Australian business profits rose for the first time in five quarters as earnings at wholesalers, hotels and restaurants gained.
Gross operating profits advanced 2.2 percent in the three months through December from the previous quarter, when they declined a revised 1.4 percent, the Bureau of Statistics said in Sydney today. The median estimate of 15 economists surveyed by Bloomberg News was for a 3 percent gain.
Today’s report adds to evidence of an economic rebound that may prompt the central bank to raise the benchmark interest rate tomorrow for the fourth time in five meetings. Australia’s economy probably grew the most in 1 1/2 years in the fourth quarter, a separate analysts’ survey ahead of a report on March 3 shows, boosted by A$22 billion ($20 billion) in spending by Prime Minister Kevin Rudd on roads, ports and schools.
Income from companies “looks OK, and they should improve further” in 2010, said Stephen Roberts, a senior economist at Normura Australia Ltd. in Sydney. “They’ve cut back a bit on costs and by this time next year we should have a big positive annual gain” in earnings.
Profits declined 11.2 percent in the fourth quarter from a year earlier, today’s report showed.
The Australian dollar fell to 89.84 U.S. cents at 12:03 p.m. in Sydney from 89.89 cents just before the report was released. The two-year government bond yield dropped 1 basis point to 4.58 percent. A basis point is 0.01 percentage point.
Supermarkets
Woolworths Ltd., Australia’s biggest retailer, said last week that first-half net income rose 11 percent to A$1.1 billion on increasing profitability at its supermarkets.
Goodman Fielder Ltd., the nation’s largest baker, said on Feb. 25 that first-half profit increased 25 percent after it cut manufacturing expenses and added new bread brands.
While some economists say concerns about sovereign debt in Europe and financial-markets turmoil may prompt central bank Governor Glenn Stevens to wait another month to increase borrowing costs tomorrow, 14 of 19 analysts surveyed by Bloomberg predict he will boost the benchmark rate by a quarter percentage point to 4 percent.
Boosting the benchmark rate tomorrow would make Stevens the first central banker from a Group of 20 economy to raise borrowing costs this year quick payday loans. He was also the first in the world to increase rates three times last quarter, when he raised the key rate in three quarter-point steps to 3.75 percent from a half- century low of 3 percent.
Business Investment
Profits at construction companies declined 2.7 percent in the fourth quarter and manufactures advanced 8.1 percent, today’s report said. Wholesale traders jumped 29 percent and hotels and restaurants gained 28.5 percent.
A report published last week showed business investment jumped in the fourth quarter at almost three times the pace predicted by analysts as companies raised their forecasts for investment plans to the highest level in five years.
BHP Billiton Ltd., the world’s largest mining company, said last month it will increase capital spending on iron-ore mines and oil fields by 63 percent next year to $20.8 billion from $12.8 billion this year.
Rising Chinese demand for Australian iron ore and coal is stoking a record boom in mining investment that may last more than a decade, central bank Deputy Governor Ric Battellino said on Feb. 23. Investment in new mines, ports and infrastructure may reach 6 percent of gross domestic product, more than double the amount spent during the last resources boom in the late 1970s, he said.
Faster Growth
GDP probably rose 0.9 percent in the fourth quarter from the previous three months, when it gained 0.2 percent, according to the median estimate of 18 economists surveyed by Bloomberg News. The economy probably expanded 2.4 percent from a year earlier, they said. The figures will be released at 11:30 a.m. on March 3.
Inventories held by companies gained 0.2 percent in the fourth quarter from the previous three months, today’s report showed. Economists forecast a 0.5 percent increase.
Retail sales rose 0.5 percent in January after falling in December for the first time in five months and building approvals gained for a third straight month, according to Bloomberg surveys of analysts ahead of reports to be released tomorrow.
Gross operating profit measures earnings before tax, interest, depreciation and amortization. It excludes asset sales and foreign-exchange gains or losses.
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Bob Williams, publisher of the Suburban Journals of Greater St. Louis, is leaving his position to become publisher of The Southern Illinoisan in Carbondale.
Both companies are subsidiaries of Davenport, Iowa-based Lee Enterprises Inc., which also owns the St. Louis Post-Dispatch.
