Time Warner Inc. (NYSE: TWX) finally announced that it will separate its majority-owned cable division after months of speculation. The media giant offered few details of how it would structure the transaction, but said that a complete separation of the 84% stake is in the best interest of both companies' shareholders. The announcement also comes at a time when Time Warner is struggling to revive its AOL unit and lift the margins on its film and television businesses.

Investors should watch this situation carefully as it could mean opportunity for profit. A transaction structured as a spin off could mean huge value creation for shareholders of Time Warner Cable (NYSE: TWC), but only after a few months. The theory is that most TWX shareholders that receive TWC stock in a spin off situation will sell it, which will put substantial downside pressure on TWC despite no change in fundamentals.

The selling pressure would drop the share price and reduce Time Warner Cable's earnings multiple. This undervaluation could persist for some time, but will likely be corrected when the next earnings announcement is made and analysts recalculate where the shares should be at historic multiples. These analysts will then likely upgrade the stock and recommend that investors pick up more shares to take advantage of the undervaluation.

Many investors are also closely watching the parent Time Warner in the event of a sale of its stake. This would generate substantial proceeds for the parent company that it could use to fund a share buyback program or boost dividends to unlock value. Share buybacks reduce the number of outstanding shares and therefore increase the earnings per share number and eventually the earnings multiple. Meanwhile, boosting dividends also typically leads to a higher valuation due to common investment models put in place to value companies.

In the end, there are many different routes that Time Warner could take to get rid of its stake and all of them are worth watching. Instances like these often provide investors with the ability to profit handsomely!

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Auto-part maker Lear Corp. (NYSE: LEA) is up more than 20% after announcing surprising first quarter results. The Michigan-based company defied the weak economy by posting a 57% increase in profit from a year earlier while reaffirming its full-year earnings outlook.

Not ignoring the slow U.S. automarket, Lear Chariman, CEO and President Bob Rossiter said, ""Although we are facing significant challenges in North America, Lear's underlying operating fundamentals remain strong."

The world's largest automotive seat maker reported profits of 64 cents per share compared to expected earnings of only 48 cents per share. Though revenue fell, it still managed to beat expectations.

Most importantly, Lear raised its 2008 revenue projections from $15 billion to $15.5 billion - showing that the company can persevere through a possible vehicle sales downturn. The optimistic first quarter report led to a slew of analyst upgrades of the company's stock to "buy" and "outperform." For the time being, it seems like Lear is immune to the bigger problems facing the U.S. automotive sector.

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BP (NYSE: BP) and Royal Dutch Shell (NYSE: RDS) posted record earnings once again after rising oil prices bolstered profits at the two large gas companies. BP reported a 63% jump in its first quarter net income while Shell announced a 25% increase in its profits. Both companies attributed the better-than-expected profits to higher oil prices that beat expectations across the board. And the news only gets better as oil continues to head higher.

Companies like BP and Shell make money by selling gasoline and crude oil to consumers and companies. Since their profit margins remain the same as a percentage of sales, their net income has increased along with the higher dollar volume spent at the pump. For example, assuming the company makes 20% profit on its sales, a consumer will pay $0.20 for $1/gallon prices but $1 for $5/gallon prices. As you can see, the sharp rise in gas prices sparked a sharp rise in net income.

Oil prices set a new record $119.93 in New York yesterday before profit-taking ensued today. These prices have remained pressured amid an uptick in militant attacks in Nigeria, however. The Movement for the Emancipation of the Niger Delta has stepped up its attacks on pipelines recently in an attempt to reduce the nation's crude exports. However, overall output came in higher-than-expected at 3.52 million barrels a day compared to analyst estimates of 3.37 million per day. This news sent oil prices lower on the day, but prices are still expected to remain high.

ConocoPhilips and Cheveron are also expected to report better earnings this quarter on May 1st and 2nd, respectively.

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Billionaire activist investor Kirk Kerkorian is making waves Monday by announcing that his Tracinda Corp. not only has amassed 100 million shares of Ford Motor Company (NYSE: F), but that he is making an additional offer of $8.50 per share for another 20 million shares.

Worth more than $18 billion largely from plays in Las Vegas, Kerkorian nonetheless has a history of entangling himself with other Detroit automakers like General Motors Corp. (NYSE: GM) and Chrysler. This announcement is a signal that he has faith in the turnaround efforts of Ford CEO Alan Mulally.

With the purchase of an additional 20 million shares, Kerkorian would have more than a 5% stake in Ford, a company still dominated by family interests. Despite going public in 1956, the descendants of Henry Ford still control 40% of the voting rights in the company - and given their track record, this almost definitively rules out and acquisition. This is important because such a rapid accumulation of shares by an outsider is often a build-up to a take-over attempt.

