U.S. Steel, Terex extend losses; Freeport-McMoRan edges lower; AirTran; JetBlue improve

By Rebecca Melvin

New York, Jan. 27 - Materials and industrial convertibles traded mostly lower on Wednesday, including United States Steel Corp., which reported weak earnings a day earlier, and construction-equipment maker Terex Corp., which is lower following a pull back that began last week.

Freeport-McMoRan Copper & Gold Inc. saw its preferred shares trade lower, moving in tandem with its common stock.

Massey Energy Co. was flat to lower.

However, a couple of airline names were slightly better on Wednesday. AirTran Holdings Inc. was a little better after the Orlando, Fla.-based airline-services company swung to a bigger-than-expected profit in the fourth quarter.

JetBlue Airways Corp. was also slightly better on the day, a West Coast-based sellside trader said.

But UAL Corp. looked to be lower, although it was not heard in trade, despite reporting a narrower fourth-quarter loss that was better than expected.

Financial convertibles names have generally been quiet, with big bank preferreds tracking mostly lower with their underlying common shares lower. But several regional bank stocks have been doing better, and Webster Financial Corp. convertible preferred shares traded higher on Wednesday to 917.5, which was better than a 5% gain.

Stocks fluctuated but ended modestly higher after the Federal Open Market Committee came out with its statement on the economy at 2.15 p.m. ET. The FOMC policymakers said that given information that has been received since their last meeting in December, they believe that economic activity has continued to strengthen and that labor market deterioration is abating.

The FOMC will maintain a 0% to 0.25% target range for the Federal Funds rate and anticipates subdued inflation.

Between waiting for the FOMC result and watching Treasury secretary Timothy Geithner answer questions before the House Committee on Oversight and Government Reform regarding the AIG bailout, trading activity was fairly quiet, a New York-based sellside desk analyst said.

In addition, people were waiting for president Barack Obama's State of the Union address expected late Wednesday.

"The markets are tired and skittish. There's a perpetual putting off of doing business," a New York-based sellside trader said.

U.S. Steel, Terex move lower

U.S. Steel's 4% convertibles due 2014 extended losses Wednesday to trade at 163.75 versus a share price of $46.75, compared to 171 on Tuesday, when the bonds slid 19 points.

The 163.75 price was also down compared to more than double par a week ago when the 4% convertibles traded at 209.5 versus a share price of $63.00, according to one bulge bracket analyst.

Shares of the Pittsburgh-based steelmaker also extended losses Wednesday, settling down $3.01, or 6%, at $46.60 amid a couple of downgrades the day after it reported disappointing earnings.

Citigroup downgraded U.S. Steel to "hold" from "buy," while Fitch Ratings cut its ratings on U.S. Steel to junk status, citing uncertainty as to when the company will return to profitability.

On Tuesday, the steel company reported a fourth-quarter loss - representing its fourth consecutive loss - and said that gradually improving business conditions have not yet been reflected in its operating results.

Fitch cut the company's issuer default ratings and senior unsecured debt one notch to BB+, a step below investment grade.

The outlook is stable, Fitch said, but U.S. Steel's free cash flow is likely to be negative in 2010 and the company may need financing in the near term to cover part of its capital spending for the next one to two years, according to a Fitch release.

U.S. Steel reported a loss of $267 million, or $1.86 per share, in the fourth quarter, compared to net income of $290 million, or $2.50 per share, for the fourth quarter a year earlier.

Revenue dropped 25% to $3.35 billion.

U.S. Steel chairman and chief executive John P. Surma said in a news release, "We expect to report an overall first-quarter 2010 operating loss in line with the fourth-quarter 2009 as gradually improving business conditions are not yet fully reflected in our operating results."

Surma said that the company continues to experience improved order rates from several end markets, including automotive, service center, converter and appliance customers. But construction in North America remains soft.

Its assessment agreed with the FOMC's outlook in that it sees a gradually strengthening economy that should boost real demand.

