Idearc slips as Q2 earnings slide, Dex, Donnelley along for ride; Pilgrim's Pride bounces; XM up on tender

By Paul Deckelman and Paul A. Harris

New York, July 29 - Idearc Inc.'s bonds were sharply lower in heavy large-block trading on Tuesday after the Dallas-based telephone directory publisher reported a fall in second-quarter earnings - numbers which failed to meet Wall Street's expectations for the company.

Bonds of Idearc competitor and sector peer R.H. Donnelly Corp., and of the Donnelley-owned Dex Media Inc. were also several points lower, since they are affected by the same industry dynamics as Idearc.

Elsewhere on the earnings scene, Pilgrim's Pride Corp. - whose bonds had retreated Monday on bad numbers from rival Tyson Foods Inc. - were seen having bounced back Tuesday as the Pittsburg, Tex.-based poultry producer weighed in with its own numbers, which were not as bad as investors had been expecting.

Automotive components manufacturer ArvinMeritor Inc. put up some good numbers and its bonds rose - at least initially - but they were seen having given up those gains as the day wore on.

Outside of earnings-driven activity, coal bonds such as Massey Energy Co. and Peabody Energy Corp. were quiet and steady at levels mostly around or above par, apparently not given much lift by the news that Teck Cominco Ltd. will acquire Fording Canadian Coal Trust - but apparently not needing such outside help to remain well bid-for.

XM Satellite Radio Holdings Inc.'s outstanding bonds firmed on news that the company will tender for them as part of its acquisition by rival satellite operator Sirius Satellite Radio Inc.

Just one deal in primary

The primary market failed to generate news on Tuesday, as one high-yield syndicate official said that originations and sales people appear to be looking into the post-Labor Day timeframe for bringing new deals into the market.

Meanwhile, a roadshow is set to kick off on Wednesday for Allis-Chalmers Energy Inc.'s $350 million offering of 10-year senior notes, a post-correction acquisition deal via RBC Capital Markets and Goldman Sachs.

That deal, the only one that is believed to be in the market at present, is expected to price next week.

Given a scenario of high-yield syndicates now planning beyond the Labor Day terminus, Prospect News asked the syndicate official whether it was likely that other issuers might elect to do what Allis-Chalmers Energy is doing - marketing a deal at a time when there is nothing else in the market to compete for investors' attention.

It would have to be the right credit, the sell-sider said.

The source added, however, that even if the right sort of credit story did materialize in the late summer primary market, and faced little or no competition for the buy-side's attention, it remains to be seen whether the buy-side would elect to become involved, especially given the present volatility in the secondary market.

Market indicators seen mixed

Looking at the overall market, a trader pegged the widely followed CDX junk bond performance index up 3/8 point Tuesday, quoting it at around 93 3/8 bid, 93 5/8 offered. However, the KDP High Yield Daily Index lost 39 basis points to end at an even 71.00, while its yield rose by 6 bps to 10.50%.

In the broader market, advancing issues trailed decliners by a small margin. Activity, represented by dollar volume, jumped by 57% from the levels seen in Monday's session.

Despite an explosive rally in equities, fueled by a sharp drop in crude oil prices and increased consumer confidence measures - the bellwether Dow Jones Industrial Average zoomed 266.48, or 2.39%, to 11,397.56, while the other broader market indexes were up by a like amount - a trader, while characterizing junk as "slightly better," added that "we're really not tracking the equity market, to be honest with you. Away from specific news-related items, we're not really tracking [stocks] up or down. We're kind of going a little more sideway, although I think net-net, we were probably up a little bit today."

He noted that "there are a lot of coupon payments coming in, and there really hasn't been a big new-issue calendar, so accounts are flush with cash and they're not really selling stuff," creating a lack of "any kind of dips [where investors could] put money to work."

Another trader said that from where he sat, despite some dramatic bond-price movements - notably Idearc - "it was quiet today. The Dow was up huge, but [junk only saw] a couple of bursts of activity here and there, and there was really not a ton [of action] going on. It was actually very disappointing."

Idearc bonds stumble as profits tumble

Disappointing was also certainly the word for Idearc's earnings, and as a result, its bonds were easily one of the biggest losers of the session, and clearly the most busily traded. Idearc was "the name of the day," said a trader, seeing its 8% notes due 2016 drop to 49 bid from prior levels at 58.

Another trader agreed that it was "the big mover of the day", seeing the 8s at 49 bid, 51 offered, pegging them down 10 points on the day.