Kerkorian's logic in building such a large stake in Ford remain somewhat mysterious. Though the company reported a surprising first quarter profit, it still expects to lose money overall in 2008. Ford's truck and SUV-dependent lineup continue to be a huge liability with record gas prices.

According to a release Kerkorian, though his company, said "Tracinda has been following Ford closely since the company released its fourth quarter 2007 results which indicated that Ford’s management was starting to achieve highly meaningful traction in its turnaround efforts. Last week this was reinforced by Ford's first quarter 2008 results, achieved despite the difficult U.S. economic environment. Tracinda believes that Ford management under the leadership of Chief Executive Officer Alan Mulally will continue to show significant improvements in its results going forward."

Whether Kerkorian proves to be right, only time will tell, but for now Ford faces an uphill battle.

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RadioShack Corporation (NYSE: RSH) shares fell more than ten percent on the day after the company posted a sharp drop in first quarter earnings. The electronics retailer reported that its profits fell 9 percent, hurt by weak results from its Sprint wireless partnership. Meanwhile, sales fell four percent but managed to come in ahead of expectations.

"We are pleased with the overall outcome for the first quarter of 2008, especially in light of the difficult economic environment. After a very challenging month of January, our sales and earnings trends improved significantly during February and March, resulting in an average comp store sales decrease of 1.2% for the two months," said Julian Day, Chairman and Chief Executive Officer.

The real driver that brought the stock down were bearish comments made by analysts. They noted that the company's lack of a sales pullback was impressive, but it came at a cost. Operating margins missed forecasts and declined for the first time in six quarters. Meanwhile, inventory growth outpaced cost-of-goods sold growth for the first time in eight quarters.

RadioShack has been working to effect a turnaround in recent months, having closed some 500 stores and trimmed other expenses. Analysts noted that these changes have resulted in better stores, but the items in these stories still suffer from lower gross margins and could prove to be a barrier to gross profit dollar growth.

In the end, RadioShack may not seem to be affected by the recession given its better-than-expected sales and earnings, but a quick look beneath the hood unveils continued problems with operating margins that are only exacerbated by issues with its Sprint partnership. Combined, these factors led to today's drop in shares.

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ExpressJet Holdings Inc. (NYSE: XJT) today announced that it unanimously rejected an all-cash offer by SkyWest Inc. (NASDAQ: SKYW) to acquire the company for $3.50 per share.

ExpressJet said it believes SkyWest's $3.50 per share offer substantially undervalues the company's true value and outlook. "The initial SkyWest offer is inadequate and represents an opportunistic attempt by SkyWest to acquire the company at a price well below the true value that ExpressJet would bring to a combination," ExpressJet said in a statement.

With the difficulty across airline companies reflected in their current trading price - Skywest is trading near its 52 week low and ExpressJet was hovering around its 52 week low prior to this announcement - consolidation has become an attractive option based not only on valuations but long-term survival.

SkyWest's offer represents almost a 70% percent premium over ExpressJet's Thursday closing price of $2.09 per share and values the company at nearly $182 million. SkyWest CEO Jerry C. Atkin said in a letter to ExpressJet that the offer represented a "full and fair price" for the company.

Atkin wrote, "We believe that our proposal would be in the best interests of ExpressJet and its stockholders, particularly given the uncertainty in the airline sector, the high price of oil and, as outlined in your public filings, the risks of your business related to your relationship with Continental."

The risks of ExpressJet's relationship with Continental Airlines (NYSE: CAL) stem from ExpressJet mainly operating regional flights as a contractor for the company rather than having its own routes and name recognition. In other words, the company is largely at Continental's mercy right now.

ExpressJet is going to start a review of its options, but in this climate the reality is SkyWest's offer may be as good as it gets for a small, regional carrier like ExpressJet.

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Ford Motor Co. (NYSE: F) shocked most analysts with a first quarter profit of $100 million compared to a loss of $282 million for the same period last year.

CEO Alan Mulally’s turnaround plan for the company is based on heavy cost reductions – such as cutting expensive North American jobs – combined with new vehicle models. In the face of $15.3 billion in cumulative  losses in the last two years, this modest profit may show that Mulally’s plan is working.

Of course profitability is very important but Ford still faces an uphill battle against domestic competitor General Motors Corp. (NYSE: GM) and the world’s top car company (by the only measure that matters – profits) Toyota Motor Corp. (NYSE: TM). Making matters worse with its dependence on trucks, Ford’s vehicle lineup is ill positioned for record-high fuel prices. On the company’s home turf, a soft economy will only worsen demand in the U.S., a market that Detroit-based Ford has lost market share in every year for more than a decade.

Making matters worse, despite recent improvements in initial vehicle quality according to studies commissioned by Ford, the company admits that about half of vehicle shoppers no longer even consider its models.

