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)

Read More

FDA says no need to recall Enfamil formula

FDA says no need to recall Enfamil formula

Stock Market Predictions

(Global Markets) - U.S. health officials said they found no trace of potentially deadly bacteria that killed two infants in recent weeks in sealed cans of Enfamil baby formula, and that a recall was unnecessary, providing relief for the product's manufacturer, Mead Johnson Nutrition Co.

The death of one baby, 10-day-old Avery Cornett in Missouri on December 18, is what led chains including Wal-Mart Stores Inc, Walgreen Co and Kroger to pull some cans of Enfamil Newborn from shelves in an effort to protect consumers from Cronobacter, which can cause severe illness in newborns and has been found in powdered milk-based formula.

The death of a second baby, in Florida, was not known until an update from the U.S. Food and Drug Administration and the Centers for Disease Control and Prevention late on Friday following the testing of samples taken from the infected babies' homes and company facilities.

"Parents may continue to use powdered infant formula, following the manufacturer's directions on the printed label," the agencies said in a joint statement.

"We're pleased with the FDA and CDC testing, which should reassure consumers, healthcare professionals and retailers everywhere about the safety and quality of our products," Tim Brown, Mead Johnson's general manager for North America, said in a statement.

Two other babies, one in Illinois and one in Oklahoma, were also reported with infections in recent weeks, but they both recovered.

The agencies said they found Cronobacter in an open container of infant formula, an open bottle of nursery water and prepared infant formula.

They said it was unclear how the contamination occurred, which suggests that it could have happened after the packages were opened. The agencies also said there was no evidence indicating that the infections were related.

"There is currently no evidence to conclude that the infant formula or nursery water was contaminated during manufacturing or shipping," said an FDA spokesman.

These findings basically clear Mead Johnson, whose shares have fallen 10 percent since the issue surfaced, said personal injury and product liability lawyer William Marler of the firm Marler Clark.

"It would be difficult to prove that this formula caused this child's death," said Marler, who has years of experience handling foodborne illness cases, including one in 2009 against Mead Johnson involving Cronobacter. That case was dismissed after no sealed cans tested positive, robbing the prosecution of the proverbial "smoking gun."

Officials for the CDC, Mead Johnson and Wal-Mart could not immediately be reached for comment.

MOVING FORWARD

Mead Johnson's name may be cleared, but the company will likely take some time to fully heal, experts say, given how serious the situation is and how sensitive people are about what they feed their babies.

"Bad news is bad news," said Robert Passikoff, president of research firm Brand Keys Inc. He said the negative publicity has already damaged Enfamil's brand equity and could have cost the company one cycle of new parents, who might feed their children formula for about a year.

Goldman Sachs lowered its earnings estimates for Mead Johnson last week for 2012 through 2014 by 3 percent on average, citing the risk of damage to consumers' trust in the Enfamil brand. It lowered its price target to $74 from $80.

Despite the costs of retesting its formula and the likely hit to earnings from something that is not its fault, Mead Johnson has little legal recourse against either the public health department, the victims' families or Wal-Mart, which pulled its product in the absence of a definite link.

"Could a lawyer cook up legal theories to sue? They can. Would that be a very wise move? I think it would be really, really stupid," Marler said, for two reasons.

"'We didn't know for sure and we wanted to protect our customers' is a pretty good defense," he said, adding that "Suing somebody isn't really the likely way you're going to get your product in their store."

Enfamil is the leading milk-based formula in the United States, controlling nearly 44 percent of the $4.29 billion market, according to Euromonitor International. No. 2 is Abbott Laboratories Inc's Similac, with a 24-percent share, followed by Nestle's Good Start with 10 percent and private label, or store brands, with 9 percent.

Still, the United States makes up less than 30 percent of Mead Johnson's sales, and is not what had been driving the company's shares, said RBC Capital Markets analyst Edward Aaron.

Until its latest troubles, the stock had more than tripled since its February 2009 spin-off from Bristol Myers Squibb, fueled by growth from emerging markets.

In the latest quarter, the company's sales rose 15 percent to $933.9 million, driven by a 30 percent jump in Asia and Latin America.

But Mead Johnson has done many things well in this crisis and should be forgiven quickly, said Mike Rozembajgier, vice president of recalls for Stericycle ExpertRECALL, a consulting and logistics firm.

"There's an understanding by the public that recalls are going to happen," Rozembajgier said. "How forgiving they might be with regard to a particular brand ... comes down to how the company manages the recall."

