Wal-Mart Profit Climbs on Grocery, Electronics Sales

(Bloomberg) -- Wal-Mart Stores Inc., the world's largest retailer, said fourth-quarter profit rose more than analysts estimated after it stepped up U.S. holiday discounts and boosted sales in Asia and Latin America.

Full-year earnings will be at most $3.43 a share, less than analysts' projections, the retailer said today. Wal-Mart gained 1 percent in New York trading.

International sales advanced 19 percent, led by China, Brazil and Argentina. In the U.S., Wal-Mart drew cash-strapped customers with an expanded consumer-electronics section and more discounts on groceries. Quarterly sales at stores open at least a year outpaced Target Corp. for the first time in 3 1/2 years.

``Nobody gets rich selling groceries, unfortunately, but I do think it's a great way to drive traffic,'' Peter Sorrentino, a senior portfolio manager at Huntington Asset Advisors in Cincinnati, said in a Bloomberg Television interview. ``In this economic environment, if the consumer's shifting down in terms of the way they're spending their dollars, that benefits Wal-Mart.''

Sorrentino helps oversee $12 billion in assets including Wal-Mart shares.

Net income climbed 4 percent to $4.1 billion, or $1.02 a share, from $3.94 billion, or 95 cents, a year earlier, the Bentonville, Arkansas-based company said today in a statement. Excluding one-time items, profit beat estimates by 2 cents.

Wal-Mart said it expects to earn between 70 cents and 74 cents a share in the current quarter and between $3.30 and $3.43 for the year that ends in early 2009. Analysts surveyed by Bloomberg projected profit of 74 cents for the quarter and $3.44 for the year.

Share Performance

Wal-Mart rose 51 cents to $49.95 at 9:34 a.m. in New York Stock Exchange composite trading. The shares increased 4 percent this year before today, compared with an 8.1 percent decrease in the Standard & Poor's 500 index.

Revenue for the three months that ended Jan. 31 climbed 8.4 percent to $107.4 billion, the first time it exceeded $100 billion, Wal-Mart said.

Excluding costs including a writedown at its Japan unit, Wal-Mart earned $1.04 a share. Nineteen analysts surveyed by Bloomberg projected average profit of $1.02.

``Clearly our underlying operational performance exceeded the expectations we had at the beginning of the quarter,'' Chief Executive Officer H. Lee Scott said on a recorded call. The performance of the U.S. economy ``will be a critical factor'' this year, he said.

Consumer Spending

Consumers have curtailed outlays on extras as they find themselves spending more for food, fuel and housing. Before the holiday season, Wal-Mart made price cuts earlier and on 20 percent more items. Last month, the retailer introduced its own ``economic stimulus'' package, marking down groceries, medicines, fitness equipment and electronics as much as 30 percent.

While Wal-Mart has suffered from a slowing U.S. economy because many of its customers live paycheck to paycheck, the retailer has also gained because of its appeal as a destination for cost-conscious shoppers, said David Abella, an analyst at Rochdale Investment Management in New York with $2.5 billion in assets including Wal-Mart shares.

``They are benefiting from it at the expense of competitors,'' said Abella. ``The low-price effort, which is working especially well because of the slowdown, probably helped get some market share back from Target.''

 

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Foodmakers squeezed by costs, strapped consumers

(Reuters) - For more than a year, food makers and other consumer products companies have passed on much of the burden of rising commodity costs to consumers.

In fact, companies such as H.J. Heinz (HNZ.N: Quote, Profile, Research) and Hormel Foods Corp (HRL.N: Quote, Profile, Research) proved again with earnings forecasts and announcements on Friday that this was still the case early this year, fueling a rally in food stocks.

But that relief could prove short-lived, as 2008 could be the year consumers say "enough!" and start shunning branded products for less expensive private-label alternatives, industry experts warn.

"The next round of (increases) will actually start to impact consumer behavior in a profound way," Ken Harris, a principal at consulting firm Cannondale Associates, said.

