UAL puts skids on airlines; WCI fades; Centex climbs; Temple-Inland spikes; Calpine Power off

By Ronda Fears

Memphis, Jan. 23 - United Airlines parent UAL Corp.'s fourth-quarter and 2006 results disappointed Wall Street, but the reduced forecast for 2007 capacity growth at the top domestic carrier put the entire sector in heavy retreat, following steady gains in recent months amid speculation of further industry consolidation.

Overall, however, traders said that while earnings were driving a big surge in trading volume, there was not a big trend in either direction. "We have as many earnings surprises to the upside as downside," said one trader. "That typically still generates a trade, but as for earnings really producing a lot of surprises, we are not really seeing that."

Looking ahead, traders said there was a surge of interest in alternative fuel names ahead of President Bush's State of the Union address Tuesday night in which he is expected to propose boosting the amount of renewable and alternative fuels in the nation's fuel supply sevenfold over the next decade.

These alternative fuels would include biodiesel, ethanol, natural gas, electricity and propane, essentially all the non-crude oil fuel sources. Traders noted Pacific Ethanol Inc. (Nasdaq: PEIX) was a big winner in the group, with a gain of $1.03, or 6.12%, to $17.85, as it has a marketing arm in addition to production. And, in electric batteries Suntech Power Holdings Co. Ltd. (NYSE: STP) had a big gain of $1.51, or 4.34%, to $36.33, because it is based in China - a focal point of global economic growth.

Outside of bankrupt airline stocks heading south on the UAL news, Calpine Corp. extended gains Tuesday although there was no news on the bankrupt San Jose, Calif.-based independent power company's search for an equity sponsor in its bankruptcy exit plan. Calpine shares (Pink Sheets: CPNLQ) gained 11 cents on the day, or 7.01%, to close at $1.68.

Calpine Power Income Fund Trust, however, an unrelated entity - although it has considerable claims in the Calpine bankruptcy - was off as its bid for certain assets of Calpine Canada Power Ltd., a unit of Calpine Corp. that is in bankruptcy in Canada, will go to auction because of a competing bid from U.S.-based hedge fund Harbinger Capital Management. Harbinger also has a bid to buy out the fund, which is a separate matter.

Harbinger was finally successful in gaining control of small appliance maker Applica Inc. on Tuesday, after five rounds of bidding leap-frogging with conglomerate Nacco Industries Inc., and on that news, Salton Inc. shares got lifted. Previously Harbinger, which also owns a majority stake in Salton, said it planned to merge the two companies once it gained control of them both. Salton shares (NYSE: SFP) advanced 38 cents on the day, or 16.38%, to $2.69.

Airlines dive seen continuing

Under pressure after United's numbers, traders said players were rapidly bailing out of airline stocks Monday on "serious valuation concerns." A follow-on stock offering from American Airlines parent AMR Corp. didn't help matters, either. Traders are expecting further declines, as well, because of the group's recent run-up on consolidation speculation.

UAL shares (Nasdaq; UAUA) fell $3.94, or 8.08%, to $44.81.

The parent of United Airlines reported Tuesday a narrower fourth-quarter loss of $61 million, or 55 cents a share, but that was weaker than Wall Street analysts expected, and it cut its forecast for 2007 capacity growth to flat or up 1%. UAL, which emerged bankruptcy Feb. 1, 2006, also said it doesn't plan to add to its fleet of aircraft this year.

"Suddenly, and rightly so I think, everyone is very concerned about where the airline stocks have traded up to, all on merger or buyout speculation," said one trader.

"We are looking for a big pullback. There are serious valuation concerns. They have been rising for weeks now."

The biggest retreats were in bankrupt carriers Delta Air Lines Inc. and Northwest Airlines Corp., he noted. Delta shares (Pink Sheets: DALRQ) lost 20 cents, or 15.87%, to $1.06 while Northwest shares (Pink Sheets: NWACQ) dropped 65 cents, or 11.71%, to $4.90.

US Airways Group Inc., which had submitted a $10.2 billion bid for Delta, was another big loser in the session, with the stock (NYSE: LCC) falling $3.76, or 6.59%, to $53.27.

Also taking a big hit was AMR, which announced Tuesday that it had sold 13 million shares in a follow-on offering at $38.70 a share - discounted from Monday's close of $40.09. AMR said the proceeds, estimated at $503.1 million, were earmarked for debt reduction, lease obligations, funding employee pensions and aircraft acquisition. AMR shares (NYSE: AMR) lost $3.39, or 8.46%, to close at $36.70.

Centex takeover rumor cited

On the heels of better-than-expected results from Fort Worth, Texas, homebuilder D.R. Horton Inc., the largest domestic home builder, the shares of nearby Dallas-based Centex Corp. shot up, but one trader cited a rumor that Centex has a takeover bid for its spike, which was nearly erased by half in after-hours action.

Like virtually the entire landscape of homebuilders, Centex has warned of weaker profits due to the downturn in residential construction. Nearly all of the homebuilders have written off land values and have frozen their purchases of new development acreages as well, which has impacted results.

Centex shares (NYSE: CTX) advanced $1.30 in the regular session, or 2.46%, to $54.10. After the company reported results, the stock in after-hours trade gave back 60 cents, or 1.11%, to $53.50.