Williams has been publisher of the Suburban Journals since 2007. Before that, he was Lee’s corporate director of sales and development and advertising manager for the Missoulian in Missoula, Mont. He spent a decade with Gannett Co. Inc. before joining Lee in 1998. Williams, who is married with four grown children, graduated from Brigham Young University with a degree in advertising paydayloans.
Greg Veon, Lee’s vice president for publishing, said Williams was selected after a nationwide search for a new publisher.
Williams will be replaced by Tom Wiley, a Lee executive now in charge of the Suburban Journals and Daily Journal in Park Hills.
The current publisher of the Illinoisan, Dennis DeRossett, is leaving the paper to become executive director of the Illinois Press Association.
The U.S. economy is recovering but the upturn will be slow and it makes no sense to raise interest rates in this climate since inflation is not a risk, a top Federal Reserve official said on Thursday.
“I am worried about unemployment and I see an enormous amount of slack. I hear it everywhere,” Federal Reserve Bank of Dallas President Richard Fisher told Reuters in an interview.
“I am super-hawkish on inflation. I don’t think that is where the risks are right now,” Fisher said, speaking from his spacious top-floor office overlooking downtown Dallas.
His comments will reinforce the impression that the U.S. central bank is in no hurry to raise interest rates, despite guarded optimism that the U.S. economy is healing.
Fisher, who takes pride in a reputation as an anti- inflation policy hawk, said the U.S. central bank would not lose sight of its long-term obligation to keep price pressures at bay. But he stressed that this was not the current issue.
“Right now that is not the risk. The risk is a disinflationary/deflationary risk,” he said.
The U.S. central bank has cut interest rates to almost zero to protect the economy from the worst recession in 70 years and sees exceptionally low rates for an extended period.
Fisher, who is not a voting member of the Fed’s policy-setting committee this year, said it would take “a while” to work off excess capacity in the economy.
“I don’t see a ‘V’-shaped recovery. I see a couple of quarters of growth and then the question is where do we go from there. That is the real key question in 2010 and 2011.”
Minutes of the Fed’s September 22-23 meeting released on Wednesday showed staff at the Fed Board in Washington raised their forecast for growth.
Fisher said his own prediction was not as optimistic as the staff estimates. He was thinking in terms of third and fourth quarter growth rates in an annualized range of 2-3 percent.
“But then the question is, what happens next? And I don’t see the economy growing at a rate that gobbles up slack so quickly that it creates inflationary pressures,” he said.
Fisher also stressed the Fed’s exit from this accommodative monetary policy stance will be dictated by how growth evolves.
“The extended period will be determined by economic circumstances,” Fisher said. “I agree the time to tighten is not now.”
“I will always err on the side of fighting inflation … but I don’t see the logic of tightening presently and I’m in the majority on that one,” he said.
Alvarez & Marsal, the U.S. turnaround firm overseeing the Lehman Brothers bankruptcy, is in talks to help restructure firms humbled by the global financial crisis in Dubai, the Gulf’s trade and tourism hub, a top executive said on Monday.
Managing director Antonio Alvarez declined to identify the companies his firm was dealing with.
“The types of mandates we are seeking and discussing are the (likes) of Dubai World,” he said on the sidelines of a restructuring and refinance conference in Dubai.
Dubai World, a vast government holding company with $59 billion in liabilities, hired AlixPartners — the same firm advising on General Motors GM.UL bankruptcy — in June to help restructure the group.
Alvarez said the firm, which earlier this month signed on to advise clothing and accessories maker Liz Claiborne Inc, had been awarded “three mandates in (Middle East) region and we are negotiating some restructuring deals”.
Dubai has taken a hit in the wake of the global financial crisis and a severe property downturn. A debt implosion at a pair of Saudi firms has added to corporate woes and rising debt levels have boosted the risk of defaults.
“Non-performing debt is a big issue in the region, involving investment funds, investment banks, hospitality and real estate,” Alvarez said.
Dubai’s government and companies linked to it have refinanced about $9 billion of debt this year and have two major Islamic bonds maturing in the fourth quarter — developer Nakheel’s $3.52 billion sukuk on December 14 and a $1 billion Dubai Global sukuk on November 4.
Last week, Fitch Ratings said the rise in debt, as well as diminished financial resources, will make it harder for authorities in the United Arab Emirates to provide support for UAE banks.
