bonds for $85 million, and that it has financing arrangements in place to redeem the rest of the issue when it matures next August.

Gilead Sciences Inc.'s 1% convertibles due 2014, or the C convertibles, were very active and lower outright, but up slightly on a dollar-neutral, or hedged, basis ahead of earnings that showed - after the market close - lower net income on higher revenue.

"Gilead was up a hair" on a hedged basis, a New York-based trader said about the convertibles.

Amgen Inc.'s convertibles were also active, and slightly higher ahead of the biotechnology giant's quarterly earnings, which revealed after the market close higher profit and sales amid lower costs.

Advanced Micro Devices Inc.'s 6% convertibles declined for a third straight day, extending a slide from last week on weak earnings that has given the bonds a haircut of about 9 points.

One trader thought that the bonds had found their footing at the current level of 90.75 bid, 91.25 offered.

There were no new issues launched or priced in the U.S. primary market, but overseas, Nokia Corp. priced €750 million of five-year convertibles at par to yield 5% with an initial conversion premium of 28%.

The Regulation S deal came at the cheap end of talk, which was for a 4.25% to 5% coupon and 28% to 33% premium above the volume weighted average price of shares on the Nasdaq Helsinki exchange between launch and pricing.

The Nokia convertibles are non-callable for three-years and then provisionally callable if shares are 150% of conversion.

Overall, the markets were heavy. Equities fell and credit was weak, but convertibles "held in," and performed well, given the pickup in volatility, a New York-based trader said.

"Many convertibles are relatively short dated and less subject to moves in equities," the trader said.

He added, "Convertibles did fairly well."

Earnings season has taken a toll on equities as many results have disappointed. Revenue is lagging expectations, he said, and "beating only 40% of the time, and it's usually 60%."

RadioShack strengthens

RadioShack's 2.5% convertibles due 2013 were 94.5 bid in early afternoon, after trading at 93. They ended the session 94 bid, 95 offered, which was better compared to 92.5 bid, 93.5 offered previously, traders said.

RadioShack shares opened down almost 10%, at $2.16, but rebounded by midmorning, ending the session up 18 cents, or 7.5%, at $2.57.

"They did the buyback and completed a bunch of financing," a trader said, referring to the company's $85 million purchase of $88 million of the 2013 convertibles due Aug. 1.

Meanwhile, results included a slide into the red versus a year-ago profit.

RadioShack reported a loss of $47.1 million, or 47 cents a share, compared with a profit of $300,000, or less than a penny, a year earlier.

Excluding one-time items, the company lost 33 cents per share in the most recent quarter. Revenue decreased 3.1% to $1 billion, and same-store sales fell 1.6%.

Analysts had estimated a loss of 17 cents per share on revenue of $1.04 billion.

The company said it continues to have a strong balance sheet and total liquidity of $938 million, including $175 million of new financing since its last earnings report.

RadioShack's 6¾% straight notes due 2019 fell to 58¼ bid in early trading, down about 4 points from levels seen on Monday, on round-lot volume of some $8 million, making it one of the more active junk bonds.

AMD extends slide

AMD's 6% convertibles due 2015 traded down to 90.75 bid, 91.25 offered, which was lower compared to about 92 on Monday.

But shares were higher on Tuesday.

And that seemed to support the expectation that the steep slide in the convertibles was near an end.

"They appear to have found a level," a New York-based trader said, adding that his evaluation was based on the straight debt and where credit default swaps were and the fact that the stock traded up on Tuesday.

The Sunnyvale, Calif.-based chipmaker missed estimates last week and said it is cutting about 1,800 jobs, or 15% of its workforce, by the end of the year.

Third-quarter revenue sank 25%, and those weak sales led to an under-utilization of capacity.

Gilead, Amgen add

Gilead's 1% convertibles due 2014 printed at 148.22 during the session, which was down 2.5 points outright. But the paper was seen higher by about 0.125 point to 0.25 point on hedged basis.

Shares of the Foster City, Calif.-based biotechnology company settled $1.47, or 2.2%, lower at $64.91 during the session but gained $2.09, or 3.2%, in after-hours trade.

The Gilead Cs are a low premium name. "They are an interesting set up," a New York-based trader said. "You can set them up heavy and wait for something to happen."

The heavyish delta is about 90% to 92%, he said.

Traders expected solid earnings from the company despite the fact that earnings so far from many companies have been disappointing and guidance has been abysmal.

After the close, the company reported net income of $675.5 million, which was down 9% from the year-earlier period. But adjusted net income was better than estimates.

Revenue was up 14% at $2.43 billion compared to $2.29 billion for the same period last year.

Amgen's 0.375% convertibles, which mature in February, were last at 114.728, according to Trace data.

"They were probably up about 0.125 point," a New York-based trader said.

Shares of the Thousand Oaks, Calif.-based company ended the session lower by 48 cents, or 0.6%, at $87.32. Then they gained in after-hours trade to $88.50, up 1.2%.

"They are fair at best," the trader said of the convertibles, which is pretty much strictly an outright name at this point.

Amgen reported third-quarter profit that more than doubled from the year-earlier period when results were depressed by a large legal charge.

Net income was $1.11 billion, or $1.41 per share, which was up from $454 million, or 50 cents a share, in the year-earlier period.

Adjusted income was $1.31 billion, or $1.67 per share, which was much stronger than the $1.48 per share that analysts expected.

Revenue totaled $4.32 billion, up 10% from $3.94 billion, which was above estimates for $4.24 billion.

The company also raised its full-year profit forecast to $6.50 to $6.60 per share, excluding one-time items, up from $6.20 to $6.35.

Mentioned in this article

Advanced Micro Devices Inc. NYSE: AMD

Amgen Inc. Nasdaq: AMGN

Gilead Sciences Inc. Nasdaq: GILD

Nokia Corp. NYSE: ADR: NOK

RadioShack Corp. NYSE: RSH

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.