Albertsons shares drop after forecast

Thursday, Oct. 31, 2002 | 11:30 a.m.

SUN STAFF AND WIRE REPORTS

Albertsons Inc. today lowered its forecasts for profit because of falling sales. The second-largest U.S. supermarket chain's shares declined as much as 19 percent this morning, dragging down other grocers' stocks.

Albertsons plans to increase promotions and accelerate cost-cutting as competition from discount retailers including Wal-Mart Stores Inc. increases. Third-quarter and full-year profit will be less then expected, Boise, Idaho-based Albertsons said in a statement.

Sales at stores open at least a year fell about 2 percent in the quarter. The company has been lowering prices, selling more of its own brands and increasing promotions under Chief Executive Larry Johnston's plan to try to entice shoppers from discounters. Bigger rival Kroger Co. cut its profit forecast in September, while Safeway Inc.'s profit fell in its fiscal third quarter.

Albertsons competes in the Las Vegas market with Safeway's Vons grocery stores, with Wal-Mart and its Sam's Club stores and with Kroger. In Las Vegas, Kroger operates Smith's Food & Drug Centers and Food 4 Less stores.

Kroger is also trying to buy the Raley's markets in Las Vegas, though that deal faces a federal antitrust probe.

"They're (Albertsons) feeling the pressure of the Wal-Marts and Targets that are starting to sell more nontraditional items like food, where grocery stores were able to make profits," said David Yucius, president of Aurora Investment Counsel, who manages about $110 million in assets and sold Safeway shares last month.

Albertsons expects profit after adjusting for goodwill amortization and other costs of 47 cents to 49 cents a share, down from its estimate of 52 cents. Net income was 43 cents in the year- earlier period.

Full-year profit excluding some expenses is forecast to be $2.10 to $2.14 a share, less than the company's prior estimate of $2.31. Albertsons had net income of $1.23 a share in the previous fiscal year.

The company's shares fell $4.08 to $23.34 at 10:23 a.m. in New York Stock Exchange composite trading today, after dropping to $22.30. They had declined 13 percent this year. Kroger fell 91 cents, or 5.9 percent, to $14.50. Safeway slumped $1.04, or 4.2 percent, to $23.81.

Albertsons, which had $37.9 billion in sales in the year ended in January, operates about 2,300 stores in 31 states, including Jewel-Osco, Acme, Sav-on Drugs, Osco Drug and Max Foods.

Shoppers can lower their shopping bills by as much as 20 percent when they shop at Wal-Mart instead of traditional supermarket chains, analysts have said.

Wal-Mart is opening more so-called supercenters, which include supermarkets, as part of a strategy of encouraging consumers to do their grocery shopping at the world's largest retailer in the hope they will pick up other products as well. The company plans to open almost four times as many supercenters this year as regular Wal-Mart stores, which are about half the size.

Albertsons, Kroger and Safeway aren't able to compete as well on prices because they may have higher labor costs and don't possess Wal-Mart's distribution network, which allows the discounter to demand better terms from vendors. Profit at the supermarket chains is being hurt as savings from cost-cutting are exhausted.

"When you don't have a lot of fat, there's not a lot you can cut," said Aurora's Yucius. "They're eventually going to have to figure out ways to attract more customers."

Southwest Gas

Southwest Gas Corp. of Las Vegas reported Wednesday a loss of $16.1 million or 49 cents per share for the third quarter of 2002, an improvement from the loss of $16.5 million or 51 cents per share in the year-ago quarter.

Due to the seasonal nature of the business, losses during the third quarter are normal.

"Operating income for the third quarter of 2002 increased modestly compared to the third quarter of 2001. The inroads we made in Arizona and Nevada improving rate design to make the company less weather sensitive showed up in operating margin this quarter," said Chief Executive Michael Maffie. "As a result, the trend of improved quarter-over-quarter operating results, which began during the first quarter of this year, continued."

Operating margin increased $7.3 million, or 8 percent, in the third quarter of 2002 compared to the same period in 2001 resulting primarily from general rate relief and customer growth. General rate relief granted in Arizona (annualized at $21.6 million) and Nevada (annualized at $19.4 million) effective in the fourth quarter of 2001 was the primary driver of the quarterly increase, Southwest Gas said. Additionally, the company added 56,000 customers during the past 12 months, a growth rate of 4 percent.

Revenue of $223.9 million was down from $246 million in the 2001 quarter.

CVS

Drugstore operator CVS Corp. of Providence, R.I., saw third quarter earnings rise 33 percent on strong sales, prompting the company to boost its earnings forecasts for the fourth quarter.

CVS reported net income for the quarter ended Sept. 28 of $164.4 million, or 40 cents per share, up from $123.7 million, or 30 cents per share, for the same period in 2001.

Excluding a one-time litigation gain, the company earned 39 cents a share, meeting the consensus estimate of analysts surveyed by Thomson First Call.

The chain said total sales for the quarter were $5.88 billion, up from $5.41 billion last year despite an overall slowdown in retail activity nationwide since late July, said Chairman, President and Chief Executive Tom Ryan.

During the third quarter, CVS opened or relocated 50 stores and closed nine. By year's end, CVS expects to have opened 265 new stores, including 75 in new markets such as Chicago, Las Vegas, Florida and Texas.

"I am very pleased with the performance of new stores in new markets," Ryan said.

Martha Stewart

Martha Stewart Living Omnimedia Inc. today reported a 42 percent drop in third-quarter earnings and warned that fourth-quarter earnings would fall far short of analysts' expectations as a federal probe into a stock sale by its namesake founder continues to hurt the bottom line.