A market source saw its 8% notes due 2016 open at 57, already off almost 2 points from Monday's close - and it was all downhill from that point on, with the bonds eventually sliding down to 49, mostly on numerous round-lot trades.

Idearc's New York Stock Exchange-traded shares meanwhile nosedived as much as 43% before coming slightly off that low to finish at $1.32, still down 88 cents, or an even 40%, on heavy trading of 23.6 million shares, more than six times the average daily turnover.

The slide in Idearc's bond prices and its shares followed the company's announcement that second-quarter net income fell to $76 million, or 52 cents per share, a 30% drop from $109 million, or 75 cents per share, a year earlier. Excluding non-recurring special items, Idearc's adjusted second-quarter income slid 32% from year-ago levels to $87 million, or 60 cents per share - well under the 68 to 70 cents per share which analysts on average had been expecting.

Idearc, which reported operating revenues of $759 million, down 5.7% from $805 million a year ago and somewhat below the approximately $765 million the analysts had forecast, blamed the lower numbers on a fall-off in its printed phone directory business, which accounts for the bulk of the company's earnings.

Print product sales fell 6.6% from year-earlier levels to $683 million in the latest quarter.

While Idearc has its guaranteed 30-year contract to print all of Verizon Communications Inc.'s Yellow Pages directories - it was formerly a division of the telecommunications giant before it was split off in November 2006 - it has not been successful in winning a lot of non-Verizon business; the publisher's recently appointed chief executive officer, Scott W. Klein, declared in a statement issuing the quarterly numbers that "it is clear that we have not made the leap from operating as a division of Verizon to being a stand-alone public company," although he added that "you will see us catch up quickly."

Idearc is banking on streamlining what Klein called "cumbersome internal processes," centralizing and restructuring the company's management setup, and using new technology to increase sales.

One bright spot for Idearc has been the growth of its internet directory business, although that remains a relatively small part of the total operations; internet revenue in the second quarter grew 2.7% to $75 million.

Donnelley, Dex also lower

With Idearc's bonds taking a nosedive, market participants also saw lower levels for the bonds of the company's Cary, N.C.-based rival, R.H. Donnelley, and those of Donnelley's fully owned Dex Media subsidiary.

A trader said that the Donnelley's bonds "also went with [Idearc] in sympathy," seeing the former's 11¾% notes due 2015 down 5 points at 73 bid, 75 offered.

Yet another trader agreed that the Donnelley paper "got hit as well," and marveled at the volume of activity in the credit. He saw its 8½% notes due 2010 down 1¼ points at 95.75, with the 6 7/8% notes due 2013 lower by 4¾ points at 48.25. He saw the 9 7/8% notes due 2013 end at 79 bid, a 6 point drop from 85 on Monday, while its 8 7/8% notes due 2017 ended 5 points down at 46.

"That whole sector has [already] been in the crapper," yet another trader exclaimed in looking at the downturns in Idearc, R.H. Donnelley and Dex.

Englewood, Colo.-based Dex's 9 7/8% notes due 2013 fell to 79 bid, a 6 point drop, while its 8½% notes due 2010 ended down more than a point at just under 96 bid.

Pilgrim's Pride recovers on numbers

Elsewhere, Pilgrim's Pride's second-quarter numbers "weren't as bad as expected," a trader said, "and that caused its bonds to jump."

He saw the company's 8 3/8% notes due 2017 up 2½ points at 87 bid, 88 offered, and its 7 5/8% notes due 2015 up 1½ points at 85 bid, 86 offered.

Those bonds were bouncing back after losses Monday, when investors apparently chickened out after fellow poultry producer Tyson Foods reported a more than 90% slide in second-quarter earnings from year-earlier levels, mostly on the rapidly escalating cost of corn and other animal feedstocks.

While Tyson's profit was sharply reduced, Pilgrim's Pride's actually disappeared, as the company swung into the red in the latest quarter, posting a net loss of $52.8 million, or 75 cents per share - a far cry from its profit of $62.6 million, or 94 cents per share a year earlier.

As had been the case with Tyson, Pilgrim's Pride - the largest poultry processor in the United States - saw its bottom line dented by the rising cost of animal feed for its birds. Total feed-ingredient costs in the quarter jumped 41%, or $266 million, from the year-earlier quarter. It estimates its total feed-ingredient costs for the year will be $900 million more than last year.

Excluding discontinued operations, the company says it lost 69 cents per share. However, that was only slightly more than half of the roughly $1.19 to 1.20 per share of red ink that Wall Street had been fearing, allowing some investors to breathe a sigh of relief. Sales rose to 5% year-over-year to $2.21 billion, beating analysts' expectations of about $2.15 billion and up as well from 2.10 billion in the year-ago quarter.