The UAE government and central bank have already taken a number of steps to help the country’s banks weather the financial crisis, including pouring $6.8 billion into bank deposits last October. (Reporting by Nicolas Parasie)
The head of U.S. bank Goldman Sachs said on Wednesday that anger over bankers’ pay was “understandable and appropriate,” and that greater scrutiny of trade in complex instruments was needed to keep banks in check.
But with the banking sector bouncing back from the financial crisis, regulatory overkill could choke off economic growth, Lloyd Blankfein told an industry conference in Germany’s financial hub.
“I think several months ago took the worst case off the table, and I think the financial markets are in recovery now. So I believe that the worst of this crisis is off the table,” he said.
He took a hard line on bankers’ compensation, arguing there was scant justification for paying outsized bonuses when a bank had lost money for the year.
Anger over compensation was in many respects “understandable and appropriate,” he said, adding that Goldman had a clawback tool which let the firm recover some of the bonuses paid if reputational or financial damage ensued.
“Multi-year guaranteed employment contracts should be banned entirely. The use of these contracts unfortunately is a common practice in our industry,” he said.
HOT TOPIC
Bankers’ pay has been a hot topic at the two-day Banks in Transition annual conference, especially as some finance ministers from the Group of 20 countries want to explore ways to rein in bonuses.
Martin Blessing, the head of Commerzbank, said it was time to end guaranteed bonuses for investment bankers, fuelling debate on what role payoffs play in destabilizing the financial system free credit report.
“I have a feeling that in New York and London guaranteed bonuses are being paid again if people are changing jobs,” said Blessing, who last year was the lowest-paid chief executive for a German blue-chip company.
“And therefore I agree with (HSBC Chairman) Stephen Green, who said yesterday that bonus payments there should be abolished. I think this is correct,” said Blessing, who faces a lawsuit from dozens of London bankers who say they did not get promised bonuses after Commerzbank bought Dresdner Kleinwort last year.
REGULATION
Banks are feeling the heat as regulators, central banks and national governments try to ensure free-wheeling banks do not again pose systemic risks to the financial system.
Central bankers on Sunday proposed a new regulatory framework that would force banks to set aside more profits as a cushion against hard times.
While Goldman’s Blankfein acknowledged the financial system needed repair as policymakers tried to restore trust, he said they should not try to shelter the sector from the storm of the century and should focus on making trade in derivatives more open to scrutiny.
Less than six months after it raised electric rates by $163 million, AmerenUE is going back to Missouri regulators in search of another, larger increase.
The St. Louis-based utility on Friday sought approval to boost rates by 18 percent, or $402 million, to help compensate for higher fuel prices, financing costs and reliability improvements.
Rate requests are rarely approved in full. The $163 million rate hike it received in late January was about two-thirds of what the utility had requested.
But if AmerenUE got the entire sum it is seeking, the average residential customer bill would rise about $15 a month based on usage of 1,100 kilowatt-hours, the utility said. Exact amounts will vary according to usage.
More than half of the increase, $237 million, would go toward higher fuel costs, including the cost of shipping coal from Wyoming, AmerenUE CEO Warner Baxter said. Also a factor is the drop in wholesale power prices, which means less revenue from sales of electricity to customers outside of the utility’s service area.
The rest of the increase would go to fund reliability projects at power plants and on AmerenUE’s sprawling network of poles and wires, he said.
Consumer advocates had just begun to dig into AmerenUE’s filing Friday afternoon but were surprised by size of the
revenue increase being sought.
"Eighteen percent is a lot," said Lewis Mills Jr., Missouri’s Public Counsel. "And they just got a rate last year and one the year before that."
Of course, AmerenUE’s customers have been hit hard, too, and would have to absorb any increase. Many in the area have seen their investments eviscerated by the decline in stock markets, and metro area unemployment continues to rise.
"We know this is going to create challenges for some of our customers," Baxter said. But "our current rates simply do not reflect the investments we have made and the costs we are incurring."
Prices for all forms of energy have declined because of the recession. But AmerenUE buys coal under three- to five-year contracts and last year’s energy-price spikes haven’t been fully reflected in rates.
AmerenUE’s rates are currently 20 percent below other investor-owned utilities in the state. Even if the full rate increase is granted, rates would remain 10 percent lower, Baxter said.
