Finance Blog number 1

Stocks are likely to face another choppy, downtrodden week, but that’s no big surprise.

It’s the end of the summer, trading volume is light, and even though company earnings are generally strong, dismal economic reports have been kicking fears of a second-half slowdown into higher gear.

Add a little uncertainty about Bush tax cuts, interest rates and the logistics of financial regulatory reform to the mix, and investors are jittery to say the least.

"We know the economy is not suffering from a lack of money or liquidity. What the economy is desperately short of is confidence and visibility and the willingness to take risk," said Adrian Cronje, chief financial officer of investment firm Balentine.

The markets are coming off two weeks of losses as traders have been struggling to find a balance between upbeat company news and downtrodden data on jobs, manufacturing, and other economic indicators.

On one hand, the positive: A slew of mergers and acquisitions announced last week shows companies are ramping up their capital spending, which is a sign that they’re preparing for better times.

Earlier this week, mining giant BHP Billiton’s (BHP) $43.8 billion unsolicited bid for Canadian fertilizer-maker Potash Corp. (POT) was the biggest deal this year, bringing weekly M&A volume to $89.8 billion.

And on Thursday, Intel (INTC, Fortune 500) agreed to buy security software maker McAfee (MFE) for $7.68 billion, in what would be the chipmaker’s biggest acquisition ever.

Historically, August is a slower month for M&A activity but last week’s total is the largest of any August week in four years, according to Thomson Reuters.

On the other hand, the negative: The headline economic indicator continues to be jobs, and the news there has been grim at best. The number of first-time filers for unemployment benefits surged to a 9-month high last week and has been stuck in the mid- to higher 400,000s since November.

Economists are looking to see that weekly number of first-time filers tick down to 400,000 or lower before they’re truly convinced a recovery is underway easy to get unsecured personal loans. They’ll be closely watching for the government’s most recent jobs data on Thursday.

Cronje is not predicting particularly bad or good news for jobs this week, but if the numbers disappoint, watch out: "Any sign of the job market getting even worse from here will be taken badly," he said.

On the docket

Monday: No economic reports are on tap.

Tuesday: The July report on existing homes sales from the National Association of Realtors is due during morning trading Tuesday. Sales of existing homes fell 5.1% in June to a 5.37 million-unit pace — a sign of renewed turbulence in the housing market. Economists polled by Briefing.com are expecting July to show another slowdown in sales, down to 5.14 million.

Wednesday: The Commerce Department reports data on durable goods orders — a measure of products meant to last at least three years, such as cars and computers.

Recovering after the recession, orders rallied more than 20% between March 2009 and April 2010. But the measure has posted back-to-back declines for the last two months. Economists are forecasting a 3.4% increase for July.

They’re also waiting for the latest figures on new home sales, which are expected to show a slight uptick to 338,000 in July, up from 330,000 the month before.

Thursday: The government releases its weekly numbers on first-time unemployment filers. Last week, stocks took a hit when the number increased dramatically to 500,000 initial claims.

Friday: The government’s revised reading on gross domestic product is due on Friday.

GDP is the broadest measure of the nation’s economic activity. Economists surveyed by Briefing.com are expecting the government to revise the number to 1.4%, showing a significant slowdown from its previous reading of 2.4%. 

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A survey of 500 tech and finance industry executives predicts that Mark Hurd's replacement as CEO at Hewlett-Packard Co. with either be an inside candidate or one from International Business Machines Corp.

About 43 percent of respondents said the most qualified replacement for Mark Hurd would come from those two sources, according to the survey by executive search firm Cook Associates which is expected to be published on Monday .

The survey was made available early to the New York Times.

The Times reported that among individuals named for the job Todd Bradley, who runs HP's PC business, and Steve Mills, who runs IBM's software business, tied as the most likely choices.

Hurd actually tied with Ann Livermore, HP's corporate technology chief, for the next best choice, as unlikely as it is that will happen.

The former CEO resigned on August 6 in the wake of sexual harassment charges brought by former actress and HP contractor Jodie Fisher. An internal investigation cleared him of those charges but found that he hadn't lived up to the company's code of conduct.

Hurd has reportedly agreed to pay a settlement to Fisher related to her accusations.

Chief Financial Officer Cathie Lesjak, 51, is acting as CEO on an interim basis. Lesjak is a 24-year veteran of the company who has served as HP’s CFO and as a member of the company’s Executive Council since January 2007.

To read more of the Business Journal's coverage of Mark Hurd's career and sudden resignation click here.

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BP will have to pay the U.S. government royalties on oil that spilled into the Gulf of Mexico if it is found that "negligence or regulatory violations" contributed to the accident, according to a government statement Thursday.

U.S. regulators are investigating what caused the April accident, but the findings aren’t expected for several months.

All oil companies pay royalties on oil produced from wells on government land or water.

BP is currently paying royalties on the oil that it is collecting and selling from its damaged well. BP is donating proceeds from those sales to a wildlife fund.

