Fiat share plan seen easing route to Chrysler merger

Fiat share plan seen easing route to Chrysler merger

Stock Market Predictions

MILAN (Global Markets) - A plan by Fiat Spa (FIA.MI) to convert preference and savings shares into ordinary shares will reduce the cost of equity and remove a potential hurdle to a merger with Chrysler, which is now majority owned by the Italian carmaker.

Fiat and its sister company Fiat Industrial (FI.MI) said late on Thursday the proposed conversion would streamline the capital structure and simplify governance for both groups.

Analysts said the plan was moderately earnings-enhancing as it would reduce the total number of issued shares and eliminate the cost of higher dividends for holders of savings and preference shares.

Simplifying the equity structure would also allow Fiat to remove a possible barrier to a full merger with Chrysler, which it has managed since a bailout deal with the U.S. government in 2009, they added.

Fiat now owns 53.5 percent of the U.S. No. 3 automaker, and that is due to rise to 58.5 percent by year-end.

Mediobanca's senior analyst Massimo Vecchio said in a report that a merger with Chrysler -- which CEO Sergio Marchionne has said is the goal -- would be easier because savings shareholders would no longer be able to block this.

He also noted that if Fiat decided to spin-off luxury sports car brand Ferrari, it would no longer need to issue Ferrari savings and preference shares to Fiat shareholders.

For truck and heavy equipment maker Fiat Industrial, the conversion would similarly ease any disposal of truck unit Iveco by avoiding a savings shareholder vote.

"The first thing that comes to mind is that this operation has been done to have a single type of share in view of a merger with Chrysler," said another analyst, speaking on condition of anonymity. "It removes a technical barrier."

Both companies are owned by the Agnelli family's holding company Exor SpA (EXOR.MI), which said on Thursday it intended to maintain its 30 percent stakes in both companies -- moving to quash at least for now long-running speculation that it may want to dilute its stakes.

In trading on Friday, Fiat savings shares (FIAn.MI) were up 16 percent and its preference shares (FIA_p.MI) rose 19 percent. Fiat Industrial's savings shares (FIn.MI) advanced 32.5 percent and the preference stock gained 37 percent.

A Milan trader said the prices were moving in line with the premium implicit in the conversion rates for Fiat and Fiat Industrial.

DEBT WOES

Fiat ordinary shares, however, fell more than 7 percent to 4.74 euros, with one trader saying hedge funds were arbitraging the ordinary shares with the preference shares.

But several analysts said the fall was due to much higher than expected net industrial debt overshadowing a better-than- forecast trading profit in the third quarter.

"The biggest surprise in the quarterly release was certainly the ballooning level of net debt," said Credit Suisse in a report. It increased to 5.8 billion euros, well above analysts' consensus forecast of 4.1 billion euros.

Trading profit -- which is similar to operating profit but excludes one-off items, impairments, changes in the value of securities held by the company and profits from associates -- came in at 851 million euros, against 705 million euros in the analyst consensus distributed by Fiat.

Fiat reported results after the market close on Thursday, incorporating Chrysler for the full quarter for the first time, and will hold a conference call at 10:00 a.m. ET on Friday.

(Additional reporting by Michel Rose and Nigel Tutt; Editing by David Holmes and David Hulmes)

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Coca-Cola to raise prices in July

Coca-Cola to raise prices in July

Stock Market Predictions

NEW YORK (Global Markets) - Coca-Cola Co plans to raise prices on its soft drinks by 3 percent to 4 percent in July, in addition to a 2 percent increase taken earlier this year, a company spokesman said on Friday.

News of the increases -- to be implemented on July 31 -- was first reported by industry newsletter Beverage Digest, which quoted retail customer pricing letters as saying the increases were due to higher-than-anticipated commodity costs.

Like many food and drink companies, Coca-Cola is facing higher costs for goods like corn, oil and packaging.

Coca-Cola, the world's largest soft drink maker, said earlier this year that it expected to raise prices in that range, but the timing was unknown.