The Missouri Public Service Commission has 11 months to consider the request, so rates likely wouldn’t change until mid-2010.
AmerenUE has, however, asked for an exception — an interim $37 million, or 1.7 percent, increase to cover investments that are already providing benefits to customers.
Baxter said an interim increase could help offset the gap between its actual costs and the historical costs on which rates are set no fax payday loan. This so-called regulatory lag has been a constant concern for the utility, which has indicated it will file frequent rate increases to compensate.
"In a rising cost environment, you tend to be chasing your tail quite a bit," he said.
Interim increases aren’t unprecedented, but they’re rare and have typically been reserved for instances where utilities face financial distress.
Mills said it was "highly likely" that he would challenge it.
AmerenUE is also asking regulators to approve separate surcharges that would allow speedier recovery of fuel expenses and costs to comply with state or federal environmental mandates. The surcharges are allowed with PSC approval under a controversial 2005 state law.
John Coffman, a consumer lawyer who has previously represented the AARP and Consumers Council of Missouri in rate cases, battled efforts to pass the 2005 bill remains fundamentally opposed to the use of special charges, which can be approved with less up-front scrutiny.
"The fairest way to raise rates is to allow a full audit and a full rate case that looks at all of the investments and expenses and the financial condition of the company," he said.
AmerenUE is asking the PSC for an 11.5 percent return on equity, or profit. That’s higher than the 10.76 percent return allowed by the commission in January, though Baxter said the utility will earn closer to 7 percent this year.
Generally, the lower the return, the more difficult it is for utilities to attract investors. That can lead to higher borrowing costs.
AmerenUE has already seen borrowing costs rise dramatically because of higher interest rates and tighter credit. The utility reported $53 million in interest charges in the first quarter compared with $41 million a year earlier.
Meanwhile, the utility says it’s reducing costs where possible, rolling out campaigns to help customers reduce bills by cutting energy use and continuing to improve reliability.
Executives said they’ve worked hard to restore the utility’s relationship with customers and regulators following a series of widespread power outages after a series of violent storms in 2006 and 2007.
To date, about 60,000 customers have benefited from AmerenUE burying more power lines, and the distribution system is stronger with the addition of 4,700 power poles and more tree trimming, said Richard J. Mark, senior vice president of energy delivery.
The results have been tangible — less frequent service interruptions and a drop in total outages, Mark said. "We are seeing significant improvement in reliability."
Chinese Internet search leader Baidu Inc expects sales to grow faster than market forecasts in the third quarter, helped by rising customer acceptance of its new advertising system.
Already, the roll out of the advertisement keyword bidding system — Phoenix Nest, similar to Google Inc’s AdWords — played a part in Baidu’s better-than-expected second-quarter revenue growth of 37 percent, along with China’s rapidly growing number of Internet users.
For the third quarter, Baidu projected sales of $184 million to $189 million, compared with the average analyst estimate of $178.9 million.
“We expect the benefits of Phoenix Nest to ramp up in the quarter to come, in terms of enhanced monetization and as well as improved ad relevancy,” Chief Executive Robin Li told a conference call.
Phoenix Nest will display paid links and keywords on the right side of Baidu’s search page and will provide clients with statistical functions.
“The new bidding system should lead to more targeted results and higher revenue over time,” Steve Weinstein, an analyst from Pacific Crest Securities said in a note.
Baidu, the No. 1 search engine in China, controlled 61.6 percent of China’s search market in the second quarter, according to Analysys International. The firm is holding off rival Google Inc, which held 29 percent of the China search market.
Baidu, whose shares surged roughly 140 percent since the start of the year, fell 2 life insurance.3 percent to $325.00 in after-hours trade on Thursday, amid a decline in most technology stocks following Microsoft Corp’s weaker-than-expected quarterly revenue.
According to a Deutsche Bank note, web traffic to Baidu increased gradually since late March while traffic to Google China remained flattish.
Analysts expect Phoenix Nest to be a key growth driver for Baidu in the upcoming quarters as China’s search market continues to expand at a rapid pace. The market grew 47 percent year-on-year in the second quarter to 18.1 billion yuan ($2.6 billion), according to data from Analysys International.
