Ford, Starbucks, Sony, and Shell profits are down

[Mrs. Sharon B. Hodge]

Ford loses $5.9B in 4Q, says still won't seek aid
by Tom Krisher and Kimberly S. Johnson


DEARBORN, Mich. – Ford Motor Co. said Thursday it lost $5.9 billion in the fourth quarter and burned through $5.5 billion in cash as sales slumped, but the company still says it does not plan to seek federal loans.

After losing $14.6 billion in 2008, the second-largest U.S. automaker said it was cutting more jobs and will borrow $10.1 billion from an existing line of credit to help get it through what is expected to be a tough 2009.

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Chief Executive Alan Mulally said on a conference call with reporters and industry analysts that the company plans further restructuring actions that will be announced later.

Ford said it lost $2.46 per share in the three months ended Dec. 31, compared with a loss of $2.8 billion, or $1.13 per share, for the year-ago period.

Revenue fell to $29.2 billion, down 36 percent from $45.5 billion in the fourth quarter of 2007.

The results missed Wall Street's expectations. Excluding special items, the company reported a $1.37 per share loss for the quarter. On that basis, analysts polled by Thomson Reuters expected a fourth-quarter loss of $1.30 per share on revenue of $27.1 billion.

Ford shares were unchanged at $2.03 in premarket trading.

Dearborn-based Ford also announced that its credit arm would cut 20 percent of its work force, or 1,200 jobs, and it has reached agreement with the United Auto Workers union to end the "jobs bank" in which laid-off workers get most of their pay, although the effective date is still being negotiated.

Chrysler LLC ended its jobs bank Monday, and General Motors Corp. has said its will end next week.

The company said special items accounted for $1.4 billion of its net loss, largely due to personnel reductions and investment losses on money set aside for a union-administered trust that will take over retiree health care costs in 2010. Ford has about $2 billion in investments in that account, which can be used to fund operations, if needed.

The Treasury Department made loans to Ford's U.S-based competitors last month, allocating $13.4 billion to GM and $4 billion for Chrysler.

Company spokesman Mark Truby said Ford's position on seeking federal loans is unchanged. It asked for a $9 billion line of credit from the government but has said it has enough cash to make it through 2009 and doesn't intend to use government loans unless economic conditions worsen.

"We don't plan to or foresee using it," Truby said Thursday.

Ford's cash burn rate slowed from $7.7 billion in the third quarter. The company said it had $13.4 billion cash on hand as of Dec. 31 and plans to receive the $10.1 billion from its secured credit line Tuesday.

"We took this action because of our concerns about the growing instability of the capital markets," Mulally said of the borrowing.

Chief Financial Officer Lewis Booth said the company is tapping the credit line only to make sure it's available and not to fund its operations. Ford hasn't needed a government bailout because it borrowed funds and set up credit lines totaling $23.5 billion in 2006 and 2007 to prepare for a downturn.

"We are confident that our burn rate will be substantially slower in 2009," Booth told reporters Thursday morning.

He said Ford cut costs in its automotive sector by $1.4 billion in the fourth quarter compared with the same time in 2007, and $4.4 billion for the full year.

Ford's 2008 net loss of $14.6 billion compares with a loss of $2.7 billion in 2007.
Booth said Ford still is on track to break even in 2011, but the company anticipates worldwide sales to fall more than 10 percent in 2009. Ford sees improvement later this year, however, as government stimulus packages take effect.

"Things are so volatile," Booth said. "This is unprecedented."

Ford said it plans to invest $14 billion over seven years to produce fuel-efficient vehicles, allowing it to qualify for up to $5 billion in loans from the U.S. Energy Department by 2011.

Congress allocated $25 billion to the Energy Department for loans to automakers so they can develop new fuel-efficient technologies.

Vehicle sales in the U.S. are at their lowest levels in 26 years as consumers face tight credit markets and economic uncertainty. Ford's U.S. sales plunged 20.5 percent in 2008, and its market share fell slightly to 15 percent from 15.4 percent in 2007.

That uncertainty has spread to Europe as well, where sales have dropped. Markets such as South America, typically a bright spot for Ford, are also slowing.

Losses in North America weighed down the company's results, with Ford reporting a pretax loss of $1.9 billion. In Europe, Ford posted a fourth-quarter loss of $330 million, compared with a profit of $223 million in 2007. In South America, Ford's pretax profit fell 75 percent to $105 million.

The company's Asia-Pacific and Africa unit lost $208 million in the quarter, due mainly lower sales and unfavorable exchange rates.

