What's Important in the Financial World (5/24/2012) Costco Earnings, Oil Below $90

Oil has hit an extraordinarily low price, below $90 a barrel for WTI crude. That is the lowest level since October. It shows no inclination to spike back up. PMI data from Europe and China actually may depress it. Talks are going on that might defuse the Iran weapons battle. Iran’s government has admitted that sanctions have started to bite. Gasoline prices also have begun an accelerated drop. Yesterday, according to AAA, the price for a gallon of regular on a national average was $3.676. That is down from $3.849 a month ago. A gallon of premium, on average, has now dropped below $4. There may be pressure on the U.S. economy because of trouble in Europe. A plunge in fuel prices will not offset that entirely, but it will help.

Costco Sales

Costco (NASDAQ: COST) continues its extraordinary run as the most successful big-box retailer. Its club membership system has bettered the more traditional store operations of Walmart (NYSE: WMT) and Target (NYSE: TGT). Net sales for the quarter that ended May 6 increased 8% from last year to $21.85 billion. Net sales for the first 36 weeks increased 10% to $65.54 billion. Same-store sales were up 5% for the most recent quarter. Costco’s shares trade at $83.50, up from a 52-week low of $70.22. Costco’s revenue per employee was $569,488, compared to $206,117 for Walmart.

Best IPOs

A quick review of the 25 largest U.S. IPOs ever shows how badly Facebook has done in early trading. Most of the companies on the list have tremendous revenue, traditional business plans that they have been able to freshen, and large profits. Among these are Visa (NYSE: V), UPS (NYSE: UPS), General Motors (NYSE: GM), MetLife (NYSE: MET) and Prudential Financial (NYSE: PRU). The thing that stands out most about the list is how few tech companies it has. Google (NASDAQ: GOOG) is on the list, of course. But most of the companies are financial ones or firms that are manufacturing based. (Data from CapitalIQ.)

Facebook Investigation

The debate over whether some large investors were warned about a revenue downgrade of Facebook (NASDAQ: FB) continues. Several media have carried stories about Morgan Stanley (NYSE: MS) and Goldman Sachs (NYSE: GS) passing on numbers that showed lowered forecasts for earnings and revenue in the second quarter and the full year. The attorney general of Massachusetts has begun an investigation into whether information was selectively disclosed. Morgan Stanley insists that it was in compliance with all the regulations that set rules for IPO behavior. Even if Morgan Stanley makes its case successfully, the news likely will keep individual investors out of the market. Many of these investors have turned to mutual funds, exchange traded funds and fixed income paper to protect their interests. That behavior has been reinforced by the Facebook IPO.

Douglas A. McIntyre