RISING COSTS
Baidu reported net income of $56.1 million, or $1.61 a share, for the second quarter, compared with $38.6 million, or $1.11 cents a share, a year ago.
Revenue grew to $161 million in the second quarter from $117 million in the year-ago period, beating analysts’ average forecast of $158 million.
“During the second-quarter, macroeconomic conditions remained challenging even as we began to see some signs of recovery in the Chinese economy,” Li said.
Jennifer Li, Baidu’s chief financial officer, said the firm was expecting higher costs in the third quarter because Baidu was hiring more sales people for Phoenix Nest and hosting a forum in that period.
Two senior Europe-based partners in U.S. private equity firm Cerberus, majority owner of carmaker Chrysler, have left the company, the Wall Street Journal reported, citing a person familiar with the company.
Ken Leet, a former strategic adviser to Ford Motor Co, left after two and a half years with Cerberus, the person told the paper.
Jeff Lubin, who joined the private-equity firm in 2005 to establish the European arm, also left, the paper said.
The departures came as Cerberus cut a third of its staff in the United Kingdom in the first quarter of the year, the Journal said, citing financial accounts filed at Companies House in May.
The documents said that head count at Cerberus UK Management Ltd fell to 15 from 23, the paper said business card.
The person told the paper that the European cuts, which included Leet and Lubin, came after Cerberus decided in January to cut about a tenth of its global staff.
A Cerberus spokesman declined to comment to the paper on the departures, while the WSJ was also unable to reach Leet and Lubin for comment.
Reuters could not immediately reach Cerberus for comment, outside of regular hours.
(Reporting by Esha Dey in Bangalore; editing by Simon Jessop)
Applied Materials Inc’s chief executive said on Tuesday there will be more failures in the semiconductor equipment sector in future as the number of customers declines.
Slammed by sluggish demand and high development costs, chipmakers are joining hands to survive, but that is not happening among their equipment suppliers, Mike Splinter told a group of reporters on Tuesday.
Acquisitions in the chip gear sector are “very difficult” to conduct, Splinter said. “That leaves very few avenues to give consolidation, other than … companies failing.”
Technological differences often hinder chip equipment makers from joining together even when the biggest are flush with cash.
Combining technologies takes precious time while rivals move forward, and scrapping one firm’s technological base means overhauling equipment and high restructuring costs.
Orders for semiconductor equipment are emerging from near record lows, as chip makers replenish their inventory. Chip sales inched up 6 percent in April from March.
But the orders are still a fraction of levels from a year ago, while the world’s No.2 PC maker Dell Inc said last week there was not enough momentum in the PC market to call a bottom yet cash advance lenders.
Chip makers are still thinking twice about investing big sums to make smaller, more powerful chips, as they deal with ongoing losses that are eroding their capital and that drove Spansion to file for Chapter 11 bankruptcy protection and Qimonda into insolvency.
“The semiconductor equipment industry cannot support the necessary level of R&D without some amount of consolidation,” Splinter said. “Today there is too much repetition, too much waste in the industry.”
Applied Materials competes with No.2 chip equipment maker Tokyo Electron of Japan.
Sliding prices and a weak demand outlook have forced chipmakers to team up to cut mounting development and equipment costs.
PC memory makers Nanya Tech, Micron and Taiwan’s Inotera are joining hands as are Taiwan Memory Co and Japan’s Elpida Memory Inc.
Intel Corp, Samsung Electronics Co Ltd and Toshiba Corp are jointly developing advanced chips, while Japanese microcontroller makers NEC Electronics and Renesas Technology are in talks to merge.
(Reporting by Mayumi Negishi; Editing by Michael Watson)
When a mysterious flu emerged from Mexico in late April, government officials dubbed it "swine flu" — a label that quickly became a hog farmer’s worst nightmare.
In the days just after April 24, when the flu began to dominate the globe’s airwaves and newspapers, pork prices tumbled, socking an industry that was already down.
Industry officials tried to persuade authorities and the media to call the flu by its subtype. The World Health Organization, the U.S. Department of Agriculture, the Food and Drug Administration heeded the pleas. The Centers for Disease Control and Prevention switched to this: a "novel influenza A (H1N1) … of swine origin."
