Daily Agenda: U.S. Corporations Make Solid Showing This Earnings Season

Morgan Stanley tops estimates; Greek banks open doors for the first time since June, A&P files for bankruptcy again.


With a deal on Greek debt relief that satisfies almost no one and a fragile recovery for Chinese markets supported by extreme intervention, nonetheless U.S. markets have fully regained confidence. Low volatility and upbeat trading for U.S. dollar-denominated assets suggest that most investors believe that the worst is over and are refocusing on corporate earnings. With guidance in aggregate coming onto this earnings season relatively low, major U.S. public companies are finding it relatively easy to beat expectations, despite macro hurdles.

Morgan Stanley beats estimates. With a 4.8 percent decline in net income versus the second quarter in 2014, Morgan Stanley beat analyst expectations at $0.85 per share. The only major Wall Street firm to report a rise in bond trading revenues so far this earnings season, Morgan Stanley’s wealth management division reported a record quarterly profit.

Greek banks reopen. For the first time since June 29, banks in Greece will reopen on Monday, though strict capital controls will remain in place. Today Athens began repayments on a $4.2 billion tranche of debt to the European Central Bank and $2.5 billion to the International Monetary Fund as new bailout funds become available. Separately, in a televised interview, German Chancellor Angela Merkel left the door open for debt relief for Greece saying that adjusting maturities and interest rates were possible.

A&P to file for Chapter 11. For the second time in less than five years, Montvale, New Jersey–headquartered supermarket operator The Great Atlantic & Pacific Tea Co. (A&P) filed for bankruptcy protection. With 296 stores still in operation, the retailer will seek a buyer for assets. The company, which has corporate roots that precede the U.S. Civil War, operates multiple grocery chains in the U.S. Northeast, such as Pathmark, The Food Emporium and Waldbaum’s, as well as its signature A&P.

Gold markets tank. Frantic selling at the end of session on China’s Shanghai Composite Exchange drove gold markets lower globally on Monday morning. Spot prices in New York declined as much as 4 percent to reach new five-year lows as a general rout for the commodity sector continues.

PayPal begins trading. With a market capitalization of $47 billion, PayPal debuts today as a standalone public company. The digital payment processor is now valued at roughly 40 percent more than its former parent eBay.

Volkswagen sales decline in China. For the first time in a decade, German auto manufacturer Volkswagen announced a decline in vehicle sales in China. Deliveries to the nation declined by nearly 4 percent in the first half of 2015 to slightly more than 1.7 million cars in total. Demand tapered by a more significant factor in other critical developing markets, such as Brazil and Russia.

Portfolio Perspective: Master Limited Partnerships Reignite Market for Energy IPOsJohn Cusick, Miller/Howard Investments

Initial public offerings for energy companies have slowed considerably this year, likely the result of volatile oil prices. Yet there has been an uptick in IPOs for master limited partnerships (MLPs) during the second quarter as compared with the first quarter. This is lifting expectations for more MLP IPOs in the second half of the year.

Despite an uncertain price environment, production of oil and natural gas in the U.S. has to be stored and transported. Most midstream MLPs have very little direct commodity price exposure, so there is minimal impact on cash flow. Structuring a company as an MLP can be the most efficient capital structure to finance the development of the needed energy infrastructure. Strong sponsor-backed, midstream MLPs, especially, are getting positive stock market response. And also, because MLPs do not pay U.S. federal income taxes, while public corporations are subject to federal taxation, MLPs have a cost of capital advantage over those corporations.

MLPs issue equity and debt to finance growth projects. New capital can be a leading indicator of rising future distributions for unit holders. MLPs have been able to raise capital at very attractive rates. As a result, MLPs’ lower financing costs often result in better returns from building energy infrastructure projects.

We continue to believe that the North American oil story remains intact. MLPs will be at the forefront of this revolution as the builders of pipelines and storage facilities. We believe MLPs will tap the debt and equity markets to fund this growth and we will see growth in the number of MLPs through the IPO market.

John Cusick is a senior research analyst at Miller/Howard Investments, an asset management firm in Woodstock, New York.