Minehan: Economy continues to recover
MARLBOROUGH, Mass., Sept. 9 (UPI) -- Federal Reserve Bank of Boston President Cathy Minehan said the nation's economy continues to recover at a moderate pace, and it is likely that employment and business spending should improve heading into the remainder of the year.
"My own sense is that the recovery will proceed at the slow pace we're seeing for a while, with a gradual pickup" in capital spending and job growth, Minehan said in prepared text for delivery before the I-495 Technology Corridor Initiative Annual Regional Conference in Marlborough, Mass.
Minehan balanced her optimism by saying that capital spending has so far been "disappointing," albeit understandable when weighed against the relatively short-lived and tame recession, troubled stock market, geopolitical concerns and weak overseas growth levels.
Minehan is currently a non-voting member of the interest rate setting Federal Open Market Committee, which next meets on Sept. 24.
Most economists on Wall Street expect the group to leave the federal-funds target rate unchanged at 1.75 percent.
Minehan said, "Consumers remain resilient" even amid relatively soft labor markets.
The Boston Fed president said, "Their levels of confidence about the future remain solid, as evidenced by their willingness to spend on homes, cars and other big-ticket items at rates that continue to surprise."
Indeed, spending on things like cars and houses has been so strong that questions inevitably arise about its sustainability, Minehan said.
"If a further slide in equity markets were to occur, or if unemployment rises, on the heels of poor profit pictures, consumer confidence, spending and borrowing patterns would clearly be at risk," she said.
As consumers continue to spend, the economy continues to derive support from both the Fed and from elevated levels of government spending.
"Monetary policy is in an accommodative stance, helping to stimulate interest-rate sensitive sectors and maintain consumer spending," Minehan said.
She warned that as growth improves, less accommodation might be necessary. "As growth strengthens, and excess capacity is reduced, the stance of policy will need to be more consistent with stable inflationary growth over time," Minehan said.
On Friday, following the release the August payrolls data, Wall Street's biggest banks uniformly agreed the Fed will hold interest rates steady at the September meeting.
The consensus also grew stronger that the Fed will be able to maintain its current policy stance through the rest of 2002, only raising rates sometime late in the first half of 2003.
Minehan also said that even as the economies of the U.S.'s major trading partners "have slowed," recent declines in the dollar "may be helpful" for American exports.
What is "good news" is that "U.S. businesses remain focused like lasers on being ever more productive and competitive in national and world markets," which means technology spending should improve, Minehan said.
AOL sees higher revenue
NEW YORK, Sept. 9 (UPI) -- AOL Time Warner Inc. has reaffirmed its full year guidance for revenue and EBITDA, but warned that weak online advertising could further dampen revenue at its America Online unit.
The nation's largest media company said the Internet unit's full-year revenue is tracking to $1.7 billion, with an additional 5 percent downside risk.
For the third quarter of 2002, AOL expects overall revenue growth in the mid-single digits and growth in earnings before interest, taxes, depreciation and amortization, or EBITDA, to be down in the low-single digits.
AOL Time Warner previously predicted that advertising and commerce revenue at the Internet unit would come in at the low end of its guidance of $1.8 billion to $2.2 billion.
The company's latest announcement lowers the bottom of the range to $1.7 billion and leaves open the possibility that ad and commerce revenue could fall another 5 percent.
America Online's overall revenue, which includes ad and commerce revenue, totaled $2.7 billion last year.
AOL Time Warner said it expects EBITDA, which is widely used in the media industry as a measure of profitability, to range between $1.7 billion to $1.8 billion for the year at the Internet unit, rather than the $1.8 billion to $2.2 billion it previously predicted.
AOL Time Warner also reaffirmed its prediction that full-year EBITDA for the entire company will come in at the low end of its previous estimates of 5 percent to 9 percent growth. Likewise, it repeated its forecast that revenue will be at the high end of its estimate of 5 percent to 8 percent growth.
The company said it still sees strong, collective operating performances across its other businesses, which range from CNN cable news and Warner Bros. movies and music to Time magazines.
In the third quarter last year, AOL Time Warner reported total revenue of $9.3 billion. Wall Street expects the company to report revenue of $10.09 billion for the third quarter, which would represent growth of about 8 percent.
Snap-on lowers outlook
KENOSHA, Wis., Sept. 9 (UPI) -- Snap-on Inc. said its third quarter earnings will fall short of Wall Street forecasts, hurt by lower sales and increased bad debts in July and August.
The maker of tools and diagnostic equipment said it expects to post a net income for the quarter ending Sept. 28 of 32 cents to 35 cents a share.
The company also forecast fourth quarter earnings of 53 cents to 58 cents a share.
Analysts on Wall Street expect the company to report a net income of 48 cents a share in the third quarter and 60 cents in the fourth quarter, according to Thomson First Call.
Snap-on said it is taking steps to further control costs.
The company said a third quarter economic recovery is not materializing in North America or Europe.
As a result, it is experiencing lower manufacturing efficiencies and is incurring higher expenses as it aligns its production with reduced demand.
Dale F. Elliott, chairman and chief executive officer, said, "Cash flow is solid, our balance sheet is sound, and we are doing the right things to create shareholder value over time.
"We are concentrating on what we can control in a difficult economic environment, while continuing to fund the strategic initiatives that will support Snap-on's leadership," he said.
SFBC International buys New Drug Services
MIAMI, Sept. 9 (UPI) -- SFBC International Inc., a provider of drug development research services to pharmaceutical and biotechnology firms, said it has acquired New Drug Services Inc. and sees the deal adding 4 cents to its earnings per share for the rest of 2002.
The agreement calls for SFBC to buy privately held New Drug Services for about $7 million in cash and $2.5 million in SFBC common stock, SFBC said.
Under terms of the deal, the seller would be paid more upon the achievement of key operating milestones during the next three years, SFBC said.
SFBC also said it has accepted a firm letter of commitment from Wachovia Bank, National Association for a $10 million line of credit to be used for future acquisitions and working capital and expects to close on the credit line within the next two weeks.
New Drug Services, a pharmaceutical product development services provider, is based in Kennett Square, Pennsylvania.
SFBC also said it will enter into employment agreements with certain New Drug Services employees, including Chairman, Chief Executive Officer and Chief Scientific Officer Michael Adams and President Alfonso Tobia.
Duane Reade adopts shareholder rights plan
NEW YORK, Sept. 9 (UPI) -- Duane Reade Inc. said its board of directors has adopted a shareholder rights plan to protect against unsolicited takeover bids.
New York City's largest drugstore chain said that under the plan, each common shareholder will receive a dividend of one right for each share held by the close of business on September 30.
The right would entitle the holder to buy one-thousandth of a share of newly created preferred stock for an initial purchase price of $130.
The rights distribution, which is not taxable to shareholders, will expire on Sept. 30, 2012 unless earlier exchanged or redeemed.
Duane Reade said the plan is not being adopted in response to any specific effort to acquire control of the company.
Duane Reade currently operates 218 stores.