Ford is still considering a sale of its Volvo unit, which lost $736 million in the quarter.

The company posted a quarterly pretax profit of $79 million from its investment in Mazda Motor Co. In November, Ford sold a large portion of its 33.4 percent stake in the Japanese automaker.

Ford's financing arm, Ford Motor Credit Co., reported a pretax loss of $372 million, compared with a profit of $263 million in the year-ago quarter.

Starbucks 1Q profit down 69 pct, shuts more stores
by Lauren Shepherd

NEW YORK – Starbucks Corp. said nearly 7,000 employees may lose their jobs due to a new round of store closures and cost cuts as it reported Wednesday that its profit dropped 69 percent in its fiscal first quarter.

The company plans to close 300 underperforming stores around the world by the end of the fiscal year in addition to the 600 it already planned to close in the U.S. The company has already closed 384 of those stores.

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The additional closures could result in the loss of 6,000 in-store jobs. Starbucks also plans to lay off about 700 non-store employees.

It also has reduced the number of new stores it plans to open.

The cuts and changes will result in about $500 million in savings in fiscal 2009, the company said.

Edward Jones analyst Jack Russo said the cuts make sense given the decline in Starbucks' sales in recent quarters.

"This is going to be a transition year," Russo said. He said the company will have to "claw their way back."

Wall Street had largely expected Starbucks to report dismal performance for the quarter, which ended Dec. 28, because it had warned last month that slow sales likely would cause it to miss analysts' estimates.

Heeding the company's warning, analysts lowered their average expectation from 22 cents per share to 17 cents per share.

But the company still fell short, with net income of $64.3 million, or 9 cents per share, down from $208.1 million, or 28 cents per share a year earlier.

Excluding charges from closing the 600 U.S. stores and 61 stores in Australia, the company said it earned 15 cents per share in its first quarter.

Revenue fell to $2.62 billion from $2.77 billion, while analysts had predicted revenue of $2.70 billion.

The revenue drop stemmed from a 9 percent decline in same-store sales, or sales at locations open at least a year, considered a key gauge of restaurant and retail performance. That dip was worse than the company's fourth-quarter decline of 8 percent.

The company's U.S. same-store sales dropped 10 percent in the first quarter.
Starbucks also said its Chief Executive Howard Schultz will be paid just $10,000 in base salary for fiscal 2009, including health insurance and other benefits. His salary was $1.2 million in 2008.

Schultz still could take home more compensation in the form of stock options. In the last fiscal year, he received stock options worth $7.8 million when granted, which helped boost his total compensation near $10 million.

The company said it plans to open only 140 new stores in the U.S. in fiscal 2009, down from its previous target of 200. Overseas, it will open 170, down from the 270 it had planned to open.

The company also said it will not provide any sales or earnings guidance "given the uncertainty in the global consumer retail environment."

Shares fell 26 cents to $9.39 in electronic after hours trading after rising 5.5 percent during regular trading Wednesday.


Sony's quarterly net profit tumbles 95 percent
by Jay Alabaster

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TOKYO – Sony said Thursday its net profit plunged 95 percent in the October-December quarter, as the holiday shopping season provided no respite for the struggling electronics giant and tepid sales of TVs, digital cameras and cell phones hit its bottom line.

The Japanese manufacturing icon said its usually dependable electronics division posted its first-ever operating loss in the fiscal third quarter. It also reiterated its forecast for a net loss of 150 billion yen ($1.67 billion) for the full fiscal year through March — its first loss in 14 years.

"From the second half of September last year, there has been a sudden deterioration in the economy, and with the effects of foreign exchange it has had severe consequences on our business," Chief Financial Officer Nobuyuki Oneda said.

Sony Corp. said its net profit shriveled to 10.4 billion yen ($115.6 million) in the third quarter from 200.2 billion yen a year earlier. Revenue fell 25 percent to 2.15 trillion yen from 2.86 trillion yen.

The quarter includes the year's peak shopping season and is usually a big one for its core electronics division, which generates over half of its total revenues with well-known products like Bravia TVs, Cyber-shot digital cameras and Vaio computers.

But sales of such products fell nearly across the board as consumers held back, and Sony's electronics division posted an operating loss of 15.9 billion yen, versus a 200.6 billion yen profit a year earlier.

The company has repeatedly warned of its troubled finances over the past few weeks, and the dismal numbers were in line with analysts' forecasts. But many said the weakness in electronics was a troubling sign, as the division has long been a source of steady profits, even as other areas struggled.

David Gibson, an analyst at Macquarie in Tokyo, pointed to a buildup in Sony's inventories as it failed to move its products.