The company also announced a four-issue test of a new publication titled Everyday Food, the first magazine that does not bear the name of the domesticity maven. The magazine, set to launch in January, is also its first attempt to reach out beyond the core Martha Stewart fan to a larger mass audience.

Shares in Martha Stewart Living Omnimedia fell 7.3 percent on the news this morning.

The multimedia empire, which markets magazines, books and merchandise under the Martha Stewart brand, reported a profit of $2.76 million, or 6 cents per share for the three months ended Sept. 30. That compares with $4.77 million, or 10 cents per share in the year ago period.

The results matched the estimate by analysts surveyed by Thomson First Call. That estimate was reduced from 15 cents per share in July when the company acknowledged the scandal was affecting the bottom line.

Revenues were $70.93 million, up 4.2 percent from $68.04 million in the year-ago period.

Martha Stewart Living's stock has plunged more than 60 percent since early June after news broke that Stewart's name was linked to the ImClone insider trading scandal. In morning trading, the shares fell 62 cents to $7.84 on the New York Stock Exchange.

Oil companies

Exxon Mobil Corp. said third-quarter profit fell 17 percent, as smaller profit margins on refining petroleum products offset higher prices for crude oil.

Exxon Mobil, the world's largest publicly traded oil company, said it earned $2.64 billion, or 39 cents per share, in the quarter ended Sept. 30, compared with $3.18 billion, or 46 cents per share, a year earlier.

The company said that if it excluded costs from the merger of Exxon and Mobil and other one-time expenses, it would have earned $2.94 billion, or 44 cents per share. On that basis, analysts surveyed by Thomson First Call had expected 43 cents per share profit.

Revenue rose 4 percent to $54.18 billion from $52.11 billion. Capital and exploration costs also rose, to $3.56 billion from $3.10 billion.

ChevronTexaco Corp. wrote off most of its investment in fallen energy merchant Dynegy Inc. today, resulting in a third-quarter loss of $904 million.

The San Francisco-based company absorbed $1.55 billion in charges to account for its soured investment in Houston-based Dynegy, punctuating a disappointing quarter for the oil giant.

If not for the Dynegy setback and other one-time charges, ChevronTexaco said it would have recorded a profit of $1.24 billion, or $1.17 per share.

That fell well below the consensus earnings estimate of $1.30 per share among analysts polled by Thomson First Call.

ChevronTexaco's third-quarter net loss of 85 cents per share contrasted with a profit of $1.27 billion, or $1.19 per share at the same time last year. Third-quarter revenue totaled $25.35 billion, a 2 percent decrease from last year.

The company's shares fell $1.97 to $69.43 during early trading today on the New York Stock Exchange.

This marks the second consecutive quarter that ChevronTexaco has been tainted by its 26.5 percent stake in Houston-based Dynegy, which emerged as a rising corporate star when power prices soared in 2000 and early 2001.

Dynegy is now struggling to survive amid dramatically lower power prices and the financial fallout from the accounting scam uncovered a year ago at Enron Corp., once the nation's largest energy trader.

When the Enron scandal initially broke, ChevronTexaco agreed to invest an additional $1.5 billion in Dynegy as part of a bid to buy Enron. That deal eventually was called off, but ChevronTexaco's investments in Dynegy continue to haunt the company.

The third-quarter Dynegy charges mostly consisted of a $1.1 billion reduction in the value of ChevronTexaco's holdings in the energy trader. ChevronTexaco also recognized an additional $454 million setback to reflect its share of Dynegy's third-quarter loss of $1.8 billion.

Dynegy's troubles cost ChevronTexaco $631 million in second-quarter charges.

The latest flurry of charges whittled the book value of ChevronTexaco's Dynegy stake from $1.98 billion as of June 30 to $412 million as of Sept. 30.

Although the biggest of the Dynegy charges appear to be behind ChevronTexaco, there still could be more to come, the company warned today.

Dynegy's shares dropped 10 cents to 69 cents on the New York Stock Exchange this morning. That represented a 41 percent decline since Sept. 30.

Separately, London-based energy group BP PLC said net income increased 78 percent in the third quarter, largely as a result of the sale of its stake in a German business.

The company's performance fell short of analysts' expectations and BP cut its estimate for annual growth in oil and gas production.

BP said Tuesday that net income for the third quarter was $2.8 billion, up from $1.6 billion during the same period a year ago. The sale of its stake in Germany's Ruhrgas business accounted for $2.3 billion.

Excluding one-time gains and losses and the amortization of goodwill, BP's "pro forma" earnings fell 13 percent to $2.3 billion from $2.6 billion in 2001. On that basis, analysts forecast earnings of $2.4 billion.

BP lowered its target for full-year growth in production of oil and gas to about 3 percent, down from 5.5 percent as recently as July.

BP had already scaled back its production growth targets, due to operating difficulties at key operations in Alaska, the Rocky Mountains and the North Sea, and to the impact of storms in the Gulf of Mexico.

"Our trading environment has shown little improvement overall and, for the nine months, is well down on a year ago. Performance improvements have been impacted by weaker than expected production," Chief Executive Lord John Browne said.

The lower outlook added to investors' disappointment, and shares of BP fell $2.67, or 7 percent, to $36.78 on the New York Stock Exchange.

BP doesn't report revenue on a quarterly basis. Its quarterly replacement cost operating profit was $1.76 billion compared to $3.73 billion in 2001.

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