"It’s the H1N1," said Rick Rehmeier, who raises 20,000 hogs a year on his family’s farm in St. Charles County. "I even corrected my minister in church one day."
But swine flu was too convenient a handle. The name stuck, and pork purchases plummeted.
Now, more than a month after the outbreak began, the pork business is still reeling and will probably continue to struggle for months to come. One estimate puts the losses at more than $80 million so far.
"The overall loss is just staggering," said Don Nikodim, of the Missouri Pork Producers Association. "If you add that on top of the general trend, it continues to be a very painful business to be in."
The "misnomer" was a major factor, pork producers say. "If they had called it H1N1 from the beginning, we wouldn’t have had the drop in prices," said Steve Meyer, an analyst for the National Pork Board.
But the association with swine was damning enough. Consumption in Mexico, the United States’ second largest export market, plummeted, largely because the public didn’t get the message from health officials that humans can’t contract the flu from eating pork. Several countries shut their borders to U.S. pork, including Russia and China, also among the top importers.
"The problem is the perception that you can get the disease from swine," said Ron Plain, a professor of agricultural economics at the University of Missouri-Columbia, "and as far as we know, nobody in the world has gotten it from swine."
The virus is a combination of swine, avian and human influenza strains. As of Friday, the flu had sickened 15,510 people in 53 countries and was connected to 99 deaths. In the United States it has sickened 8,975 people and has been linked to 15 deaths, including one in Missouri and two in Illinois.
So far, the flu has been detected in one swine herd — in Canada. Initially, health officials suspected that a Smithfield-owned hog plant in Vera Cruz, Mexico, was the source of the outbreak. Tests of hogs, however, came back negative for the flu, the pork industry says.
Even before the flu outbreak, the pork industry already had been beset with challenges.
A rise in grain prices increased operating costs, making last year the second-least profitable on record for U.S. pork producers, even as the price for hogs was the third highest. Then the recession crept in, and consumers, particularly overseas, started to eat less meat low cost payday loans.
"What started off causing the problems was the enormous run-up in grain prices because of the ethanol industry," Plain explained. "Then when gas prices got cheaper, grain prices got cheaper, which was some relief. But gas prices dropped because of the recession. … That hurts demand. Unemployment is up and people have less money to spend, here and in other countries."
The price per hog carcass in May 2008 was about $148. A year later, it’s about $108. The National Pork Board attributes half the difference to fallout from the flu and estimates that the industry has lost more than $80 million in the month following the flu outbreak.
Though there is no hard evidence yet that American consumers have refrained from buying pork because of flu fears, at one point, retailers stopped ordering pork, anticipating a slowdown in demand.
"You’re in this long line of cars," explained Meyer. "The front car is the consumer, and the consumer tapped his brakes. Then the retailer slammed his brakes and everybody behind him had to slow down dramatically to avoid hitting him."
Analysts say that the slowdown has yet to force producers out of business, but that many are at risk.
Much of the pork in this country is produced for giant pork corporations, such as Smithfield, which contracts with farmers to raise the animals for a set amount. The farmer owns the barn and all the equipment, but not the hogs.
"A contract grower doesn’t have any market risk," Meyer said. "They have strategic risk if the company that owns the pigs goes out of business."
Those at greatest risk, analysts say, are producers who own their own animals and also have to pay a premium for grain. Economies of scale don’t help. "Having more hogs isn’t an advantage," Plain said. "You just lose money faster."
The most advantageously positioned pork producers are those who grow their own grain, analysts say. "The hog farmers in the best shape are the diversified guys who raise their own feed," Plain said.
That’s a good scenario for the Rehmeiers, who grow about half their grain and have weathered even leaner times, notably the late 1990s when hogs were selling for $30. "It’s a cycle," Rehmeier said. "When we start getting into the barbecue season, that’s our pick-up time."
Some analysts, however, aren’t as sanguine.
"We have so many farms in dire financial straits, and they were really counting on positive cash flows this summer," said Meyer, noting that grain prices are already heading up. "They’re not going to get it, even if we get a summertime peak."
And then flu season awaits.
"What’s going to happen when winter comes?" Plain said. "Are we going to see more of the disease? Is it going to become more virulent? If it comes back in the fall worse than it’s been, certainly we’re going to be dealing with this all over again."
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