Arvin Meritor gains - for a while - on numbers

ArvinMeritor posted solid fiscal third-quarter numbers, with the Troy, Mich.-based auto components manufacturer reporting a profit of $44 million, or 60 cents per share, versus a year-earlier loss of $70 million, or 99 cents per share.

The company also said that it expects earnings from continuing operations for the current fiscal year, which ends on Sept. 30, to be at the top of its prior forecast range of $1.40 to $1.60 per share.

That good news pushed ArvinMeritor's NYSE-traded shares up $2.15, or 18.01%, to $14.09 - but while its bonds initially rose, they proved unable to hold the gains. A trader said the company's 8¾% notes due 2012 finished around 86.5 bid, 87 offered - actually down from the most recent trading levels in the 89 neighborhood.

He did see ArvinMeritor's 8 1/8% notes due 2015 at 81 bid, 81.5 offered. "Yeah, earlier in the day, the paper certainly was up about a point, but then the paper did trade off, so maybe it's unchanged to off a little bit. I wouldn't say the paper was just up."

However, another trader called the latter bonds up 2 points at 80 bid, 81 offered.

Auto bonds seen mixed

Elsewhere in the automotive realm, a trader saw General Motors Corp.'s 8 3/8% benchmark bonds due 2033 down a point at 52 bid, although another saw the bonds up ½ point at 54.5 bid, 55.5 offered.

A third trader called the bonds pretty much unchanged at 53.5 bid, 54.5 offered, and saw GM's 7.20% notes due 2011 also unchanged at 70 bid, 72 offered. GM's 7.70% notes due 2016 were up nearly 2 points on the day at just under 57 bid, but its 9.40% bonds due 2021 dropped 1½ points to 54.

A trader saw GM's 49% owned loan unit, GMAC LLC's 8% bonds due 2031 a point lower at 57, while another market source saw them ½ point better at 58.5 bid. However, another trader called those bonds unchanged at 58 bid, 60 offered. GMAC's 6 7/8% notes due 2012 were off a point at 63.5.

A trader saw GM domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 better by ½ point at 52.5 bid, 53.5 offered. A second trader saw those bonds unchanged at 52.5 bid, 54.5 offered. Ford Motor Credit Co.'s 7% notes due 2013 were quoted down a point at 72.5.

Former Ford unit Visteon Corp.'s 7% notes due 2014 were at 50 bid, off slightly on the session.

Coal deal fuels no consolidation rise

The news of a $14 billion M&A event in the recently red-hot coal industry - Teck Cominco's agreement to acquire Fording Canadian Coal Trust - was greeted with nonchalance by sector investors.

A trader noted that Massey Energy's 6 5/8% notes "have been straddling par" in a 99.75-100.25 context, while the Richmond, Va.-based company's 6 7/8% notes due 2013 have been "wrapped around 98."

Peabody Energy's 6 7/8% notes due 2013 have been at 101.5 bid, 102.25, while its 5 7/8% notes due 2016 have been "hanging in" around 94.5 bid, 95.5 offered.

"The whole sector has been doing well," he said. "I don't think that that news would have driven these bonds up," he added, explaining that even without new M&A developments, "the paper has been well-bid for."

While like in any sector, there may have been some profit-taking off recent gains, overall, he said "that sector has been strong. People have been talking about coal being at the top of its cycle - and they've been saying that now for six months to a year. We're still there."

He allowed that the Teck Cominco news perhaps strengthened some bonds in the sector by ¼ point, "but the paper's been well bid for prior to the news. All it does is put another, higher multiple on the sector."

XM seen up on tender for bonds'

Looking at another M&A -driven situation, a trader noted that XM Satellite Radio's 9¾% notes due 2014 had moved up to close at par, a 1/8 point gain from Monday, helped by the news that the Washington, D.C.-based satellite broadcaster - now half of the newly formed combination officially called Sirius XM Radio Inc. - will tender for those bonds at that level as part of its $3.5 billion acquisition by what used to be known as Sirius Satellite Radio. That transaction, approved last Friday night by the Federal Communications Commission, officially closed Tuesday with the formation of the newly combined company.

A market source at another desk saw those bonds up nearly a point at 100.5

The trader also noted that the new 13% notes due 2014 sold last week by XM were at 90.75 bid, 91.75 offered - off a little from their recent highs in the 91.25-91.5 area, but still up from the 89.97 level at which the new bonds had priced last week.

© 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.