Convertibles market pauses ahead of earnings; Genzyme falls amid mixed biotechs, Lucent, financials ease

By Rebecca Melvin

Princeton, N.J., July 15 - The convertibles market was readying itself Monday ahead of the onslaught of earnings news expected this week, with Genzyme Corp. lower, Lucent Technologies Inc. seen a touch weaker and Yahoo! Inc. trading in line with its shares, traders said.

Some convertibles in the financial sector traded down after Citigroup Inc. led stock markets lower because its second quarter profit was below Wall Street's expectations.

Citigroup chief executive Charles Prince cited "challenging conditions" in the April-June period, including a tough bond market and an interest-rate squeeze.

But 3M Co.'s convertibles gained about 0.5 point after it reported earnings Monday that matched expectations. And investors eyed earnings from Lucent, Sepracor Corp., and Ford Motor Co. on Tuesday.

Biotechnology convertibles on Monday were mixed to weaker, "with plenty of sellers around, but not a lot of trades," a New York based sellside trader said. "The whole space is showing some weakness. It had a big run-up, and now there are sellers."

Another sellside source called the sector mixed, and concurred that phone lines were busy in the morning with inquiries from clients, but there was not a lot of trading going on.

Genzyme retraces some gains

Genzyme convertibles were down by more than a point on Monday as investors paused to take profits following the biotechnology company's stellar rally last week.

The rally started after the Cambridge, Mass.-based reported strong revenue growth and profit that was up 58% for the second quarter. In addition the company raised its full-year revenue estimate.

A buysider said that interest in biotechs remains strong and a session of profit taking was to be expected after the steep climbs made last week by stocks like those of Genzyme and Celgene Corp.

"After going up 20% on Friday, it's natural to have some profit taking," the buyside analyst said.

"We trim on the way up, if we are heavy," he added, referring to the little trading conducted by his firm on Monday.

Genzyme's 1.25% convertible due 2023 traded on Monday at 112.125, versus a stock price of $70.30. The same issue traded on Friday at 113.298 bid, 113.548 offered, versus a stock price that was nearly identical at $70.31.

Genzyme shares on Monday closed down $1.59, or 2.26%, to $68.72. The close was not far off its 52-week high at $70.54.

Meanwhile, Celgene's 1.75% convertible due 2008 was down three points at 195.23, compared to 198.68 bid, 199.18 offered on Friday. The biotech's shares also lost, down 1.46, or 3.09%, to $45.79.

Investors eye Sepracor

Despite favorable news on a Sepracor insomnia treatment on Monday, its convertibles weren't reported to have traded during the session ahead of its earnings report seen before the bell on Tuesday.

The Marlborough, Mass.-based company said that preliminary results from a late-stage trial of its Lunesta brand eszopiclone treatment for insomnia "significantly improved" sleep in perimenopausal and menopausal women.

None of Sepracor's four active convertibles issues were seen to have traded.

Lucent eases on expectations

The convertibles of Lucent were "a touch weaker" ahead of its earnings but mostly, one New York-based sellside trader said, "people are in a wait and see mode."

The Murray Hill, N.J., telecommunications equipment maker is expected to show that it is still treading water, with sales stuck at levels that are similar to the last two quarters.

Lucent's 2.75% convertible B tranche due 2023 traded at 117.25, down from 118.407 bid, 118.9 offered on Friday.

Its 2.75% convertible A tranche due 2023 traded little changed at 112.75, compared with 112.5 bid, 113.0 offered on Friday. But its shares edged up one cent to $3.13.

3M meets approval

Despite a lack of enthusiasm from equity investors, 3M gained some acceptance for its convertible issue on Monday, which added about 0.5 point, after the company posted profit that matched expectations.

3M's net income rose to $776 million, or $1 a share, compared with $773 million or 97 cents a share earned in the year-ago period.

Excluding a tax charge related to $1.7 billion in foreign profits that St. Paul, Minn.-based 3M repatriated in the quarter, earnings would have been $851 million, or $1.09 a share, matching the average analysts' estimate as compiled by Thomson First Call.

Worldwide sales grew, but sales fell 2.2% at 3M's display and graphics segment, the unit that makes film for flat-panel displays.

The 3M 0% convertible due 2032 traded at 87.35 on Monday, up from trades at 86.76 on Friday. But shares slipped 92 cents, or 1.22%, to $74.53.

Also a little higher was Yahoo's 0% convertible due 2008, which traded at 181 on Monday after analysts at CIBC World Markets lifted second quarter projections for the internet search company and its rival Google. The analysts cited expectations for strong revenue growth.

Ford, financials slip

The convertible preferred shares of Ford weakened throughout the session ahead of its earnings report on Tuesday. An early trade Monday was reported at 41.95 versus a stock price of $11.10. But the convertible ended the day down 0.67, or 1.59%, at 41.41. And Ford stock slipped seven cents, or 0.6%, to $10.93.

Meanwhile, Citigroup's earnings disappointed investors and sent convertible paper in the financial sector slightly lower.

The convertibles of American Express Inc. were off 0.5 point, with its 1.85% convertible due 2033 trading at 101.446 on Monday, compared with trades on Friday at 101.916 bid, 102.166 offered on Friday. Its stock dropped 76 cents, or 1.41%, to $53.

CapitalSource Inc. also saw its convertibles trade lower, and Leucadia National Corp's 3.75% convertible due 2014 eased to 103, from a recent trading level of 103 bid, 104 offered.

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