Mead Johnson has not had a recall, but has gone through many of the same steps, he said, such as working with the government,

being transparent and communicating with retailers and the press.

(Reporting By Martinne Geller in New York and Anna Yukhananov in Boston; Editing by Bob Burgdorfer, Steve Orlofsky, Gary Hill)

Read More

Wal-Mart raises dividend nearly 9 percent

Wal-Mart raises dividend nearly 9 percent

Stock Market Predictions

(Global Markets) - Wal-Mart Stores Inc raised its annual dividend by 8.9 percent on Thursday, as momentum in the company's key Walmart U.S. chain has rebounded.

The increased payout comes as the world's largest retailer works on balancing its need to invest in growing its business with the desire to attract shareholders who have seen Wal-Mart miss out during the broad market rally.

"Part of the reason that people own the stock is that it pays a dividend," said Consumer Edge Research analyst Faye Landes. Wal-Mart wants "to have a nice payout, but they also feel that they have other places to put their capital."

Wal-Mart said its board approved a dividend of $1.59 per share for fiscal 2013, which ends next January, up from $1.46 last year. That equates to paying about $5.52 billion to shareholders.

The family of founder Sam Walton stands to get about half of that payout, as it owns close to 50 percent of Wal-Mart's outstanding shares through various entities.

Wal-Mart has been a big buyer of its shares, spending $6.3 billion on buybacks during fiscal 2012.

Wal-Mart has raised its payout every year since it first declared a dividend of 5 cents per share in 1974. The latest increase comes after a 20.7 percent hike a year ago.

Shares of Wal-Mart, a component of the Dow Jones industrial average, were down 0.4 percent at $58.84 after rising to $59.42 earlier in the day. This year, shares of Wal-Mart fell 1.1 percent, while the Dow rose 6 percent, through February 29.

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Graphic on Wal-Mart dividend: link.reuters.com/wam86s

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

"BACK ON TRACK"

Wal-Mart has high expectations for the current fiscal year, with the core Walmart U.S. business "back on track," Chief Executive Mike Duke said in a statement.

Walmart U.S. posted its second straight rise in quarterly same-store sales last week, and traffic in the stores rose for the first time after six quarterly declines.

Wal-Mart continues to invest in areas such as e-commerce, where it trails market leader Amazon.com Inc, and needs to cut costs to keep its prices low in the United States. Wal-Mart's international business is still growing and the Sam's Club warehouse chain has done well.

The dividend increase would bring Wal-Mart's dividend yield up to 2.69 percent based on Wednesday's closing price of $59.08 on the New York Stock Exchange.

While that would keep it among the middle of the pack of the 30 components of the Dow Jones industrial average, it would continue to outpace yields of some other major U.S. retailers. Target Corp's dividend yields 2.12 percent, and Macy's Inc's yields 2.1 percent.

Target, Macy's and other U.S. chains reported February sales on Thursday, and most of them did well.

Wal-Mart's new dividend level is "appropriate," for the company, which has "terrific cash flow," said Raymond James analyst Budd Bugatch.

Wal-Mart's free cash flow fell to $10.7 billion last year from $10.9 billion a year earlier, as capital expenditures outpaced its growth in net cash from operating activities.

Bugatch, who recently downgraded Wal-Mart shares to "market perform," noted that the 8.9 percent dividend increase is above the rate of earnings growth Wal-Mart forecast for the year. Wal-Mart expects earnings per share to rise about 4 percent to 8.4 percent in 2013, to $4.72 to $4.92 per share.

The dividend will be paid in quarterly installments of 39.75 cents per share, with the first payment on April 4 to shareholders of record as of March 12.

Wal-Mart said that it returned $11.3 billion to shareholders through dividends and share buybacks last year. As of January 31, it had $11.3 billion remaining under a $15 billion share repurchase plan announced in June.

(Reporting by Jessica Wohl in Chicago; Editing by Gerald E. McCormick, Dave Zimmerman)

Read More

Home Depot, Walmart, grocers get boost from Irene

Home Depot, Walmart, grocers get boost from Irene

Stock Market Predictions

NEW YORK (Global Markets) - Hurricane Irene sent East Coast shoppers into stores to stock up on essentials this week, instead of the clothes, notebooks and other supplies that retailers were counting on selling as children get ready to go back to school.

Chains such as Home Depot Inc (HD.N) and Wal-Mart Stores Inc (WMT.N) were doing brisk business on Friday, selling water, flashlights, batteries and other goods in states standing in Irene's potential track from the Carolinas to Massachusetts.