Based on the oil BP has collected as of last week, current oil prices, and the 18.75% royalty rate on the well, BP has paid about $8 million to the government.

But the well is estimated to be leaking up to 60,000 barrels a day. If the company was charged for that full amount, it would owe another $65 million.

BP has set up a payment plan with the government where it has promised at least $20 billion to pay for damages caused by the spill.

BP officials did not immediately respond to a request for comment. 

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Epocrates Inc. said on Friday it plans to sell up to an estimated $75 million in an initial public offering.

This is second attempt at an IPO by the San Mateo mobile drug data company. It withdrew a previous effort in late 2008 amind the economic downturn that year.

Epocrates said it plans to trade on the Nasdaq Global Market with the EPOC symbol.

The company showed a loss in the three months ended March 31 of $855,000 as its revenue dropped 1.6 percent to $24.3 million. It showed a profit of $993,000 a year-earlier in the same quarter no faxing 1 hour payday loans.

Epocrates said it will use money raised through the IPO to pay dividends due to the holders of its Class B preferred stock and for general corporate purposes.

Epocrates said in its filing that about 40 percent of U.S. physicians use its mobile drug reference tools and interactive services, aout 1 million users.

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The leaders of the Group of Eight global economic powers pledged Saturday to continue working together as the world "begins a fragile recovery from the greatest economic crisis in generations."

In a statement concluding the two-day summit in Muskoka, Canada, the leaders said they were committed to open trade and that they would "resist protectionist pressures."

In addition to the United States, the summit included Canada, France, Germany, Italy, Japan, Russia and the United Kingdom.

The summit immediately preceded a gathering in Toronto of the G-20, which includes the leaders of other important economies, most notably China.

In the run-up to the meetings, President Obama had stressed the need to keep economic stimulus measures in place to prevent a global slowdown. But European nations have been moving toward more conservative fiscal policies as the region grapples with an ongoing debt crisis.

In a letter to G-20 leaders sent earlier this week, the president wrote that safeguarding and strengthening the economic recovery should be "our highest priority in Toronto."

"In fact, should confidence in the strength of our recoveries diminish, we should be prepared to respond again as quickly and as forcefully as needed to avert a slowdown in economic activity," he wrote.

Meanwhile, European nations have been cutting back on public spending and raising taxes to cope with massive budget deficits.

Since Obama issued his call to focus on growth, German Chancellor Angela Merkel called budget cuts "urgently necessary," and European Central Bank President Jean-Claude Trichet said stronger public finances are part of a "policy which we would call confidence-building."

Last week, the United Kingdom unveiled one of its harshest budgets in decades payday loans.

In a statement Saturday, U.S. Treasury Secretary Tim Geithner acknowledged the differences, while again stressing the need for pro-growth policies: "We all need to act to strengthen the prospects for growth. This will require different strategies in different countries. We are coming out of the crisis at different speeds." Geithner added, "We need to act together to strengthen the recovery and finish the job of repairing the damage of the crisis." (See ‘The great spending debate’)

Also expected to be discussed at the G-20 meeting will be China’s currency, the yuan. China moved last week to begin letting it trade freely against the U.S. dollar, but the move may have been too little to head off debate. Since 2008, China has pegged its currency to the dollar, and many think it is artificially cheap, making it harder for U.S. companies to compete.

The yuan has risen only slightly against the dollar in the past week.

Still, Geithner praised China’s move: "China is acting to allow its exchange rate to appreciate in response to market forces. This is an important step toward helping China better meet its own challenges and providing a more level playing field for all its trading partners."

Separately, President Obama met with the president of South Korea. Obama hopes to complete a free trade agreement with South Korea later this year, according to a senior White House official.

The plan is to double U.S. exports over the next five years, he said. The United States already exports $50 billion worth of goods and services to South Korea, which is the world’s 14th largest economy. 

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The iPhone 4 has arrived, but for some people the wait continues as Apple sprints to keep up with fierce demand for its latest gadget.

From Tokyo to St. Louis, some stores started selling out of Apple Inc.’s newest iPhone just hours after it went on sale Thursday. Some anticipated the demand and made sure they were in line early to get one.

Malinda Hagenhoff, of Jefferson City, stayed in her car in a parking lot overnight Wednesday to be among the first in line at West County Center in Des Peres on Thursday morning.

"I’m kind of a techy person who loves techy stuff," said Hagenhoff, who already owns an iPhone but wanted the newest model.
She was No. 30 in line when mall opened at 6 a.m., but that put her ahead of 120 others to await the Apple Store’s 7 a.m. opening.

As the line stretched farther and farther into the mall, other fanatics sought different sources.

Tyler Woods, 20, of south St. Louis, traveled with two friends to a Walmart store in Arnold.

"This has to be some kind of miracle," Woods said when he arrived in line at the Walmart store at 8:45 a.m. and was told he would get one of the 24 iPhones the store had in stock.

Similar stories were told around the globe. Thousands lined up outside stores in Tokyo, Berlin, New York and elsewhere. Some said they waited 11 hours to get through the lines.