Centex posted a fiscal third-quarter loss of $228.1 million, or $1.90 a share, versus year-ago profits of $329.3 million, or $2.49 a share, with a 7% decline in revenues to $3.28 billion. The company said home closings decreased 12% and unit backlogs were down by 32% on a 24% decline in orders. In addition, the company lowered its fiscal 2007 earnings guidance to 25 cents per share from continuing operations and said it expects breakeven results for fiscal fourth quarter.

A stock trader said there was a rumor circulating that Centex has a takeover offer on the table, which he attributed to some of its gain Tuesday, just ahead of earnings. He said the interesting thing about the rumor was that supposedly its genesis was from within the company, but its legitimacy could be questionable because of that as well. He said there could be a scare within Centex of potential job cutbacks or a number of other anxieties because of the falloff in its business that could lead to a rumor like that getting started.

Another trader said it was not a widely circulated rumor, but given the climate for mergers and acquisitions these days it is not beyond reason.

"There is so much cash out there, nothing it untouchable," the latter trader said. "I would be surprised if a deal popped up right now, though, because there is so much uncertainty in the markets."

D.R. Horton's better-than-expected results were largely credited with the sector's gain, however. The company said earnings for its fiscal first quarter fell 65% from a year ago to $109.7 million, or 35 cents per share, but that beat analysts' average forecast of 33 cents per share. D.R. Horton shares (NYSE: DHI) gained $1.24 on the day, or 4.57%, to $28.37.

Major U.S. homebuilding indexes were better by more than 4% at one point during Tuesday's session but settled out the day with a gain of a little more than 2%.

WCI bucks rise in homebuilders

One of the laggards in the homebuilder group was perhaps the one with the best visibility on consolidation developments - WCI Communities Inc. The Florida-based luxury homebuilder issued a warning Tuesday that it will post a fourth-quarter loss due to higher-than-expected defaults, but majority stockholder Carl Icahn has said he plans to petition the company to begin exploring ways to boost stockholder value, a euphemism that usually includes potential mergers.

"WCI came out today with its warning. Yuck. But it doesn't seem to bother anyone, including Carl [Icahn]," said one trader.

WCI Communities shares (NYSE: WCI) lost 96 cents on the day, or 4.41%, to $20.79.

Almost two weeks ago, billionaire investor Icahn said in a Securities and Exchange Commission filing - noting that he has boosted his stake in WCI to 14.6% - that he plans to issue a demand for WCI to boost stockholder value. That was cited for a 7% spike in WCI Communities shares in mid-January.

Another trader has attributed much of the gain in WCI Communities two weeks ago to short covering and said he expected the stock to retreat sharply once quarterly figures were reported. But, he said WCI's warning Tuesday might very well prompt Icahn to hasten his agenda with the company.

On Tuesday, WCI said it sees impairment charges in a range of $75 million to $90 million and write-offs of land options between $25 million to $30 million. The company said it defaulted 18 units from towers in the quarter and said additional defaults may be possible. It recorded 187 defaults in its traditional home market.

"The operating environment in Florida continued to be challenging during the fourth quarter and resulted in cancellations outnumbering new orders in that market. We continue to focus on reducing costs, maximizing cash flow, and positioning our company to withstand a prolonged downturn in housing demand," said WCI chief executive Jerry Starkey in a news release.

Icahn pushes Temple-Inland

In another Icahn interest, Austin, Texas-based containerboard and packaging concern Temple-Inland Inc. saw a big surge on his push for the company to sell off some of its businesses. The news pushed the packaging maker's stock to a new 52-week high.

A group of investors led by Icahn owning some 7.2 million shares of Temple-Inland stock purchased for $301.2 million, plans to discuss ways to increase shareholder value with the company's management, according to an SEC filing on Monday.

The group suggests that divestiture or spinning off of one or more of Temple-Inland's component businesses, such as the corrugated packaging business and timberland holdings, may be beneficial. In addition, the group said it may attempt to replace one or more members of the company's staggered board with its own nominees.

In addition to Icahn, the group includes High River LP, Hopper Investments LLC, Barberry Corp., Icahn Partners Master Fund LP and Icahn Onshore LP, among others.

Temple-Inland operates four business segments: corrugated packaging, forest products, real estate and financial services.

Calpine Power, Harbinger duel

In a multi-faceted duel, under a court ruling Tuesday, Harbinger and Calpine Power Income Fund will fight it out in the Canada bankruptcy courts over a group of assets owned by defunct Calpine Canada Power Ltd., a unit of Calpine Corp., which is in bankruptcy in the United States.

Calpine Power Income Fund units (Toronto: CF-UN) lost C$0.30 on the day, or 2.31%, to C$12.70.

Harbinger has also made a C$831 million hostile bid for the fund, or C$12.25 per unit, which it continues to resist.

At issue in the Calpine Canada case is its 30% subordinated ownership interest, also known as the B units, in Calpine Power, LP, a limited partnership in which Calpine Power Income Fund has a 70% priority ownership interest. Calpine Power, LP owns the 300-megawatt Calgary Energy Centre in Alberta and the 240-megawatt Island Cogeneration Facility in British Columbia.

A court ordered an auction of the assets Tuesday, with bids due Thursday. Those bids will be reviewed by the court monitor in a report on Friday, and a court hearing has been scheduled for Jan. 30 to formally consider the bids.

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