Fashion Show developer has record quarter

Tuesday, Oct. 29, 2002 | 11:19 a.m.

SUN STAFF AND WIRE REPORTS

The Rouse Co., a Maryland firm that is developing the Summerlin master-planned community in Las Vegas and the Fashion Show mall on the Strip, Monday reported record financial results for its third quarter.

The real estate investment trust's third-quarter profit, or funds from operations, was $96.8 million, or $1.03 a share. That's compared to a profit of $69.9 million, or 92 cents a share, in the same quarter a year ago. The company's third-quarter earnings beat analysts' consensus estimates of 93 cents a share.

The company attributed most of the increase in profits from its acquisition earlier this year of the North American assets of Rodamco, a Dutch shopping center developer. Rouse officials also cited high occupancy levels in its buildings, increased rents on its re-leased space and some large land sales that were scheduled to close in the fourth quarter but shifted to close in the third quarter.

Rouse is opening the first phase of its Fashion Show expansion on Friday. The expansion's first phase will more than double the shopping center's space. Rouse officials said 95 percent of the expansion's small-shop space is committed.

Sony

Sony Corp. is showing a growing knack for wringing profits from its most important market, the United States, even when it cannot find much sales growth here. The company announced on Monday a much larger profit for the quarter ended Sept. 30 than analysts had expected. But it said that sales in the period were flat, and are not likely to grow as much as hoped for the full year.

Sony and its rivals in the Japanese electronics industry have rebounded this year after a disastrous 2001, because consumers in North America and Asia have been buying digital cameras, flat screen televisions and other products at a faster clip. But Sony's strength in the latest quarter is largely because of its success in two businesses that rivals like Matsushita Electric Industrial and Hitachi do not share: video game consoles and movies.

Sony is also benefiting from its concentration on the United States, where it gets more than one-third of its sales, more than any of its Japanese rivals. But by the same token, growing worries that the U.S. economy will slip back into recession have led Sony to revise its targets for the fiscal year, which ends March 31.

The Japanese manufacturers have also been stung by a labor dispute with dockworkers on the American West Coast, which froze shipments of components and finished products for nine days. Matsushita, known for its Panasonic brand, had to airlift parts to the United States earlier this month.

Sony ships about 80 percent of its U.S.-bound products by boat. But its most profitable products, including digital cameras and hand-held digital organizers, go by air, and they have sold well in the United States.

As a result, though overall sales grew just 0.5 percent in the latest quarter, to 1.79 trillion yen ($14.48 billion), Sony was able to post 44 billion yen ($352 million) in net income. Analysts had on average been expecting only about 17 billion yen. The company posted a small loss in the comparable quarter a year ago.

Kellogg

Kellogg Co.'s profit climbed 35.4 percent in the third quarter, narrowly beating Wall Street expectations despite a 2.3 percent decline in sales.

The world's biggest cereal maker said Monday it earned $203.5 million, or 49 cents per share, for the three months ended Sept. 28 compared with $150.3 million, or 37 cents per share, during the third quarter of 2001.

The latest earnings beat the consensus forecast of 48 cents a share of analysts surveyed by Thomson First Call.

Net sales fell to $2.14 billion from $2.19 billion reported for the third quarter of 2001, the Battle Creek, Mich., company said.

"The changes we made to our company last year were expected to create accelerated growth in 2002, and this acceleration continued in the third quarter," said Carlos M. Gutierrez, Kellogg's chairman and chief executive.

The company last year started moving away from competitive discounting and "toward a better business model" of rebuilding its brands and generating more cash flow, he said.

American Express

American Express Co.'s profit more than doubled from last year's third quarter, when the Sept. 11 terrorist attacks cut consumer spending and travel and forced the company from its headquarters.

The fourth-biggest U.S. credit-card issuer said in a statement net income climbed to $687 million, or 52 cents a share, from $298 million, or 22 cents, in the year-earlier period. The results beat the 51-cent average forecast of analysts polled by Thomson First Call. Shares rose 3.4 percent.

"I wasn't even hoping for that kind of kick" in earnings, said Forrest Mervine, who helps manage $1.2 billion in assets, including American Express shares, at Philadelphia Corp. "We intend to buy more shares."

Chief Executive Kenneth Chenault is relying on consumer spending as corporate clients hold back on travel and entertaining in a weak U.S. economy, analysts said. American Express Financial Advisors, the asset management unit that contributed more than a third of annual earnings in the late 1990s, accounted for 22 percent in the quarter as mutual fund performance lagged peers.

Revenue rose 3.2 percent to $5.9 billion. Profit in the travel and card unit more than doubled to $553 million from $248 million in the same period last year, when the attacks on the World Trade Center forced 3,000 employees to temporary outposts and cost the company $98 million, before taxes, in waived late fees and other one-time costs.