That could hit profits at the companies that already have exhausted most measures to cut costs and become more efficient over the past several years in the wake of soaring prices for wheat, cocoa, milk and energy, just to name a few.

"When you say input costs are going up 6 percent and you are only getting 4 percent net pricing, where do you make up the rest?" asked Gregg Warren, an analyst at Morningstar.

Rising commodity costs and economically stressed consumers are expected to be the key topics when consumer products company executives meet with analysts at the Consumer Analyst Group of New York conference in Florida that begins Tuesday.

 

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Fed's Stern says rate cuts should protect economy

(Reuters) - The Federal Reserve's interest rate cuts are appropriate to restore stability in financial markets and prevent damage to the broader economy, Minneapolis Fed President Gary Stern said on Tuesday.

"Against the backdrop of the financial shocks that have beset the economy and their implications for the outlook, the reduction in the funds rate target appears wholly appropriate," he said in remarks prepared for delivery to the Financial Planning Association of Minnesota.

The Fed is responsible for restoring financial stability and protecting the broad economy from damage, Stern said.

"Policy is now better positioned to attain these objectives than formerly," he added.

Stern said the current situation is reminiscent of the early 1990s, when the economy faced "headwinds" after the 1990-91 recession, particularly tighter credit and a real estate bust.

 

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Exxon open to Venezuela talks, ready to fight

(Reuters) - Exxon Mobil (XOM.N: Quote, Profile, Research) is ready to talk to the Venezuelan government to settle a dispute over the forced acquisition of its oilfields, after gaining a court order to freeze $12 billion of Venezuelan assets, a senior executive said on Monday.

But the U.S. oil major said it was also prepared to fight to assert its interests if it has to.

"We have indicated to the Venezuelan government that we're still prepared to talk, but should that not be the case, we'll protect our rights," Robert Olsen, chairman of Exxon Mobil International told Reuters in an interview at the sidelines of the International Petroleum Week conference in London.

Leftist President Hugo Chavez told foreign oil companies last year to cede a majority stake in oil projects or leave the country.

Most agreed and accepted bids for stakes in their projects from state oil company PDVSA, bids that analysts said were below market value.

But Exxon and rival oil major ConocoPhillips (COP.N: Quote, Profile, Research) opted to pull out rather than give in to government demands.

Olsen, who is also head of production for Europe, the Caspian and Russia, told the conference that resource-holding governments should stick to the terms they agree with foreign investors.

 

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Bayer stops late-stage Nexavar trial

(Reuters) - Bayer HealthCare, a U.S.-based unit of Bayer AG (BAYG.DE: Quote, Profile, Research), stopped a late-stage trial of Nexavar in patients with non-small cell lung cancer, after an independent data monitoring committee concluded that the study would not meet the main goal of improved overall survival.

In the late-stage study, patients received Nexavar in combination with chemotherapeutic drugs carboplatin and paclitaxel.

Bayer said higher mortality was observed in a certain subset of patients treated with the combination of Nexavar and the chemotherapeutic drugs, versus those treated with carboplatin and paclitaxel alone.

Bayer and co-developer Onyx Pharmaceuticals Inc (ONXX.O: Quote, Profile, Research) will review the findings of the analysis to determine what, if any, impact they have on other ongoing Nexavar lung cancer trials.

 

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Fed's Lower Rates Pressure China to Strengthen Yuan

(Bloomberg) -- Like it or not, China has no choice other than to let the yuan appreciate against the dollar.

The combination of the world's fastest economic growth, the highest inflation rate in 11 years and the rising cost of intervention will force gains in the yuan to accelerate, even as policy makers in Beijing resist calls from the West to let the currency appreciate at a faster pace, say Pacific Investment Management Co. and Pictet & Cie., Switzerland's largest closely held private bank.

Central bankers in Thailand, Malaysia, Singapore and the Philippines are in the same situation, making their currencies attractive, according to money managers at the firms and Merrill Lynch & Co. Nine of the 10 best-performing currencies against the dollar in 2008 will come from Asia, surveys of foreign exchange strategists by Bloomberg show.