"TVs really dragged them down during the period," he said.

The poor showing in electronics caused Sony's operating profit, which is generally seen as the best indication of a company's pure business performance but excludes taxes and other items, to fall to a 18 billion yen loss during the quarter.

Sony generates nearly 80 percent of its sales abroad, making it vulnerable to a strong yen, which cuts into its profits from overseas. The dollar has hovered near 90 yen in recent months after rising as high as 117 yen last year. So far this fiscal year foreign exchange movements have taken about 216 billion yen from Sony's operating income, the company said.

News from other big Japanese electronics exporters Thursday was also disappointing. Toshiba Corp. said it sank into the red in the third quarter and expects a loss for the full year, while game maker Nintendo Co.'s quarterly net profit fell 18 percent on the strong yen, forcing the company to reduce its full-year forecast.

Last week, Sony projected a 150 billion yen net loss for the full fiscal year, a reversal from a net profit of 369.4 billion yen last year. The last — and only — time Sony reported a loss, for the fiscal year ending March 1995, the red ink came from one-time losses in its movie division, marred by box office flops and lax cost controls.

Tokyo-based Sony has announced some restructuring measures, including cutting 8,000 of its 185,000 jobs around the world and shuttering five or six plants — about 10 percent of its 57 factories.

But Chief Executive Howard Stringer told reporters last week that he had not gone far enough with cut costs and would work harder to combine the company's diverse businesses, which also include its movie division and PlayStation game console business.

Sony also said that due to the poor economic conditions, it would postpone by a year establishing a joint venture with Sharp to make liquid crystal display panels for thin-screen TVs, and now aims to do so by March 2010.

The company's stock rose 4 percent Thursday to 1,909 yen. The results were announced after trading closed.

Shell swings to $2.81 billion loss in 4Q
by Toby Sterling

AMSTERDAM, Netherlands – Royal Dutch Shell PLC, Europe's largest oil company, said Thursday it swung to a net loss of $2.81 billion in the fourth quarter, hurt by the sharp fall in oil prices and writedowns on inventory.

In the same period a year earlier, Shell had made a $8.47 billion net profit.

The company said fourth quarter sales fell 24 percent to $81.1 billion. Crude production was down less than one percent to 3.42 million barrels per day, but Shell's selling price fell 29 percent to $58.40 per barrel.

Chief executive Jeroen van der Veer called the results "satisfactory...given the pressure on demand for oil and gas due to a weaker global economy."

The company's refining division, where the inventory was written down, booked a heavy loss of $6.42 billion compared with a profit of $2.56 billion a year earlier.
The company said refining profits were down 34 percent on an operating basis, as both intakes volumes and sales volumes fell as a result of weaker demand.
Over the full year 2008, net profit fell 16 percent to $26.3 billion.

The company declared a dividend of $0.40 per share for the fourth quarter and said it intended to increase that to $0.42 in the first quarter of 2009.

"This is a signal of confidence in our future," Van der Veer said on a conference call.

He said he expects production to remain flat or fall slightly in 2009 before beginning to rise again in following years as large projects under development begin operations.

The company plans $31 billion in capital expenditures in 2009, compared with $32 billion in 2008, and no exceptional job cuts.

Analyst Alexandre Weinberg of Petercam Securities said the results were in line with expectations, with crude production slightly ahead of expectations.

However, he cut his recommendation from "Buy" to "Add" because shares have also outperformed other oil shares in recent months.

"The company has the strongest balance sheet among European majors and is very well positioned to weather these lower prices," Weinberg wrote in a note on the earnings.

Shares were up 0.3 percent to euro19.21 in Amsterdam.

Shell's fourth quarter earnings on a "current cost of supplies" basis — which strips out the effect of the fall in oil prices on inventory — would have been down 28 percent to $4.78 billion, the company said.

At Shell's exploration and production division, earnings fell 24 percent to $3.7 billion, in line with the fall in oil prices.

The company said it suffered from the impact of a stronger dollar against most major currencies, although the $6.42 billion loss in the refining operations weighed the most on earnings.

The refining figures "show just how poor the environment is, and we see a hard time ahead for all the integrated oils," said analyst Gordon Gray of Collins Stewart in a note on earnings.

"Shell remains confident of its 2-3 percent long term volume growth ambition, and we still believe it offers the best risk/reward profile" among major oil companies.

He also cited the company's strong balance sheet, but noted that Shell's net debt of $13.7 billion does not include $11.8 billion in obligations from pensions that are currently underfunded after last year's stock market crash.