"We continue to believe that the U.S. and global economies are in the early stages of a gradual recovery. While we are becoming more optimistic, primarily due to improvements we are starting to see in the manufacturing sector, we remain cautious in our outlook for end user demand," Surma said.

Meanwhile, the Terex 4% convertibles due 2015 traded at 149.5 versus a share price of $21.10, a sellsider said. Shares of the Westport, Conn.-based equipment manufacturer settled down 33 cents, or 1.6%, at $20.76.

Freeport-McMoRan's preferred shares traded at 103.10 versus a share price of $71.00, compared to 108 versus a share price of $75.85 on Friday and at 109.70 versus a share price $77.50 on Thursday. A week ago, this paper traded at 115.40 versus a share price of $82.30.

Shares of the Phoenix-based mining company ended down 74 cents, or 1%, at $71.25.

Coal producer Massey Energy was holding up fairly well. Massey's 3.25% convertibles due 2015 traded at 90.5 versus a share price of $41.75 on Wednesday, compared to Friday's 90.5 versus a share price of $42.50, and 91.5 versus a share price of $43.25 on Thursday.

Shares of the Richmond, Va.-based company ended down 21 cents, or 0.5%, at $41.56.

Webster, regional banks add

Even though the financial sector overall has been moving sideways to lower, some of the regional bank stocks have notched 52-week highs recently.

Waterbury, Conn.-based Webster Financial has seen its stock rise 17% in the last three months, and it has been setting new highs in the last two weeks. It is up more than 25% since Jan. 1, and the perpetual convertible preferreds, standing at 917.5, have climbed as well.

There isn't that much left outstanding on the Webster preferred issue, only $27 million, after having been exchanged, according to a New York-based sellsider, "But it is still one of the best yielding bank preferred issues out there, if you can find them," he said.

Cincinnati-based Fifth Third Bancorp shares have also risen 17% in the last three months, and more than 20% from Jan. 1, and the Fifth Third perpetual convertible preferreds have performed well, too, keeping its premium even though it's trading at 133.33, the sellsider said.

AirTran, JetBlue edge up

AirTran's 7% convertibles due 2023 traded up slightly to 100.625 bid, 100.75 offered, while JetBlue's 3.75% convertibles due 2035 convertibles traded at 99.875 bid, 100.125 offered, according to a West Coast-based sellside trader.

Both issues trade outright and were up slightly based on how they were being quoted Tuesday, the sellsider said.

Orlando, Fla.-based AirTran posted a profit of $17.1 million, or 11 cents a share, compared with a year-earlier loss of $121.6 million, or $1.03 a share. Excluding fuel-hedging impacts, earnings were 7 cents a share, compared with a prior-year loss of 14 cents a share. Revenue increased 1.5% to $598.4 million.

Analysts had anticipated earnings of 3 cents a share on revenue of $585 million.

Meanwhile, UAL's 6% convertibles due 2029 were seen at 157.79, which was down 9 points compared to Tuesday and down from 175.5 versus a share price of $13.75 on Jan. 14.

UAL reported a loss of $240 million, or $1.44 a share, compared with a loss of $1.32 billion, or $10.00 a share, a year earlier. Excluding hedging effects and accounting charges, UAL's per-share loss narrowed to $1.05 from $4.31. Revenue decreased 7.8% to $4.19 billion.

Analysts had expected a loss of $1.47 a share on revenue of $4.09 billion.

Mentioned in this article:

AirTran Holdings Inc. NYSE: AAI

Fifth Third Bancorp. Nasdaq: FITB

Freeport-McMoRan Copper & Gold Inc. NYSE: FCX

JetBlue Airways Corp. Nasdaq: JBLU

Terex Corp. NYSE: TEX

UAL Corp. Nasdaq: UAUA

United States Steel Corp. NYSE: X

Webster Financial Corp. NYSE: WBS

© 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.