Going into Thursday, concern was raised about limited supplies after more than 600,000 people rushed to pre-order iPhones on the first day they were available, prompting Apple and its U.S. carrier, AT&T Inc., to halt orders for shipment by Thursday’s launch. On Apple’s website, new orders weren’t promised for delivery until July 14.

Apple spokeswoman Natalie Harrison said demand was "off the charts," and that the company was working hard to get phones into customers’ hands as quickly as possible.

Some stores sold out within hours. Brian Marshall, an analyst for Gleacher & Co., said certain Apple stores likely had enough iPhones to last into today before selling out. A new shipment could be in stores as early as Saturday, he said, but more likely won’t arrive until early next week.

Apple is having a hard time getting enough of the new custom parts for the iPhone 4, such as its new higher-resolution screen, Marshall said.

Apple has said the white iPhone it plans to produce has been more challenging than expected and won’t be available until late July. Only black models went on sale Thursday.

The Associated Press and Robert Cohen, Kim Bell and Matthew Franck of the Post-Dispatch contributed to this report.

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AOL said Thursday that it sold Bebo, the struggling social networking site, to Criterion Capital Partners, a private equity fund, for a fraction of what AOL paid for the site two years ago.

Terms were not disclosed, but reports pegged its value at $10 million or less. AOL paid $850 million for it.

AOL once had high hopes that Bebo would help it to regain momentum, especially with younger audiences and advertisers, and to catch other fast-growing Internet franchises. At the time, it was popular in Britain.

When it bought Bebo, the chief executive of AOL at the time, Randy Falco, called it a "game-changing acquisition" that would turn AOL into "a social media powerhouse." AOL also had hopes Bebo would help AOL’s instant messaging service bring in revenue. But Bebo was eclipsed by Facebook, which now has 500 million members around the world.

At the time of the deal, AOL was owned by Time Warner. Now, AOL is independent, and its new management team, led by Tim Armstrong, the chief executive, is struggling to engineer a turnaround.

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Krispy Kreme Doughnuts on Thursday reported earnings of $500,000 for its fourth fiscal quarter of 2010, compared with a loss of $300,000 during the same period a year ago.

The Winston-Salem-based company said it nearly broke even for the full year, ending with a net loss of $200,000, compared with a loss of $4.1 million in 2009.

The company has not had a profitable full year since 2004. In its outlook, Krispy Kreme expects a net profit in fiscal 2011.

“During fiscal 2010, we made substantial progress in building a stronger foundation for our company and improving our business model,” said Jim Morgan, Krispy Kreme’s president and CEO. “The improvements in our operating results and financial position are a testament to the soundness of our business strategy, and reflect our ongoing efforts to enhance shareholder value over the long term.”

During the fourth quarter, revenues were $86.8 million, a 5.6 percent decline from the year earlier. But operating income increased 65 percent to $2.4 million, from $1.5 million. Sales at company-owned stores open at least a year rose by 1 overnight pay day loans.1 percent, making the fifth straight quarterly increase.

The company owns 83 of the 582 Krispy Kreme stores worldwide. The other 499 are franchise locations.

For the full year, revenues were down 10 percent from $385.5 million to $346.5 million. Company-owned same-store sales rose 3.5 percent from 2009, and operating income more than doubled to $11.8 million from $4.8 million.

Krispy Kreme was also able to reduce its debt by $31.4 million during its fiscal 2010, to $43.4 million.

The company increased its number of stores worldwide by 59 over the past year. Looking ahead to fiscal 2011, Krispy Kreme expects to add seven to 10 company stores and 35 to 45 domestic and international franchise shops. While most of its growth recently has been abroad, Krispy Kreme expects the number of domestic stores to rise for the first time since 2005.

The company anticipates operating income in 2011 of $10 million to $13 million.

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Advanced Micro Devices Inc. said Thursday that it would see a $325 million non-cash gain in the quarter ended March 27 from its spinoff of GlobalFoundries Inc.

AMD launched its former manufacturing business as GlobalFoundries in March 2009. The spinoff was done as a joint venture with Abu Dhabi-based Advanced Technology Investment Corp. AMD owns 34.2% of the venture.

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The vacancy rate for office space in Honolulu rose to 11.4 percent in the first quarter, and tenants are seeing more incentives as landlords negotiate to lease space, according to a new report.

Vacancy rose by 1 percentage point during the quarter, and availability, which includes vacancy plus space offered for sublease, rose to 12.6 percent, according to the first-quarter office market report by CB Richard Ellis.

That pushed occupancy in Class A and B buildings down by 119,605 square feet during the quarter, the report said.

Rents have fallen 2.6 percent in the past year and have leveled off to range between $2.79 and $3.05 per square foot per month, the report said. The average operating expense was $1.32 per square foot per month.

Landlords, meanwhile, are offering more free rent and generous tenant-improvement allowances to attract tenants to their buildings, the report said.

“Deals are better today than at any time in the past four years and should continue to improve somewhat for the balance of 2010,” the report said.

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