This surprise profit is certainly good news for Ford – up more than 15% at midday today – but is it too little too late?

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United Parcel Service Inc. (NYSE: UPS) has seen only a slight increase in their first quarter profit of 7.5%. This lead the company to lower their 2008 earnings forecast.  This is due to the US economic recession that will not make a turn for the better any time soon. The slow retail sales are causing a slow period for UPS and their delivery services, particularly domestic deliveries.  When the US economy is hurting, UPS takes the hurt two-fold.

United Parcel Service Inc. handles an average of 15 million shipments a day world-wide, or roughly 2 to 3% of the U.S. gross-domestic product. With the US economic slump, people are spending less on retail products as they are forced to spend more on inflated gas and food prices.

UPS is not alone.  Major US have tightened spending and taken other cost-cutting measures to withstand the economic slowdown. This has lead to a restraint among US demands for freight deliveries for more than a year with rising fuel costs remaining the unpredictable variable that is squeezing profits. UPS spent $950 million in the quarter for their vehicles, up 54% from the year earlier. The company said its overall fuel costs drove down profit by at least 2 cents to 3 cents a share, or by $30 million to $50 million.

The first quarter reflected write-downs and severance charges in the year-earlier period and strong growth in business outside the U.S. Net income for UPS was $906 million, or 87 cents a share, up from $843 million, or 78 cents a share, from the year earlier.  Revenue climbed 6.5% to $12.68 billion.

The Atlanta-based UPS delivery service is the largest in the world.  International sales have protected UPS from being packed away into the US closet. Revenue from overseas packages jumped nearly 16%. UPS said US export volume growth was "strong, leading to a balanced global performance with Asia, Europe and the U.S. each experiencing a double-digit increase."

Like FedEx, UPS is considered to be a barometer for the U.S. economy as a whole. Fewer deliveries by transport companies are seen as a sign that domestic business is slowing down, while the factors behind the declines provide the supporting thesis. In this case, higher fuel costs are prompting a rise in delivery costs while consumers are likely spending less money.  

Mr. Kuehn, CFO for UPS, said, "At this point we see no immediate signs of economic improvement. We expect the U.S. package market to be flat to down this year. … Domestic margins will be under pressure for rest of year."

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Liberty Mutual Group Inc., a property and casualty insurer, announced it is buying Safeco Corp. (NYSE: SAF) for about $6.2 billion. The sale is the biggest U.S. property and casualty insurance deal since St. Paul Cos. and Travelers Property Casualty Corp. completed a $17.9 billion merger four years ago.

Industry analysts expect more deals to come as a soft economy has created attractive pricing and more willingness to deal. The property and casualty insurers that are cash-rich often take such opportunities to make attractive acquisitions.

"The addition of Safeco significantly expands and strengthens [Liberty Mutual]", CEO Ted Kelly said in a statement. The deal will create the fifth-largest U.S. property and casualty insurer according to the press release for the news.

More than strengthening Liberty Mutual, the deal strengthens the pocketbooks of Safeco shareholders. Liberty Mutual will pay $68.25 a share in cash for Safeco, a 51 percent premium over yesterday's $45 closing price.

Safeco shares are up over 46% as of morning trading to over $66 a share.

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UAL Corporation (NDAQ: UAUA) shares dropped nearly 40 percent after the carrier was slammed with skyrocketing fuel costs. As a result, the United Airlines parent was forced to reduce its domestic business to maintain adequate liquidity. Analysts also expressed doubts on a conference call that debt covenants may experience problems, although this was quickly dismissed by the airline's Chief Financial Officer.

The quarterly decline also prompted the troubled airline to revise its five-year plan that it was forced to make when it emerged from bankruptcy. Now, UAL plans to reduce its domestic capacity by 9% by the end of the year; eliminate 30 older aircraft from its operations; target another $200 million in nonfuel cost savings; cut another 1,100 jobs; and reduce planned capital spending in 2008 by about $200 million.

The trouble airline carrier also commented that it would participate in mergers and acquisitions when and if the right deals became available and it made sense for employees, customers and shareholders. However, UAL did not comment on reports that it is involved in a potential combination with Continental Airlines. Although, investors already know that the two parties have held advanced talks in the past!

The argument for consolidation in the industry lies on the fact that a larger entity will be able to collectively bargain for more favorable terms for fuel and other expenses. Meanwhile, the larger capital base will give it the ability to raise more financing on better terms and remain better capitalized. Combined, these factors have convinced many analysts that mergers like the proposed one between Delta and Northwest may give them a shot at sustainable profitability.

In the end, UAL Corporation still has a long way to go before it gets out of this mess. Any consolidation may be welcomed by shareholders who are now sitting on substantially greater losses. However, absent of any such deals, the airline may have to continue cutting while it waits for fuel prices to lower in the future to relieve pressure on its margins.

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