``You're likely to see less intervention,'' said Ramin Toloui, who helps oversee more than $60 billion in emerging- market bonds and currencies at Newport Beach, California-based Pimco. ``Several Asian central banks see more rapid exchange- rate appreciation as an important tool to fight inflation.''

After rising 7 percent last year, the yuan has appreciated 1.9 percent to 7.1623 per dollar so far in 2008. New York-based JPMorgan Chase & Co., the world's ninth-biggest currency trader, predicts a further 14 percent increase, while Citigroup Inc. in New York, the third-largest, forecasts a 6 percent advance.

Thailand's baht has climbed 3.7 percent to 32.53 this year, while the Taiwan dollar is up 2.4 percent to NT$31.75. The yuan rose 0.3 percent today, the most in six weeks, and the Singapore dollar gained as much as 0.2 percent to S$1.4107, its highest in more than a decade.

Inflation Battle

While the International Monetary Fund expects growth in Asian emerging markets will slow to 8.6 percent in 2008 from 9.6 percent last year, that's still six times faster than the 1.5 percent expansion predicted for the U.S.

Consumer prices in the region's 10 largest economies outside Japan are rising at an average annual rate of 5.30 percent, compared with 4.10 percent in the U.S., data compiled by Bloomberg show. Faster inflation raises the odds that central banks in Asia will increase interest rates, bolstering the appeal of their currencies.

``We are long Asian currencies,'' said Donald Amstad, head of Asia-Pacific fixed-income at Aberdeen, Scotland-based Aberdeen Asset Management Plc, which oversees $205 billion. ``Asia is in relatively better shape than the rest of the world.'' A ``long'' position is a bet that a currency will gain.

Costly Option

To keep their currencies from appreciating too fast and hurting exporters, Asian central banks have bought U.S. dollars, accumulating $4 trillion in foreign-exchange reserves.

The downside to intervention is that it increases the supply of the local currency, which tends to fuel inflation. To prevent that from happening, Asian central banks typically sell bonds to remove those funds from the economy.

That option has become more costly because interest on the debt is paid with income from its reserves, which are invested in dollar-denominated securities. The People's Bank of China pays 1.31 percentage points more on its six-month bills than it earns on similar-maturity Treasuries following the U.S. Federal Reserve's five rate cuts since September. Six months ago, the spread was 2.2 percentage points in favor of U.S. debt.

 

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Stocks Rise in Europe, Latin America; Credit Suisse, Vale Climb

(Bloomberg) -- European stocks rose, led by banks and metal producers, on optimism this year's 12 percent drop in the region's benchmark index was too steep given the outlook for sales. Shares in Latin America gained, while Asian equities fell.

Credit Suisse Group rose the most in three weeks in Zurich after Qatar said it's buying shares in the second-biggest Swiss bank, while Barclays Plc and Lloyds TSB Group Plc climbed in London as traders speculated on higher dividends. BHP Billiton Ltd. followed metals prices higher in Europe, while Cia. Vale do Rio Doce rallied in Sao Paulo.

The Dow Jones Stoxx 600 Index added 1.7 percent as of 3:18 p.m. in London, and the MSCI World Index increased 0.4 percent, as gains from Europe and Latin America more than offset declines in Australian bank shares and Japanese insurers. Futures on the Standard & Poor's 500 Index rose 0.8 percent. The U.S. market is closed today for the Presidents' Day holiday.

Qatar's purchase ``gives the market a boost,'' said Salah Seddik, who helps oversee $5.9 billion at Richelieu Finance in Paris. ``There's been some good news in the financial industry. The strong declines we've seen have left some buying opportunities.''

Concern the subprime mortgage slump will lead to more losses sent Europe's Stoxx Banks Index down 17 percent this year. The gauge was valued at 7.5 times profit in the week ended Feb. 8, the lowest since at least 1998, data compiled by Bloomberg show.

The MSCI Latin America Index added 2.1 percent. Brazil's Bovespa index jumped the most in a week, advancing 2 percent, while Chile's Ipsa stock index rose 0.9 percent.