American Express also eliminated 6,100 jobs in last year's third quarter; the severance costs lowered pretax profit in that period by $352 million.

Tyco

Tyco International said last week that it did not expect that its internal investigation would uncover a huge accounting fraud, an announcement that pushed its shares higher.

The shares increased even though the company reported that it had lost $1.75 billion in its fourth quarter and that it would lower its earnings from last year by $135 million because internal investigators had discovered that it had overstated earnings at its ADT alarm-system unit.

David Boies, the lawyer who was hired to conduct the internal investigation, said in a conference call Thursday with investors that 60 percent of his inquiry had been completed and that he was pleased with its outcome. "I would be very surprised if we uncovered a very large fraud at this stage," Boies said, allowing that it was "likely" that some more minor restatements could still be made. "The work that we have done thus far, I believe, would have been sufficient to uncover any large fraud that existed there," he said.

The accounting irregularities that were discovered are related to Tyco's ADT unit, which booked some revenue from new security alarm contracts too soon. Tyco said the revenue would now be recognized in future quarters over the life of the contract.

The irregularities occurred under Tyco's former chief executive, L. Dennis Kozlowski and its former chief financial officer, Mark H. Swartz, who have been charged with enterprise corruption and grand larceny, accused of looting the company of more than $600 million.

In its fiscal fourth quarter, Tyco reported that it lost $1.75 billion, or 88 cents a diluted share. That contrasts with net income of $1.38 billion, or 70 cents a diluted share, in the fiscal fourth quarter of 2001. The company recorded $2.8 billion in pretax charges in the quarter. The bulk of the charges, some $2.2 billion, came from Tyco Telecommunications, formerly known as TyCom, which builds undersea fiber optics systems. Operating revenue in the period rose 10 percent, to $9.36 billion, from $8.52 billion in the year-earlier period.

Kodak

Eastman Kodak Co., the world's largest maker of film, plans to eliminate as many as 1,700 more jobs after third-quarter profit more than tripled on workforce reductions and other cost cuts.

The job cuts will result in fourth-quarter costs of as much as $150 million, Rochester, N.Y.-based Kodak said in a statement. The company had already cut 5,600 jobs as of June amid declining sales. Third-quarter sales excluding foreign exchange benefits fell 1 percent.

Chief Executive Daniel Carp is using fewer workers to run factories and has paid down debt, reducing interest expense. His cost cuts will only get the company so far, analysts said. Sales will continue to be hurt as consumers buy digital cameras that don't use film, travel less and take fewer pictures, they said.

"They've done a good job managing costs in 2002 but the outlook looks more challenging as time goes on," said Peter Ausnit, an analyst with Deutsche Bank, who rates Kodak "sell" and said he doesn't own the shares. "We expect the company to get a lot of pressure from digital photography."

Net income in the third quarter rose to $334 million, or $1.15 a share, from $96 million, or 33 cents, a year ago. Sales including foreign exchange rose 1.4 percent to $3.35 billion from $3.31 billion, Kodak said.

"We did see some strengthening in sales, although it was mostly made frankly on the continued productivity and costs," Carp said in an interview on Bloomberg Television.

Union Pacific

Business was up and productivity was strong, Union Pacific Corp. said as it reported a 14 percent earnings increase in its third quarter.

The nation's largest railroad, based in Omaha, Neb., had net income of $437 million, or $1.63 per share, in the quarter ended Sept. 30. A year ago, Union Pacific earned $267 million in the same period.

Excluding one-time gains from a transaction with the Utah Transit Authority and a tax settlement, Union Pacific had operating income of $316 million, or $1.19 a share, compared with $267 million, or $1.04 a share for the same period last year.

Revenue for the quarter was $3.2 billion, up from $3.0 billion a year earlier.

Revenue from hauling cars was up 13 percent from last year's third quarter, up 9 percent for retail goods, 4 percent for farm commodities, 4 percent for industrial products and 2 percent for chemicals, the company said. The only commodity group that was down was energy, at 3 percent, Union Pacific said.

A West Coast port labor dispute that began Sept. 27 and ended 10 days later with a presidential order for a "cooling-off" period cost Union Pacific up to $5 million a day in deferred revenue, the company said.

"We have been facing some challenges in the wake of the port disruption," Union Pacific Chairman and Chief Executive Dick Davidson said. "Fortunately, our strong rail franchise gives us the revenue diversity and network flexibility to rebound rapidly."

Union Pacific's gains were impressive given the nation's flat economy, said Rick Paterson, analyst with UBS Warburg in New York.

"They continue to grow revenue faster than costs in a difficult environment," Paterson said.

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