"Most probably, the biggest demand right now is for generators, obviously," said Suzanne Roche, manager of a Sears (SHLD.O) store in Wilmington, North Carolina. "We have got customers calling nonstop."

Irene is due to make its first U.S. landfall in North Carolina on Saturday. The storm, which battered Atlantic and Caribbean islands including the Bahamas and the Dominican Republic, is then expected to head to the densely populated Northeast.

Those who were not trying to squeeze in one last summer stay on the New Jersey shore or Long Island beaches may have been planning to go to shopping malls to buy clothes, shoes and other items for children who will soon head back to school. Now those plans will be on hold.

"Nobody is going to go to a mall to buy a pair of jeans," said Richard Hastings, consumer strategist at Global Hunter Securities.

The back-to-school shopping season is the second-largest spending time for U.S. shoppers, behind the winter holidays.

The storm may dent the upcoming index of August sales at stores open at least a year by 1.5 percentage points, Hastings said.

About two dozen retailers, including department stores and apparel chains, are due to report monthly same-store sales on September 1. Analysts were expecting a 4.8 percent rise for August, Thomson Global Markets said on Friday.

The storm could hurt retailers like Saks Inc (SKS.N) and Tiffany & Co (TIF.N) if airports stay closed for too long or people cancel trips, said Morningstar analyst Paul Swinand. The hurricane hitting on a weekend worsens its impact, he added.

That pain may be compounded following New York Governor Andrew Cuomo's announcement that New York City's subways, buses and commuter lines, which serve 8 million riders a day, will shut down around noon on Saturday.

Chains such as Target Corp (TGT.N) planned to keep their stores open as long as it is safe for shoppers and workers, and to comply with any evacuation orders.

Walgreen Co (WAG.N) said it would keep many stores open 24 hours a day to meet demand for supplies. It was still deciding which stores may close because employees might not be able to get to work.

Retailers kept shoppers informed online.

Home Depot, Rite Aid Corp (RAD.N) and other chains posted details on their websites.

Whole Foods Market Inc (WFM.O), known for its array of organic and natural products, was communicating with customers through local stores' Facebook pages and other social media.

After rumors spread in West Hartford, Connecticut, that all local stores were out of water, employees of a Whole Foods there took pictures of all the water they had in the store and posted them on the Facebook page, a spokeswoman said.

POTENTIAL MARKDOWNS

If retailers have excess merchandise because they lose out on a weekend of the back-to-school shopping season, it "could lead to markdowns in September and October," said Keith Jelinek, a director of AlixPartners' global retail practice.

Hastings expects Home Depot to do well, as it has 35 percent more stores than Lowe's Cos Inc (LOW.N) in the affected region. He also expects Newell Rubbermaid Inc (NWL.N) to benefit from demand for storage containers.

Newell shares rose about 1 percent on Friday. Among battery makers, Energizer Holdings Inc (ENR.N) was up almost 2 percent, and Spectrum Brand Holdings (SPB.N) gained nearly 3 percent.

Drugstores and grocery stores should also see a sales lift.

"It helps the supermarkets most because people really stock up," said BB&T Capital Markets analyst Andrew Wolf, noting Supervalu Inc's (SVU.N) strength in Boston and Philadelphia, and Safeway Inc (SWY.N) and Ahold's (AHLN.AS) big presence in Washington.

Great Atlantic & Pacific Tea Co Inc (GAPTQ.PK) is stocking extra water, ice, bleach and other goods at its A&P, Waldbaum's and Pathmark chains.

WATER GOING QUICKLY

In particular, Irene could affect companies with a strong presence on the East Coast in terms of higher sales before the storm and potential closings once it hits.

BJ's Wholesale Club (BJ.N) said 96 of its 190 stores are in the storm's expected track. They are receiving extra deliveries of items such as batteries, flashlights, generators and groceries, and the Massachusetts-based company's buyers are working to get water delivered to those locations.

Wal-Mart, which has an emergency operations center in its Bentonville, Arkansas headquarters, is tracking how the storm may affect roughly 600 of its stores and distribution centers.

It has also offered its help to governments in states such as New York, where hurricanes are less common.

"This is obviously not something that they probably plan for on a regular basis," said Mark Cooper, Wal-Mart's new senior director of emergency management, "so we just want to make sure that they know we are available to assist."

(Reporting by Dhanya Skariachan, Phil Wahba and Ernest Scheyder in New York; Jessica Wohl and Brad Dorfman in Chicago. Writing by Jessica Wohl. Editing by Robert MacMillan.)

Read More