The MSCI Asia Pacific Index lost 0.6 percent today, reversing an earlier gain of 0.8 percent.

European Markets

National benchmarks advanced in all 18 western European markets except Greece. France's CAC 40 rose 1.5 percent, while the U.K.'s FTSE 100 climbed 2 percent. Germany's DAX increased 1.7 percent.

The Stoxx 50 jumped 1.6 percent, as did the Euro Stoxx 50, a measure for the euro region. All of the 18 industry groups in the Stoxx 600 gained, with five stocks rising for each one that fell.

Credit Suisse rose 3.1 percent to 56.7 francs. Qatar is accumulating shares in Credit Suisse and plans to spend as much as $15 billion on European and U.S. bank stocks over the next year, the Gulf state's prime minister said in an interview.

``We have a relation with Credit Suisse and we bought some of the stock from the market, actually, but I cannot say what percentage because still we are in the process,'' Sheikh Hamad bin Jasim bin Jaber al-Thani, who is also chief executive officer of the Qatar Investment Authority, said in an interview late yesterday in Doha.

Barclays, Lloyds TSB

Barclays, the U.K.'s third-biggest bank, jumped 6.8 percent to 456.5 pence. Lloyds TSB, the U.K.'s No. 1 provider of unsecured loans, increased 6.4 percent to 421 pence.

Barclays and Lloyds, which are seeking to quell concern about financial institutions, are expected to report ``robust'' results, the newspaper said. Barclays will lift its dividend by 10 percent on Feb. 19, the Times reported, without saying where it got the information.

Barclays spokesman Robin Tozer and a Lloyds TSB spokesman Leigh Calder declined to comment on the report.

HBOS Plc, the U.K.'s biggest mortgage lender, advanced 4.1 percent to 633.5 pence. Royal Bank of Scotland Group Plc, the U.K.'s second-largest bank, added 2.9 percent to 360.75 pence.

UBS AG fell 1.2 percent to 35.58 francs after a Bear Stearns Cos. analyst downgraded the stock, forecasting more writedowns on debt holdings.

New disclosure of holdings affected by the subprime debacle ``revealed the full and frightening extent of UBS's potential problems,'' Christopher Wheeler wrote, cutting his stock recommendation to ``peer perform'' from ``outperform.''

Steel Price Accord

Vale do Rio Doce surged the most in three weeks, climbing 5.7 percent to 49.15 reais.

Asia's three largest steelmakers agreed to pay Rio de Janeiro- based Vale, the world's biggest iron-ore producer, 65 percent more than last year for the material. Vale said the price increase shows the market is going through ``very tight conditions.''

ArcelorMittal, the world's largest steelmaker, gained 1.4 percent to 48.22 euros. Nippon Steel Corp., the second-biggest, rose 3.2 percent to 575 yen, its highest close since Feb. 7.

``It's good that the price increases are being decided early,'' Alan Coats, an analyst at HSBC Holdings Plc in London, said today in a telephone interview. ``It means they can be passed on.''

BHP Billiton

BHP Billiton, the world's largest mining company, gained 3.9 percent to 1,612 pence. Vedanta Resources Plc, India's biggest copper producer, climbed 3.9 percent to 2,153 pence.

Copper advanced to the highest in almost four months in London after China, the world's largest user, said imports grew 6.6 percent in January from the previous month. The metal for delivery in three months rose 2.3 percent to $7,910 a metric ton, the highest intraday price since Oct. 29. Zinc and lead also climbed.

Australia & New Zealand Banking Group Ltd., Australia's third-largest bank, dropped 6.1 percent to A$22.46, the lowest since September 2005, after its chief executive said a ``bloodbath'' in debt markets will wipe out earnings growth.

Commonwealth Bank of Australia, the country's top mortgage lender, lost 5.1 percent to A$44.

Aioi Insurance Co., Japan's fourth-largest nonlife insurer, tumbled 6.8 percent to 439 yen, after a newspaper said it will have $740 million of subprime-related losses.

 

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