Credit Suisse analyst Carlos Laboy said in a research note that there were concerns the company would wait until after Labor Day, at the end of the summer. That would make it more difficult for other soft drink makers, like PepsiCo Inc and Dr Pepper Snapple, to raise prices on their products during the key summer selling season.

"Today's news should provide some relief for all players in the industry in North America," Laboy wrote.

Beverage Digest reported earlier this month that Pepsi was notifying retailers of price increases of 3 percent to 5 percent between July 10 and around Labor Day.

Coke shares were up 0.2 percent at $65.09 in afternoon trade on the New York Stock Exchange. Pepsi shares were up 0.8 percent at $68.54.

(Reporting by Martinne Geller; editing by John Wallace)

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Esprit shares tumble 20 percent after dismal earnings

Esprit shares tumble 20 percent after dismal earnings

Stock Market Predictions

HONG KONG (Global Markets) - Shares of Europe-focused fashion retailer Esprit Holdings Ltd (0330.HK) plunged for the second day in a row on Friday, falling more than 20 percent after the company reported a worse-than-expected fall in full-year profit.

A 98-percent decline in profit announced at midday on Thursday led to 17 percent decline then and to a spate of downgrades by securities houses.

Traders voiced concerns about the company's medium-term business outlook despite Esprit's plans to restructure its business and reinvigorate its brand, brokers said.

Shares of Esprit were trading at HK$12.02 on Friday morning, down more than 19 percent after sinking to HK$12, the lowest since October 2002. It was the worst performer on the benchmark Hang Seng Index .HSI on Friday, which was up more than 2 percent.

"There is definitely some liquidation of long positions, particularly from the major funds," said Jackson Wong, vice president for equity sales at Tanrich Securities. "This stock has been on a lot of people's sell list even before the results yesterday."

Esprit is also the biggest loser among Hang Seng Index components for the year, down nearly 70 percent. The losses on Thursday and Friday marked its worst two-day drop since October 1997.

CLSA said in a research note that it had cut its earning estimates for Esprit by 52-83 percent for the next two years and slashed its price target by 47 percent to HK$12.50 from HK$23.50. It downgraded the stock to sell from underperform.

TURNAROUND PLAN RISKY

Esprit on Thursday said it planned to sell its North American operations after reporting a massive slide its full-year profit.

Esprit, whose competitors include Swedish clothing retailer Hennes & Mauritz AB (HMb.ST), U.S. group GAP Inc (GPS.N) and Spain's Inditex (ITX.MC), said the business outlook for the next six months was challenging, citing weak consumer sentiment in Europe, which is embroiled in a worsening debt crisis.

Europe generated about HK$26.7 billion ($3.4 billion) in sales, or 79.1 percent of Esprit's total, for the year to June 2011, down from 83.1 percent a year ago.

"Since the restructuring and transformation needs three to four years to complete, there is still a long, tough way to go, a lot of uncertainty ahead," said UOB Kay Hian director Steven Leung, adding that the stock would come under more selling pressure.

Esprit, which also competes with Japan's Fast Retailing (9983.T) in Asia, said on Thursday it would invest more than HK$18 billion in the company until its year ending 2015.

Analysts said the plan was fraught with risks.

"Management announced a HK$18.5 billion investment plan for the next four fiscal years to rejuvenate the brand, which in our view is risky," Credit Suisse said in a research note.

"The additional operating cost will affect Esprit's near to medium-term profitability and the large investment will further burden Esprit's cash flow," it said.

Credit Suisse also downgraded Esprit to underperform from neutral and cut its share price target to HK$9.65 from HK$25.15.

Some analysts are more upbeat about the firm's future.

"We view Esprit's decision to invest in its brand as the right decision. The real question boils down to whether the brand is impaired to a level where it cannot be turned around," Gary Pinge, a Macquarie Equities Research analyst, said in a research note.

"We think that Esprit has a good brand which can be turned around," he said. He reiterated he had an outperform rating on the stock, but cut his target price by 42 percent to HK$19.50.

Esprit said on Thursday it is ramping up investment in its brand. It is investing an extra HK$1.7 billion a year over the next four years to promote its brand, with marketing spending expected to reach 6-8 percent of revenue in the new fiscal year. The ratio will drop to 4-5 percent from financial year 2014/15, it said.

