Executive Business Briefing

May 14, 2003 at 10:40 AM
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Here is a look at Wednesday's top business stories:

Earnings drop 48 percent at Federated

CINCINNATI, May 14 (UPI) -- Federated Department Stores Inc. said its fiscal first-quarter net income sank 48 percent, but profit was better than the retailer had forecast because of lower store-closing costs.

Sales fell 4.7 percent and the retailer remained cautious about a retail rebound.

The operator of the Macy's and Bloomingdale's department-store chains said its first-quarter net income for the period ended May 3 dropped to $46 million, or 24 cents a share, from $89 million, or 43 cents a share during the same period a year earlier.

Last week, the retailer reiterated that it expected to earn 14 cents to 19 cents a share for the fiscal first period.

Sales fell 4.7 percent to $3.29 billion from $3.45 billion a year ago. Same-store sales, or sales at stores open at least a year, fell 5 percent, with no store closures in the period.

Last week, Federated reported a 1.4 percent decline in April same-store sales and said it expected May same-store sales to fall 1 percent to 3 percent. It also said at the time that it would discontinue weekly sales updates.

Federated said its first-period net was better than its earlier forecasts largely because of lower-than-anticipated store-closing and consolidation costs.

The latest-period results included $8 million in store-closing costs related to the closing of duplicative stores in the Atlanta market, where the company combined Rich's and Macy's stores.

Federated said it originally estimated that these one-time costs would reach $35 million in the first quarter. However, the company said it now expects to incur some of these costs later in the year.

Federated also said it continues to believe that it will be "a difficult second quarter in terms of sales."

Terry Lundgren, Federated's president and chief executive officer, said, "We are hopeful that the economy will continue to improve, eventually stimulating consumers to begin to resume more normal spending patterns in the latter half of the year."

Looking ahead, Federated said it expects to earn 50 cents to 55 cents a share in the second quarter, less than the current Wall Street estimate of 57 cents a share, according to Thomson First Call. Last year, Federated posted a net profit of 66 cents a share. The company still expects same-store sales to be flat to down 1.5 percent.

The earnings guidance includes anticipated costs of $10 million to 15 million, which is above its previous cost projection of $5 million in the second quarter. Same-store sales are slated to drop 2 percent to 3 percent in the period.

Federated raised the low end of its fiscal-year earnings forecast to a range of $3.10 to $3.25 a share, from a previous estimate of $3.05 to $3.25 a share. Wall Street's current estimate is for full-year profit of $3.10 a share, compared with $3.21 a share in fiscal 2002. The guidance includes estimated restructuring costs of $30 million to $35 million for the year.

Gartner: Worldwide PC shipments seen rising

STAMFORD, Conn., May 14 (UPI) -- Gartner Inc. said it expects worldwide personal computer, or PC, shipments to increase 6.4 percent to 30.7 million units in the second quarter from a year ago, despite economic uncertainty.

The research and advisory firm said it expects second-quarter PC revenue to grow 2.6 percent to $38.3 billion from a year ago. The global PC market's strength depends on the timing and pace of economic recovery, which is struggling to get under way.

For all of 2003, Gartner said it expects PC shipments to increase 6.6 percent to 136.9 million units from a year ago, while PC revenue is expected to rise 3.3 percent to $170.6 billion.

George Shiffler, Gartner's principal analyst for computing platforms and economics research, said, "The good news for the global economy is that the U.S.-led war against Saddam concluded more quickly and with fewer damaging economic consequences than many expected."

"The bad news is that the global economy doesn't appear to be experiencing the uplift that so many anticipated once the war was concluded, at least not yet," Shiffler added.

Many of the deeper and more fundamental risks to a general economic recovery overlooked in the run-up to combat in Iraq appear to be reasserting themselves, Gartner said.

Gartner said the prospects for a recovery in the U.S. remain mixed and economists are increasingly split over whether 2003 gross domestic product growth will prove better or worse than a year ago.

"The outlook for the general economic recovery would be greatly enhanced were Europe able to engineer some autonomous growth, but the prospects for this remain poor because of weak confidence, the appreciating euro and overly tight macroeconomics," Shiffler added.

Shiffler said the outbreak of severe acute respiratory syndrome, or SARS, in Asia is already having an appreciable impact on select economies in the region, and there is a rising danger that the outbreak could significantly impact the entire region if intra-regional trade is severely disrupted.

Gartner said the mobile segment of the PC industry is one of the areas vendors are targeting for growth. The company expects Intel Corp.'s Centrino processor platform will become the mainstream choice of large enterprises, but it doesn't expect Centrino to boost notebook sales significantly in the short term because large scale enterprises usually take at least three to six months to evaluate new technologies.

Gartner added that Tablet PCs have yet to make significant inroads into the market since Hewlett-Packard Co., Toshiba Corp. and other computer makers released versions of the product in November.

Gartner's preliminary estimates show that Tablet PCs garnered about 1 percent of the total mobile PC shipments in the first quarter.

Cabot mulls European restructuring

BOSTON, May 14 (UPI) -- Cabot Corp., a specialty chemicals and materials company, said it's exploring a number of European restructuring initiatives.

Cabot said it is exploring the closure of its carbon black manufacturing facility in Zierbena, Spain, the consolidation of administrative services for all European businesses in one Shared Service Center in Belgium, and the implementation of a consistent staffing model for manufacturing facilities in Europe.

The company said that, when the legal procedures have been completed, implementation would begin immediately in certain locations and conclude within about 18 to 24 months.

It is anticipated that the closure of the Zierbena plant, which has a stated capacity of about 60,000 metric tons, could occur as early as the fall of this year.

In addition to these initiatives, Cabot has decided to discontinue an energy project in Zierbena and at one other European carbon black manufacturing facility, it noted.

The company said these steps are necessary to address over-capacity in its rubber blacks manufacturing system resulting from low-priced imports and migration of tire production out of Western Europe.

This market situation was further hurt by the European Union's decision not to adopt the recommendation made by the European Commission to impose anti-dumping duties on carbon black imports into the European Union from Russia and Egypt.

The company expects that these initiatives could result in a pretax charge to earnings of about $60 million over the next 18 to 24 months.

About $30 million of the charge is expected to be recorded during fiscal year 2003. Total cash outlays related to the program over the 18-to-24 month period are expected to be about $25 million, Cabot said.

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