($1=7.791 HK dollars)

(Additional reporting by Clement Tan; Editing by Charlie Zhu and Matt Driskill)

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Higher prices hurt at Safeway, shares fall

Higher prices hurt at Safeway, shares fall

Stock Market Predictions

(Global Markets) - Safeway Inc (SWY.N) reported a quarterly profit that beat analysts' low expectations, but shares fell 2.8 percent as higher food prices showed signs of denting demand at the second-largest U.S. supermarket company.

Inflation hit 4 percent during Safeway's third quarter and sales volume declines accelerated more than in the previous period, Chief Executive Steve Burd said on a conference call with analysts.

Burd's comments sent shares, which had been up almost 7 percent earlier in the session, into reverse.

"You've now hit the inflection point where inflation is dampening demand. It makes it very, very tough to grow gross profit dollars in this framework," Susquehanna analyst Bob Summers told Global Markets.

"When you see the volume contraction accelerate, people aren't really going to stick around and ask any questions," Summers said.

The comments from Burd landed about a month after larger rival Kroger Co (KR.N) said its shoppers were getting more cautious -- visiting its stores more often, but buying cheaper items.

Major supermarket chains are struggling with falling sales volumes as all but the top-earning shoppers remain very cautious about spending.

Some analysts worry that grocery sellers may begin slashing prices to reverse the trend, a move that could revive the profit-denting price war that hobbled the industry during the throes of the U.S. recession in 2008.

Wal-Mart Stores Inc (WMT.N) threw fuel on that fire earlier this week, when it announced plans to cut prices to match those of competitors.

The comments from Wal-Mart, which sells more groceries than any other retailer, signaled a possible return to a strategy that caused upheaval in the supermarket industry.

Meanwhile, the operator of chains such as Safeway, Vons and Dominick's is working to narrow its performance gap with Kroger.

In the latest quarter, Safeway's closely watched sales at identical stores -- established supermarkets that have not been replaced or significantly renovated -- rose 1.5 percent, excluding fuel.

Higher gasoline prices and an increase in the Canadian exchange rate were among the factors that boosted sales, Burd said on the call. He added that Safeway's market share was flat, compared with the year earlier.

"We wish our sales progress was much faster," said Burd, who added that he was satisfied with the quarter's results.

Still, Kroger's identical-supermarket sales for the latest quarter were up 5.3 percent, excluding fuel, due to higher food prices.

LOW EXPECTATIONS

Safeway's net income for the third quarter ended September 10 rose 6 percent to $130.2 million, or 38 cents per share.

The results topped the analysts' average estimate by 3 cents a share, according to Thomson Global Markets I/B/E/S.

"Bottom line here is that the quarter was much better than very low expectations," Credit Suisse analyst Edward Kelly said in a client note.

Kelly attributed much of the earnings beat to higher-than-expected identical-store sales.

Safeway's revenue rose a bit more than 7 percent to $10.06 billion, primarily because of higher fuel sales, and beat analysts' estimates of $9.86 billion.

Gross profit fell 114 basis points to 27 percent of sales. But gross margin was flat, excluding an 88 basis-point hit from fuel sales and a 26 basis-point charge from reporting gift card commissions.

Europe's debt crisis, worries about slowing growth in China and stubbornly high unemployment in the United States are contributing to worries that global economies are weakening.

Amid those concerns, Safeway repeated its full-year earnings forecast of $1.45 to $1.65 per share, including an estimated hit of 15 cents from a Canadian dividend. It also affirmed its target for identical-store sales growth, excluding fuel, of about 1 percent for the year.

Safeway shares fell 2.8 percent at $17.46 in afternoon trading on the New York Stock Exchange, while Kroger was down 1.6 percent and Wal-Mart dipped 0.48 percent.

So far this year, shares in Kroger and Wal-Mart are up just slightly, while Safeway is off roughly 20 percent.

(Additional reporting by Jessica Wohl in Chicago; editing by Dave Zimmerman and Gunna Dickson)

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